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Playing by the Rules Ch. 8 Chapter 8 Closeout Contents Page 8.1 Overview ...........................................................................................................................................................8-2 8.2 Closeout Procedures .....................................................................................................................................8-2 8.3 Cost and Cash Adjustments........................................................................................................................8-3 8.4 Continuing Subrecipient Responsibilities .............................................................................................8-4 Exercise for Chapter 8—Closeout Questions ................................................................................................8-5 Exercise for Chapter 8—Closeout Answers ...................................................................................................8-6 Playing by the Rules: CDBG Administrative Systems | Chapter 8-1 Playing by the Rules: CDBG Administrative Systems | Chapter 8-2 Notes - -- - Chapter 8: Closeout It would be nice if the closeout process for completing your activities under a subrecipient agreement were as simple as closing out a bank account or making a fnal payment on a mort- gage. However, closeout procedures involve many steps, depending on the complexity of the activities undertaken and the nature of any contingent assets or liabilities surviving the com- pletion of your CDBG-funded activities. The key to efectively closing out your activities is clarity. Your agency remains responsible for certain closeout activities despite having completed all requirements under its agreement and despite having paid/received all accounts due. To ensure a smooth closeout, you will need to carefully and completely document all your fnancial and program activities up to the point of closeout; weak documentation, a complicated program, or an agreement extended for a long time may make it more difcult for both your agency and your grantee to resolve all the relevant issues at closeout. This chapter is designed to help you understand the closeout process with respect to: • General issues that you must address. • Specifc closeout procedures your organization must undertake. • Adjustments you must make to account for fnal costs, cash, and other asset balances. • Continuing subrecipient responsibilities mandated by Federal regulations. Understanding the closeout requirements and process will ensure that you and the grantee are ready to address issues that may arise during the project that may hinder your ability to fnalize activities and deliverables under your subrecipient agreement. AS YOU READ THIS CHAPTER, ASK YOURSELF ABOUT… 1. The status of any of your open CDBG-funded activities that may be nearing or ready to close out. 2. Whether your fnancial and progress reports are up-to date and accurately refect your com pletion of work under each subrecipient agreement. 3. Whether there are any outstanding monitoring issues (fndings or concerns) that remain unresolved. 4. How you will meet your grantee’s requirements for any commitments that survive the close out of your activities 8.1 Overview The subrecipient agreement closeout process allows the grantee to confrm that all required work under the agreement has been completed. This includes the resolution of all fnancial, administra- tive, and performance requirements for the program or project funded through the agreement. The Federal regulations applicable to the CDBG program include few specifc requirements rel- ative to a subrecipient project’s closeout. The lack of specifc Federal requirements means that there will be some variation in closeout procedures among communities. Nonetheless, many grantees, through the incorporation of appropriate language in their subrecipient agreements, require that their subrecipients follow closeout procedures that are similar to the ones that the grantees themselves must follow under 24 CFR 570.509. 8.2 Closeout Procedures 24 CFR 570.509(a) describes the criteria that HUD uses to determine when a grantee is ready for grant closeout. Grantees often use the same criteria to determine subrecipients’ readiness for closeout. According to this section, a grantee will usually initiate closeout procedures rela- tive to a subrecipient when: • All costs paid with CDBG funds have been expended and drawn, with the exception of close- out costs (e.g., audit) or contingent liabilities (24 CFR 570.509(a)(1)). Playing by the Rules: CDBG Administrative Systems | Chapter 8-3 Notes Chapter 8: Closeout • All work fnanced with CDBG has been completed, is eligible, and meets a national objective, including activities fnanced through escrow accounts, loan guarantees, or similar mecha- nisms; performance and expenditure reports have been submitted and account for pro- gram income and administrative expenditures (24 CFR 570.509(a)(2-5)). • All other responsibilities under the agreement with the grantee have been met or the grant- ee has determined that there is no further beneft in keeping the agreement open to secure performance (24 CFR 570.509(a)(6)). When the grantee has determined that you have met these criteria or upon the expiration or termination of the subrecipient agreement, 24 CFR 570.502(a)(8) stipulates that the grantee will follow procedures in 2 CFR 200.344 for closing out subrecipients. The grantee usually will require that you provide fnal versions of all fnancial, performance, and other reports that were a condition of the award. These reports may include: • A fnal performance or progress report. • A fnancial status report (including all program income). • A fnal request for payment. • A fnal inventory of property in your organization’s possession that was acquired or im- proved with CDBG funds. The inventory should identify real property acquired with over $25,000 of CDBG funds including its current use, to facilitate compliance with requirements for the continuing eligible use of property in 24 CFR 570.505. Although the grantee and the subrecipient may establish an earlier deadline, these reports are due within 90 days of the expiration/termination of the grantee’s subrecipient agreement or notifcation; however, your grantee may authorize an extension when properly justifed. If you fail to complete these requirements, your grantee may proceed in closing out your grant based on the information available to it. The grantee will generally require that your organization liquidate all obligations incurred under the CDBG award within 120 days of the expiration or termination of the subrecipient agreement and before the submission of the fnal fnancial status report. Based on your fnal reports and other relevant information, the grantee may execute a close- out agreement that specifes: • Closeout costs or contingent liabilities that are subject to payment with CDBG funds after the closeout agreement is signed. • The amount of any unused CDBG funds (see Section 8.3 regarding the disposition of these funds). • Your responsibilities after closeout (see Section 8.4). • Other provisions appropriate to special circumstances. 8.3 Cost and Cash Adjustments See 24 CFR 570.503(b)(7). Upon receipt of the reports noted in the preceding section, the grantee will make upward or downward adjustments to your allowable costs. The grantee should make prompt payment to your organization for any outstanding allowable reimbursable costs (see 2 CFR 200.344(c–e and g)). Pursuant to 24 CFR 570.503(b)(7), the subrecipient agreement must specify that any grant funds remaining in your possession at the expiration or termination of the agreement must be refunded immediately to the grantee. Similarly, you must transfer to your grantee any ac- counts receivable attributable to the use of CDBG funds. The agreement must also provide that, for any real property under your control that was ac- quired or improved using more than $25,000 in CDBG funds, you must either: • Use the property to meet one of the CDBG national objectives for at least fve years after the expiration of the subrecipient agreement. Playing by the Rules: CDBG Administrative Systems | Chapter 8-4 Notes Chapter 8: Closeout • Pay your grantee the current market value of the property for any portion of the value attributable to the CDBG funds used for the acquisition or improvement of the property. This payment is program income to the grantee.  Funds paid to your organization in excess of the amount to which it is fnally determined to be entitled under the CDBG program constitute a debt to the Federal Government (2 CFR 200.346). If not paid within 90 calendar days after demand, your grantee may reduce this debt by making an ofset against other requests for reimbursement from your organization by withholding advance payments or by other action permitted by law. 8.4 Continuing Subrecipient Responsibilities As specifed in 2 CFR 200.345, the closeout of a CDBG award to a subrecipient does not afect: • The grantee’s right to disallow costs and/or recover funds on the basis of a later audit or other review. • Your organization’s obligation to return funds due to the grantee from subsequent refunds, corrections, or other transactions. • Your responsibilities for records retention as specifed in 2 CFR 200, Subpart D—Post Fed- eral Award Requirements, Records Retention and Access, including 2 CFR 200.334-338, as modifed by 24 CFR 570.502(a)(7)(ii). • Your organization’s responsibilities for property management and disposition: • For real property in 24 CFR 570.503(b)(7). • For other property, as applicable in 2 CFR 200, Subpart D, Post Federal Award Require- ments, Property Standards, including: • 2 CFR 200.310 (Insurance coverage). • 2 CFR 200.312 (Federally owned and exempt property). • 2 CFR 200.313 and 24 CFR 570.502(a)(6) (Equipment). • 2 CFR 200.314 (Supplies). • 2 CFR 200.315 (Intangible property). • 2 CFR 200.316 (Property trust relationship). • Audit requirements in 2 CFR 200, Subpart F. Playing by the Rules: CDBG Administrative Systems | Chapter 8-5 Notes Chapter 8: Closeout Exercise for Chapter 8—Closeout Questions Circle the correct answer. 1. On the date that its subrecipient agreement with the Midtown Community Development Agency (Midtown) expired, the nonproft Family Services Organization (FSO) submitted its fnal performance, fnancial status, and inventory reports, and a fnal request for payment. Once the fnal payment is received from the grantee, can this subrecipient consider itself “closed out”? YES NO 2. The Mica City Housing Authority (MCHA) conducted $800,000 in CDBG-funded housing rehabilitation over the last year and had not yet been audited. However, when the funds were fully expended and assisted units completed, MCHA submitted its fnal reports to the Mica City CD Ofce (the City) and received certifcation that the grantee considered its program to be closed out. Must the MCHA still arrange for an audit of its CDBG funds? YES NO 3. As a subrecipient under Central County’s (the County’s) CDBG program, the City of Lobos implemented a public facilities efort to remove architectural barriers. The City agreed in the subrecipient agreement to match the CDBG funds in the project on a dollar-for-dol- lar basis. The project had been formally closed out by the County by the time that the City contracted for an IPA audit of this activity. The completed audit revealed that the amount contributed as the City’s match against the CDBG assistance was less than the dollar-for-dollar match previously reported by the City of Lobos in its fnal closeout report. Can the County disallow some of the expenses covered with CDBG funds? YES NO 4. The subrecipient, Housing Resources, Inc. (HRI), has been operating a CDBG-funded reha- bilitation grant program for low- and moderate-income households. After closeout, one of the assisted property owners decided not to make a rehabilitated unit, which had been recently vacated, available to a low- or moderate-income tenant. Under the recapture provisions of the program, the owner returned the amount of the assistance (plus an interest penalty) to HRI. Can HRI keep these funds for its own use? YES NO The answers are on the next page. Playing by the Rules: CDBG Administrative Systems | Chapter 8-6 Notes Chapter 8: Closeout Exercise for Chapter 8—Closeout Answers 1. NO. It is up to Midtown, the grantee, to determine when the conditions for “closeout” have been satisfed, consistent with its standard procedures (as documented). Once FSO has met these conditions, Midtown should either 1) enter into a closeout agreement with FSO or 2) send written notifcation regarding FSO’s closeout status along with any special con- ditions or continuing responsibilities that FSO must satisfy. Until it receives such formal notifcation, FSO should not assume that Midtown has “closed out” its CDBG activity. 2. YES. The applicable regulations are clear that the closeout of a CDBG award does not afect the MCHA’s audit requirements. And, according to 2 CFR 200, Subpart F, Audit Re- quirements, any entity that expends $750,000 or more a year in Federal fnancial assis- tance must have an audit completed in accordance with the standards found in Subpart F. 3. YES. 2 CFR 200.345 specifes that even after closeout of the CDBG project, the grantee has the right to disallow costs and recover funds based on a later audit. In this case, the County could choose to reduce the allowable CDBG costs to an amount equal to the City investment needed to complete the project. 4. NO. According to 24 CFR 570.503(b)(7), at the expiration of the subrecipient agreement, the subrecipient must transfer to the grantee any CDBG funds on hand and any accounts receivable attributable to the use of CDBG funds. The obligations of assisted property owners to reimburse HRI under recapture provisions of a funding agreement would constitute accounts receivable. Therefore, HRI would need to return these funds to the grantee.