DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.182 SECTION 8 NEW CONSTRUCTION AND SUBSTANTIAL REHABILITATION
CFDA 14.855 SECTION 8 RENTAL VOUCHER PROGRAM
CFDA 14.856 LOWER INCOME HOUSING ASSISTANCE PROGRAM-SECTION 8 MODERATE REHABILITATION
CFDA 14.857 SECTION 8 RENTAL CERTIFICATE PROGRAM
(No Number) SECTION 8 MODERATE REHABILITATION PROGRAM FOR SINGLE ROOM OCCUPANCY DWELLINGS FOR HOMELESS INDIVIDUALS

Housing Authorities - Guidance for audits of Public and Indian Housing (PIH) Authorities is contained in the "Public and Indian Housing Compliance Supplement for Annual Audits of Public Housing Agencies and Indian Housing Authorities by Independent Auditors" (PIH Supplement). The PIH Supplement was developed by the HUD Office of Public and Indian Housing and the Office of Inspector General. It was originally issued in May 1995 and reissued in May 1996. For audits of PIH Authorities under OMB Circular A-133, the agency program requirements (which would otherwise be listed in Part 4 of this Supplement) are provided in the PIH Supplement. This supplement is currently available on the Internet at the HUD OIG home page (http://www.hud.gov/oig/oigguide.html) under the listing of "Audit Guides" or can be obtained by sending a fax to 202-401-3963.

I. PROGRAM OBJECTIVES

The objective of the Section 8 rental assistance programs is to help eligible low-income families or individuals obtain decent, safe, and sanitary housing through a system of rental subsidies (24 CFR sections 880.101, 881.101, 882.401, 882.801, 883.101, 887.1, 982.1, and 983.1).

II. PROGRAM PROCEDURES

Section 8 rental assistance programs are referred to as either tenant-based or project-based. The Section 8 rental voucher program provides tenant-based rental assistance, whereas the Section 8 certificate program offers both tenant-based and project-based assistance. Under the tenant-based program, assistance is tied to the individual or family. When the assisted family moves out of a leased unit, the assistance contract with the owner terminates and the family may move to another unit with continued assistance. Under the project-based program, assistance is tied to a specific unit and when a family moves from the unit, it has no right to continued assistance. Both project- and tenant-based assistance can be used to obtain existing housing for eligible persons or families. In addition, project-based assistance can be used to provide assisted housing by aiding in the construction of new housing, or the rehabilitation of existing housing (24 CFR sections 880.101, 881.101, 882.701, 883.101, and 982.1(b)).

The Section 8 tenant-based programs and certain project-based programs are administered by State, local governmental or Indian tribal organizations called housing agencies (HAs). HUD enters into annual contributions contracts with HAs which enter into housing assistance payments (HAP) contracts with private owners. The owners rent housing to eligible low-income families who typically pay rent which is the highest of 30 percent of adjusted gross income, 10 percent of gross income, or the portion of welfare assistance designated to meet housing costs. The remaining portion of the rent for the unit is paid to the owner by the HA or HUD through the HAP contract. The HA is then reimbursed by HUD through the annual contributions contract. HUD also provides funds for HA administration of the Section 8 programs (24 CFR sections 880.101, 881.101, 883.101, 887.53, and 982.1).

In the tenant-based program, the HA determines a family's eligibility then gives the family either a certificate or voucher. The family has 60 days to locate a landlord willing to participate in the program. The HA determines whether the unit meets housing quality standards. If the HA approves a family's unit and lease, the HA contracts with the owner to make rent subsidy payments on behalf of the family. The HA may not approve a lease unless the rent is reasonable (24 CFR section 982.1(a)(2)).

In the voucher program, the rental subsidy is determined by a formula, and is not based on the actual rent of the leased unit. In the voucher program, the subsidy for most families is the difference between 30 percent of adjusted monthly income and a "payment standard" that is based on the HUD-published fair market rent. If the unit rent is less than the payment standard, the family pays a smaller share of the rent. If the unit is more than the payment standard, the family pays a larger share of the rent (24 CFR section 982.1(a)(4)).

In the tenant-based and project-based certificate programs, the rental subsidy is generally based on the actual rent of a unit leased by the assisted family. Rent for the unit generally may not exceed a HUD-published fair market rent for units in the local housing market. For most families, the subsidy is the difference between the unit rent and 30 percent of adjusted monthly income (24 CFR section 982.1(a)(4)).

Under the project-based certificate program, there are projects in which HUD deals with the HA which deals directly with the project owner (HA/private owner), projects in which HUD deals directly with the HA who owns the project (HUD/HA), and projects in which HUD deals directly with the private owner of the project (HUD/private-owner). While the basic program operations are similar, there are some variations in the way the programs are carried out. The HA is primarily responsible for administration of the contract involving private-owner/HA projects subject to review and audit by HUD. For private-owner/HUD and HA-owner/HUD projects, HUD is responsible for contract administration. In a private-owner/HUD project, HUD enters into a HAP contract directly with the owner and the owner rents housing to eligible low-income families. The contract sets forth the rights and duties of the owner with respect to the housing and the housing assistance payments. The owner may contract with another entity for marketing, management, and maintenance (24 CFR sections 880.505 and 881.503).

HAs are required to maintain a HAP contract register or similar record in which to record the HA's obligation for monthly housing assistance payments. This record shall provide information as to: the name and address of the family, the name and address of the owner, dwelling unit size, the effective and expiration dates of the lease, the monthly contract rent payable to the owner, monthly rent payable by the family; and the monthly housing assistance payment. The record shall also provide data as to the date the family vacates and the number of days the unit is vacant, if any. This requirement is applicable to HAs that are administering Housing Assistance Payments Program Projects pursuant to the provisions of Annual Contributions Contracts. It is not applicable to Section 8 projects on which HUD has executed a HAP contract directly with an owner or HA.

Section 8 Housing Assistance Program regulations are found in 24 CFR parts 5, 880, 881, 882, 883, 886, 887, 888, 982, and 983.

In the Section 8 programs, required program contracts and other forms must be word-for-word in the form prescribed by HUD headquarters. Any additions to or modifications of required program contracts or other forms must be approved by HUD headquarters (24 CFR section 982.162).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

E. Eligibility

1. Eligibility for Individuals

a. For all tenant-based and project-based Section 8 programs, the HA or owner, as applicable, must:

(1) Verify the eligibility of applicants by: (a) obtaining signed applications that contain the information needed to determine eligibility (including designation as elderly, handicapped, or homeless, if applicable), income, rent and order of selection; (b) conducting verifications of family income and other pertinent information (such as assets, full time student and immigration status, and unusual medical expenses) through third parties; (c) document inspections, or tenant certifications, as appropriate; and, (d) determining that tenant income did not exceed the maximum limit set by HUD for the HA's jurisdiction, as shown in HUD's published notice transmitting the Limits for Low-Income and Very Low-Income Families Under the Housing Act of 1937 (24 CFR sections 880.603, 881.601, 833.701, 982.54, 982.153, and 982.554).

(2) Determine the total tenant rent payment in accordance with 24 CFR section 5.613 for the certificate programs and 24 CFR section 887.353 for the voucher program.

(3) Select participants from the waiting list in accordance with the admission policies in its administrative plan and maintain documentation which shows that, at the time of admission, the family actually met the preference criteria that determined the family's place on the waiting list (24 CFR sections 880.603, 881.603, 883.704, 883.714, 982.204-207, and 983.203(a)(4)).

(4) Reexamine family income and composition at least once every 12 months and adjust the total rent payment and housing assistance payment, as necessary (24 CFR sections 5.617, 880.603, 881.601, 882.212, 882.515, 883.701, 887.355, and 983.205).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

3. Eligibility for Subrecipients - Not Applicable

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. In lieu of the standard reports, the following reports are required on Section 8 tenant-based voucher and certificate programs and project-based certificate programs involving HA/private-owners and HUD/HA owners.

(1) HUD-52663, Requisition for Partial Payment of Annual Contributions (OMB No. 2577-0149) - submitted quarterly;

(2) HUD-52681, Voucher for Payment of Annual Contributions and Operating Statement (OMB No. 2577-0149) - submitted annually;

(3) HUD-52595, Balance Sheet for Section 8 and Public Housing (OMB No. 2577-0067) - submitted annually;

(4) The reporting requirements for project-based certificate programs involving HUD/private-owners are contained in the agreement between HUD and the owner (OMB No. 2577-0149 and 2577-0067).

2. Performance Reporting - Not Applicable

3. Special Reporting - The following special report is required on Section 8 tenant-based voucher and certificate programs and project-based certificate programs involving HA/private-owners and HUD/HA owners.

- HUD-52683, Report on Program Utilization (OMB No. 2577-0169) - submitted annually when occupancy is at 90 percent or above, otherwise quarterly;

N. Special Tests and Provisions

1. Contract Rents

Compliance Requirement - The HA and project owner must establish contract rents in the certificate program (or rent standards in the voucher program) which fall within fair market rent limitations, as established at 24 CFR part 888. For projects involving new construction or rehabilitation, initial contract rents are first established. The HA and project owner must certify to the reasonableness of the contract rents and initial contract rents. In certain situations, HUD approval of the rents must be obtained (24 CFR sections 882.106, 882.714, 887.351, 982.1(a)(2)), 983.12 and 983.201).

Audit Objective - Determine whether the rental assistance being paid is based on contract rents and payment standards.

Suggested Audit Procedures

a. Review the procedures for establishing contract rents or rent payment standards.

b. Verify that the rent reasonableness procedures include the use of such things as telephone surveys, site visits after telephoning, or more extensive market surveys of available rental units.

c. Verify that the HA or owner established and currently maintains a HAP contract register, or similar type of document, to record information on contract rents, tenant rental payments, and rental assistance payments and that this document is used to control the payment or requisitioning of rental assistance.

d. Select a sample of units from the HAP register and their related tenant files for review and verify that the contract rents and rental assistance payments were determined in accordance with procedures as follows:

(1) For selected units with certificates, examine copies of the certifications of rent reasonableness. For units with vouchers, examine the payment standard schedule prepared by the HA.

(2) Verify that the contract rents in the certificate program fall within fair market limitations as published in the Federal Register. If not, determine that they were approved by HUD.

(3) Verify that each payment standard amount on the schedule is not less than 80 percent of the published fair market rents or more than the fair market rent or the HUD-approved exception rent for the unit size in effect when the payment standard amount was adopted.

(4) Verify that the rental assistance is based on the contract rents shown in the HAP register and HAP contract.

2. Contract Rent Adjustments

Compliance Requirement - The HA or owner applies annual adjustments to contract rents and rent standards. Special adjustments to contract rents may also be made to the extent deemed necessary by the HA or HUD in the certificate program (24 CFR sections 880.609, 881.601, 882.108, 882.715, 887.351(c) and (d), 888, 983.13, and 983.14, as applicable).

Audit Objective - Determine whether contract rents are being adjusted properly.

Suggested Audit Procedures

a. Review the procedures for handling special adjustment requests and applying annual adjustment factors.

b. Select a sample of units from the HAP register, or similar record, and the related tenant files with annual and special rent adjustments for review.

c. Test the supporting data, financial statements and certifications that were submitted to support special additional adjustments.

d. Review the selected tenant files to verify that annual and special adjustments were applied correctly and did not result in material differences between the rents charged for assisted and comparable unassisted units.

3. Tenant Utility Allowances

Compliance Requirement - The HA or owner must establish tenant utility allowances based on utility consumption and rate data for various sized units, structure types and fuel types and make an annual review of tenant utility allowances to determine their reasonableness, and adjust the allowances, when appropriate (24 CFR sections 880.610, 881.601, 882.214, 882.510 and 887.361).

Audit Objective - Determine whether tenant utility allowances are properly established.

Suggested Audit Procedures

a. Examine the procedures used to establish and annually review utility allowances, handle adjustment requests, and notify tenants of utility allowance adjustments.

b. Select a sample of units with tenant utility allowances and their related tenant files for review.

c. Test owner requests, HA determinations, and supporting documentation for utility determinations.

d. Verify that the allowances were applied to tenants correctly.

4. Housing Quality Inspections

Compliance Requirement - The HA or owner must provide housing that is decent, safe, and sanitary. To achieve this end, the HA must perform housing quality inspections at the time of initial occupancy and at least annually thereafter to assure that the units are decent, safe, and sanitary (24 CFR sections 880.612, 881.503, 882.109, 982.405, 983.104 and 983.204).

Audit Objective - Determine whether the HA or owner performs the required inspections to assure that units meet housing quality standards.

Suggested Audit Procedures

a. Examine the procedures used by the HA or owner to identify those units on which housing quality inspections are due.

b. Select a sample of units on which HAP contracts were executed and examine inspection reports.

c. Examine records and ascertain that the HA or owner assures that the inspections and any needed repairs are completed timely.

d. Verify that the HA reviewed the evidence of completion submitted by the owner on newly constructed or rehabilitated units accepted for occupancy.

5. Vacant Units

Compliance Requirement - The HA or owner must reduce claims for assistance on vacant units under certain circumstances (24 CFR sections 880.611, 881.601, 882.411, 882.808(f), 883.701, 982.311, 982.312, and 983.152(b) and (e)).

Audit Objective - Determine whether payments to owners are reduced for vacant units.

Suggested Audit Procedures

a. Examine the procedures used by the HA or owner to provide the current occupancy status of the units receiving Section 8 assistance.

b. Select a sample of units that were vacated during the audit period and verify that payments to owners were reduced, as prescribed.

6. Conflict of Interest Situations

Compliance Requirement - An HA must avoid certain conflict of interest situations involving its contractors, subcontractors, and officials. Contractors and subcontractors are prohibited from entering into contracts or agreements with officials identified in 24 CFR section 982.161. Testing should be limited to the tenant-based assistance programs.

Audit Objective - Determine whether the HA entered into contracts in which any of the classes of persons listed in 24 CFR section 982.161 had a conflict of interest as described in 24 CFR section 982.161.

Suggested Audit Procedures

Test contracts to ascertain if any officials (during their tenure or one year thereafter) identified in 24 CFR section 982.161 had any interest (direct or indirect) in connection with the tenant-based programs and, if so, ascertain if these interests were conflicts of interest under 24 CFR 982.161.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.218 COMMUNITY DEVELOPMENT BLOCK GRANTS/ ENTITLEMENT PROGRAM
CFDA 14.219 COMMUNITY DEVELOPMENT BLOCK GRANTS/SMALL CITIES PROGRAM (HUD-Administered Small Cities)

I. PROGRAM OBJECTIVES

The primary objective of the Community Development Block Grant (CDBG) Entitlement Program (large cities) (24 CFR part 570 subpart D) and HUD-Administered Small Cities Programs (24 CFR part 570 subpart F) is to develop viable urban communities by providing decent housing, a suitable living environment and expanding economic opportunities, principally for persons of low and moderate income. This objective is to be achieved in two ways. First, a grantee can only use funds to assist eligible activities that meet one or more of three national objectives of the program; i.e., benefit low- and moderate-income persons, aid in the prevention of slums and blight, or meet community development needs having a particular urgency. Second, the grantee must spend at least 70 percent of its funds, over a period of up to three years as specified by the grantee in its certification, for activities that address the national objective of benefiting low- and moderate-income persons (24 CFR sections 570.1, 570.200, and 570.420).

II. PROGRAM PROCEDURES

The CDBG Entitlement Program provides grants to metropolitan cities and urban counties which must submit certain certifications and a one-year action plan as to how they propose to use the funds for community development activities. The grant amount is determined by the higher of two formulas that consider a community's population, poverty level, extent of overcrowded housing, age of housing, and growth lag (24 CFR section 570.4).

In the Entitlement Program, a non-Federal entity may use, with certain limitations, undisbursed funds in its line of credit and its CDBG program account that are budgeted in statements or action plans for one or more other activities that do not need funds immediately. This financing technique is commonly referred to as a float loan and is used with the expectation that the activity temporarily financed will generate sufficient income to fund the activity initially programmed. Activities included on the grantee's performance and evaluation report, but not on the action plan, may likely be financed using float loans (24 CFR sections 570.301).

Only the States of New York and Hawaii participate in HUD-Administered Small Cities Program because those States have chosen to have HUD administer the nonentitlement portion of their CDBG Programs. HUD provides CDBG funds to nonentitlement units of general local government in New York State on a competitive basis. In Hawaii, HUD provides CDBG funds to nonentitlement units of general local government using a formula described in 24 CFR section 570.429. The two programs largely share regulatory requirements in the following areas: definitions, eligible activities, grants administration, and performance reviews (24 CFR 570.420, 570.421, and 570.429).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions and Activities

a. All activities undertaken must meet one of three national objectives of the CDBG program, i.e., benefit low- and moderate-income persons, eliminate slums or blight, or meet community development needs having a particular urgency (24 CFR section 570.200).

b. CDBG funds are to be used for the following activities: (1) the acquisition of real property; (2) the acquisition, construction, reconstruction, or installation of public works, facilities and site, or other improvements, including removal of architectural barriers that restrict accessibility of elderly or severely disabled persons; (3) code enforcement in deteriorated or deteriorating areas; (4) clearance, demolition, and removal of buildings and improvements; (5) payments to housing owners for losses of rental income incurred in temporarily holding housing for the relocated; (6) disposition of real property acquired under this program; (7) provision of public services (subject to limitations contained in the CDBG regulations); (8) payment of the non-Federal share for another grant program that is part of the assisted activities; (9) interim assistance where immediate action is needed prior to permanent improvements or to alleviate emergency conditions threatening public health and safety; (10) payment to complete a Title 1 Federal Urban Renewal project; (11) relocation assistance; (12) planning activities; (13) administrative costs; (14) acquisition, construction, reconstruction, rehabilitation, or installation of commercial or industrial buildings; (15) assistance to community-based development organizations; (16) activities related to privately-owned utilities; (17) assistance to private, for-profit businesses, when appropriate to carry out an economic development project; (18) construction of housing assisted under Section 17 of the United States Housing Act of 1937; (19) reconstruction of properties; (20) direct homeownership assistance to facilitate and expand homeownership; (21) technical assistance to public or private entities for capacity building (exempt from the planning/ administration cap); (22) housing services related to HOME funded activities; (23) assistance to institutions of higher education to carry out eligible activities; (24) assistance to public and private entities (including for-profits) to assist micro-enterprises; and (25) payment for repairs and operating expenses for acquired "in Rem" properties (i.e., certain properties in New York City); and, (26) residential rehabilitation, including code enforcement, lead-based paint hazard evaluation, and removal (24 CFR sections 570.200 through 570.207).

c. Each float funded activity must meet all of the same requirements that apply to CDBG-assisted activities generally (24 CFR section 570.301).

d. Entitlement grantees may have loans guaranteed by HUD under Section 108 of the Housing and Community Development Act of 1974 (42 USC 5308). The guaranteed loan funds are to be used only for the following activities: (1) acquisition of real property; (2) housing rehabilitation; (3) rehabilitation of publicly-owned real property; (4) eligible CDBG economic development activity; (5) relocation payments, (6) clearance, demolition, and removal; (7) payment of interest on Section 108 guaranteed obligations; (8) payment of issuance and other costs associated with private sector financing under this subpart; (9) site preparation related to redevelopment or use of real property acquired or rehabilitated pursuant to this subpart or for economic development purposes; (10) construction of housing by non-profit organizations for homeownership under Section 17(d) of the U.S. Housing Act of 1937 (12 USC 1715(l)) or Title VI of the Housing and Community Development Act of 1987; (11) debt service reserve; and, (12) acquisition, construction, reconstruction, rehabilitation or installation of public works and site or other improvements which serve "colonias" (as defined in Section 916 of the Housing Act of 1990 and amended by Section 810 of the Housing and Community Development Act of 1992) (24 CFR sections 570.700 through 570.710).

e. All the activities that a grantee undertakes during their CDBG program year must be identified in an action plan (24 CFR sections 91.220 and 570.301).

f. CDBG funding can only be used for special economic development projects that meet the criteria in 24 CFR section 570.203. Grantees must have data to support that assistance provided to carry out special economic development projects is appropriate by meeting the public benefit standards for job creation and provision of goods and services described in 24 CFR section 570.209.

g. When CDBG funds are used to finance rehabilitation, the rehabilitation is to be limited to privately-owned buildings and improvements for residential purposes, low income public housing and other publicly owned residential buildings and improvements, publicly or privately owned commercial or industrial buildings under certain circumstances, as well as manufactured housing when it is used as part of the community's permanent housing stock (24 CFR section 570.202).

2. Allowable Activities for Subrecipients - See III.A.1 above for allowable activities as applicable to subrecipients.

G. Matching, Level of Effort, Earmarking

1. Matching - Not Applicable

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement Not Supplant - Not Applicable

3. Earmarking

a. Not less than 70 percent of the funds must be used over a period of up to three years, as specified by the grantee in its certification, for activities that benefit low- and moderate-income persons. In determining low- and moderate-income benefits, the criteria set forth in 24 CFR sections 570.200(a)(3) and 570.208(a) are used in the Entitlement Program. The criteria set forth in 24 CFR sections 570.420(e) and 570.430(e) are used in the HUD-administered Small Cities Program.

b. Not more than 20 percent of the total grant, plus 20 percent of program income received during a program year, may be obligated during that year for activities that qualify as planning and administration pursuant to 24 CFR sections 570.205 and 570.206 (24 CFR section 570.200(g)).

c. The amount of CDBG funds obligated during the program year for public services must not exceed 15 percent of the grant amount received for that year plus 15 percent of the program income it received during the preceding program year, except that a non-Federal entity that obligated more CDBG funds for public services than 15 percent of its grant funded from Federal Fiscal Years 1982 or 1983 appropriations (excluding program income and any assistance received pursuant to Public Law 98-8) may obligate more CDBG funds than 15 percent as long as the amount obligated in any program year does not exceed 15 percent of the program income it received during the preceding program year plus the percentage or amount obligated in Federal Fiscal Year 1982 or 1983, whichever method of calculation yields the higher amount (24 CFR section 570.201(e)).

J. Program Income

1. The grantee must accurately account for any program income generated from the use of CDBG funds and must treat such income as additional CDBG funds which are subject to all program rules (24 CFR sections 570.426, 570.500, 570.504, and 570.506).

2. Making loans and collecting the payments on those loans can be a significant source of program income for grantees. The use of income derived from loan underwriting is subject to program requirements. This carries with it the responsibility for grantees to have a loan origination and servicing system in effect which assures that loans are properly authorized, receivables are properly established, earned income is properly recorded and used, and write-offs of uncollectible amounts are properly authorized (24 CFR sections 570.500, 570.501, 570.504, 570.506, and 570.513).

3. In the HUD-administered Small Cities Program, any program income received after closeout of the grant must be accounted for under another grant if another grant was open at the time that the program income was received (24 CFR sections 570.504 and 570.506). If the grantee has another ongoing CDBG grant at the time of closeout, the program income will be considered to be program income of the ongoing grant. The grantee can choose which grant to credit the program income to if it has multiple open CDBG grants (24 CFR section 570.426(b)). If the grantee has no ongoing grant at the time of closeout, program income of less than $25,000 will not be considered program income. Program income of $25,000 or more will be subject to the terms of the closeout agreement (24 CFR section 570.426(c)).

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. In the CDBG Entitlement Program, a Grantee Performance Report (OMB No. 2506-0117) is due from each grantee 90 days after the end of its program year. The Grantee Performance Report has several parts that contain financial data (24 CFR section 91.520).

(1) HUD-4949.2, Summary of Activities Not Having Direct Benefits

(2) HUD-4949.2a, Summary of Activities Having Direct Benefits

(3) HUD-4949.3, Financial Summary

(4) HUD-4949.5, Rehabilitation Summary

f. Performance and Assessment Report (OMB No. 2506-0020) - For the HUD-administered Small Cities Program, this report is due no later than 12 months following grant award and annually thereafter on the date of the award until completion of all CDBG-funded activities. A report is also due no later than 90 days after completion of all CDBG-funded activities, unless waived by the HUD Manager. The auditor is only expected to test the financial data in this report (24 CFR section 570.507).

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

M. Subrecipient Monitoring

Before disbursing any CDBG funds to a subrecipient, the recipient shall sign a written agreement with the subrecipient. The agreement shall include provisions concerning: the statement of work, records and reports, program income and uniform administrative requirements (24 CFR section 570.503).

N. Special Tests and Provisions

1. Citizen Participation

Compliance Requirement - Prior to the submission to HUD for its annual grant, the grantee must certify to HUD that it has met the citizen participation requirements in 24 CFR sections 91, 570.301 and 570.431, as applicable.

Audit Objective - To determine whether the grantee has developed and implemented a citizen's participation plan.

Suggested Audit Procedures

a. Verify that the grantee has a citizen's participation plan.

b. Review the plan to verify that it provides for public hearings, publication, public comment, access to records, and consideration of comments.

c. Examine the grantee's records for evidence that the elements of the citizen's participation plan were followed as the grantee certified.

2. Required Certifications and HUD Approvals

Compliance Requirement - CDBG funds (and local funds to be repaid with CDBG funds) cannot be obligated or expended before receipt of HUD's approval of a Request for Release of Funds (RROF) and environmental certification, except for exempt activities under 24 CFR section 58.34 and categorically excluded activities under section 58.35 (24 CFR section 58.18).

Audit Objective - To determine whether the grantee is obligating and expending program funds only after HUD's approval of the RROF.

Suggested Audit Procedures

a. Examine HUD's approval of the RROF and environmental certification and note dates.

b. Review the expenditure and related records to ascertain if CDBG funds and local funds, which were repaid with CDBG funds were first obligated or expended and ascertain if any funds were obligated or expended prior to HUD's approval of the RROF.

3. Environmental Reviews

Compliance Requirement - Projects must have an environmental review unless they meet criteria specified in the regulations that would exempt or exclude them from RROF and environmental certification requirements (24 CFR sections 58.1, 58.22, 58.34, 58.35, and 570.604).

Audit Objective - To determine whether environmental reviews are being conducted, when required.

Suggested Audit Procedures

a. Verify through a review of environmental review certifications that the environmental reviews were made.

b. Select a sample of projects where an environmental review was not performed and ascertain if a written determination was made that the review was not required.

c. Test whether documentation exists that any determination not to make an environmental review was made consistent with the criteria contained in 24 CFR sections 58.34 and 58.35(b).

4. Rehabilitation

Compliance Requirement - When CDBG funds are used for rehabilitation, the grantee must assure that the work is properly completed and meets local codes (24 CFR section 570.506).

Audit Objective - To determine whether the grantee assures rehabilitation work is properly completed.

Suggested Audit Procedures

a. Verify that pre-rehabilitation inspections are conducted describing the deficiencies to be corrected.

b. Ascertain that the deficiencies to be corrected are incorporated into the rehabilitation contract.

c. Verify through a review of documentation that the grantee inspects the rehabilitation work upon completion to assure that it is carried out in accordance with contract specifications and meets local codes (when applicable).

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS/STATE'S PROGRAM (State-Administered Small Cities Program)

I. PROGRAM OBJECTIVES

The primary objective of the Community Development Block Grant (CDBG) State Program (State-Administered Small Cities Program) is the development of viable communities by providing decent housing, a suitable living environment and expanded economic opportunities, principally for persons of low- and moderate-income. This objective can be achieved in two ways. First, funds can only be used to assist eligible activities that fulfill one or more of three national objectives. Second, the grantee must spend at least 70 percent of its funds over a period of up to three years, as specified by the grantee in its certification, for activities that address the national objective of benefiting low- and moderate-income persons (42 USC 5301(c)).

II. PROGRAM PROCEDURES

Funds are provided, according to a statutory formula, to those States that elect to administer their CDBG nonentitlement funds. The States, in turn, distribute the funds to small units of general local government (subrecipients) that do not qualify for grants under the CDBG Entitlement Program (24 CFR section 570.480).

In addition to Federal statutory requirements, each State has the authority to issue rules consistent with Federal statutes and regulations. The State rules should be reviewed before beginning the audit (24 CFR sections 570.480 and 570.481).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions and Activities

a. Section 105(a) of the Housing and Community Development Act of 1974 lists the activities eligible under the CDBG State Program (State administered small cities program) which include: (1) the acquisition of real property; (2) the acquisition, construction, reconstruction, or installation of public works, facilities and site, or other improvements, including removal of architectural barriers that restrict accessibility of elderly or severely disabled persons; (3) code enforcement in deteriorated or deteriorating areas; (4) clearance, demolition, and removal of buildings and improvements; (5) payments to housing owners for losses of rental income incurred in temporarily holding housing for the relocated; (6) disposition of real property acquired under this program; (7) provision of public services (subject to limitations contained in the CDBG regulations); (8) payment of the non-Federal share for another grant program that is part of the assisted activities; (9) interim assistance where immediate action is needed prior to permanent improvements or to alleviate emergency conditions threatening public health and safety; (10) payment to complete a Title 1 Federal Urban Renewal project; (11) relocation assistance; (12) planning activities; (13) administrative costs; (14) acquisition, construction, reconstruction, rehabilitation, or installation of commercial or industrial buildings; (15) assistance to community-based development organizations; (16) activities related to privately-owned utilities; (17) assistance to private, for-profit businesses, when appropriate to carry out an economic development project; (18) construction of housing assisted under Section 17 of the United States Housing Act of 1937; (19) reconstruction of properties; (20) direct home ownership assistance to facilitate and expand home ownership; (21) technical assistance to public or private entities for capacity building (exempt from the planning/administration cap); (22) housing services related to HOME funded activities; (23) assistance to institutions of higher education to carry out eligible activities; (24) assistance to public and private entities (including for-profits) to assist micro-enterprises; and (25) payment for repairs and operating expenses for acquired "in Rem" properties (i.e., certain properties in New York City); and, (26) residential rehabilitation including code enforcement, lead-based paint hazard evaluation, and removal (24 CFR sections 570.200 through 570.207 and 570.482(a) and 42 USC Section 5305).

b. Each activity that the State funds must either benefit low- and moderate-income families; aid in the prevention or elimination of slums or blight; or meet other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other financial resources are not available. The State must retain documentation justifying its certifications (24 CFR section 570.484).

c. Nonentitlement local government grant recipients (subrecipients) may have loans guaranteed by HUD under Section 108 of the Housing and Community Development Act of 1974. Guaranteed loan funds may be used only for the following activities: (1) acquisition of real property; (2) housing rehabilitation; (3) rehabilitation of publicly owned real property; (4) eligible CDBG economic development activity; (5) related relocation, clearance, and site improvements; and, (6) payment of interest and issuance costs (24 CFR sections 570.700 through 570.705). The local governments (subrecipients) are the borrowers or applicants under the Section 108 Program, but to obtain the HUD guarantee, applications for loan guarantee assistance must be accompanied by a pledge of CDBG funds by the State (24 CFR section 570.704(a)(i)(C)).

2. Allowable Activities for Subrecipients - See III.A.1 above for allowable activities as applicable to subrecipients.

G. Matching, Level of Effort, Earmarking

1. Matching - Not Applicable

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement Not Supplant - Not Applicable

3. Earmarking

a. The Housing and Community Development Act of 1974 requires the State to certify that the aggregate use of the CDBG funds it receives, over a period specified by the State not to exceed three years, shall principally benefit low- and moderate-income persons. This requirement means that not less than 70 percent of the funds must be used in this manner (24 CFR section 570.483 and 42 USC 5304(b)(3)).

b. The State may use up to $100,000 of its grant funds for administrative purposes. In addition to this amount, up to two percent of the grant may be expended at the State level for administrative costs, provided such funds are matched from State resources on a one-to-one basis. Further, States may also use two percent of program income collected, regardless of whether at the State or local government level, for administrative costs. All administrative funds, including the State matching funds, which may be in-kind contributions, must be used to carry out the State's responsibilities (24 CFR section 570.489(a)(1)).

c. For planning and administration costs, the combined expenditures of the State and units of general local governments may not exceed 20 percent of the State's total allocation plus 20 percent of any program income for any given year (24 CFR section 570.489(a)(3)).

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. Performance and Evaluation Report (OMB No. 2506-0117) - This report is due from each grantee within 90 days after the close of its program year in a format suggested by HUD. HUD encourages the submission of the report in both paper and computerized formats. Among other factors, the report is to include a description of the use of funds during the program year and an assessment of the grantee's use to the priorities and objectives identified in its plan. The auditor is only expected to test the financial data in this report (24 CFR section 91.520 (a and c)).

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

M. Subrecipient Monitoring

Before disbursing any CDBG funds to a subrecipient, the recipient shall sign a written agreement with the subrecipient. The agreement shall include provisions concerning: the statement of work, records and reports, program income, and uniform administrative requirements (24 CFR section 570.503).

N. Special Tests and Provisions

1. Environmental Oversight

Compliance Requirement - The State must assume the environmental oversight responsibilities and functions of HUD under Section 104(g), Housing and Community Development (HCD) Act, (42 USC 5304(g)). The State must: (a) require each of its general local governments (subrecipients) to perform as a responsible Federal official in carrying out all HUD environmental review requirements under 24 CFR part 58, National Environmental Policy Act (NEPA), and other applicable authorities; (b) review and approve each subrecipient's Request for Release of Funds (RROF) in accordance with the procedures provided under 24 CFR part 58 subpart J; (c) ensure that each subrecipient observes the statutory requirement that funds cannot be expended or obligated before the State approves its RROF and environmental certification, except as otherwise provided specifically in regulation or authorized by law; and (d) monitor and provide technical assistance to its subrecipients to ensure compliance with the environmental authorities (24 CFR part 58) and the adequacy of environmental reviews.

Audit Objective - Determine whether the State carries out its environmental oversight responsibilities and functions.

Suggested Audit Procedures

a. Examine the State's approval of the RROF and environmental certification, and note dates.

b. Verify that the State obtained certifications and that the State's records provide evidence that the funds were obligated and expended after the State's approval of the RROF and environmental certification.

2. Environmental Reviews

Compliance Requirement - Projects must have an environmental review unless they meet criteria specified in the regulations that would exclude them from RROF and environmental certification requirements (24 CFR sections 58.34 and 58.35).

Audit Objective - Determine whether the required environmental reviews were conducted.

Suggested Audit Procedures

a. Verify that the State obtained environmental review certifications from the subrecipient and that the State records provide evidence that the environmental reviews were made.

b. For any project where an environmental review was not performed, ascertain that a written determination was made that the review was not required.

c. Ascertain that documentation exists that any determination not to make an environmental review was made consistent with the criteria contained in 24 CFR sections 58.34 and 58.35.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.231 EMERGENCY SHELTER GRANTS PROGRAM

I. PROGRAM OBJECTIVES

The Emergency Shelter Grants (ESG) Program is designed to help improve the quality of existing emergency shelters for the homeless, make available additional emergency shelters, and meet the costs of operating emergency shelters and of providing essential social services to homeless individuals so that these persons have access not only to safe and sanitary shelters for the homeless but also to the supportive services and other kinds of assistance they need to improve their situations. The program is also intended to restrict the increase of homelessness through the funding of preventive programs and activities (24 CFR section 576.1(b)).

II. PROGRAM PROCEDURES

The ESG Program provides grants to States, metropolitan cities, urban counties, and the territories according to a formula used in the Community Development Block Grant Program. Funds are allocated to Indian tribes and Alaskan native villages through a competitive set-aside. States can further provide funds to "State recipients."

All grantees, except States, and State recipients may carry out activities with ESG amounts. All of a State's formula allocation must be made available: (1) to units of general local government in the State, which include formula cities and counties, whether or not such cities and counties receive grant amounts directly from HUD; or (2) private non-profit organizations, if the unit of local government in which the proposed activities are to be located certifies that it approves each project. Units of general local government, both grantees and State recipients, may distribute all or a part of their grant amounts to non-profit recipients (subrecipients) to be used for ESG activities. In addition, States may distribute all or a portion of their grant amounts to non-profit recipients (subrecipients) if the unit of general local government in which the proposed activities are located certifies that it approves the project (24 CFR section 576.25).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions and Activities

ESG amounts may be used for one or more of the activities provided for in 24 CFR section 576.21, including the renovation, major rehabilitation, or conversion of buildings for use as emergency shelters for the homeless; provision of essential services to the homeless; payment of costs associated with maintenance, operation (including administration but excluding staff costs, rent, repair, security, fuels and equipment), insurance, utilities, and furnishings; and development and implementation of homeless prevention activities. This section also provides certain limitations on the use of those funds by units of general local government and State recipients. 24 CFR section 576.23 also provides certain limitations on the use of ESG funds by primarily religious organizations (24 CFR sections 576.21 and 576.23).

2. Allowable Activities for Subrecipients

Subrecipients are limited to the allowable activities of recipients and the additional limitations that 24 CFR section 576.23(b) places on use of ESG funds by subrecipients for essential services.

G. MATCHING, LEVEL OF EFFORT, EARMARKING

1. Matching

Each grantee must match the funding provided by HUD under its ESG Program with an equal amount from sources other than those provided under the ESG Program. These funds must be provided after the date of the grant award. A grantee may comply with this requirement by providing the supplemental funds itself, or through supplemental funds or voluntary efforts provided by any State recipient or non-profit recipient (subrecipients) , as appropriate (24 CFR section 576.71).

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement Not Supplant

Grant amounts may be used to provide essential services to the homeless only if the service is a new service, or is a quantifiable increase in the level of service above that which the unit of general local government provided with local funds during the 12 calendar months immediately before it received initial grant amounts (24 CFR section 576.21(b)).

3. Earmarking

a. Not more than 20 percent of the total of each grant amount provided to a unit of local government can be used for essential services for the homeless if the service is a new service (24 CFR section 576.21(b)).

b. All of a State's formula allocation must be made available to units of general local government in a State or private non-profit organization as provided for in 24 CFR section 576.23.

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Applicable

b. SF-270, Request for Advance or Reimbursement - Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Applicable

d. SF-272, Federal Cash Transaction Report - Applicable

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

N. Special Tests and Provisions

1. Maintenance of Homeless Shelters

Compliance Requirement - Any building for which ESG amounts are used for renovation, major rehabilitation, or conversion for use as emergency shelters for the homeless as described in 24 CFR section 576.21(a)(1), must be maintained as a shelter for the homeless for not less than a three year period or, if the grant amounts are used for major rehabilitation or conversion of the building, for not less than a ten-year period (24 CFR section 576.73).

Audit Objective - Determine whether buildings improved (i.e., renovated, rehabilitated, or converted for use as an emergency shelter) with ESG funds during the audit period are currently being used as an emergency shelters.

Suggested Audit Procedures

a. Ascertain if any buildings were improved with ESG funds during the audit period.

b. Verify the existence of the buildings improved with ESG funds and their current use as a homeless shelter.

c. Inquire of management whether any buildings improved with ESG funds in prior years are no longer being used as shelters, and if so, whether the prescribed three or ten year period had expired.

2. Funding

Compliance Requirement - Within 65 days of the date of the grant award by HUD, each State must make available to its State recipients all ESG amounts that were allocated under 24 CFR section 576.43. State recipients, as well as cities, counties, and territories that receive formula money, must have their grant amounts obligated and expended within specified periods, as provided for in 24 CFR section 576.55.

Audit Objective - Determine whether funding was allocated, obligated, and expended within HUD prescribed limits.

Suggested Audit Procedures

a. Determine the time periods for which funds must be allocated, obligated and expended for the selected entities.

b. Review records to determine the dates funds were allocated, obligated and expended, as applicable.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.235 SUPPORTIVE HOUSING PROGRAM

I. PROGRAM OBJECTIVES

The Supportive Housing Program is designed to promote the development of supportive housing and supportive services, including innovative approaches to assist homeless persons in the transition from homelessness, and to promote the provision of supportive housing to homeless persons so they can live as independently as possible (24 CFR section 583.1).

II. PROGRAM PROCEDURES

Grants are provided to States, local governments, other governmental entities, Indian tribes, private non-profit organizations, and community mental health associations that are public non-profit organizations (24 CFR section 583.5). Funds may be used for: (1) transitional housing to facilitate the movement of homeless individuals and families to permanent housing; (2) permanent housing that provides long-term housing for homeless persons with disabilities; (3) housing that is, or is part of, a particularly innovative project for, or alternative methods of, meeting the immediate and long-term needs of homeless persons; or (4) supportive services for homeless persons not provided in conjunction with supportive housing (24 CFR section 583.1(b)).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions or Activities

Grants may be used for acquiring structures, rehabilitating structures, acquiring and rehabilitating structures, new construction, leasing, operating costs for supportive housing, and supportive services. Projects may have more than one type of assistance (24 CFR section 583.100).

2. Allowable Activities for Subrecipients - Not Applicable

E. ELIGIBILITY

1. Eligibility for Individuals

a. To be eligible to receive assistance under this program an individual must be homeless, as defined in 24 CFR section 583.5. The eligibility of those tenants who were admitted to the program should be determined by obtaining: (1) signed applications that contained all of the information needed to determine eligibility, income, rent and order of selection; and, (2) when appropriate, third party verifications or documentation of expected income, assets, unusual medical expenses, and any other pertinent information.

b. Each resident in supportive housing may be required to pay as rent an amount which may not exceed the highest of: (1) 30 percent of the family's monthly adjusted income; (2) 10 percent of the family's monthly income; or (3) if the family is receiving payments for welfare assistance from a public agency and a part of the payments, adjusted in accordance with the family's actual housing costs, is specifically designated by the agency to meet the family's housing costs, the portion of payments that is designated. In addition to resident rent, non-Federal entities may charge residents reasonable fees for services not paid with grant funds (24 CFR sections 583.315(a) and (c)).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

3. Eligibility for Subrecipients - Not Applicable

G. MATCHING, LEVEL OF EFFORT, EARMARKING

1. Matching

a. The non-Federal entity must match the grant funds provided by HUD for acquisition, rehabilitation, and new construction with an equal amount of funds from other sources. The matching funds must be cash resources provided to the project by one or more of the following: the non-Federal entity, the Federal Government, State and local governments, and private sources (24 CFR section 583.145).

b. HUD may provide grants to pay for a portion of the actual operating costs of supportive housing for up to five years. Assistance for operating costs will be initially available for up to 75 percent of the total cost for two years and up to 50 percent of the total cost for the next three years. The non-Federal entity must pay the percentage of the actual operating costs not funded by HUD with its own funds. At the end of each operating year, the non-Federal entity must demonstrate that it has met its share of the costs for that year (24 CFR section 583.125).

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement not Supplant

No assistance provided under this program, or any State or local government funds used to supplement this assistance, may be used to replace State or local funds previously used, or designated for use, to assist homeless persons (24 CFR section 583.150(a)).

3. Earmarking

No more than five percent of any grant awarded may be used for paying the costs of administering the assistance. Administrative costs include the costs associated with accounting for the use of grant funds, preparing reports for submission to HUD, obtaining program audits, and similar costs related to administering the grant after award. The administrative costs do not include the cost of carrying out eligible activities under 24 CFR sections 583.105 through 583.125 (24 CFR section 583.135).

J. Program Income

Income from resident rent payments may be used in the operation of the project or may be reserved, in whole or in part, to assist residents of transitional housing in moving to permanent housing (24 CFR section 583.315(b)).

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. HUD-40118, Grantee Annual Report (OMB No. 2506-0145) - This report is due from each grantee 60 days after its operating year. Separate reports are required for each grant received (24 CFR section 583.300 (g)).

The auditor is expected to test the financial data in:

(1) Part I - Exhibit 3 (Supportive Services)

(2) Part II - Exhibit 7 (Supportive Housing Operating Cost and Share Report)

(3) Part II - Exhibit 8 (Supportive Housing Acquisition, Rehabilitation, and New Construction Expenditures and Match Report)

2. Performance Reporting - Not Applicable

3. Subrecipient Reporting - Not Applicable

N. Special Tests and Provisions

1. Reasonable Rental Rates

Compliance Requirement - Where grants are used to pay for rent for all or a part of a structure, the rent paid must be reasonable in relation to rents being charged in the area for comparable space. In addition, the rent may not exceed rents currently being charged by the same owner for comparable space (24 CFR section 583.115(b)(1)).

Where grants are used to pay rent for individual housing units, the rent paid must be reasonable in relation to rents being charged for comparable units taking into account relevant features. In addition, the rents may not exceed rents currently being charged by the same owner for comparable unassisted units, and the portion of rents paid with grant funds may not exceed HUD-determined fair market rents. non-Federal entities may use grant funds in an amount up to one month's rent to pay the non-recipient landlord for any damages to leased units by homeless participants (24 CFR section 583.115(b)(2)).

Audit Objective - Determine reasonableness of the rents being paid by the non-Federal entity.

Suggested Audit Procedures

a. Determine the acceptability of the manner in which the non-Federal entity establishes rent reasonableness and the rents charged by the owner for comparable unassisted units. Ascertain through an examination of documentation that telephone surveys, site visits after telephoning, more extensive market surveys of available rental units, or similar tools, were used to assess the reasonableness of rents being charged.

b. Verify by a review of the rental records that the contract rents being paid are comparable with those paid for unassisted units, no more than one month's rent is paid for tenant damages, and that the portion of rents paid with grant funds do not exceed fair market rents.

2. Use of Property

Compliance Requirement - All non-Federal entity's assistance for acquisition, rehabilitation, or new construction must agree to operate the supportive housing or provide supportive services for a term of at least 20 years from the date of initial occupancy or the date of initial service provision. If HUD determines that a project is no longer needed for use as supportive housing or to provide supportive services and approves the use of the project for the direct benefit of low-income persons pursuant to a request for such use by the non-Federal entity operating the project, HUD may authorize the non-Federal entity to convert the project to such use (24 CFR section 583.305).

Audit Objective - Determine whether there are valid agreements for the provision of supportive housing or supportive services when assistance is provided for acquisition, rehabilitation, or new construction.

Suggested Audit Procedures

Verify that a binding agreement exists between the non-Federal entity and owner of the structure, if other than the non-Federal entity, covering the provision of supportive housing or supportive services for 20 years if the grant assistance involves acquisition, rehabilitation, or new construction.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.238 SHELTER PLUS CARE

I. PROGRAM OBJECTIVES

The Shelter Plus Care Program is designed to link rental assistance to supportive services for hard to serve homeless persons with disabilities (primarily those who have a serious mental illness; have chronic problems with alcohol, drugs, or both; or have acquired immunodeficiency syndrome (AIDS) and related diseases) and their families if they are also homeless (24 CFR section 582.1).

II. PROGRAM PROCEDURES

The program provides grants to States, units of general local government, Indian tribes, or public housing agencies (PHAs). The grants are to be used to provide rental assistance so homeless persons with disabilities can obtain permanent housing. Rental assistance grants must be matched in the aggregate by supportive services that are equal in value to the amount of rental assistance and appropriate to the needs of the population to be served. Non-Federal entities are chosen on a competitive basis nationwide (24 CFR section 582.1).

Rental assistance is provided through the four components described in 24 CFR section 582.100: (1) tenant-based rental assistance (TRA); (2) project-based rental assistance (PRA); (3) sponsor-based rental assistance (SRA); and (4) moderate rehabilitation for single room occupancy (SRO) dwellings. Applicants may apply for assistance under any one, or a combination, of the four components. This Supplement's section relating to CFDA 14.856, beginning on page 4-14.182-1, should be used in auditing the moderate rehabilitation program for SRO dwellings (24 CFR section 582.1).

The grant amount is based on the number and size of units to be assisted by the applicant over the grant period. It is calculated by multiplying the number of units to be assisted by their fair market rents for the term of the grant in months. The amount determined will be reserved for rental assistance over the grant period (24 CFR section 582.105(b)).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions and Activities

a. Shelter Plus Care grants may be used to provide rental assistance for housing occupied by eligible persons and to pay for the costs of administering the housing, except that the housing may not be receiving Federal funds for rental assistance or operating costs under any other HUD program. Non-Federal entities may design a housing program that includes a range of housing types and different levels of supportive services. Rental assistance may include security deposits on units amounting to one month's rent (24 CFR section 582.105(a)).

b. The eight percent administrative allowance for housing assistance (see III.G.3 below) does not include the cost of administering the supportive services or the grant (e.g., costs of preparing the application, reports or audits required by HUD), which are not eligible activities under a Shelter Plus Care grant. Non-Federal entities may contract with another entity approved by HUD to administer the housing assistance. Eligible administrative activities include processing rental payments to landlords, examining participant income and family composition, providing housing information, inspecting housing units for compliance with housing quality standards, and receiving new participants into the program (24 CFR section 582.105(e)).

2. Allowable Activities for Subrecipients - Not Applicable

E. Eligibility

1. Eligibility for Individuals

a. To be eligible for assistance under this program, a person must be homeless, of very low-income and have disabilities, as defined in 24 CFR section 582.5. Low-income persons may be assisted under the SRO component, in accordance with 24 CFR section 5.607. The eligibility of tenants admitted to the program should be determined by: (1) obtaining signed applications that contained the information needed to determine eligibility, income, and rent; and, when appropriate, (2) obtaining third party verifications or documentation of expected income, assets, unusual medical expenses, and any other pertinent information. Tenant income should not exceed the maximum limit set by HUD for the PHAs jurisdiction, as provided in the notice transmitting Income Limits for Low and Very Low-Income Families Under the Housing Act of 1937.

b. Each person must pay rent which is the highest of: (1) 30 percent of the family's monthly adjusted income; (2) 10 percent of the family's monthly income; or (3) if the family is receiving payments for welfare assistance from a public agency and a part of the payments, adjusted in accordance with the family's actual housing costs, is specifically designated by the agency to meet the family's housing costs, the portion of payments that is so designated (24 CFR section 582.310(a)).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

3. Eligibility for Subrecipients - Not Applicable

G. Matching, Level of Effort, Earmarking

1. Matching

A grantee must provide or ensure the provision of supportive services that are at least equal in value to the aggregate amount of rental assistance funded by HUD. This includes funding the services itself if the planned resources do not become available for any reason, appropriate to the needs of the population being served. The supportive services may be newly created for the program or existing, and may be provided or funded by other Federal, State, local, or private programs. Only services that are provided after the execution of the grant agreement may count toward the match. The manner in which the value of supportive services is calculated is contained in 24 CFR section 582.110(c)).

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement not Supplant

No assistance received under this program (or any State or local government funds used to supplement this assistance) may be used to replace funds provided under any State or local government assistance programs previously used, or designated for use, to assist homeless persons with disabilities (24 CFR section 582.115(d)).

3. Earmarking

Up to eight percent of the grant amount (see the limitation in III.A.1.b) may be used to pay the costs of administering the housing assistance, subject to the limits noted in III.A.1.b above (24 CFR section 582.105(e)).

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. HUD-40118, Annual Progress Report (OMB No. 2506-0145) - This report is due from each grant non-Federal entity (and separately for each component funded) within 90 days after the end of its operating year (24 CFR section 582.300 (d)).

The auditor is expected to test the financial data in:

(1) Part I - Exhibit 3 (Supportive Services)

(2) Part II - Exhibit 7 (Supportive Housing Operating Cost and Share Report)

(3) Part II - Exhibit 8 (Supportive Housing Acquisition, Rehabilitation, and New Construction Expenditures and Match Report)

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

N. Special Tests and Provisions

1. Rent Reasonableness

Compliance Requirement - HUD will only provide assistance for a unit for which the rent is reasonable. For TRA, PRA, and SRA, it is the responsibility of the non-Federal entity to determine whether the rent charged for the unit receiving assistance is reasonable in relation to rents being charged for comparable unassisted units. For SRO units, rents are calculated in accordance with 24 CFR section 882.805(d) (24 CFR section 582.305(b)).

Audit Objective - Determine reasonableness of the rents being paid by the grantee.

Suggested Audit Procedures

a. Determine the manner in which the non-Federal entity establishes rent reasonableness, and if such tools as telephone surveys, site visits after telephoning, or more extensive market surveys of available rental units were conducted in order to assess the reasonableness of rents being charged.

b. Verify that the contract rents being paid are not in excess of the established reasonable rate.

2. Housing Quality Standards

Compliance Requirement - Housing assisted under the Shelter Plus Care Program must meet applicable housing quality standards under 24 CFR section 882.109 and, for the SRO component, under 24 CFR section 882.803(b). Before any assistance is provided on behalf of a participant, the non-Federal entity, or another entity acting on behalf of the non-Federal entity (other than the owner of the housing), must physically inspect each unit to assure that the unit meets housing quality standards. Non-Federal entities must also inspect all units annually during the grant period to ensure that units continue to meet housing quality standards (24 CFR section 582.305(a)).

Audit Objective - Determine whether the grantee performs the required inspections to assure that units meet housing quality standards.

Suggested Audit Procedures

a. Verify through a review of documentation that the non-Federal entity identifies those units on which housing quality inspections are due.

b. Verify through a review of documentation that the non-Federal entity performed inspections of units and that any needed repairs were completed timely.

3. Project-based Rental Assistance

Compliance Requirement - Project-based rental assistance provides grants for rental assistance to the owner of an existing structure, where the owner agrees to lease the subsidized units to participants. Participants do not retain rental assistance if they move. Rental subsidies are provided to the owner for a period of either five or ten years. To qualify for ten years of rental subsidies, the owner must complete at least $3000 of eligible rehabilitation work for each unit (including the prorated share of work to be accomplished on common areas or systems), to make the structure decent, safe, and sanitary (24 CFR section 582.100(b)).

Audit Objective - Determine whether project-based assistance is being paid in accordance with agreements.

Suggested Audit Procedures

a. Examine the existing agreement between the owner and the non-Federal entity to determine whether the agreement is for either five or ten years.

b. If the agreement is for ten years, verify through a review of documentation that the required rehabilitation of at least $3000 were performed.

c. Examine the billings from the owner and verify that the assistance payments are for units occupied or ready for occupancy.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.239 HOME INVESTMENT PARTNERSHIPS PROGRAM

I. PROGRAM OBJECTIVES

The objectives of the HOME Program include: expanding the supply of decent and affordable housing, particularly housing for low- and very low-income Americans; strengthening the abilities of State and local governments to design and implement strategies for achieving adequate supplies of decent, affordable housing; providing financial and technical assistance to participating jurisdictions, including the development of model programs for affordable low-income housing; and extending and strengthening partnerships among all levels of government and the private sector, including for-profit and non-profit organizations, in the production and operation of affordable housing (24 CFR section 92.1).

II. PROGRAM PROCEDURES

The program is conducted by jurisdictions (States, cities, urban counties, and consortia) which receive an allocation of funds. Participating jurisdictions must submit a description of how they propose to use the funds for housing activities, together with certifications. The funding amount is based on a formula of six factors established to reflect a jurisdiction's need for an increased supply of affordable housing for low- and very low-income families (24 CFR section 92.1).

A State may carry out its own HOME program without active participation of units of general local government or may distribute HOME funds to units of general local government to carry out HOME programs in which both the State and all or some of the units of general local government perform specified functions. A unit of general local government designated by a State to receive HOME funds from a State is a "State recipient." Before disbursing funds to an entity, each participating jurisdiction is required to enter into written agreements with the entity. The contents of the agreement may vary depending on the role which the entity is asked to assume or the type of project undertaken. However, there must be certain minimum provisions depending on whether the entity is a State recipient; subrecipient; for-profit or non-profit housing owner; contractor; as well as a home buyer, homeowner, or tenant receiving tenant-based rental or security deposit assistance (24 CFR section 92.504).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions or Activities

a. HOME funds (including program income generated by activities carried out with HOME funds) may be used by participating jurisdictions to provide for: (1) incentives to develop and support affordable rental housing and homeownership affordability through the acquisition, new construction, reconstruction, or rehabilitation of non-luxury housing with suitable amenities, including real property acquisition, site improvements, conversion, demolition, and other expenses, including financing costs, relocation expenses of any displaced persons, families, businesses, or organizations; (2) the payment of reasonable administrative and planning costs; and, (3) the payment of operating expenses of community housing development organizations (CHDOs). The housing must be permanent or transitional. The acquisition of vacant land or demolition can only be undertaken with respect to a particular housing project intended to provide affordable housing. Conversion of an existing structure to affordable housing is rehabilitation unless certain circumstances exist. Manufactured housing may be purchased or rehabilitated and the land upon which it is built may be purchased with HOME funds. HOME funds may be used to pay for development construction costs, refinancing costs, acquisition costs, related soft costs, CHDO costs, relocation costs, and costs related to the repayment of loans (24 CFR sections 92.205(a) and 92.206).

b. A participating jurisdiction may use or "invest" HOME funds as equity investments, interest-bearing loans or advances, noninterest-bearing loans or advances, interest subsidies, deferred payment loans, grants, or other forms of assistance approved by HUD. A participating jurisdiction may invest HOME funds to guarantee loans made by lenders and, if required, the participating jurisdiction may establish a loan guarantee account with HOME funds. The amount of the loan guarantee account must be based on a reasonable estimate of the default rate on the guaranteed loans but under no circumstances, may the amount on deposit exceed 20 percent of the total outstanding principal amount guaranteed, except that the account may include a reasonable minimum balance. While loan funds guaranteed with HOME funds are subject to all HOME requirements, funds which are used to repay the guaranteed loans are not (24 CFR section 92.205(b)).

c. Generally, HOME funds may not be used for: project reserve accounts, tenant-based rental assistance for the special purpose of the Section 8 program, non-Federal matching contributions under any other non-Federal program, annual contributions for the operation of public housing, public housing modernization, assistance to prepay low income housing mortgages, assistance to a project previously assisted with HOME funds during the period of affordability (i.e., the period for which the non-Federal entity must maintain subsidized housing), and the acquisition of property by the participating jurisdiction. Participating jurisdictions may not charge monitoring, servicing, and origination fees in HOME-assisted projects (24 CFR section 92.214).

E. Eligibility

1. Eligibility for Individuals

a. The HOME Program has income targeting requirements. Only low-income or very low-income persons, as defined in 24 CFR section 92.2, can receive housing assistance (24 CFR section 92.1). Therefore, the participating jurisdiction must determine if each family is income eligible by determining the family's annual income, as provided for in 24 CFR section 92.203. Participating jurisdictions must maintain records for each family assisted (24 CFR section 92.508).

b. HOME-assisted units in a rental housing project must be occupied only by households that are eligible as low-income families and must meet certain limits on the rents that can be charged. The requirements also apply to the HOME-assisted non-owner-occupied single-family housing purchased with HOME funds. The maximum HOME rents are the lesser of: the fair market rent for comparable units in the area, as established by HUD under 24 CFR section 888.111, or a rent that does not exceed 30 percent of the adjusted income of a family whose annual income equals 65 percent of the median income for the area as determined by HUD with adjustments for the number of bedroom units. In rental projects with five or more units there are additional rent limitations. Twenty (20) percent of the HOME-assisted units must be occupied by very low-income families and meet one of the following rent requirements: (1) the rent does not exceed 30 percent of the annual income of a family whose income equals 50 percent of the median income for the area, as determined by HUD, with adjustments for larger or smaller families; or (2) the rent does not exceed 30 percent of the families adjusted income (24 CFR section 92.252).

c. A participating jurisdiction may use HOME funds for tenant-based rental assistance, as provided for in 24 CFR section 92.209(b). The participating jurisdiction must select families in accordance with policies and criteria consistent with those provided in 24 CFR section 92.209(c).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

3. Eligibility for Subrecipients - Not Applicable

G. Matching, Level of Effort, Earmarking

1. Matching

Except for funds allocated in Fiscal Year 1992, each participating jurisdiction must provide eligible matching contributions of 25 percent of HOME funds drawn down during the fiscal year. The match must be provided by the end of the fiscal year. Some participating jurisdictions are eligible for a reduction in the required match based upon meeting standards of distress. The jurisdictions which are eligible for the reduction are identified by notice published in the Federal Register, or a notice issued by HUD. Jurisdictions may also receive reductions if they are in Presidentially-declared disaster areas. Participating jurisdictions are required to maintain records, including individual project records, and a running log, demonstrating compliance with the matching requirements, including the type and amount of contributions by project. Matching information is provided on the HOME Match Report (form HUD-40107-A) (24 CFR sections 92.218 through 92.220, 92.222, and 92.508).

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement not Supplant - Not Applicable

3. Earmarking

a. Each participating jurisdiction must invest HOME funds made available during a fiscal year so that, with respect to tenant-based rental assistance and rental units not less than 90 percent of (a) the families receiving assistance are families whose annual income do not exceed 60 percent of the median family income for the area, as determined and made available by HUD, with adjustments for smaller and larger families at the time of occupancy or at the time funds are invested, whichever is later, or (b) the dwelling units assisted with such funds are occupied by families having such incomes (24 CFR section 92.216).

b. Each participating jurisdiction must invest HOME funds made available during a fiscal year so that with respect to homeownership assistance, 100 percent of these funds are invested in dwelling units that are occupied by households that qualify as low-income families at the time of occupancy or at the time funds are invested, whichever is later (24 CFR section 92.217).

c. Each participating jurisdiction must invest at least 15 percent of each year's HOME allocation in projects which are owned, developed, or sponsored by special non-profit organizations called CHDOs. If during the first 24 months of its participation in the HOME Program a participating jurisdiction cannot identify a sufficient number of capable CHDOs, then up to 20 percent of the minimum set-aside (but not more than $150,000 during the 24 month period) may be made available to develop the capacity of CHDOs in the jurisdiction (24 CFR section 92.300).

d. A participating jurisdiction may expend for its HOME administrative and planning costs an amount of HOME funds that is not more than ten percent of the fiscal year HOME basic formula allocation plus any funds received in accordance with 24 CFR section 92.102(b) to meet or exceed threshold requirements that fiscal year. A participating jurisdiction may also use up to ten percent of any return of the HOME investment, as defined in 24 CFR section 92.503, calculated at the time of deposit in its HOME account, for administrative and planning costs (24 CFR section 92.207).

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. An annual performance report (APR) consisting of narrative statements and several forms is to be submitted to HUD within 90 days after the close of the jurisdictions program year. This APR has several parts that contain financial data (24 CFR section 91.520 and 92.509).

(1) HUD-40107, APR HOME Program (OMB No. 2501-0013)

(2) HUD 40107A, HOME Match Report (OMB No. 2501-0013)

2. Performance Reporting - Not applicable

3. Special Reporting - Not applicable

M. Subrecipient Monitoring

Each participating State is responsible for distributing HOME funds throughout the State according to the State's assessment of the geographical distribution of housing need within the State. A State may carry out its own HOME Program without active participation of units of general local government or may distribute HOME funds to units of general local government to carry out HOME Programs in which both the State and all or some of the units of general local government perform specified program functions. A State that uses State recipients to perform program functions shall ensure that the State recipients use HOME funds in accordance with applicable laws and requirements. A State shall include in its written agreements with its State recipients such additional provisions as may be appropriate to ensure compliance and to enable the State to carry out its responsibilities under the HOME Program. The State is to conduct such reviews and audits of its State recipients as may be necessary or appropriate to determine whether the State recipient has committed and expended the HOME funds, as required by 24 CFR section 92.500, and has met HOME Program requirements particularly as they relate to eligible activities, income targeting, affordability, and matching contribution requirement (24 CFR section 92.201(b)).

Before disbursing funds to a subrecipient, each participating jurisdiction is required to enter into written agreements with the entity which includes provisions dealing with: the use of HOME funds, program income, uniform administrative requirements, other program requirements, affirmative marketing, requests for disbursement of funds, reversion of assets, records and reports, and enforcement of the agreement. Further, if the subrecipient provides HOME funds to for-profit owners or developers, non-profit organizations, subrecipients, homeowners, homebuyers, tenants receiving tenant-based rental assistance, or contractors, the subrecipient must have a written agreements which contain the provisions in 24 CFR section 92.504.

N. Special Tests and Provisions

1. Maximum Per Unit Subsidy

Compliance Requirement - The per unit investment of HOME funds may not exceed the FHA mortgage limits in Subsection 221(d)(3) of the National Housing Act, including any area-wide high cost exceptions approved by HUD. This information should be available from the grantee or the local HUD field office. In mixed-income or mixed use projects, the average per unit investment in HOME-assisted units may not exceed the applicable Subsection 221(d)(3) limit. Participating jurisdictions are required to evaluate each housing project in accordance with guidelines that it adopts to ensure that the combination of Federal assistance to the project is not any more than is necessary to provide affordable housing (24 CFR section 92.250).

Audit Objective - Determine whether the HOME subsidies being provided are not more than necessary to provide affordable housing and are properly supported.

Suggested Audit Procedures

a. Review a sample of projects as reported in the CMIS to verify that the HOME subsidy amounts are supported by the participating jurisdiction's records.

b. Review participating jurisdiction records to verify that each housing project was evaluated in accordance with its guidelines to ensure that the combination of Federal assistance to the project is not any more than is the FHA mortgage limits in Subsection 221(d)(3) of the National Housing Act necessary to provide affordable housing.

2. Drawdowns of HOME Funds

Compliance Requirement - The Integrated Disbursement and Information System is used both to collect information on compliance with program requirements and to disburse HOME funds. Participating jurisdictions (or their authorized representatives) are required to have different staffs setting up projects and drawing down funds. Participating jurisdictions must maintain payment certifications each time a drawdown of funds is made (24 CFR section 92.502).

Audit Objective - Determine whether the required separation of duties is maintained over the drawdown of HOME funds.

Suggested Audit Procedures

a. Verify that the persons setting up projects in CMIS are not the same as the person drawing down funds.

b. Verify that HOME payment certification amounts match the amount of disbursements made by the CMIS.

3. On-site Inspections

Compliance Requirement - During the period of affordability (i.e., the period for which the non-Federal entity must maintain subsidized housing) for HOME assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than: (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.251, 92.252, and 92.504(b)).

Audit Objective - Determine whether the grantee performs the required inspections to assure that property standards are met.

Suggested Audit Procedures

a. Verify through a review of documentation that the non-Federal entity identifies those units on which housing quality inspections are due.

b. Verify through a review of documentation that the non-Federal entity performs inspections of units and that any needed repairs are completed timely.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.241 HOUSING OPPORTUNITIES FOR PERSONS WITH AIDS

I. PROGRAM OBJECTIVES

The Housing Opportunities for Persons with AIDS (HOPWA) Program is designed to provide States and localities with resources and incentives to devise long term strategies for meeting the housing needs of persons with acquired immunodeficiency syndrome (AIDS) or related diseases and their families (24 CFR section 574.3).

II. PROGRAM PROCEDURES

The Department of Housing and Urban Development (HUD) awards funds appropriated for the program in any fiscal year through both a formula allocation and competitive grant process. Ninety percent of the funds are awarded through formula grants and ten percent through competitive grants. HUD allocates formula funds based on the number of cases of AIDS reported to and confirmed by the Centers for Disease Control and on population data furnished by the U.S. Bureau of the Census (24 CFR section 574.130).

Competitively-awarded funds are available for special projects of national significance and other projects submitted by States and localities that do not qualify for formula grants. All States, units of general local government, and non-profit organizations may apply for grants for projects of national significance. Only those States and units of general local government that do not qualify for formula awards may apply for grants for other projects. Except for grants involving projects of national significance, non-profit organizations are not eligible to apply directly to HUD for a grant, but may receive funding as a project sponsor (subrecipient) under a contract with a grantee (24 CFR section 574.210).

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions and Activities

HOPWA funds may be used to assist all forms of housing designed to prevent homelessness, including emergency housing, shared housing arrangements, apartments, single room occupancy (SRO) dwellings, and community residences. Appropriate supportive services must be provided as part of any HOPWA assisted housing, but HOPWA funds may also be used to provide services independently of any housing activity. The following activities may be carried out with HOPWA funds: housing information services; resource identification to establish, coordinate and develop housing assistance resources for eligible persons; acquisition, rehabilitation, conversion, lease, and repair of facilities to provide housing and services; new construction for SRO and community residences only; project- or tenant-based rental assistance, including assistance for shared housing arrangements; short-term rent, mortgage and utility payments to prevent the homelessness of the tenant or the mortgagor of a dwelling; supportive services; operating costs for housing; technical assistance in establishing and operating a community residence; administrative expenses; and, for competitive grants only, any other activity proposed by the applicant and approved by HUD (24 CFR section 574.300).

2. Allowable Activities for Subrecipients - Not Applicable

E. Eligibility

1. Eligibility for Individuals

a. A person eligible for assistance under this program means one with AIDS or a related disease who is a low-income individual, as defined in 24 CFR section 574.3, and the person's family. The eligibility of those tenants who were admitted to the program should be determined by: (1) obtaining signed applications that contained all the information needed to determine eligibility, income, rent and order of selection; and (2) obtaining third party verifications or documentation of expected income, assets, unusual medical expenses, and any other pertinent information.

b. Except for persons in short-term supportive housing, each person receiving rental assistance under the HOPWA Program must pay as rent the higher of: (1) 30 percent of the family's monthly adjusted gross income; (2) 10 percent of the family's monthly gross income; or (3) the portion of the payments that is designated if the family is receiving payments for welfare assistance from a public agency and a part of the payments, adjusted in accordance with the family's actual housing costs, is specifically designated by the agency to meet the family's housing costs (24 CFR section 574.310).

c. If grant funds are used to provide rental assistance, the amount of grant funds used to pay monthly assistance for an eligible person may not exceed the difference between the lower of the rent standard or reasonable rent for the unit and the resident's rent payment calculated in accordance with 24 CFR section 574.310 (24 CFR section 574.320). Allowable assistance can be determined by telephone surveys, site visits after telephoning, or more extensive market surveys of available rental units to assess the reasonableness of rents being charged.

d. A short-term supported housing facility may not provide residence to any individual for more than 60 days during any six month period. Rent, mortgage and utility payments to prevent the homelessness of the tenant or the mortgagor of a dwelling may not be provided to such an individual for costs accruing over a period of more than 21 weeks in any 52 week period. Further a short-term supported facility may not provide shelter or housing at any single time for more than 50 families or individuals (24 CFR section 574.330).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

3. Eligibility for Subrecipients - Not Applicable

G. Matching, Level of Effort, Earmarking

1. Matching - Not Applicable

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement not Supplant

The amounts received from grants under this program may not be used to replace other amounts made available or designated by State or local governments through appropriations to be used to carry out the purposes of this program (24 CFR section 574.400).

3. Earmarking

Each grantee may use not more than three percent of the grant amount for its own administrative costs relating to administering grant amounts and allocating such amounts to project sponsors (subrecipients). Each project sponsor receiving amounts from grants made under this program may not use more than seven percent of the amounts for administrative costs (24 CFR section 574.300(b)(10)(i)-(ii)).

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. HUD-40110, Annual Progress Report (OMB No. 2506-0133) - This report is due from each grantee within 90 days after the close of its program year. Separate reports are required for formula and competitive grants. Reports contain three basic parts. The auditor is only expected to test the financial data which is found in part 3, Program Expenditures and Housing Provided (24 CFR section 574.520 and 24 CFR part 91).

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

N. Special Tests and Provisions

1. Maintenance of Structures

Compliance Requirement - Project-based rental assistance provides grants for rental assistance to the owners of existing structures, where the owner agrees to lease the subsidized units to participants. Participants do not retain rental assistance if they move. Unless waived by HUD, any building or structure assisted with funds under HOPWA must be maintained as a facility to provide housing or assistance for individuals with AIDS or related diseases: (1) for a period of not less than ten years, in the case of assistance provided under an activity eligible under 24 CFR section 574.300(b)(3) - (4) involving new construction, substantial rehabilitation, or acquisition of a building or structure; or (2) for a period of not less than three years in cases involving nonsubstantial rehabilitation or repair of a building or structure (24 CFR section 574.310(c)(1) - (2)).

Audit Objective - Determine whether the project sponsor is receiving the proper amount of assistance and is maintaining the assisted buildings and structures for participants for the stipulated periods.

Suggested Audit Procedures

a. Identify the buildings or structures assisted with HOPWA funds and verify their use.

b. Examine related agreements to verify that the structures are to provide housing or assistance for the stipulated number of years when new construction, substantial rehabilitation, acquisition, or nonsubstantial rehabilitation was involved.

c. Verify from documentation or by observation that the required rehabilitation was performed if the project was accepted for occupancy during the audit period.

2. Health Services

Compliance Requirement - Grantees must assure that grant funds will not be used to make payments for health services for any item or service to the extent that payment was made, or can reasonably be expected to be made, with respect to any item or service: (1) under any State compensation program, under an insurance policy, or under any Federal or State health benefits program; or (2) by an entity that provides health services on a prepaid basis, as provided for in 24 CFR section 574.310(a)(2). Supportive services includes such items as alcohol abuse treatment and counseling, day care, and nutritional services (24 CFR section 574.300(b)(7)).

Audit Objective - Determine whether grant funds are being used to pay for health items or services that will or can be reimbursed in other ways.

Suggested Audit Procedures

a. Identify what procedures are used by the grantee and sponsor (subrecipient) to identify possible sources of reimbursement for the services being offered through the HOPWA Program.

b. Verify that HOPWA funds are not used to pay for items or services for which reimbursement will be obtained from the previously mentioned sources.

3. Housing Quality Standards

Compliance Requirement - All housing that involves acquisition, rehabilitation, conversion, lease, repair of facilities, new construction, project- or tenant-based rental assistance (including assistance for shared housing arrangements), and operating costs must meet various housing quality standards listed in 24 CFR section 574.310(b)(1)-(2).

Audit Objective - Determine whether the grantee performs the required inspections to assure that units meet housing quality standards.

Suggested Audit Procedures

a. Verify by a review of documentation that the grantee's system identifies those units on which housing quality inspections are due.

b. Verify by a review of documentation that the grantees performs inspections of these units and that any needed repairs were completed timely.

4. Community Residences

Compliance Requirement - A community residence is a multi-unit residence designed for eligible persons to provide a lower cost residential alternative to institutional care, to prevent or delay the need for such care, to provide a permanent or transitional residential setting with appropriate services to enhance the quality of life for those who are unable to live independently, and to enable those persons to participate as fully as possible in community life. If grant funds are used to provide a community residence (except for planning and other preliminary expense), the grantee must, prior to the expenditure of such funds, obtain and keep on file certifications relating to the services to be provided, the adequacy of funding and the capabilities of the grantee, project sponsor, or service provider (24 CFR section 574.340).

Audit Objective - Determine whether the required certifications are being maintained and supported.

Suggested Audit Procedures

a. Review the grantees files to verify that the required certifications are maintained.

b. Verify that there is evidence on file to support the certifications that were made.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

CFDA 14.862 INDIAN COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM

I. PROGRAM OBJECTIVES

The primary objective of the Indian Community Development Block Grant (CDBG) program is the development of viable Indian and Alaskan native communities, including decent housing, a suitable living environment, and expanded economic opportunities, principally for persons of low- and moderate-income. Indian CDBG assistance may not be used to reduce substantially the amount of local financial support for community development activities below the level of support prior to the availability of the assistance (24 CFR section 953.2).

II. PROGRAM PROCEDURES

Two types of grants are eligible under the Indian CDBG program. Single purpose grants provide funds for one or more single purpose projects which consist of an activity or set of activities designed to meet a specific community development need. This type of grant is awarded through competition with other single purpose projects. Imminent threat grants alleviate an imminent threat to public health or safety that requires immediate resolution. This type of grant is awarded only after a HUD field office determines that such conditions exist and that funds are available for such grants (24 CFR section 953.100).

The selection of single purpose grantees under subpart B of 24 CFR section 953 is competitive. HUD's selection of eligible applicants reflects consideration of the relative adequacy of applications in addressing locally-determined need. Selection of grantees under subpart E - Imminent Threat Grants - is not competitive; eligible projects are funded on a first-come, first-served basis, subject to the availability of funds. Applicants for funding must have the administrative capacity to undertake the community development activities proposed, including the systems necessary to administer the activities without fraud, waste, or mismanagement.

III. COMPLIANCE REQUIREMENTS

In developing the audit procedures to test compliance with the requirements for a Federal program, the auditor should first look to Part 2, Matrix of Compliance Requirements, to identify which of the 14 types of compliance requirements described in Part 3 are applicable and then look to Parts 3 and 4 for the details of the requirements.

A. Activities Allowed or Unallowed

1. Allowability of Specific Transactions and Activities

Indian CDBG funds (including program income generated by activities carried out with grant funds) may only be used for the following activities: (1) the acquisition of real property; (2) the acquisition, construction, reconstruction, or installation of public works, facilities, and site, or other improvements; (3) code enforcement in deteriorated or deteriorating areas; (4) clearance, demolition, removal, and rehabilitation of buildings and improvements; (5) special projects for removal of material and architectural barriers that restrict accessibility by elderly and handicapped individuals; (6) payments to housing owners for losses of rental income incurred in temporarily holding housing for the relocated; (7) disposition of real property acquired under this program; (8) provision of public services (subject to limitations contained in regulations and to certain HUD determinations); (9) payment of the non-Federal share for a grant program that is part of the assisted activities; (10) payment to complete a Title 1 Federal Urban Renewal project; (11) relocation assistance; (12) planning activities; (13) administrative costs; (14) acquisition, construction, reconstruction, rehabilitation, or installation of commercial or industrial buildings; (15) assistance to community-based development organizations; (16) activities related to energy use; (17) assistance to private, for-profit business, when appropriate to carry out an economic development project; (18) substantial reconstruction of housing owned and occupied by low- and moderate-income persons (subject to certain HUD determinations); (19) direct assistance to facilitate and expand homeownership; (20) technical assistance to public or private entities for capacity building (exempt from planning/administration cap); (21) housing counseling and housing activity delivery costs under Indian CDBG and Indian HOME; (22) assistance to colleges and universities to carry out eligible activities; and, (23) assistance to public and private entities (including for-profits) to assist micro-enterprises (24 CFR sections 953.200 through 953.207).

2. Allowable Activities for Subrecipients - Not Applicable

G. Matching, Level of Effort, Earmarking

1. Matching - Not Applicable

2.1 Level of Effort - Maintenance of Effort - Not Applicable

2.2 Level of Effort - Supplement not Supplant - Not Applicable

3. Earmarking

a. To be eligible under the Indian CDBG program, a single purpose grant activity must benefit low- and moderate-income persons. To meet this requirement, not less than 70 percent of the funds of each single purpose grant must be used for activities that benefit low-and moderate-income persons under the criteria set forth in 24 CFR sections 953.208(a), (b), (c), or (d). In determining the percentage of funds used for such activities, the provisions of 24 CFR section 953.208(e)(4) apply.

b. No more that 20 percent of the total grant plus program income received during a program year may be obligated during that year for activities that qualify as planning and administration pursuant to 24 CFR sections 570.205 and 570.206 (24 CFR section 570.200(g)). Technical assistance costs associated with developing the capacity to undertake a specific funded program activity are not considered administrative costs and are not included in the 20 percent limitation on planning and administration costs (24 CFR section 953.206).

c. Public service activities may comprise no more than 15 percent of the total grant award 24 CFR section 953.201(e).

J. Program Income

Program income received before grant closeout may be retained by the non-Federal entity if the income is treated as additional Indian CDBG funds subject to all the applicable requirements governing the use of Indian CDBG funds. However, as noted in 24 CFR section 953.503(b)(4), program income does not include the first $25,000 in program income received by the grantee and all of its subrecipients in any single year if the total amount of such income does not exceed $25,000 (24 CFR section 953.503).

L. Reporting

1. Financial Reporting

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transaction Report - Not Applicable

e. The grantee must submit a status and evaluation report on previously funded open grants 45 days after the end of the Federal fiscal year and at the time of grant closeout. The report should be in narrative form and must address program progress and the expenditure of funds by major project activity or category. The auditor should verify the expenditure data (24 CFR section 953.506) (OMB No. 2577-0191).

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

M. Subrecipient Monitoring

Before disbursing any CDBG funds to a subrecipient, the recipient shall sign a written agreement with the subrecipient. The agreement shall include provisions concerning: the statement of work, records and reports, program income, uniform administrative requirements, and reversion of assets (24 CFR section 953.502).

N. Special Tests and Provisions

1. Environmental Assessments

Compliance Requirement - An environmental assessment must be prepared for a project unless the grantee determined that it met a criterion specified in the regulations that would exempt or exclude it from Request for Release of Funds (RROF) and environmental certification requirements (24 CFR section 58.34 and 58.35). Exempt activities do not require an environmental review; activities which are potential exclusions require an environmental review to determine if an exclusion is applicable. If not applicable, an assessment must be done.

Audit Objective - Determine whether the required environmental reviews are being performed.

Suggested Audit Procedures

a. Select a sample of projects for which expenditures were made and verify that environmental certifications exist.

b. Ascertain that the certifications were supported by an environmental assessment.

c. For any project where an environmental assessment was not performed, ascertain that a written determination was made that the assessment was not required.

d. Ascertain whether documentation exists that any determination not to do an environmental assessment was made consistent with the criteria contained in 24 CFR sections 58.34 and 58.35.

2. Release of Funds

Compliance Requirement - Indian CDBG funds (and local funds to be repaid with Indian CDBG funds) cannot be obligated or expended before receipt of HUD's approval of a RROF and environmental certification, except for exempt activities under 24 CFR section 58.34 or activities found to be categorically excluded under 24 CFR section 58.35 (24 CFR sections 58.22, 58.33-35, and 953.605).

Audit Objective - Determine whether funds were obligated or expended before HUD's approval of the RROF and environmental certification.

Suggested Audit Procedures

a. Examine HUD's approval of the RROF and environmental certification and note receipt dates.

b. Review the expenditure and related records and determine the dates the funds were obligated or expended.

c. Determine that funds, including other than Indian CDBG funds that were subsequently reimbursed by Indian CDBG funds, were obligated or expended subsequent to RROF and environmental certification approval by HUD.