Finding Text
Identification of the Federal Program: Assistance Listing Number: 14.218 Assistance Listing Title: Community Development Block Grants Cluster - Entitlement/Special Purpose Federal Agency: U.S. Department of the Housing and Urban Development Pass-through Entity: County of Orange Community Resources Department Pass-through Identification Number: J2JWJVWQBEA6 Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation): For federally funded programs, recipients are required to establish and maintain effective internal control over compliance in accordance with 2 CFR §200.303. These controls should provide reasonable assurance that federal awards are managed in compliance with applicable laws, regulations, and the provisions of contracts or grant agreements. Pursuant to 2 CFR §§200.403 through 200.405, costs charged to federal programs must be allowable, reasonable, necessary, and adequately documented. Recipients must maintain sufficient documentation to support the nature of expenditures, vendor selection, and cost reasonableness to ensure compliance with allowable cost principles. Additionally, pursuant to 2 CFR §200.318, non-Federal entities are required to use documented procurement procedures that reflect applicable federal, state, and local requirements. These procedures must ensure that procurement activities are conducted in a manner providing for full and open competition, use appropriate procurement methods, and include adequate documentation to support vendor selection and cost reasonableness. Recipients are responsible for ensuring that procurement activities performed by employees, consultants, or contractors on their behalf comply with these requirements. Failure to follow these procedures may result in costs that are not adequately supported as allowable under federal requirements. Further, pursuant to 24 CFR §570.506, when CDBG funds are used for rehabilitation activities, recipients must ensure that work is completed in accordance with applicable laws, codes, and requirements related to housing safety, quality, and habitability. This includes ensuring that required permits are obtained and inspections are performed in accordance with local building and safety requirements prior to and throughout construction activities. Condition: During our audit of the CDBG program, we identified the following deficiencies related to internal control and compliance over compliance requirements: Allowable Costs/Cost Principles: The City did not maintain sufficient documentation to support compliance with federal requirements related to CDBG-funded rehabilitation activities. Specifically, the City did not maintain adequate documentation to support vendor selection, cost reasonableness, or the basis for contractor procurement. In addition, the City did not maintain evidence demonstrating that procurement-related activities performed by a consultant on its behalf were conducted in accordance with established procedures. Special Tests and Provisions – Rehabilitation: During our testing of nine CDBG-funded rehabilitation projects, we noted that one project had a building permit on file that expired in 2008 and was not renewed prior to or during construction. Additionally, five projects had building permits that were issued after construction activities had already commenced, indicating that required permits were not obtained prior to the start of rehabilitation work. Cause: The City has not established and implemented effective internal controls and monitoring procedures over its CDBG program to ensure compliance with all federal requirements. Effect or Potential Effect: The City did not maintain sufficient documentation to support expenditures, limiting its ability to demonstrate that costs charged to the program are allowable, reasonable, and adequately supported in accordance with federal requirements. As a result, there is an increased risk that costs may be questioned or disallowed. Additionally, failure to obtain and maintain valid permits prior to construction increases the risk of noncompliance with rehabilitation requirements and may result in ineligible activities. Questioned Costs: None. Context: See condition above for the context of the finding. Recommendation: We recommend that the City strengthen its internal control system over the CDBG program by implementing and documenting formal policies and procedures to ensure compliance with federal requirements. This includes maintaining sufficient documentation to support vendor selection, cost reasonableness, and overall allowability of costs, as well as ensuring appropriate oversight of consultants performing activities on the City’s behalf. Additionally, the City should enhance its monitoring procedures over rehabilitation activities by maintaining sufficient documentation to support that work was performed in accordance with program requirements, including evidence of inspections and completion of approved work; permits or local approvals alone should not be relied upon as sole evidence of compliance. The City should provide training to staff involved in program administration and implement ongoing monitoring procedures to ensure compliance with federal requirements. Views of Responsible Officials: Management concurs with the finding and agrees to implement necessary corrective procedures.