Monitoring and Compliance

Overview

For Subrecipients and Successful Applicants, DED engages in an initial capacity assessment during the initial program stages to evaluate Subrecipient or Successful Applicant program documentation and qualifications, as applicable, and identify potential high risk Subrecipients or Successful Applicants.

Purpose

The initial capacity assessment can fulfill one or more of the following purposes:

• Provides a due diligence review of Subrecipients’ or Successful Applicants’ initial program documents;
• Provides an evaluation review of Subrecipient or Successful Applicant qualifications for programs which utilize a state-issued NOFO or NOI; and
• Informs DED on the potential level of Subrecipient or Successful Applicant program compliance with Federal, state, and CDBG-DR requirements.

Implementation

Within initial program stages (awarding, SRA or funding agreement, and early implementation phases), the initial capacity assessment primarily serves as a determination of Subrecipients’ or Successful Applicants’ readiness to execute a SRA or funding agreement and implement the respective program or project for which it is receiving funding. It also advises DED of those high risk Subrecipients or Successful Applicants who require direct administrative oversight in the form of intensive TA and capacity training.

As programs progress into full project implementation, the initial capacity assessment shifts to provide DED with understanding and prioritization of potential Subrecipient or Successful Applicant areas to focus compliance and monitoring activities on, which also still considers the components in which TA and training were initially provided. In this sense, the capacity assessment serves as the foundation from which DED records and documents both its TA and monitoring efforts to ensure regulatory compliance as responsible and effective stewards of HUD funding.

Additional functional results of the initial capacity assessment process include determinations on scheduling, frequency, and types of TA, training, and monitoring activities.

DED’s monitoring process is conducted based upon priority, which is primarily determined by the results of an Annual Risk Assessment. Subrecipients and Successful Applicants are prioritized based upon the most current information and staffing resources available, and this prioritization is utilized to generate the monitoring schedule.

DED reviews 100% of its Subrecipients and Successful Applicants over the life of the CDBG-DR program. The priority of each review is determined through the Annual Risk Assessment, which is performed annually. The Disaster Recovery Manager, in conjunction with the Compliance Team, conducts the annual risk assessment utilizing the Annual Risk Assessment Criteria.

Subrecipients and Successful Applicants must submit project status reports (PSRs) quarterly to DED pertaining to the activities undertaken as a result of the SRA or funding agreement to ensure appropriate use of funds. CDBG-DR Team program staff conduct a review of these PSRs quarterly. CDBG-DR Team program staff typically do not issue the Subrecipient or Successful Applicant a formal response in connection with quarterly PSRs. However, if any deficiency is found in a PSR, the CDBG-DR Team program staff relay any issues to the Disaster Recovery Manager and the Compliance Team Lead. The Disaster Recovery Manager and Compliance Team Lead will determine whether the identified deficiencies should prompt a desktop or on-site monitoring review.

Types

• Desktop Monitoring; and

• On-site Monitoring.

Grants administered under the Infrastructure Match Program, Housing Programs, and Planning and Capacity Building Programs are monitored through the desktop monitoring process. Grants administered under the Infrastructure Match Program and Housing Programs are also monitored through the on-site monitoring process.

Monitoring Schedule 

The monitoring schedule is published on a quarterly basis and identifies the following: 

• Subrecipients and Successful Applicants to be monitored;

• Projects and staff assignments for each review to be conducted;

• Proposed visit dates; and

• Type/Method of review (desktop or on-site).

A finding is reported when there is evidence that a statute, regulation, or requirement has been violated. If compliance is not possible, monetary or administrative sanctions may be imposed upon the Program Implementation Contractor, Subrecipient, Successful Applicant, or a combination thereof. Areas where findings are commonly reported include:

Recordkeeping

A commonly violated regulation is 24 CFR 570.490 in recordkeeping (or lack thereof) and inadequate documentation. It is important to have adequate records to support and establish compliance. Lack of recordkeeping may signify deeper deficiencies. For more information, refer to the Recordkeeping and Data Management page.

Duplication of Benefits

A commonly violated regulation is Section 312 of the Stafford Act (42 U.S.C. 5155). This violation has resulted in a request to return CDBG-DR funds back to a grantee because of potential overpayment that was made. There needs to be evidence and documentation showing that duplication of benefits reviews were completed and that they were completed correctly. For more information, refer to the Duplication of Benefits page.

Meeting National Objectives

A commonly violated regulation is 24 CFR 570.483. The most commonly cited issue with National Objectives is incorrect calculation of Low/Moderate Income (LMI) Area Benefit service areas. Accurately documenting how a project or activity is meeting the appropriate National Objective is critical to avoiding this common finding. For more information, see Basically CDBG Online: National Objectives and Eligible Activities.

Financial Management

Some commonly violated regulations are 24 CFR 570.489(d) and 2 CFR Part 200. The most commonly cited issue with financial management is a lack of or inadequate financial controls. For more information, refer to the Financial Management page.

Procurement

Some commonly violated regulations are:

• 24 CFR 570.489(g);
• 24 CFR 570.489(h);
• 2 CFR 200.324; and 2 CFR 200.320.

Conflict of interest is a common finding in procurement. In many instances, the finding results from contractors who participated at some point in the feasibility or development of specs and standards of a project and were then permitted to bid on the construction work of the project, constituting a potential conflict of interest.

Another common procurement finding is with the lack of free and open competition. All CDBG-DR procurements must be open and competitive, and documentation of this is essential.

There are provisions that are required to be included in all procurements and contracts (e.g., Section 3, Minority- and Women-Owned Business Enterprise). Often, these are missing from the procurement documents and/or the resulting contract and this constitutes a finding.

A cost or price analysis is required to be completed prior to issuing receiving bids or proposals, and this is often something that is not done, which results in a finding during monitoring visits.

Overuse or incorrect use of change orders is a common pitfall resulting in a finding. Make sure that all change orders include a written justification (for documentation purposes) and that no change order increases the amount or changes the scope well beyond the original agreement.

Environmental Compliance

A commonly violated regulation is 24 CFR Part 58. The following issues are commonly cited as violations of environmental compliance:

• Conducting the incorrect level of environmental review;
• Not recognizing “choice limiting actions” and/or expending funds prior to receiving an Authorization to Use Grant Funds (AUGF); and
• Not following up on “mitigating actions” (e.g., measures during construction, elevation of structures, etc.)

For more information, refer to the National Environmental Policy Act page.