Finding Text
Federal Program Title: Community Development Block Grants/Entitlements Grants
Federal Catalog Number: 14.218
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Program Income
Criteria: Office of Management and Budget (OMB) 2 CFR Part 200, Subpart D, Section 200.307(a), requires
that Program income must be expended prior to requesting additional Federal funds. Program income exceeding
amounts specified in the Federal award may be added to or deducted from the total allowable costs in
accordance with the terms and conditions of the Federal award.
Condition: During our audit, it was noted that the City recorded part of the program income as deferred revenue
rather than recognizing the full amount upon receiving the gross income earned and generated by CDBG loan
activity
Cause: Lack of appropriate controls over program income.
Effect or Potential Effect: Failure to properly report and manage program income could result in noncompliance
with federal regulations, potential repayment of misused funds, and could jeopardize future funding
opportunities. Furthermore, the mismanagement of program income could lead to inaccurate financial reporting
and a lack of accountability in the program's financial operations.
Questioned Cost: $152,065
Context: Program income is still in the process of being reconciled for prior and current year. It appears
that the current personnel have a misunderstanding regarding the recording and use of program income.
Repeat of a Prior-Year Finding: No.
Recommendation: We recommend the City to implement a comprehensive program income tracking and
reporting system that ensures compliance with federal regulations. The system should include detailed
procedures for documenting income generated, ensuring the funds are allocated to the proper grant or
project, and reporting the income accurately in accordance with grant terms. Regular training should also
be provided to staff responsible for grant management to ensure adherence to federal guidelines and the
organization’s internal controls.
City's Response: The City is aware of the OMB 2 CFR Part 200 regulations that pertain to program income
and will improve its internal controls to ensure compliance with federal regulations.
Corrective Action Plan: The City will improve its internal controls by implementing a new policy and
procedures that will require staff training and outline detailed procedures for complying with program
income regulations. The policy will: (1) require staff to annually participate in HUD trainings related to
program income, (2) require staff to immediately deposit and reconcile program income upon receipt, (3)
require staff to prepare a monthly program income report and (4) require management to review the
program income report to ensure program income is applied to eligible expenses prior to drawing down
grant funds.
Planned Implementation Date: March 25, 2025
Responsible Person(s): Albert Ramirez, Assistant Director; Denise Ledesma, Grants Coordinator; and
Adrianne Sarreal, Analyst.