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We audited the U.S. Department of Housing and Urban Development (HUD), Office of Community Planning and Development’s (CPD) process for collecting financial information from grantees participating in the Community Development Block Grant (CDBG) Entitlement program. Prior year HUD financial statement audits found weaknesses in CPD’s processes to estimate accrued grant liabilities and instances where it appeared CDBG grantees were holding advanced funds. Our audit objectives were to determine whether (1) the financial information collected from grantees was sufficient to monitor grantee financial reporting and performance as required by federal regulations; (2) HUD’s monitoring of grantees’ cash on hand was sufficient to ensure compliance with cash management requirements and that the monitoring was adequate to safeguard funds against the risk of fraud, waste, and abuse; and (3) HUD was properly reporting the financial information collected from its grantees in accordance with the Statements of Federal Financial Accounting Standards.

We found that the financial information collected from CDBG Entitlement grantees was not sufficient to monitor grantee compliance with cash management requirements contained in federal regulations.    Our review of CPD Cash on Hand Quarterly Reports (PR 29 reports) found that grantees consistently made errors in preparing the report or did not have adequate documentation to support the amounts reported.  We also found PR 29 reports that were not submitted or were submitted after the required deadline for certain quarters and resubmissions that were not tracked by HUD.  Without reliable and timely financial data, CPD cannot adequately monitor grantees’ excess cash or properly assess their compliance with cash management requirements, thereby increasing the funds’ susceptibility to the risk of fraud, waste, and abuse.  Further, since the reports were not submitted in a timely manner and were not reliable, the information collected could not be leveraged by the Office of the Chief Financial Officer (OCFO) to properly report grantee financial information in compliance with the Statements of Federal Financial Accounting Standards.  

Additionally, we found opportunities for CPD to improve (1) the timing of grantee drawdowns to better align with when the actual expense was incurred and (2) its financial data collection efforts from its CDBG grantees to estimate HUD’s accrued grant liability as required by the Statements of Federal Financial Accounting Standards.  CPD’s accrued grant liability estimation methodology relies on grantee drawdown data and produces an unreliable estimate due to the significant delays in grantee disbursements from when an expense is incurred.  Further, CPD does not collect expense data elements  from the OMB Federal Financial Report (Standard Form-425), which could potentially be used to assist HUD in producing a more precise accrual estimate, resulting in improved financial reporting.  

Lastly, we identified that CPD is collecting information on the PR 29 report that was not approved by the Office of Management and Budget (OMB) as required by the Paperwork Reduction Act (PRA).  Consequently, CPD did not receive public input as required nor did they assess the reporting burden imposed on the grantee as required by the PRA.

We recommend that CPD improve its guidance, training, and monitoring of the PR 29 report to ensure that the information collected is reliable, accurate, and timely.  In addition, we recommended that CPD work with OCFO to ensure that it collects all of the information needed to properly account for all CPD activities in HUD’s financial statements in accordance with Federal financial reporting requirements and accounting standards. Lastly, we made a recommendation that CPD obtain the required approvals under the PRA for the PR 29 report.  

 

Recommendations

Community Planning and Development

  •   2024-FO-0004-001-A

    Develop comprehensive guidance and training for grantees on how to prepare the PR 29 report to ensure that the information collected is reliable, accurate, timely, and in compliance with the Uniform Administrative Guidance for Grants and Cooperative Agreements, specifically 2 CFR 200.302(a)(b) and 2 CFR 200.303

  •   2024-FO-0004-001-B

    Closed on February 09, 2024

    Determine whether the funds that were drawn in error need to be repaid to HUD and whether other remediation actions are appropriate.

  •   2024-FO-0004-001-C

    Follow up with the four grantees without adequate supporting documentation and assess their compliance with the financial management requirements in 2 CFR 200.302(b)(3), which require the financial management system of each non-Federal entity to provide for records that adequately identify the source and application of funds for federally funded activities.

  •   2024-FO-0004-001-D

    Update the CPD Monitoring Handbook to incorporate the review of the PR 29 report when performing financial monitoring reviews.

  •   2024-FO-0004-001-E

    Develop written procedures on how to review PR 29 report submissions and monitor resubmissions, late submissions, and nonsubmissions.

  •   2024-FO-0004-001-F

    Evaluate and update IDIS to ensure that resubmissions of PR 29 reports are tracked and prior submissions are preserved and correct the system’s misclassification of unsubmitted and uncertified draft PR 29 reports as submitted.

  •   2024-FO-0004-002-A

    Determine how often grantees’ requests for reimbursement contain cost outside the quarter and in coordination with OCFO, evaluate CPD’s grant accrual methodology and assumptions to ensure that it adequately considers the impact of these late cost reimbursements.

  •   2024-FO-0004-002-B

    Develop guidance that encourages grantees to draw down funds for reimbursement on a regular schedule, not less than quarterly.

  •   2024-FO-0004-002-C

    Work with OCFO to ensure that CPD collects and reports to OCFO all of the information needed to properly account for all CPD activities in HUD’s financial statements in accordance with Federal financial reporting requirements and accounting standards.

  •   2024-FO-0004-002-D

    Update Line 4 - Cash (grant funds) disbursed during the reporting period in the PR 29 report to allow grantees to report all CDBG grant funds disbursed, including funds that have not yet been drawn down from HUD for reimbursement.

  •   2024-FO-0004-003-A

    Obtain the required approvals under PRA for the PR 29 report.