CM-08-04-104DATE: April 21, 2008
SUBJECT: City Manager Approval, April 25, 2008
ITEM: Execute a Community Development Block Grant
funding agreement in the amount of $2,400 with
WBCO.
Department: Planning and Community Development Department
Staff Person: Mona Ryan, Community Development Coordinator
Justification:
WBCO provides meals to over 400 Round Rock senior citizens through the noontime
congregate meal program at the Allen R Baca Center. WBCO also provides over 60
home delivered meals to clients over 60 who live in Round Rock and are
functionally impaired.
Funding:
Cost: $2,400.00
Source of funds: Community Development Block Grant
Outside Resources: N/A
Background Information:
In order to meet the demands of providing these services, WBCO will purchase a
commercial grade refrigerator/freezer unit that will store perishable foods used to
make the meals.
This activity was approved by Council in the Amended 2004-2009 Consolidated Plan
in accordance with Exhibits A - D, adopted by Resolution R -08-04-10-11G1 on April
10, 2008.
Public Comment:
All public notice and hearing requirements throughout the
development of the action plan have been complied with by
the City and the US Department of Housing and Urban
Development and are available for review.
THE STATE OF TEXAS
COUNTY OF WILLIAMSON
COMMUNITY DEVELOPMENT BLOCK GRANT AGREEMENT
(B -07 -MC -48-0514)
THIS AGREEMENT, entered into this )5 day of 1 , 2008 by and between the
City of Round Rock, a Texas home -rule municipality (herein called the "CITY") and Williamson
Burnet County Opportunities (herein called "WBCO").
WHEREAS, the CITY has applied for and received funds from the United States
Government under Title I of the Housing and Community Development Act of 1974, Public Law
93-383; and
WHEREAS, the CITY wishes to engage WBCO to assist the CITY in utilizing such
funds;
NOW, THEREFORE, In consideration of the mutual covenants and agreements contained herein
the parties agree as follows:
SECTION I:
SCOPE OF SERVICES
1.1. Activities
WBCO will be responsible for administering a Community Development Block Grant
("CDBG") Year 2007 program known as the Senior Nutrition/Meals on Wheels Program in a
manner satisfactory to the CITY and consistent with any standards required as a condition of
providing these funds. Such program will include the following activities eligible under the
CDBG Program:
Program Delivery
Activity 1: Provide meals to over 400 Round Rock senior citizens through the
noontime congregate meal program at the Allen R Baca Center. Provide
over 60 home delivered meals to clients over 60 who live in Round Rock
and are functionally impared.
General Administration
Administration services including timely submission of quarterly reports will be
conducted by the WBCO central office staff.
WBCO - Fridge agreement - JMR Revised (00135649).DOC
1.2 National Objectives
WBCO certifies that the activity carried out under this Agreement shall meet the national
objective to benefit low and moderate income families. WBCO shall meet this objective by
providing meals to senior citizens and the functionally impaired over 60 that are low to moderate
income.
1.3. Levels of Accomplishment — Goals and Performance Measures
In addition to normal administrative services required as part of this Agreement, WBCO
agrees to provide the following program services:
Activity
Units of Service Per Month
Total Units per Year
Congregate Meal Program Meals on
Wheels Home Delivery Program
375
4,500
Units of Service shall be defined as meals delivered..
1.4. Staffing
To undertake the activity described above and accomplish the levels of service described
above, WBCO will allocate staff time in support of the program funded under this Agreement as
follows:
Title
Hrs. per Week
# of Weeks
=
Estimated Hours
Director, Senior Nutrition
.16
52
=
8.6
Site Leader
1.25
52
=
65
Cook
6
52
=
312
Assistant Cook
6
52
=
312
Volunteer Drivers &
Kitchen help
Timeframe: October 1, 2007 through September 30, 2008
25
52
1300
Any changes in the key personnel assigned or their general responsibilities under this program
are subject to the prior approval of the CITY.
1.5. Performance Monitoring
The CITY will monitor the performance of WBCO against the goals and performance
standards required herein. Substandard performance as determined by the CITY will constitute
noncompliance with this Agreement. If action to correct such substandard performance is not
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taken by WBCO within thirty (30) days after being notified by the CITY, contract suspension or
termination procedures will be initiated in accordance with Section V II of this Agreement.
SECTION II:
TIME OF PERFORMANCE
Services of WBCO shall start on the 1st day of October, 2007 and end on the 30th day
of September, 2008. The term of this Agreement and the provisions herein shall be extended to
cover any additional time period during which WBCO remains in control of CDBG funds or
other assets including program income.
SECTION III:
BUDGET
Line Item
Two Door Reach In Upright Commercial Refrigerator
Total CDBG Budget
Amount
$2,400.00
$2,400.00
Any indirect costs charged must be consistent with the conditions of Paragraph 8.2 (C) of
this Agreement. In addition, CITY may require a more detailed budget breakdown than the one
contained herein, and WBCO shall provide such supplementary budget information in a timely
fashion in the form and content prescribed by CITY.
SECTION IV:
PAYMENT
It is expressly agreed the total amount to be paid by the CITY under this Agreement shall
not exceed $2,400.00. Drawdowns for the payment of eligible expenses shall be made against
the line item budgets provided above and incorporated herein and in accordance with
performance. Expenses for general administration shall also be paid against the line item budgets
provided above and in accordance with performance.
Payments will be contingent upon certification of WBCO's financial management system
in accordance with the standards specified in Appendix A to this Agreement.
SECTION V:
NOTICES
Notices required by this Agreement shall be in writing and delivered via mail (postage
prepaid), commercial courier, or personal delivery or sent by facsimile or other electronic means.
Any notice delivered or sent as aforesaid shall be effective on the date of delivery or sending.
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All notices and other written communications under this Agreement shall be addressed to the
individuals in the capacities indicated below, unless otherwise modified by subsequent written
notice.
Notices made pursuant to this Agreement shall be directed to the following
representatives:
CITY:
WBCO:
Mona Ryan,
Community Development Coordinator
Williamson Burnet County Opportunities
Andrew Shell
City of Round Rock
Executive Director
301 West Bagdad, Suite 140
PO Box 740
Round Rock, Texas 78664
Georgetown TX 78627-0740
Telephone: 512-218-5416
Telephone: 763-1400
Fax: 512-341-3152
Fax: 763-1411
e-mail: mona@round-rock.tx.us
e-mail: ashell@wbco.net;
bfitzpatrick@wbco.net
SECTION VI:
SPECIAL CONDITIONS
WBCO shall agree to comply with the requirements of Title 24 Code of Federal
Regulations, Part 570 of the Housing and Urban Development (HUD) regulations concerning
Community Development Block Grants (CDBG) and all federal regulations and policies issued
pursuant to these regulations. WBCO further agrees to utilize funds available under this
Agreement to supplement rather than supplant funds otherwise available.
SECTION VII:
GENERAL CONDITIONS
7.1. General Compliance
WBCO agrees to comply with all applicable federal, state and local laws, regulations and
policies governing the funds provided under this Agreement.
7.2. Independent Contractor
It is understood and agreed that WBCO is an independent contractor and shall not be
considered an employee of the CITY. WBCO shall at all times remain an independent contractor
with respect to the services to be performed under this Agreement. The CITY shall be exempt
from payment of all unemployment compensation, FICA and retirement benefits, as WBCO is an
independent contractor. WBCO shall not be within protection or coverage of the CITY'S
Workers' Compensation insurance, Health Insurance, Liability Insurance or any other Insurance
that the CITY from time to time may have in force and effect.
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7.3. Hold Harmless
WBCO shall indemnify, save harmless and exempt the CITY, its officers, agents, servants,
and employees from and against any and all suits, actions, legal proceedings, claims, demands,
damages, costs, expenses , attorney fees and any and all other costs or fees incident to any work
done as result of this Agreement and arising out of a willful or negligent act or omission of WBCO,
its officers, agents, servants, and employees; provided, however, that WBCO shall not be liable for
any suits, actions, legal proceedings, claims, demands, damages, costs, expenses and attorneys' fees
arising out of a willful or negligent act or omission of the CITY, its officers, agents, servants and
employees, or third parties.
7.4. Worker's Compensation
WBCO shall provide Workers' Compensation Insurance coverage for all of its employees
involved in the performance of this Agreement.
7.5. Insurance and Bonding
WBCO shall carry sufficient insurance coverage to protect contract assets from loss due to
theft, fraud and/or undue physical damage, and as a minimum shall purchase a blanket fidelity bond
covering all employees in an amount equal to cash advances from the CITY.
7.6. Amendments
The terms and conditions of this Agreement, including the attachments listed below,
constitute the entire agreement between the parties and supersedes all previous communications,
representations, or agreements, either written or oral, with respect to the subject matter hereof.
No modification or amendment to this Agreement will be binding on either party unless
acknowledged in writing by their duly authorized representatives.
Attachments:
a. Exhibit A — Self Certification Form
b. Exhibit B — Client Data / Beneficiary Report Form
c. Appendix A — OMB Circular A-122, Cost Principles for Non -Profit Organizations
d. Appendix B — OMB Circular A-133, Audits of States, Local Governments, and
Non -Profit Organizations
e. Appendix C — 24 CFR 570 CDBG Regulations Subpart C, Eligible Activities
f. Appendix D — 24 CFR 570 CDBG Regulations Subpart J, Grant Administration
g. Appendix E — 24 CFR 570 CDBG Regulations Subpart K, Other Requirements
7.7. Suspension or Termination
Either party may terminate this Agreement at any time by giving written notice to the
other party of such termination and specifying the effective date thereof at least thirty (30) days
before the effective date of such termination. Partial terminations of the Scope of Service in
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Paragraph 1.1. above may only be undertaken with the prior approval of the CITY. In the event
of any termination for convenience, all finished or unfinished documents, data, reports or other
materials prepared by WBCO under this Agreement shall, at the option of the CITY, become
property of the CITY.
The CITY may also suspend or terminate this Agreement, in whole or in part, if WBCO
materially fails to comply with any term of this Agreement, which include, but are not limited to
the following:
A. Failure to comply with any of the rules, regulations or provisions referred to
herein, or such statutes, regulations, executive orders, and HUD guidelines,
policies or directives as may become applicable at any time;
B. Failure, for any reason, of WBCO to fulfill in a timely and proper manner its
obligations under this Agreement;
C. Ineffective or improper use of funds provided under this Agreement; or
D. Submission by WBCO to the CITY reports that are incorrect or incomplete in any
material respect.
The CITY may declare WBCO ineligible for any further participation in CITY contracts,
in addition to other remedies as provided by law. Should WBCO fail to cure or correct such
defects or failures identified by the CITY within the fifteen (15) days after notification of
deficiencies, and such breach of contract relate to a violation of federal law or regulations which
results in a demand for reimbursement from the Department of Housing and Urban Development
(HUD) or its successor, the CITY may seek reimbursement of all funds from the CITY to
WBCO under this Agreement.
WBCO shall not be relieved of the liability to the CITY for damages sustained by the
CITY by virtue of any breach of this Agreement by WBCO and the CITY may withhold any
payments to WBCO for the purpose as set out and until such time as the exact amount of
damages due the CITY from the WBCO is determined. Should the CITY become aware of any
activity by WBCO which would jeopardize the CITY's position with HUD which would cause a
payback of CDBG funds or other CITY federal funds then the CITY may take appropriate action
including injunctive relief against WBCO to prevent the transaction as aforesaid. The failure of
the CITY to exercise this right shall in no way constitute a waiver by the CITY to demand
payment or seek any other relief in law or in equity to which it may be justly entitled.
7.8. Pending Litigation
WBCO agrees to inform CITY about any litigation WBCO is or becomes in involved in.
7.9. Background Checks
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WBCO agrees to conduct a criminal background check on all employees working
directly with youth.
SECTION VIII:
ADMINISTRATIVE REQUIREMENTS
8.1. Financial Management
A. Accounting Standards
WBCO agrees to comply with 24 CFR 84.21-28 and agrees to adhere to the accounting
principles and procedures required therein, utilize adequate internal controls, and maintain
necessary source documentation for all costs incurred.
B. Cost Principles
WBCO shall administer its program in conformance with OMB Circulars A-122, "Cost
Principles for Non -Profit Organizations," or A-21, "Cost Principles for Educational Institutions,"
as applicable. These principles shall be applied for all costs incurred whether charged on a direct
or indirect basis.
8.2. Documentation and Record Keeping
A. Record Keeping
WBCO shall maintain all records required by the federal regulations specified in 24 CFR
Part 570.506 and that are pertinent to the activities to be funded under this Agreement. Such
records shall include, but are not be limited to:
1. Records providing a full description of each activity undertaken;
2. Records demonstrating that each activity undertaken meets one of the
National Objectives of the CDBG program under 24 CFR Part 570.208;
3. Records required to determine the eligibility of activities under 24 CFR
Part 570.201 - 570.206;
4. Financial records as required by 24 CFR Part 570.502, and OMB Circular
A-110; and
5. Other records necessary to document compliance with Subpart K of 24
CFR 570.
B. Retention
WBCO shall retain all financial records, supporting documents, statistical records and all
other records pertinent to this Agreement for a period of four (4) years after the termination of all
activities funded under this Agreement. Notwithstanding the above, if there is litigation, claims,
audits, negotiations or other actions that involve any of the records cited and that have started
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before the expiration of the four-year period, then such records must be retained until completion
of the actions and resolution of all issues, or the expiration of the four-year period, which ever
occurs later.
C. Client Data
WBCO shall maintain client data demonstrating client eligibility for services provided.
Such data shall include, but not be limited to, client name, address and annual household income
level as shown in Exhibit "A", attached hereto and incorporated herein. Any other basis for
determining eligibility must be approved by the CITY in advance in writing, and description of
services provided. Such information shall be made available to CITY monitors or their
designees upon request.
D. Disclosure
WBCO understands that client information collected under this contract is private and
the use or disclosure of such information, when not directly connected with the administration of
the CITY's or WBCO's responsibilities with respect to services provided under this contract is
prohibited by the U.S. Privacy Act of 1974 unless written consent is obtained from such person
receiving service and, in the case of a minor, that of a responsible parent/guardian.
E. Close -Outs
WBCO's obligation to the CITY shall not end until all closeout requirements are
completed. Activities during this close-out period shall include, but are not limited to: making
final payments, disposing of program assets (including the return of all unused materials,
equipment, unspent cash advances, program income balances, and receivable accounts to the
CITY), and determining custodianship of records. Not withstanding the foregoing, the terms of
this Agreement shall remain in effect during any period that WBCO has control over CDBG
funds, including program income.
F. Audits & Inspections
All WBCO's records with respect to any matters covered by this Agreement shall be
made available to the CITY, grantor agency, their designees or the Federal Government, at any
time during normal business hours, as often as the CITY or grantor agency deems necessary, to
audit, examine, and make excerpts or transcripts of all relevant data. Any deficiencies noted in
audit reports must be fully cleared by WBCO within thirty (30) days after receipt by WBCO.
Failure of WBCO to comply with the above audit requirements will constitute a violation of this
contract and may result in the withholding of future payments. WBCO hereby agrees to have an
annual agency audit conducted in accordance with current CITY policy concerning WBCO's
audits and OMB Circular A-133, attached hereto as Appendix B.
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8.3. Reporting and Payment Procedures
A. Program Income
WBCO shall report quarterly all program income, as defined at 24 CFR 570.500(a),
generated by activities carried out with CDBG funds made available under this contract. The use
of program income by WBCO shall comply with requirements set forth in 24 CFR 570.504. By
way of further limitations, WBCO may use such income during the contract period for activities
permitted under this contract and shall reduce requests for additional funds by the amount of any
such program income balances on hand. All unused program income shall be returned to the
CITY at the end of the contract period. Any interest earned on cash advances from the U.S.
Treasury is not program income and shall be remitted promptly to the CITY. Reporting of any
such program income shall, at minimum, be included in quarterly reports under Section VIII of
this Agreement. Information on program income provided in these reports will include, but not
be limited to, summaries of program income generated; a summary of expenditures of these
funds; and a description of the use of program income sufficient for determining eligibility of
these expenses under CDBG guidelines.
B. Indirect Costs
If indirect costs are charged, WBCO will develop an indirect cost allocation plan for
determining the appropriate WBCO' s share of administrative costs and shall submit such plan to
the CITY for approval.
C. Payment Procedures
The CITY will pay to WBCO funds available under this Agreement based on information
submitted by WBCO and consistent with an approved budget and CITY policies concerning
payments. With the exception of certain advances, payments will be made for eligible expenses
actually incurred by WBCO, and not to exceed actual cash requirements. Payments will be
adjusted by the CITY in accordance with advance fund and program income balances available
under this contract for costs incurred by the CITY on the behalf of WBCO.
D. Progress Reports
WBCO shall submit regular Quarterly Progress Reports to the CITY in the form,
content, and frequency as required by the CITY. These shall include but not be limited to
summary of expenditures, list of beneficiaries and a brief narrative of accomplishments.
Beneficiary reports should be submitted on Exhibit "B", attached hereto and incorporated herein
unless an alternative report is approved by CITY in advance and in writing.
E. Budgets
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The CITY and the WBCO may agree to revise the budget, provided in Section III above,
from time to time in accordance with existing CITY policies. Any amendments to the budget
must be approved in writing by both the CITY and WBCO.
8.4. Procurement
A. Compliance
WBCO shall maintain real property inventory records, which clearly identifies any
properties purchased, improved or sold using funds provided under this Agreement. Property
retained shall continue to meet eligibility criteria and shall conform to the "changes in use
restrictions specified in 24 CFR Parts 570.503(b)(8). All program assets (unexpended advanced
funds) shall revert to the CITY upon termination of this Agreement. The only authorized
expenditures of funds shall be food and supplies as described herein.
B. OMB Standards
WBCO shall procure materials in accordance with the requirements of Attachment 0 of
OMB Circular A-110, Procurement Standards, and shall subsequently follow Attachment N,
Property Management Standards, covering utilization and disposal of property. These
requirements are referenced in 24 CFR Part 84, titled "Common Rule".
C. Travel
WBCO shall obtain written approval from the CITY for any travel outside the
metropolitan area with funds provided under this Agreement. The CITY shall determine that
such travel is necessary and reasonable according to applicable standards outlined in OMB
Circular A87.
8.5. Use and Reversion of Assets
The use and disposition of real property and equipment under this Agreement shall be in
compliance with the requirements of 24 CFR Part 84 and 24 CFR 570.502, 570.503 and 570.504,
as applicable, which include but are not limited to the following:
A. WBCO agrees that should it discontinue the services as provided for herein, then
WBCO shall transfer to the CITY all unexpended CDBG funds on hand and any accounts
receivable attributable to the use of funds under this Agreement within ten (10) days from the
time of expiration, cancellation, or termination of services. The funds remaining will be
appropriated to eligible CDBG activities in keeping with the CITY's budgetary process.
B. Real property under WBCO's control that was acquired or improved, in whole or
in part, with funds under this Agreement in excess of $25,000 shall be used to meet one of the
CDBG National Objectives pursuant to 24 CFR 570.208 until five (5) years after expiration of
this Agreement. If WBCO fails to use CDBG-assisted real property in a manner that meets a
CDBG National Objective for the prescribed period of time, WBCO shall pay the CITY an
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amount equal to the current fair market value of the property less any portion of the value
attributable to expenditures of non-CDBG funds for acquisition of, or improvement to, the
property. Such payment shall constitute program income to the CITY. WBCO may retain real
property acquired or improved under this Agreement after the expiration of the five-year period.
C. In all cases in which equipment acquired, in whole or in part, with funds under
this Agreement is sold, the proceeds shall be program income (prorated to reflect the extent to
that funds received under this Agreement were used to acquire the equipment). Equipment not
needed by WBCO for activities under this Agreement shall be (a) transferred to the CITY for the
CDBG program or (b) retained after compensating the CITY an amount equal to the current fair
market value of the equipment less the percentage of non-CDBG funds used to acquire the
equipment.
SECTION IX:
RELOCATION, REAL PROPERTY ACQUISITION AND ONE-FOR-ONE HOUSING
REPLACEMENT
9.1. WBCO agrees to comply with (a) the Uniform Relocation Assistance and Real Property
Acquisition Policies Act of 1970, as amended (URA), and implementing regulations at 49 CFR
Part 24 and 24 CFR 570.606(b): (b) the requirements of 24 CFR 570.606(c) governing the
Residential Anti -displacement and Relocation Assistance Plan under section 104(d) of the HCD
Act; and 9c) the requirements in 24 CFR 570.606(d) governing optional relocation policies.
WBCO shall provide relocation assistance to displaced persons as defined by 24 CFR
570.606(b)(2) that are displaced as a direct result of acquisition, rehabilitation, demolition or
conversion for a CDBG-assisted project. WBCO also agrees to comply with applicable CITY
ordinances, resolutions and policies concerning the displacement of persons from their
residences.
SECTION X:
PERSONNEL & PARTICIPANT CONDITIONS
10.1. Civil Rights
A. Compliance
WBCO agrees to comply with city and state civil rights acts and ordinances, and with
Title VI of the Civil Rights Act of 1964 as amended, Title VIII of the Civil Rights Act of 1968 as
amended, Section 109 of Title I of the Housing and Community Development Act of 1974,
Section 504 of the Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990, the
Age Discrimination Act of 1975, Executive Order 11063, and with Executive Order 11246 as
amended by Executive Orders 11375, 11478, 12107 and 12086.
B. Nondiscrimination
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WBCO will not cause any person to be excluded from participation in, denied the
benefits of, or subjected to discrimination under any of the program's activities receiving
assistance under this Agreement based on the grounds of race, color, religion, sex, ancestry,
national origin or handicap. In order to allow the CITY to monitor non-discrimination, WBCO
will at minimum maintain records regarding the race of persons or households assisted under this
contract and whether households assisted have a female head of household.
WBCO will not discriminate against any employee or applicant for employment because
of race, color, religion, sex, ancestry, national origin, or other handicap, age, marital status, or
status with regard to public assistance. WBCO will take affirmative action to insure all
employment practices are free from such discrimination. Such employment practices include but
are not limited to the following: hiring, upgrading, demotion, transfer, recruitment or recruitment
advertising, layoff, termination, rates of pay or other forms of compensation, and selection for
training, including apprenticeship. WBCO agrees to post in conspicuous places, available to
employees and applicants for employment, notices to be provided by the contracting agency
setting forth the provisions of this nondiscrimination clause.
C. Land Covenants
This Agreement is subject to the requirements of Title VI of the Civil Rights Act of 1964
(P.L. 88-352) and 24 CFR 570.601 and 570.602. In regard to the sale, lease, or other transfer of
land acquired, cleared or improved with assistance provided under this Agreement, WBCO shall
cause or require a covenant running with the land to be inserted in the deed or lease for such
transfer, prohibiting discrimination as herein defined, in the sale, lease or rental, or in the use or
occupancy of such land, or in any improvements erected or to be erected thereon, providing that
the CITY and the United States are beneficiaries of and entitled to enforce such covenants.
WBCO, in undertaking its obligation to carry out the program assisted hereunder, agrees to take
such measures as are necessary to enforce such covenant, and will not itself so discriminate.
D. Compliance with Section 504
WBCO agrees to comply with any federal regulations issued pursuant to compliance
with Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 706) or applicable updates which
prohibits discrimination against the handicapped in any federally assisted program. The CITY
shall provide WBCO with any guidelines necessary for compliance with that portion of the
regulations in force during the term of this Agreement.
10.2. Affirmative Action
A. Approved Plan
WBCO agrees that it shall be committed to carry out pursuant to the CITY's
specifications an Affirmative Action Program in keeping with the principles as provided in
Presidents Executive Order 11246 of September 24, 1966. The CITY shall provide Affirmative
Action guidelines to WBCO to assist in the formulation of such program. WBCO shall submit a
plan for an Affirmative Action Program for approval prior to the award of funds.
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B. Women- and Minority -Owned Businesses (W/MBE)
WBCO will use its best efforts to afford small businesses, minority business enterprises,
and women's business enterprises the maximum practicable opportunity to participate in the
performance of this Agreement. As used in this Agreement, the terms "small business' means a
business that meets the criteria set forth in section 3(a) of the Small Business Act, as amended
(15 U.S.C. 632), and "minority and women's business enterprise" means a business at least fifty-
one (51) percent owned and controlled by minority group members or women. For the purpose
of this definition, "minority group members" are Afro-Americans, Spanish-speaking, Spanish
surnamed or Spanish -heritage Americans, Asian -Americans, and American Indians. WBCO
may relay on written representations by businesses regarding their status as minority and female
business enterprises in lieu of an independent investigation.
C. Access to Records
WBCO shall furnish and cause each of its own subcontractors to furnish all information
and reports required hereunder and will permit access to its books, records and accounts by the
CITY, HUD or its agent, or other authorized Federal officials for purposes of investigation to
ascertain compliance with the rules, regulations and provisions stated herein.
D. Notifications
WBCO will send to each labor union or representative of workers with which it has a
collective bargaining agreement or other contract or understanding, a notice, to be provided by
the agency contracting officer, advising the labor union or worker's representative of WBCO's
commitments hereunder, and shall post copies of the notice in conspicuous places available to
employees and applicants for employment.
E. Equal Employment Opportunity and Affirmative Action (EEO/AA) Statement
WBCO will, in all solicitations or advertisements for employees placed by or on behalf of
WBCO, state that it is an Equal Opportunity or Affirmative Action employer.
F. Subcontract Provisions
WBCO will include the provisions of Paragraphs X.A, Civil Rights, and B, Affirmative
Action, in every subcontract or purchase order, specifically or by reference, so that such
provisions will be binding upon each of its own subcontractors.
10.3. Employment Restrictions
A. Prohibited Activity
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WBCO is prohibited from using funds provided herein or personnel employed in the
administration of the program for: political activities; inherently religious activities; lobbying;
political patronage; and nepotism activities.
B. Labor Standards
WBCO agrees to comply with the requirements of the Secretary of Labor in accordance
with the Davis -Bacon Act as amended, the provisions of Contract Work Hours and Safety
Standards Act as amended, the provisions of Contract Work Hours and Safety Standards Act (40
U.S.C. 327 et seq.) and all other applicable Federal, state and local laws and regulations
pertaining to labor standards insofar as those acts apply to the performance of this Agreement.
WBCO agrees to comply with the Copeland Anti -Kick Back Act (18 U.S.C. 874 et seq.) and its
implementing regulations of the U.S. Department of Labor at 29 CFR Part 5. WBCO shall
maintain documentation that demonstrates compliance with hour and wage requirements of this
part. Such documentation shall be made available to the CITY for review upon request.
WBCO agrees that, except with respect to the rehabilitation or construction of residential
property containing less than eight (8) units, all contractors engaged under contracts in excess of
$2,000.00 for construction, renovation or repair work financed in whole or in part with assistance
provided under this Agreement, shall comply with Federal requirements adopted by the CITY
pertaining to such contracts and with the applicable requirements of the regulations of the
Department of Labor, under 29 CFR Parts 1, 3, 5 and 7 governing the payment of wages and
ratio of apprentices and trainees to journey workers; provided that, if wage rates higher than
those required under the regulations are imposed by state or local law, nothing hereunder is
intended to relieve WBCO of its obligation, if any, to require payment of the higher wage.
WBCO shall cause or require to be inserted in full, in all such contracts subject to such
regulations, provisions meeting the requirement of this paragraph.
C. "Section 3" Clause
1. Compliance
Compliance with the provisions of Section 3 of the HUD Act of 1968, as
amended, and as implemented by the regulations set forth in 24 CFR 135, and all applicable rules
and orders issued hereunder prior to the execution of this Agreement, shall be a condition of the
Federal financial assistance provided under this Agreement and binding upon the CITY, WBCO
and any of WBCO's subcontractors. Failure to fulfill these requirements shall subject the CITY,
WBCO and any of WBCO's subcontractors, their successors and assigns, to those sanctions
specified by the Agreement through which Federal assistance is provided. WBCO certifies and
agrees that no contractual or other disability exists that would prevent compliance with these
requirements.
WBCO further agrees to comply with these "Section 3" requirements and to
include the following language in all subcontracts executed under this Agreement:
14
"The work to be performed under this Agreement is a project assisted under a
program providing direct Federal financial assistance from HUD and is subject to
the requirements of Section 3 of the Housing and Urban Development Act of
1968, as amended (12 U.S.C. 1701). Section 3 requires that to the greatest extent
feasible opportunities for training and employment be given to low- and very low-
income residents of the project area, and that contracts for work in connection
with the project be awarded to business concerns that provide economic
opportunities for low- and very low-income persons residing in the metropolitan
area in which the project is located."
WBCO further agrees to ensure that opportunities for training and employment
arising in connection with a housing rehabilitation (including reduction and abatement of lead-
based paint hazards), housing construction, or other public construction project are given to low -
and very low-income persons residing within the metropolitan area in which the CDBG-funded
project is located; where feasible, priority should be given to low -and very law -income persons
within the service area of the project or the neighborhood in which the project is located, and to
low- and very low-income participants in other HUD programs; and award contracts for work
undertaken in connection with a housing rehabilitation (including reduction and abatement of
lead-based pain hazards), housing construction, or other public construction project to business
concerns that provide economic opportunities for low -and very low-income persons residing
within the metropolitan area in which the CDBG-funded project is located; where feasible,
priority should be given to business concerns that provide economic opportunities to low- and
very low-income residents within the service area or the neighborhood in which the project is
located, and to low- and very low-income participants in other HUD programs.
WBCO certifies and agrees that no contractual or other legal incapacity exists that
would prevent compliance with these requirements.
2. Notifications
WBCO agrees to send to each labor organization or representative of workers
with which it has a collective bargaining agreement or other contract or understanding, if any, a
notice advising said labor organization or worker's representative of its commitments under this
Section 3 clause and shall post copies of the notice in conspicuous places to employees and
applicants for employment or training.
3. Subcontracts
WBCO will include this Section 3 clause in every subcontract and will take
appropriate action pursuant to the subcontract upon a finding that the subcontractor is in
violation of regulations issued by the grantor agency. WBCO will not subcontract with any
entity where it has notice or knowledge that the latter has been found in violation of regulations
under 24 CFR Part 135 and will not let any subcontract unless the entity has first provided it with
a preliminary statement of ability to comply with the requirements of these regulations.
15
10.4. Conduct
A. Assignability
WBCO shall not assign or transfer any interest in this Agreement without the prior
written consent of the CITY.
B. Subcontracts
1. Approvals
WBCO shall not enter into any subcontracts with any agency or individual in the
performance of this contract without written consent of the CITY prior to the execution of such
Agreement.
2. Monitoring of Subcontractors
WBCO will monitor all subcontracted services on a regular basis to assure contract
compliance. Results of monitoring efforts shall be summarized in written reports and supported
with evidence of follow-up actions taken to correct areas of noncompliance.
3. Content
WBCO shall cause all of the provisions of this contract in its entirety to be included in
and made a part of any subcontract executed in the performance of this Agreement.
4. Selection Process
WBCO shall undertake to insure that all subcontracts let in the performance of this agreement
shall be awarded on a fair and open competition basis in accordance with applicable procurement
requirements. Executed copies of all subcontracts shall be forwarded to the CITY along with
documentation concerning the selection process.
C. Hatch Act
WBCO agrees that no funds provided, nor personnel employed under this Agreement,
shall be in any way or to any extent engaged in the conduct of political activities in violation of
Chapter 15 of Title V United States Code.
D. Conflict of Interest
16
WBCO understands and agrees to abide by the provisions of 24 CFR 84.42 and 570.611,
which include, but are not limited to the following:
1. WBCO shall maintain a written code or standards of conduct that shall
govern the performance of its officers, employees or agents engaged in the award and
administration of contracts supported by Federal funds.
2. No employee, officer or agent of WBCO shall participate in the selection,
or in the award, or administration of, a contract supported by Federal funds if a conflict of
interest, real or apparent, would be involved.
3. No covered persons who exercise or have exercised any functions or
responsibilities with respect to CDBG-assisted activities, or who are in a position to participate
in a decision-making process or gain inside information with regard to such activities, may
obtain a financial interest in any contract, or have a financial interest in any contract, subcontract,
or agreement with respect to the CDBD-assisted activity, or with respect to the proceeds from the
CDBG-assisted activity, either for themselves or those with whom they have business or
immediate family ties, during their tenure or for a period of one (1) year thereafter.
These conflict of interest provisions apply to "covered persons" which shall include any
person who is an employee, agent, consultant, officer, or elected official of the CITY, WBCO or
any designated public agencies which are receiving funds under the CDBG Entitlement program.
E. Lobbying
WBCO hereby certifies that:
1. No Federal appropriated funds have been paid or will be paid, by or on
behalf of it, to any person for influencing or attempting to influence an officer or employee of
any agency, a Member of Congress, an officer or employee of Congress, or an employee of a
Member of Congress in connection with the awarding of any Federal contract, the making of any
Federal grant, the making of any Federal loan, the entering into any cooperative agreement, and
the extension, continuation, renewal, amendment, or modification of any Federal contract, grant,
loan, or cooperative agreement;
2. If any funs other than Federal appropriated funds have been paid or will be
paid to any person for influencing or attempting to influence an officer or employee of any
agency, a Member of Congress, an officer or employee of Congress, or an employee of a
Member of Congress in connection with this Federal contract, grant, loan or cooperative
agreement, it will complete and submit Standard Form -LLL, "Disclosure Form to Report
Lobbying," in accordance with its instructions; and
3. It will require that the language of paragraph 4. of this certification be
included in the award documents for all subawards at all tiers including subcontracts, subgrants,
and contracts under grants, loans, and cooperative agreements and that all subrecipients shall
certify and disclose accordingly:
17
4. Lobbying Certification
This certification is a material representation of a fact upon which reliance was
placed when this transaction was made or entered into. Submission of this certification is a
prerequisite for making or entering into this transaction imposed by section 1352, title 31, U.S.C.
Any person who fails to file the required certification shall be subject to a civil penalty of not
less than $10,000 and not more than $100,000 for each such failure.
F. Copyright
If this Agreement results in any copyrightable material or inventions, the CITY and/or
grantor agency reserves the right to royalty -free, non-exclusive and irrevocable license to
reproduce, publish or otherwise use and to authorize others to use, the work or materials for
governmental purposes.
G. Religious Organization
WBCO agrees that funds provided under this Agreement will not be utilized for
inherently religious activities, such as worship, religious instruction, or proselytization; to
promote religious interests; or for the benefit of a religious organization as specified in 24 CFR
570.200(j).
SECTION XI:
ENVIRONMENTAL CONDITIONS
11.1. Air and Water
WBCO agrees to comply with the following requirements insofar as they apply to the
performance of this Agreement:
A. Clean Air Act, 42 U.S.C., 7401, et seq.;
B. Federal Water Pollution Control Act, as amended, 33 U.S.C., 1251, et seq., as
amended, 1318 relating to inspection, monitoring, entry, reports, and information, as well as
other requirements specified in said Section 114 and Section 308, and all regulations and
guidelines issued thereunder; and
C. Environmental Protection Agency (EPA) regulations pursuant to 40 CFR Part 50,
as amended.
11.2. Flood Disaster Protection
18
In accordance with the requirements of the Flood Disaster Protection Act of 1973 (42
U.S.C. 4001), WBCO shall assure that for activities located in an area identified by the Federal
Emergency Management Agency (FEMA) as having special flood hazards, flood insurance
under the National Flood Insurance Program is obtained and maintained as a condition of
financial assistance for acquisition or construction purposes including rehabilitation.
11.3. Lead -Based Paint
WBCO agrees that any construction or rehabilitation of residential structures with
assistance provided under this Agreement shall be subject to HUD Lead -Based Paint Regulations
at 24 CFR 570.608, and 24 CFR Part 35, Subpart B. Such regulations pertain to all CDBG-
assisted housing and require that all owners, prospective owners, and tenants of properties
constructed prior to 1978 be properly notified that such properties may include lead-based paint.
Such notification shall point out the hazards of lead-based paint and explain the symptoms,
treatment and precautions that should be taken when dealing with lead-based paint poisoning and
the advisability and availability of blood lead level screening for children under seven. The
notice should also point out that if lead-based paint is found on the property, abatement measures
may be undertaken. The regulations further require that, depending on the amount of Federal
funds applied to a property, paint testing, risk assessment, treatment and/or abatement may be
conducted.
11.4. Historic Preservation
WBCO agrees to comply with the Historic Preservation requirements set forth in the
National Historic Preservation Act of 1966, as amended (16 U.S.C. 470) and the procedures set
forth in 36 CFR Part 800, Advisory Council on Historic Preservation Procedures for Protection
of Historic Properties, insofar as they apply to the performance of this agreement.
In general, this requires concurrence from the State Historic Preservation Officer for all
rehabilitation and demolition of historic properties that are fifty years old or older or that are
included on a Federal, state, or local historic property list.
SECTION XII:
SEVARABILITY
12.1. If any provision of this Agreement is held invalid, the remainder of the Agreement shall
not be affected thereby and all other parts of this Agreement shall nevertheless be in full force
and effect.
SECTION XIII:
SECTION HEADINGS AND SUBHEADINGS
13.1. The section headings and subheadings contained in this Agreement are included for
convenience only and shall not limit or otherwise affect the terms of this Agreement.
19
SECTION XIV:
WAIVER
14.1. The CITY's failure to act with respect to a breach by WBCO does not waive its right to
act with respect to subsequent or similar breaches. The failure of the CITY to exercise or
enforce any right or provision shall not constitute a waiver of such right or provision.
Appr
IN WITNESS WHEREOF, this Agreement is executed as of the date first written above.
as to form:
4:1owL,1/1V41
Steph.1 L. Sheets, City Attorney
CITY:
City of Round Rock
\k‘
ES R.NUSE, 'E, City Manager Name: Andrew Shell
WBCO:
Williamson Burnet County Opportunities
ST:
SARA WHITE
City Secretary
Title: Executive Director
20
Exhibit A
Self Certification Form
City of Round Rock
Community Development Block Grant Program
Self Declaration of Income Program Year 2007-08
This activity is funded with federal Community Development Block Grant (CDBG) funds and is designed to primarily
benefit low to moderate -income households (LMI).This requires that the Applicant meet and certify the amount of their
annual household income in order to participate in the program. Applicant should not provide his/her signature unless
he/she has read and understands the income information they are certifying under penalty of law. At the discretion of the
program, Applicant may be required to provide documentation to support the self -declaration of income.
Client Data:
Applicant: SSN#:
Address: City Zip
Program beneficiary, if different from Applicant. A separate form must be completed for each child in the same
family who is participating in a program.
Name: SSN#
Address: City Zip
Female Head of Household: ❑Yes ❑No ("Yes" if you are a single parent with children)
RACE: HISPANIC ❑ YES NO
Ethnicity (check one):
❑ White (W) ❑ Am Indian/Alaskan Native (Al)
❑ Asian & White (AW)
LI Black/African-Amer. ❑ Native Hawaiian/Other Pacific I ❑ Black African American &
(B)....._.............._.............._..............................................._.................Islander ...(.H!.)..........._._._.__...........__........... White(BW)..._.._......................................._
i ❑ Asian ❑ Am. Indian/Alaskan Native & White ❑ Am Indian/Alaskan Native &
(IAW) ._... Blk (IAB)
❑ Other Multi -
Applicant Household Income Information
Estimate the annual income of the household by projecting the prevailing rate of income of each person at the time assistance
is provided for the individual, family, or household (as applicable). Estimated annual income shall include income from all
sources of household members as applicable. Income or asset enhancement derived from the CDBG-assisted activity shall
not be considered in calculating estimated annual income. LOCATE FAMILY SIZE AND THEN CIRCLE ANNUAL (Page 1)
OR MONTHLY (Page 2) AMOUNT THAT IS CLOSEST TO FAMILY INCOME
Annual Income $
No. In
Family
25% 30%
HUD's '!
30%
35%
40%
45%
HUD's
50%
55%
60%
65%
70%
75%
80%
HUD's
80%s
100%
1 12,450 14,940
14,950 17,430
2 14,225 17,070 17000 ; 19,915
3 16,000 19,200 19,200 [ 22,400
4 17,775 21,330 21,350 24,885
19,200 23,040 23 050 26,880
24,750 24x750.1 28,875
5
6 I 20,625
7 I 22,050
8 23,475
26,460 i 2%450„..." a 30,870
28,170: 28,200 32,865
19,920 22,410
22,760 25,605
25,600 28,800
28,440 31,995 i 35,550
30,720 34,560 38,400_i
33,000 ' 37,125 I 41,250 1
35,280 I 39,690 44,100
37,560 1 42,255 I 46,950
24,900.4
2a 450
32,000
27,390
31,295
35,200
39,105
42,240
45,375
48,510
29,880
34,140
38,400
42,660
46,080
49,500
52,920
51,645 56,340
32,370
36,985
41,600
46,215
49,920
53,625
57,330
61,035
Updated January 14, 2008
34,860 37,350 39,840 ? 39,850'":49,800
39,830 42,675 45,520 45#500 X56,900
44,800 48,000 I 51,200 51s200 64,000
49,770 53,325 56,880 'r 5590071,100
53,760 57,600 I 61,440 i.,,,,,.91„450476,800
57,750 61,875 ' 66,000 E: 66,000_';82,500
61,740 ; 66,150 ,70 560 :550488,200
65,730 I 70,425
75,120 !75,100:.193,900
City of Round Rock
Community Development Block Grant Program
Monthly Income $
No. In
Family
25% 30%
HUD's
30%
35%
40%
45%
HUD's
50%
55% _ 60%
65%
70%
75%
80%
HUD's
80% s'r
100°
1 1,038 1,245 11296 1,453: 1,660
2 1,185 11,423 i 1,421 1,660 " 1,897
3 1,333 I 1•,600 1,600 1,867 2,133
4 1,481 1,778 12779 ii 2,074 2,370
5 1,600 ; 1,920 1921 :<': 2,240 • 2,560
6 1,719: 2,063: 2,063 2,406 2,750
7 1,838 2,205 2,204 I' 2,573: 2,940
8 1,956: 2,348 ' " .2,346 2,739 1 3,130 1
1,868 1 2,075 2,283 ' 2,490 2,698 1. 2,905 . 3,113 , 3 320 '3,3172 4,150
2,134 1 2,371 1_ 2,608 2,845 3,082 3,319 1. 3,556 1, 3,793 ,,,,34,279627: Ih 45:374332
2,400 2,667 2 933 3- ,200 3,467 3,733 4,000 4,267
2 666. 2 963 3 259• 3- ,555 3,851 4,148 4,444• 4,740 i 4 742 5,925
2,880 3200 3,520 . 3,840 4,160 4,480. 4,800 5,120 1.....„5„:121.1 6,400
3,094 ., I3,438 3,781 4,125 4,469 4,813 5,156 5,500 57500 6,875
3,308 3,675: 4,043 4,410 ii. 4,778 5 145 5,513 ...._. 5,880 5 879 , 7,350
3,521 3,913 4,304: 4,695 5,086 5,478 I 5,869: 6,260 i 6,258x1; 7,825
Number of persons living in household: Number of adults (18 yrs and older) living in household:
Applicant Self Declaration Certification
Evidenced by the signature below, Applicant certifies his or her annual household income. Applicant certifies that the
information herein provided is true and accurate. Applicant further acknowledges that any inaccuracy and/or
misrepresentation provided herein may constitute fraud, which is punishable by law. Applicant certifies that all information
provided herein and any attachments hereto, are true and correct as of the date set forth opposite signature. Applicant
acknowledges that Title 18, Section 1001 of the U.S. Code states that any person that makes intentional or negligent
statements to any department of the United States Government is guilty of a felony that could result in but not be limited to
a fine, imprisonment, or both.
Applicant Signature
Date
Program Use Only:
Program/Activity Name:
HUD Income guidelines used to certify client dated: MARCH 20, 2007
Based upon client information provided, client household: (check one)
Reviewer's Signature:
Updated January 14, 2008
❑ Does meet income qualifications
❑ Does not meet income qualifications
Date:
Exhibit B
Client Data / Beneficiary Report Form
Unduplicated Clients
Note: According to Census 2000, Ethnicity has two choices only: HISPANIC or NOT HISPANIC. Race has unlimited choices: ie White alone; Black or African American alone, American Indian and Alaskan Native alone; Asian
alone, Native Hawaiian and other Pacific Islander, some other race alone; two or more races; write in description. Changes in 2000 Race questions include 1) Hispanic or Latino asked before race; 2) Respondents could sselect
more than one race; 3) American Indian and Alaska Native combined; 4) Asian and Pacific Islander category split.
I
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or AIS
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Ethnicity
Agency:
Address:
Contact:
Phone:
activity descrition:
Ethnicity Categories:
Name
Last, First
Appendix A
OMB Circular A-122
Cost Principles for Non -Profit Organizations
No Text
CIRCULAR NO. A-122
Revised May 10, 2004
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Cost Principles for Non -Profit Organizations
1. Purpose. This Circular establishes principles for determining costs of
grants, contracts and other agreements with non-profit organizations. It does
not apply to colleges and universities which are covered by Office of Management
and Budget (OMB) Circular A-21, "Cost Principles for Educational Institutions";
State, local, and federally -recognized Indian tribal governments which are
covered by OMB Circular A-87, "Cost Principles for State, Local, and Indian
Tribal Governments"; or hospitals. The principles are designed to provide that
the Federal Government bear its fair share of costs except where restricted or
prohibited by law. The principles do not attempt to prescribe the extent of
cost sharing or matching on grants, contracts, or other agreements. However,
such cost sharing or matching shall not be accomplished through arbitrary
limitations on individual cost elements by Federal agencies. Provision for
profit or other increment above cost is outside the scope of this Circular.
2. Supersession. This Circular supersedes cost principles issued by individual
agencies for non-profit organizations.
3. Applicability.
a. These principles shall be used by all Federal agencies in determining
the costs of work performed by non-profit organizations under grants,
cooperative agreements, cost reimbursement contracts, and other contracts in
which costs are used in pricing, administration, or settlement. All of these
instruments are hereafter referred to as awards. The principles do not apply to
awards under which an organization is not required to account to the Federal
Government for actual costs incurred.
b. All cost reimbursement subawards (subgrants, subcontracts, etc.) are
subject to those Federal cost principles applicable to the particular
organization concerned. Thus, if a subaward is to a non-profit organization,
this Circular shall apply; if a subaward is to a commercial organization, the
cost principles applicable to commercial concerns shall apply; if a subaward is
to a college or university, Circular A-21 shall apply; if a subaward is to a
State, local, or federally -recognized Indian tribal government, Circular A-87
shall apply.
1
4. Definitions.
a. Non-profit organization means any corporation, trust, association,
cooperative, or other organization which:
(1) is operated primarily for scientific, educational, service,
charitable, or similar purposes in the public interest;
(2) is not organized primarily for profit; and
(3) uses its net proceeds to maintain, improve, and/or expand its
operations. For this purpose, the term "non-profit organization" excludes (i)
colleges and universities; (ii) hospitals; (iii) State, local, and federally -
recognized Indian tribal governments; and (iv) those
non-profit organizations which are excluded from coverage of this Circular in
accordance with paragraph 5.
b. Prior approval means securing the awarding agency's permission in
advance to incur cost for those items that are designated as requiring prior
approval by the Circular. Generally this permission will be in writing. Where
an item of cost requiring prior approval is specified in the budget of an award,
approval of the budget constitutes approval of that cost.
5. Exclusion of some non-profit organizations. Some non-profit organizations,
because of their size and nature of operations, can be considered to be similar
to commercial concerns for purpose of applicability of cost principles. Such
non-profit organizations shall operate under Federal cost principles applicable
to commercial concerns. A listing of these organizations is contained in
Attachment C. Other organizations may be added from time to time.
6. Responsibilities. Agencies responsible for administering programs that
involve awards to non-profit organizations shall implement the provisions of
this Circular. Upon request, implementing instruction shall be furnished to
OMB. Agencies shall designate a liaison official to serve as the agency
representative on matters relating to the implementation of this Circular. The
name and title of such representative shall be furnished to OMB within 30 days
of the date of this Circular.
7. Attachments. The principles and related policy guides are set forth in the
following Attachments:
Attachment A - General Principles
Attachment B - Selected Items of Cost
Attachment C - Non -Profit Organizations Not Subject To This Circular
8. Requests for exceptions. OMB may grant exceptions to the requirements of
this Circular when permissible under existing law. However, in the interest of
achieving maximum uniformity, exceptions will be permitted only in highly
unusual circumstances.
9. Effective Date. The provisions of this Circular are effective immediately.
Implementation shall be phased in by incorporating the provisions into new
awards made after the start of the organization's next fiscal year. For
existing awards, the new principles may be applied if an organization and the
cognizant Federal agency agree. Earlier implementation, or a delay in
2
implementation of individual provisions, is also permitted by mutual agreement
between an organization and the cognizant Federal agency.
10. Inquiries. Further information concerning this Circular may be obtained by
contacting the Office of Federal Financial Management, OMB, Washington, DC
20503, telephone (202) 395-3993.
Attachments
3
ATTACHMENT A
Circular No. A-122
GENERAL PRINCIPLES
Table of Contents
A. Basic Considerations
1. Composition of total costs
2. Factors affecting allowability of costs
3. Reasonable costs
4. Allocable costs
5. Applicable credits
6. Advance understandings
7. Conditional exemptions
B. Direct Costs
C. Indirect Costs
D. Allocation of Indirect Costs and Determination of Indirect Cost Rates
1. General
2. Simplified allocation method
3. Multiple allocation base method
4. Direct allocation method
5. Special indirect cost rates
4
E. Negotiation and Approval of Indirect Cost Rates
1. Definitions
2. Negotiation and approval of rates
ATTACHMENT A
Circular No. A-122
GENERAL PRINCIPLES
A. Basic Considerations
1. Composition of total costs. The total cost of an award is the sum of
the allowable direct and allocable indirect costs less any applicable credits.
2. Factors affecting allowability of costs. To be allowable under an
award, costs must meet the following general criteria:
a. Be reasonable for the performance of the award and be allocable
thereto under these principles.
b. Conform to any limitations or exclusions set forth in these
principles or in the award as to types or amount of cost items.
c. Be consistent with policies and procedures that apply uniformly
to both federally -financed and other activities of the organization.
d. Be accorded consistent treatment.
e. Be determined in accordance with generally accepted accounting
principles (GAAP).
f. Not be included as a cost or used to meet cost sharing or
matching requirements of any other federally -financed program in either the
current or a prior period.
g. Be adequately documented.
3. Reasonable costs. A cost is reasonable if, in its nature or amount,
it does not exceed that which would be incurred by a prudent person under the
circumstances prevailing at the time the decision was made to incur the costs.
The question of the reasonableness of specific costs must be scrutinized with
particular care in connection with organizations or separate divisions thereof
which receive the preponderance of their support from awards made by Federal
agencies. In determining the reasonableness of a given cost, consideration
shall be given to:
a. Whether the cost is of a type generally recognized as ordinary
and necessary for the operation of the organization or the performance of the
award.
6
b. The restraints or requirements imposed by such factors as
generally accepted sound business practices, arms length bargaining, Federal and
State laws and regulations, and terms and conditions of the award.
c. Whether the individuals concerned acted with prudence in the
circumstances, considering their responsibilities to the organization, its
members, employees, and clients, the public at large, and the Federal
Government.
d. Significant deviations from the established practices of the
organization which may unjustifiably increase the award costs.
4. Allocable costs.
a. A cost is allocable to a particular cost objective, such as a
grant, contract, project, service, or other activity, in accordance with the
relative benefits received. A cost is allocable to a Federal award if it is
treated consistently with other costs incurred for the same purpose in like
circumstances and if it:
(1) Is incurred specifically for the award.
(2) Benefits both the award and other work and can be
distributed in reasonable proportion to the benefits received, or
(3) Is necessary to the overall operation of the organization,
although a direct relationship to any particular cost objective cannot be shown.
b. Any cost allocable to a particular award or other cost objective
under these principles may not be shifted to other Federal awards to overcome
funding deficiencies, or to avoid restrictions imposed by law or by the terms of
the award.
5. Applicable credits.
a. The term applicable credits refers to those receipts, or
reduction of expenditures which operate to offset or reduce expense items that
are allocable to awards as direct or indirect costs. Typical examples of such
transactions are: purchase discounts, rebates or allowances, recoveries or
indemnities on losses, insurance refunds, and adjustments of overpayments or
erroneous charges. To the extent that such credits accruing or received by the
organization relate to allowable cost, they shall be credited to the Federal
Government either as a cost reduction or cash refund, as appropriate.
b. In some instances, the amounts received from the Federal
Government to finance organizational activities or service operations should be
treated as applicable credits. Specifically, the concept of netting such credit
items against related expenditures should be applied by the organization in
determining the rates or amounts to be charged to Federal awards for services
rendered whenever the facilities or other resources used in providing such
services have been financed directly, in whole or in part, by Federal funds.
c. For rules covering program income (i.e., gross income earned
from federally -supported activities) see Sec. .24 of Office of Management and
Budget (OMB) Circular A-110, "Uniform Administrative Requirements for Grants and
Agreements with Institutions of Higher Education, Hospitals, and Other Non -
Profit Organizations."
7
6. Advance understandings. Under any given award, the reasonableness and
allocability of certain items of costs may be difficult to determine. This is
particularly true in connection with organizations that receive a preponderance
of their support from Federal agencies. In order to avoid subsequent
disallowance or dispute based on unreasonableness or nonallocability, it is
often desirable to seek a written agreement with the cognizant or awarding
agency in advance of the incurrence of special or unusual costs. The absence of
an advance agreement on any element of cost will not, in itself, affect the
reasonableness or allocability of that element.
7. Conditional exemptions.
a. OMB authorizes conditional exemption from OMB administrative
requirements and cost principles circulars for certain Federal programs with
statutorily -authorized consolidated planning and consolidated administrative
funding, that are identified by a Federal agency and approved by the head of
the Executive department or establishment. A Federal agency shall consult with
OMB during its consideration of whether to grant such an exemption.
b. To promote efficiency in State and local program administration,
when Federal non -entitlement programs with common purposes have specific
statutorily -authorized consolidated planning and consolidated administrative
funding and where most of the State agency's resources come from non -Federal
sources, Federal agencies may exempt these covered State -administered, non -
entitlement grant programs from certain OMB grants management requirements. The
exemptions would be from all but the allocability of costs provisions of OMB
Circulars A-87 (Attachment A, subsection C.3), "Cost Principles for State,
Local, and Indian Tribal Governments," A-21 (Section C, subpart 4), "Cost
Principles for Educational Institutions," and A-122 (Attachment A, subsection
A.4), "Cost Principles for Non -Profit Organizations," and from all of the
administrative requirements provisions of OMB Circular A-110, "Uniform
Administrative Requirements for Grants and Agreements with Institutions of
Higher Education, Hospitals, and Other Non -Profit Organizations," and the
agencies' grants management common rule.
c. When a Federal agency provides this flexibility, as a
prerequisite to a State's exercising this option, a State must adopt its own
written fiscal and administrative requirements for expending and accounting for
all funds, which are consistent with the provisions of OMB Circular A-87, and
extend such policies to all subrecipients. These fiscal and administrative
requirements must be sufficiently specific to ensure that: funds are used in
compliance with all applicable Federal statutory and regulatory provisions,
costs are reasonable and necessary for operating these programs, and funds are
not be used for general expenses required to carry out other responsibilities of
a State or its subrecipients.
B. Direct Costs
1. Direct costs are those that can be identified specifically with a
particular final cost objective, i.e., a particular award, project, service, or
other direct activity of an organization. However, a cost may not be assigned
to an award as a direct cost if any other cost incurred for the same purpose, in
like circumstance, has been allocated to an award as an indirect cost. Costs
identified specifically with awards are direct costs of the awards and are to be
assigned directly thereto. Costs identified specifically with other final cost
8
objectives of the organization are direct costs of those cost objectives and are
not to be assigned to other awards directly or indirectly.
2. Any direct cost of a minor amount may be treated as an indirect cost
for reasons of practicality where the accounting treatment for such cost is
consistently applied to all final cost objectives.
3. The cost of certain activities are not allowable as charges to Federal
awards (see, for example, fundraising costs in paragraph 17 of Attachment B).
However, even though these costs are unallowable for purposes of computing
charges to Federal awards, they nonetheless must be treated as direct costs for
purposes of determining indirect cost rates and be allocated their share of the
organization's indirect costs if they represent activities which (1) include the
salaries of personnel, (2) occupy space, and (3) benefit from the organization's
indirect costs.
4. The costs of activities performed primarily as a service to members,
clients, or the general public when significant and necessary to the
organization's mission must be treated as direct costs whether or not allowable
and be allocated an equitable share of indirect costs. Some examples of these
types of activities include:
a. Maintenance of membership rolls, subscriptions, publications,
and related functions.
b. Providing services and information to members, legislative or
administrative bodies, or the public.
c. Promotion, lobbying, and other forms of public relations.
d. Meetings and conferences except those held to conduct the
general administration of the organization.
e. Maintenance, protection, and investment of special funds not
used in operation of the organization.
f. Administration of group benefits on behalf of members or
clients, including life and hospital insurance, annuity or retirement plans,
financial aid, etc.
C. Indirect Costs
1. Indirect costs are those that have been incurred for common or joint
objectives and cannot be readily identified with a particular final cost
objective. Direct cost of minor amounts may be treated as indirect costs under
the conditions described in subparagraph B.2. After direct costs have been
determined and assigned directly to awards or other work as appropriate,
indirect costs are those remaining to be allocated to benefiting cost
objectives. A cost may not be allocated to an award as an indirect cost if any
other cost incurred for the same purpose, in like circumstances, has been
assigned to an award as a direct cost.
2. Because of the diverse characteristics and accounting practices of
non-profit organizations, it is not possible to specify the types of cost which
may be classified as indirect cost in all situations. However, typical examples
of indirect cost for many non-profit organizations may include depreciation or
9
use allowances on buildings and equipment, the costs of operating and
maintaining facilities, and general administration and general expenses, such as
the salaries and expenses of executive officers, personnel administration, and
accounting.
3. Indirect costs shall be classified within two broad categories:
"Facilities" and "Administration." "Facilities" is defined as depreciation and
use allowances on buildings, equipment and capital improvement, interest on debt
associated with certain buildings, equipment and capital improvements, and
operations and maintenance expenses. "Administration" is defined as general
administration and general expenses such as the director's office, accounting,
personnel, library expenses and all other types of expenditures not listed
specifically under one of the subcategories of "Facilities" (including cross
allocations from other pools, where applicable). See indirect cost rate
reporting requirements in subparagraphs D.2.e and D.3.g.
D. Allocation of Indirect Costs and Determination of Indirect Cost Rates
1. General.
a. Where a non-profit organization has only one major function, or
where all its major functions benefit from its indirect costs to approximately
the same degree, the allocation of indirect costs and the computation of an
indirect cost rate may be accomplished through simplified allocation procedures,
as described in subparagraph 2.
b. Where an organization has several major functions which benefit
from its indirect costs in varying degrees, allocation of indirect costs may
require the accumulation of such costs into separate cost groupings which then
are allocated individually to benefiting functions by means of a base which best
measures the relative degree of benefit. The indirect costs allocated to each
function are then distributed to individual awards and other activities included
in that function by means of an indirect cost rate(s).
c. The determination of what constitutes an organization's major
functions will depend on its purpose in being; the types of services it renders
to the public, its clients, and its members; and the amount of effort it devotes
to such activities as fundraising, public information and membership activities.
d. Specific methods for allocating indirect costs and computing
indirect cost rates along with the conditions under which each method should be
used are described in subparagraphs 2 through 5.
e. The base period for the allocation of indirect costs is the
period in which such costs are incurred and accumulated for allocation to work
performed in that period. The base period normally should coincide with the
organization's fiscal year but, in any event, shall be so selected as to avoid
inequities in the allocation of the costs.
2. Simplified allocation method.
a. Where an organization's major functions benefit from its
indirect costs to approximately the same degree, the allocation of indirect
costs may be accomplished by (i) separating the organization's total costs for
the base period as either direct or indirect, and (ii) dividing the total
allowable indirect costs (net of applicable credits) by an equitable
10
distribution base. The result of this process is an indirect cost rate which is
used to distribute indirect costs to individual awards. The rate should be
expressed as the percentage which the total amount of allowable indirect costs
bears to the base selected. This method should also be used where an
organization has only one major function encompassing a number of individual
projects or activities, and may be used where the level of Federal awards to an
organization is relatively small.
b. Both the direct costs and the indirect costs shall exclude
capital expenditures and unallowable costs. However, unallowable costs which
represent activities must be included in the direct costs under the conditions
described in subparagraph B.3.
c. The distribution base may be total direct costs (excluding
capital expenditures and other distorting items, such as major subcontracts or
subgrants), direct salaries and wages, or other base which results in an
equitable distribution. The distribution base shall generally exclude
participant support costs as defined in paragraph 32 of Attachment B.
d. Except where a special rate(s) is required in accordance with
subparagraph 5, the indirect cost rate developed under the above principles is
applicable to all awards at the organization. If a special rate(s) is required,
appropriate modifications shall be made in order to develop the special rate(s).
e. For an organization that receives more than $10 million in
Federal funding of direct costs in a fiscal year, a breakout of the indirect
cost component into two broad categories, Facilities and Administration as
defined in subparagraph C.3, is required. The rate in each case shall be stated
as the percentage which the amount of the particular indirect cost category
(i.e., Facilities or Administration) is of the distribution base identified with
that category.
3. Multiple allocation base method
a. General. Where an organization's indirect costs benefit its
major functions in varying degrees, indirect costs shall be accumulated into
separate cost groupings, as described in subparagraph b. Each grouping shall
then be allocated individually to benefitting functions by means of a base which
best measures the relative benefits. The default allocation bases by cost pool
are described in subparagraph c.
b. Identification of indirect costs. Cost groupings shall be
established so as to permit the allocation of each grouping on the basis of
benefits provided to the major functions. Each grouping shall constitute a pool
of expenses that are of like character in terms of functions they benefit and in
terms of the allocation base which best measures the relative benefits provided
to each function. The groupings are classified within the two broad categories:
"Facilities" and "Administration," as described in subparagraph C.3. The
indirect cost pools are defined as follows:
(1) Depreciation and use allowances. The expenses under this
heading are the portion of the costs of the organization's buildings, capital
improvements to land and buildings, and equipment which are computed in
accordance with paragraph 11 of Attachment B ("Depreciation and use
allowances").
11
(2) Interest. Interest on debt associated with certain
buildings, equipment and capital improvements are computed in accordance with
paragraph 23 of Attachment B ("Interest").
(3) Operation and maintenance expenses. The expenses under
this heading are those that have been incurred for the administration,
operation, maintenance, preservation, and protection of the organization's
physical plant. They include expenses normally incurred for such items as:
janitorial and utility services; repairs and ordinary or normal alterations of
buildings, furniture and equipment; care of grounds; maintenance and operation
of buildings and other plant facilities; security; earthquake and disaster
preparedness; environmental safety; hazardous waste disposal; property,
liability and other insurance relating to property; space and capital leasing;
facility planning and management; and, central receiving. The operation and
maintenance expenses category shall also include its allocable share of fringe
benefit costs, depreciation and use allowances, and interest costs.
(4) General administration and general expenses. The expenses
under this heading are those that have been incurred for the overall general
executive and administrative offices of the organization and other expenses of a
general nature which do not relate solely to any major function of the
organization. This category shall also include its allocable share of fringe
benefit costs, operation and maintenance expense, depreciation and use
allowances, and interest costs. Examples of this category include central
offices, such as the director's office, the office of finance, business
services, budget and planning, personnel, safety and risk management, general
counsel, management information systems, and library costs.
In developing this cost pool, special care should be exercised to ensure that
costs incurred for the same purpose in like circumstances are treated
consistently as either direct or indirect costs. For example, salaries of
technical staff, project supplies, project publication, telephone toll charges,
computer costs, travel costs, and specialized services costs shall be treated as
direct costs wherever identifiable to a particular program. The salaries and
wages of administrative and pooled clerical staff should normally be treated as
indirect costs. Direct charging of these costs may be appropriate where a major
project or activity explicitly requires and budgets for administrative or
clerical services and other individuals involved can be identified with the
program or activity. Items such as office supplies, postage, local telephone
costs, periodicals and memberships should normally be treated as indirect costs.
c. Allocation bases. Actual conditions shall be taken into account
in selecting the base to be used in allocating the expenses in each grouping to
benefitting functions. The essential consideration in selecting a method or a
base is that it is the one best suited for assigning the pool of costs to cost
objectives in accordance with benefits derived; a traceable cause and effect
relationship; or logic and reason, where neither the cause nor the effect of the
relationship is determinable. When an allocation can be made by assignment of a
cost grouping directly to the function benefited, the allocation shall be made
in that manner. When the expenses in a cost grouping are more general in nature,
the allocation shall be made through the use of a selected base which produces
results that are equitable to both the Federal Government and the organization.
The distribution shall be made in accordance with the bases described herein
unless it can be demonstrated that the use of a different base would result in a
more equitable allocation of the costs, or that a more readily available base
would not increase the costs charged to sponsored awards. The results of
12
special cost studies (such as an engineering utility study) shall not be used to
determine and allocate the indirect costs to sponsored awards.
(1) Depreciation and use allowances. Depreciation and use
allowances expenses shall be allocated in the following manner:
(a) Depreciation or use allowances on buildings used
exclusively in the conduct of a single function, and on capital improvements and
equipment used in such buildings, shall be assigned to that function.
(b) Depreciation or use allowances on buildings used for
more than one function, and on capital improvements and equipment used in such
buildings, shall be allocated to the individual functions performed in each
building on the basis of usable square feet of space, excluding common areas,
such as hallways, stairwells, and restrooms.
(c) Depreciation or use allowances on buildings, capital
improvements and equipment related space (e.g., individual rooms, and
laboratories) used jointly by more than one function (as determined by the users
of the space) shall be treated as follows. The cost of each jointly used unit
of space shall be allocated to the benefitting functions on the basis of:
(i) the employees and other users on a full-time
equivalent (FTE) basis or salaries and wages of those individual functions
benefitting from the use of that space; or
(ii) organization -wide employee FTEs or salaries
and wages applicable to the benefitting functions of the organization.
(d) Depreciation or use allowances on certain capital
improvements to land, such as paved parking areas, fences, sidewalks, and the
like, not included in the cost of buildings, shall be allocated to user
categories on a FTE basis and distributed to major functions in proportion to
the salaries and wages of all employees applicable to the functions.
(2) Interest. Interest costs shall be allocated in the same
manner as the depreciation or use allowances on the buildings, equipment and
capital equipments to which the interest relates.
(3) Operation and maintenance expenses. Operation and
maintenance expenses shall be allocated in the same manner as the depreciation
and use allowances.
(4) General administration and general expenses. General
administration and general expenses shall be allocated to benefitting functions
based on modified total direct costs (MTDC), as described in subparagraph D.3.f.
The expenses included in this category could be grouped first according to major
functions of the organization to which they render services or provide benefits.
The aggregate expenses of each group shall then be allocated to benefitting
functions based on MTDC.
d. Order of distribution.
(1) Indirect cost categories consisting of depreciation and
use allowances, interest, operation and maintenance, and general administration
13
and general expenses shall be allocated in that order to the remaining indirect
cost categories as well as to the major functions of the organization. Other
cost categories could be allocated in the order determined to be most
appropriate by the organization. When cross allocation of costs is made as
provided in subparagraph (2), this order of allocation does not apply.
(2) Normally, an indirect cost category will be considered
closed once it has been allocated to other cost objectives, and costs shall not
be subsequently allocated to it. However, a cross allocation of costs between
two or more indirect costs categories could be used if such allocation will
result in a more equitable allocation of costs. If a cross allocation is used,
an appropriate modification to the composition of the indirect cost categories
is required.
e. Application of indirect cost rate or rates. Except where a
special indirect cost rate(s) is required in accordance with subparagraph D.5,
the separate groupings of indirect costs allocated to each major function shall
be aggregated and treated as a common pool for that function. The costs in the
common pool shall then be distributed to individual awards included in that
function by use of a single indirect cost rate.
f. Distribution basis. Indirect costs shall be distributed to
applicable sponsored awards and other benefitting activities within each major
function on the basis of MTDC. MTDC consists of all salaries and wages, fringe
benefits, materials and supplies, services, travel, and subgrants and
subcontracts up to the first $25,000 of each subgrant or subcontract (regardless
of the period covered by the subgrant or subcontract). Equipment, capital
expenditures, charges for patient care, rental costs and the portion in excess
of $25,000 shall be excluded from MTDC. Participant support costs shall
generally be excluded from MTDC. Other items may only be excluded when the
Federal cost cognizant agency determines that an exclusion is necessary to avoid
a serious inequity in the distribution of indirect costs.
g. Individual Rate Components. An indirect cost rate shall be
determined for each separate indirect cost pool developed. The rate in each
case shall be stated as the percentage which the amount of the particular
indirect cost pool is of the distribution base identified with that pool. Each
indirect cost rate negotiation or determination agreement shall include
development of the rate for each indirect cost pool as well as the overall
indirect cost rate. The indirect cost pools shall be classified within two
broad categories: "Facilities" and "Administration," as described in
subparagraph C.3.
4. Direct allocation method.
a. Some non-profit organizations treat all costs as direct costs
except general administration and general expenses. These organizations
generally separate their costs into three basic categories: (i) General
administration and general expenses, (ii) fundraising, and (iii) other direct
functions (including projects performed under Federal awards). Joint costs,
such as depreciation, rental costs, operation and maintenance of facilities,
telephone expenses, and the like are prorated individually as direct costs to
each category and to each award or other activity using a base most appropriate
to the particular cost being prorated.
b. This method is acceptable, provided each joint cost is prorated
using a base which accurately measures the benefits provided to each award or
14
other activity. The bases must be established in accordance with reasonable
criteria, and be supported by current data. This method is compatible with the
Standards of Accounting and Financial Reporting for Voluntary Health and Welfare
Organizations issued jointly by the National Health Council, Inc., the National
Assembly of Voluntary Health and Social Welfare Organizations, and the United
Way of America.
c. Under this method, indirect costs consist exclusively of general
administration and general expenses. In all other respects, the organization's
indirect cost rates shall be computed in the same manner as that described in
subparagraph 2.
5. Special indirect cost rates. In some instances, a single indirect
cost rate for all activities of an organization or for each major function of
the organization may not be appropriate, since it would not take into account
those different factors which may substantially affect the indirect costs
applicable to a particular segment of work. For this purpose, a particular
segment of work may be that performed under a single award or it may consist of
work under a group of awards performed in a common environment. These factors
may include the physical location of the work, the level of administrative
support required, the nature of the facilities or other resources employed, the
scientific disciplines or technical skills involved, the organizational
arrangements used, or any combination thereof. When a particular segment of
work is performed in an environment which appears to generate a significantly
different level of indirect costs, provisions should be made for a separate
indirect cost pool applicable to such work. The separate indirect cost pool
should be developed during the course of the regular allocation process, and the
separate indirect cost rate resulting therefrom should be used, provided it is
determined that (i) the rate differs significantly from that which would have
been obtained under subparagraphs 2, 3, and 4, and (ii) the volume of work to
which the rate would apply is material.
E. Negotiation and Approval of Indirect Cost Rates
1. Definitions. As used in this section, the following terms have the
meanings set
forth below:
a. Cognizant agency means the Federal agency responsible for
negotiating and approving indirect cost rates for a non-profit organization on
behalf of all Federal agencies.
b. Predetermined rate means an indirect cost rate, applicable to a
specified current or future period, usually the organization's fiscal year. The
rate is based on an estimate of the costs to be incurred during the period. A
predetermined rate is not subject to adjustment.
c. Fixed rate means an indirect cost rate which has the same
characteristics as a predetermined rate, except that the difference between the
estimated costs and the actual costs of the period covered by the rate is
carried forward as an adjustment to the rate computation of a subsequent period.
d. Final rate means an indirect cost rate applicable to a specified
past period which is based on the actual costs of the period. A final rate is
not subject to adjustment.
15
e. Provisional rate or billing rate means a temporary indirect cost
rate applicable to a specified period which is used for funding, interim
reimbursement, and reporting indirect costs on awards pending the establishment
of a final rate for the period.
f. Indirect cost proposal means the documentation prepared by an
organization to substantiate its claim for the reimbursement of indirect costs.
This proposal provides the basis for the review and negotiation leading to the
establishment of an organization's indirect cost rate.
g. Cost objective means a function, organizational subdivision,
contract, grant, or other work unit for which cost data are desired and for
which provision is made to accumulate and measure the cost of processes,
projects, jobs and capitalized projects.
2. Negotiation and approval of rates.
a. Unless different arrangements are agreed to by the agencies
concerned, the Federal agency with the largest dollar value of awards with an
organization will be designated as the cognizant agency for the negotiation and
approval of the indirect cost rates and, where necessary, other rates such as
fringe benefit and computer charge -out rates. Once an agency is assigned
cognizance for a particular non-profit organization, the assignment will not be
changed unless there is a major long-term shift in the dollar volume of the
Federal awards to the organization. All concerned Federal agencies shall be
given the opportunity to participate in the negotiation process but, after a
rate has been agreed upon, it will be accepted by all Federal agencies. When a
Federal agency has reason to believe that special operating factors affecting
its awards necessitate special indirect cost rates in accordance with
subparagraph D.5, it will, prior to the time the rates are negotiated, notify
the cognizant agency.
b. A non-profit organization which has not previously established
an indirect cost rate with a Federal agency shall submit its initial indirect
cost proposal immediately after the organization is advised that an award will
be made and, in no event, later than three months after the effective date of
the award.
c. Organizations that have previously established indirect cost
rates must submit a new indirect cost proposal to the cognizant agency within
six months after the close of each fiscal year.
d. A predetermined rate may be negotiated for use on awards where
there is reasonable assurance, based on past experience and reliable projection
of the organization's costs, that the rate is not likely to exceed a rate based
on the organization's actual costs.
e. Fixed rates may be negotiated where predetermined rates are not
considered appropriate. A fixed rate, however, shall not be negotiated if (i)
all or a substantial portion of the organization's awards are expected to expire
before the carry -forward adjustment can be made; (ii) the mix of Federal and
non -Federal work at the organization is too erratic to permit an equitable
carry -forward adjustment; or (iii) the organization's operations fluctuate
significantly from year to year.
f. Provisional and final rates shall be negotiated where neither
predetermined nor fixed rates are appropriate.
16
g. The results of each negotiation shall be formalized in a written
agreement between the cognizant agency and the non-profit organization. The
cognizant agency shall distribute copies of the agreement to all concerned
Federal agencies.
h. If a dispute arises in a negotiation of an indirect cost rate
between the cognizant agency and the non-profit organization, the dispute shall
be resolved in accordance with the appeals procedures of the cognizant agency.
i. To the extent that problems are encountered among the Federal
agencies in connection with the negotiation and approval process, OMB will lend
assistance as required to resolve such problems in a timely manner.
17
ATTACHMENT B
Circular No. A-122
SELECTED ITEMS OF COST
Table of Contents
1. Advertising and public relations costs
2. Advisory councils
3. Alcoholic beverages
4. Audit costs and related services
5. Bad debts
6. Bonding costs
7. Communication costs
8 Compensation for personal services
9. Contingency provisions
10. Defense and prosecution of criminal and civil proceedings, claims, appeals
and patent infringement
Depreciation and use allowances
Donations and contributions
Employee morale, health, and welfare costs
Entertainment costs
Equipment and other capital expenditures
Fines and penalties
Fund raising and investment management costs
Gains and losses on depreciable assets
Goods or services for personal use
Housing and personal living expenses
Idle facilities and idle capacity
Insurance and indemnification
Interest
Labor relations costs
Lobbying
Losses on other or contracts
Maintenance and
Materials
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
sponsored agreements
repair costs
and supplies costs
Meetings and conferences
Memberships,
Organization
Page charges
subscriptions, and
costs
in professional journals
Participant support costs
Patent costs
Plant and homeland security costs
Pre -agreement costs
Professional services costs
Publication and printing costs
Rearrangement and alteration costs
Reconversion costs
Recruiting costs
Relocation costs
Rental costs of buildings and equipment
Royalties and other costs for use of patents and copyrights
Selling and marketing
Specialized service facilities
Taxes
Termination costs applicable to sponsored agreements
professional activity costs
18
49. Training costs
50. Transportation costs
51. Travel costs
52. Trustees
19
ATTACHMENT B
Circular No. A-122
SELECTED ITEMS OF COST
Paragraphs 1 through 53 provide principles to be applied in establishing the
allowability of certain items of cost. These principles apply whether a cost is
treated as direct or indirect. Failure to mention a particular item of cost is
not intended to imply that it is unallowable; rather, determination as to
allowability in each case should be based on the treatment or principles
provided for similar or related items of cost.
1. Advertising and public relations costs.
a. The term advertising costs means the costs of advertising media and
corollary administrative costs. Advertising media include magazines,
newspapers, radio and television, direct mail, exhibits, electronic or computer
transmittals, and the like.
b. The term public relations includes community relations and means those
activities dedicated to maintaining the image of the non-profit organization or
maintaining or promoting understanding and favorable relations with the
community or public at large or any segment of the public.
c. The only allowable advertising costs are those which are solely for:
(1) The recruitment of personnel required for the performance by the
non-profit organization of obligations arising under a Federal award (See also
Attachment B, paragraph 41, Recruiting costs, and paragraph 42, Relocation
costs);
(2) The procurement of goods and services for the performance of a
Federal award;
(3) The disposal of scrap or surplus materials acquired in the
performance of a Federal award except when non-profit organizations are
reimbursed for disposal costs at a predetermined amount; or
(4) Other specific purposes necessary to meet the requirements of
the Federal award.
d. The only allowable public relations costs are:
(1) Costs specifically required by the Federal award;
(2) Costs of communicating with the public and press pertaining to
specific activities or accomplishments which result from performance of Federal
awards (these costs are considered necessary as part of the outreach effort for
the Federal award); or
(3) Costs of conducting general liaison with news media and
government public relations officers, to the extent that such activities are
limited to communication and liaison necessary keep the public informed on
matters of public concern, such as notices of Federal contract/grant awards,
financial matters, etc.
20
e. Costs identified in subparagraphs c and d if incurred for more than
one Federal award or for both sponsored work and other work of the non-profit
organization, are allowable to the extent that the principles in Attachment A,
paragraphs B. ("Direct Costs") and C. ("Indirect Costs") are observed.
f. Unallowable advertising and public relations costs include the
following:
(1) All advertising and public relations costs other than as
specified in subparagraphs c, d, and e;
(2) Costs of meetings, conventions, convocations, or other events
related to other activities of the non-profit organization, including:
(a) Costs of displays, demonstrations, and exhibits;
(b) Costs of meeting rooms, hospitality suites, and other
special facilities used in conjunction with shows and other special events; and
(c) Salaries and wages of employees engaged in setting up and
displaying exhibits, making demonstrations, and providing briefings;
(3) Costs of promotional items and memorabilia, including models,
gifts, and souvenirs;
(4) Costs of advertising and public relations designed solely to
promote the non-profit organization.
2. Advisory Councils
Costs incurred by advisory councils or committees are allowable as a direct cost
where authorized by the Federal awarding agency or as an indirect cost where
allocable to Federal awards.
3. Alcoholic beverages. Costs of alcoholic beverages are unallowable.
4. Audit costs and related services
a The costs of audits required by , and performed in accordance with, the
Single Audit Act, as implemented by Circular A-133, "Audits of States, Local
Governments, and Non -Profit Organizations" are allowable. Also see 31 USC
7505(b) and section 230 ("Audit Costs") of Circular A-133.
b. Other audit costs are allowable if included in an indirect cost rate
proposal, or if specifically approved by the awarding agency as a direct cost to
an award.
c. The cost of agreed-upon procedures engagements to monitor subrecipients who
are exempted from A-133 under section 200(d) are allowable, subject to the
conditions listed in A-133, section 230 (b)(2).
21
5. Bad debts. Bad debts, including losses (whether actual or estimated)
arising from uncollectable accounts and other claims, related collection costs,
and related legal costs, are unallowable.
6. Bonding costs.
a. Bonding costs arise when the Federal Government requires assurance
against financial loss to itself or others by reason of the act or default of
the non-profit organization. They arise also in instances where the non-profit
organization requires similar assurance. Included are such bonds as bid,
performance, payment, advance payment, infringement, and fidelity bonds.
b. Costs of bonding required pursuant to the terms of the award are
allowable.
c. Costs of bonding required by the non-profit organization in the
general conduct of its operations are allowable to the extent that such bonding
is in accordance with sound business practice and the rates and premiums are
reasonable under the circumstances.
7. Communication costs. Costs incurred for telephone services, local and long
distance telephone calls, telegrams, postage, messenger, electronic or computer
transmittal services and the like are allowable.
8. Compensation for personal services.
a. Definition. Compensation for personal services includes all
compensation paid currently or accrued by the organization for services of
employees rendered during the period of the award (except as otherwise provided
in subparagraph h). It includes, but is not limited to, salaries, wages,
director's and executive committee member's fees, incentive awards, fringe
benefits, pension plan costs, allowances for off-site pay, incentive pay,
location allowances, hardship pay, and cost of living differentials.
b. Allowability. Except as otherwise specifically provided in this
paragraph, the costs of such compensation are allowable to the extent that:
(1) Total compensation to individual employees is reasonable for the
services rendered and conforms to the established policy of the organization
consistently applied to both Federal and non -Federal activities; and
(2) Charges to awards whether treated as direct or indirect costs
are determined and supported as required in this paragraph.
c. Reasonableness.
(1) When the organization is predominantly engaged in activities
other than those sponsored by the Federal Government, compensation for employees
on federally -sponsored work will be considered reasonable to the extent that it
is consistent with that paid for similar work in the organization's other
activities.
(2) When the organization is predominantly engaged in federally -
sponsored activities and in cases where the kind of employees required for the
Federal activities are not found in the organization's other activities,
22
compensation for employees on federally -sponsored work will be considered
reasonable to the extent that it is comparable to that paid for similar work in
the labor markets in which the organization competes for the kind of employees
involved.
d. Special considerations in determining allowability. Certain
conditions require special consideration and possible limitations in determining
costs under Federal awards where amounts or types of compensation appear
unreasonable. Among such conditions are the following:
(1) Compensation to members of non-profit organizations, trustees,
directors, associates, officers, or the immediate families thereof.
Determination should be made that such compensation is reasonable for the actual
personal services rendered rather than a distribution of earnings in excess of
costs.
(2) Any change in an organization's compensation policy resulting in
a substantial increase in the organization's level of compensation, particularly
when it was concurrent with an increase in the ratio of Federal awards to other
activities of the organization or any change in the treatment of allowability of
specific types of compensation due to changes in Federal policy.
e. Unallowable costs. Costs which are unallowable under other paragraphs
of this Attachment shall not be allowable under this paragraph solely on the
basis that they constitute personal compensation.
f. Overtime, extra -pay shift, and multi -shift premiums. Premiums for
overtime, extra -pay shifts, and multi -shift work are allowable only with the
prior approval of the awarding agency except:
(1) When necessary to cope with emergencies, such as those resulting
from accidents, natural disasters, breakdowns of equipment, or occasional
operational bottlenecks of a sporadic nature.
(2) When employees are performing indirect functions, such as
administration, maintenance, or accounting.
(3) In the performance of tests, laboratory procedures, or other
similar operations which are continuous in nature and cannot reasonably be
interrupted or otherwise completed.
g•
(4) When lower overall cost to the Federal Government will result.
Fringe benefits.
(1) Fringe benefits in the form of regular compensation paid to
employees during periods of authorized absences from the job, such as vacation
leave, sick leave, military leave, and the like, are allowable, provided such
costs are absorbed by all organization activities in proportion to the relative
amount of time or effort actually devoted to each.
(2) Fringe benefits in the form of employer contributions or
expenses for social security, employee insurance, workmen's compensation
insurance, pension plan costs (see subparagraph h), and the like, are allowable,
provided such benefits are granted in accordance with established written
organization policies. Such benefits whether treated as indirect costs or as
direct costs, shall be distributed to particular awards and other activities in
23
a manner consistent with the pattern of benefits accruing to the individuals or
group of employees whose salaries and wages are chargeable to such awards and
other activities.
(3) (a) Provisions for a reserve under a self-insurance program
for unemployment compensation or workers' compensation are allowable to the
extent that the provisions represent reasonable estimates of the liabilities for
such compensation, and the types of coverage, extent of coverage, and rates and
premiums would have been allowable had insurance been purchased to cover the
risks. However, provisions for self-insured liabilities which do not become
payable for more than one year after the provision is made shall not exceed the
present value of the liability.
(b) Where an organization follows a consistent policy of
expensing actual payments to, or on behalf of, employees or former employees for
unemployment compensation or workers' compensation, such payments are allowable
in the year of payment with the prior approval of the awarding agency, provided
they are allocated to all activities of the organization.
(4) Costs of insurance on the lives of trustees, officers, or other
employees holding positions of similar responsibility are allowable only to the
extent that the insurance represents additional compensation. The costs of such
insurance when the organization is named as beneficiary are unallowable.
h. Organization -furnished automobiles. That portion of the cost of
organization -furnished automobiles that relates to personal use by employees
(including transportation to and from work) is unallowable as fringe benefit or
indirect costs regardless of whether the cost is reported as taxable income to
the employees. These costs are allowable as direct costs to sponsored award
when necessary for the performance of the sponsored award and approved by
awarding agencies.
i. Pension plan costs.
(1) Costs of the organization's pension plan which are incurred in
accordance with the established policies of the organization are allowable,
provided:
(a) Such policies meet the test of reasonableness;
(b) The methods of cost allocation are not discriminatory;
(c) The cost assigned to each fiscal year is determined in
accordance with generally accepted accounting principles (GAAP), as prescribed
in Accounting Principles Board Opinion No. 8 issued by the American Institute of
Certified Public Accountants; and
(d) The costs assigned to a given fiscal year are funded for
all plan participants within six months after the end of that year. However,
increases to normal and past service pension costs caused by a delay in funding
the actuarial liability beyond 30 days after each quarter of the year to which
such costs are assignable are unallowable.
(2) Pension plan termination insurance premiums paid pursuant to the
Employee Retirement Income Security Act (ERISA) of 1974 (Pub. L. 93-406) are
allowable. Late payment charges on such premiums are unallowable.
24
(3) Excise taxes on accumulated funding deficiencies and other
penalties imposed under ERISA are unallowable.
j. Incentive compensation. Incentive compensation to employees based on
cost reduction, or efficient performance, suggestion awards, safety awards,
etc., are allowable to the extent that the overall compensation is determined to
be reasonable and such costs are paid or accrued pursuant to an agreement
entered into in good faith between the organization and the employees before the
services were rendered, or pursuant to an established plan followed by the
organization so consistently as to imply, in effect, an agreement to make such
payment.
k. Severance pay.
(1) Severance pay, also commonly referred to as dismissal wages, is
a payment in addition to regular salaries and wages, by organizations to workers
whose employment is being terminated. Costs of severance pay are allowable only
to the extent that in each case, it is required by
(a) law,
(b) employer-employee agreement,
(c) established policy that constitutes, in effect, an implied
agreement on the organization's part, or
(d) circumstances of the particular employment.
follows:
(2) Costs of severance payments are divided into two categories as
(a) Actual normal turnover severance payments shall be
allocated to all activities; or, where the organization provides for a reserve
for normal severances, such method will be acceptable if the charge to current
operations is reasonable in light of payments actually made for normal
severances over a representative past period, and if amounts charged are
allocated to all activities of the organization.
(b) Abnormal or mass severance pay is of such a conjectural
nature that measurement of costs by means of an accrual will not achieve equity
to both parties. Thus, accruals for this purpose are not allowable. However, the
Federal Government recognizes its obligation to participate, to the extent of
its fair share, in any specific payment. Thus, allowability will be considered
on a case-by-case basis in the event or occurrence.
(c) Costs incurred in certain severance pay packages (commonly
known as "a golden parachute" payment) which are in an amount in excess of the
normal severance pay paid by the organization to an employee upon termination of
employment and are paid to the employee contingent upon a change in management
control over, or ownership of, the organization's assets are unallowable.
(d) Severance payments to foreign nationals employed by the
organization outside the United States, to the extent that the amount exceeds
the customary or prevailing practices for the organization in the United States
are unallowable, unless they are necessary for the performance of Federal
programs and approved by awarding agencies.
(e) Severance payments to foreign nationals employed by the
organization outside the United States due to the termination of the foreign
national as a result of the closing of, or curtailment of activities by, the
organization in that country, are unallowable, unless they are necessary for the
performance of Federal programs and approved by awarding agencies.
25
1. Training costs. See paragraph 49.
m. Support of salaries and wages.
(1) Charges to awards for salaries and wages, whether treated as
direct costs or indirect costs, will be based on documented payrolls approved by
a responsible official(s) of the organization. The distribution of salaries and
wages to awards must be supported by personnel activity reports, as prescribed
in subparagraph (2), except when a substitute system has been approved in
writing by the cognizant agency. (See subparagraph E.2 of Attachment A.)
(2) Reports reflecting the distribution of activity of each employee
must be maintained for all staff members (professionals and nonprofessionals)
whose compensation is charged, in whole or in part, directly to awards. In
addition, in order to support the allocation of indirect costs, such reports
must also be maintained for other employees whose work involves two or more
functions or activities if a distribution of their compensation between such
functions or activities is needed in the determination of the organization's
indirect cost rate(s) (e.g., an employee engaged part-time in indirect cost
activities and part-time in a direct function). Reports maintained by non-
profit organizations to satisfy these requirements must meet the following
standards:
(a) The reports must reflect an after -the -fact determination
of the actual activity of each employee. Budget estimates (i.e., estimates
determined before the services are performed) do not qualify as support for
charges to awards.
(b) Each report must account for the total activity for which
employees are compensated and which is required in fulfillment of their
obligations to the organization.
(c) The reports must be signed by the individual employee, or
by a responsible supervisory official having first hand knowledge of the
activities performed by the employee, that the distribution of activity
represents a reasonable estimate of the actual work performed by the employee
during the periods covered by the reports.
(d) The reports must be prepared at least monthly and must
coincide with one or more pay periods.
(3) Charges for the salaries and wages of nonprofessional employees,
in addition to the supporting documentation described in subparagraphs (1) and
(2), must also be supported by records indicating the total number of hours
worked each day maintained in conformance with Department of Labor regulations
implementing the Fair Labor Standards Act (FLSA) (29 CFR Part 516). For this
purpose, the term "nonprofessional employee" shall have the same meaning as
"nonexempt employee," under FLSA.
(4) Salaries and wages of employees used in meeting cost sharing or
matching requirements on awards must be supported in the same manner as salaries
and wages claimed for reimbursement from awarding agencies.
9. Contingency provisions. Contributions to a contingency reserve or any
similar provision made for events the occurrence of which cannot be foretold
26
with certainty as to time, intensity, or with an assurance of their happening,
are unallowable.
The term "contingency reserve" excludes self-insurance reserves (see Attachment B,
paragraphs 8.g. (3) and 22.a(2)(d)); pension funds (see paragraph 8.i): and reserves
for normal severance pay (see paragraph 8.k.)
10. Defense and prosecution of criminal and civil proceedings, claims, appeals
and patent infringement.
a. Definitions.
(1) Conviction, as used herein, means a judgment or a conviction of
a criminal offense by any court of competent jurisdiction, whether entered upon
as a verdict or a plea, including a conviction due to a plea of nolo contendere.
(2) Costs include, but are not limited to, administrative and
clerical expenses; the cost of legal services, whether performed by in-house or
private counsel; and the costs of the services of accountants, consultants, or
others retained by the organization to assist it; costs of employees, officers
and trustees, and any similar costs incurred before, during, and after
commencement of a judicial or administrative proceeding that bears a direct
relationship to the proceedings.
(3) Fraud, as used herein, means (i) acts of fraud corruption or
attempts to defraud the Federal Government or to corrupt its agents, (ii) acts
that constitute a cause for debarment or suspension (as specified in agency
regulations), and (iii) acts which violate the False Claims Act, 31 U.S.C.,
sections 3729-3731, or the Anti -Kickback Act, 41 U.S.C., sections 51 and 54.
(4) Penalty does not include restitution, reimbursement, or
compensatory damages.
(5) Proceeding includes an investigation.
b. (1) Except as otherwise described herein, costs incurred in
connection with any criminal, civil or administrative proceeding (including
filing of a false certification) commenced by the Federal Government, or a
State, local or foreign government, are not allowable if the proceeding: (1)
relates to a violation of, or failure to comply with, a Federal, State, local or
foreign statute or regulation by the organization (including its agents and
employees), and (2) results in any of the following dispositions:
(a) In a criminal proceeding, a conviction.
(b) In a civil or administrative proceeding involving an
allegation of fraud or similar misconduct, a determination of organizational
liability.
(c) In the case of any civil or administrative proceeding, the
imposition of a monetary penalty.
(d) A final decision by an appropriate Federal official to
debar or suspend the organization, to rescind or void an award, or to terminate
27
an award for default by reason of a violation or failure to comply with a law or
regulation.
(e) A disposition by consent or compromise, if the action
could have resulted in any of the dispositions described in (a), (b), (c) or
(d) .
(2) If more than one proceeding involves the same alleged
misconduct, the costs of all such proceedings shall be unallowable if any one of
them results in one of the dispositions shown in subparagraph b.(1).
c. If a proceeding referred to in subparagraph b is commenced by the
Federal Government and is resolved by consent or compromise pursuant to an
agreement entered into by the organization and the Federal Government, then the
costs incurred by the organization in connection with such proceedings that are
otherwise not allowable under subparagraph b may be allowed to the extent
specifically provided in such agreement.
d. If a proceeding referred to in subparagraph b is commenced by a State,
local or foreign government, the authorized Federal official may allow the costs
incurred by the organization for such proceedings, if such authorized official
determines that the costs were incurred as a result of (1) a specific term or
condition of a federally -sponsored award, or (2) specific written direction of
an authorized official of the sponsoring agency.
e. Costs incurred in connection with proceedings described in
subparagraph b, but which are not made unallowable by that subparagraph, may be
allowed by the Federal Government, but only to the extent that:
(1) The costs are reasonable in relation to the activities required
to deal with the proceeding and the underlying cause of action;
(2) Payment of the costs incurred, as allowable and allocable costs,
is not prohibited by any other provision(s) of the sponsored award;
(3) The costs are not otherwise recovered from the Federal
Government or a third party, either directly as a result of the proceeding or
otherwise; and,
(4) The percentage of costs allowed does not exceed the percentage
determined by an authorized Federal official to be appropriate, considering the
complexity of the litigation, generally accepted principles governing the award
of legal fees in civil actions involving the United States as a party, and such
other factors as may be appropriate. Such percentage shall not exceed 80
percent. However, if an agreement reached under subparagraph c has explicitly
considered this 80 percent limitation and permitted a higher percentage, then
the full amount of costs resulting from that agreement shall be allowable.
f. Costs incurred by the organization in connection with the defense of
suits brought by its employees or ex-employees under section 2 of the Major
Fraud Act of 1988 (Pub. L. 100-700), including the cost of all relief necessary
to make such employee whole, where the organization was found liable or settled,
are unallowable.
g. Costs of legal, accounting, and consultant services, and related
costs, incurred in connection with defense against Federal Government claims or
28
appeals, antitrust suits, or the prosecution of claims or appeals against the
Federal Government, are unallowable.
h. Costs of legal, accounting, and consultant services, and related
costs, incurred in connection with patent infringement litigation, are
unallowable unless otherwise provided for in the sponsored awards.
i. Costs which may be unallowable under this paragraph, including
directly associated costs, shall be segregated and accounted for by the
organization separately. During the pendency of any proceeding covered by
subparagraphs b and f, the Federal Government shall generally withhold payment
of such costs. However, if in the best interests of the Federal Government, the
Federal Government may provide for conditional payment upon provision of
adequate security, or other adequate assurance, and agreements by the
organization to repay all unallowable costs, plus interest, if the costs are
subsequently determined to be unallowable.
11. Depreciation and use allowances.
a. Compensation for the use of buildings, other capital improvements, and
equipment on hand may be made through use allowance or depreciation. However,
except as provided in Attachment B, paragraph f, a combination of the two
methods may not be used in connection with a single class of fixed assets (e.g.,
buildings, office equipment, computer equipment, etc.).
b. The computation of use allowances or depreciation shall be based on the
acquisition cost of the assets involved. The acquisition cost of an asset
donated to the non-profit organization by a third party shall be its fair market
value at the time of the donation.
c. The computation of use allowances or depreciation will exclude:
(1) The cost of land;
(2) Any portion of the cost of buildings and equipment borne by or
donated by the Federal Government irrespective of where title was originally
vested or where it presently resides; and
(3) Any portion of the cost of buildings and equipment contributed
by or for the non-profit organization in satisfaction of a statutory matching
requirement.
d. Where depreciation method is followed, the period of useful service
(useful life) established in each case for usable capital assets must take into
consideration such factors as type of construction, nature of the equipment
used, technological developments in the particular program area, and the renewal
and replacement policies followed for the individual items or classes of assets
involved. The method of depreciation used to assign the cost of an asset (or
group of assets) to accounting periods shall reflect the pattern of consumption
of the asset during its useful life.
In the absence of clear evidence indicating that the expected consumption of the
asset will be significantly greater or lesser in the early portions of its
useful life than in the later portions, the straight-line method shall be
presumed to be the appropriate method.
Depreciation methods once used shall not be changed unless approved in advance
by the cognizant Federal agency. When the depreciation method is introduced for
29
application to assets previously subject to a use allowance, the combination of
use allowances and depreciation applicable to such assets must not exceed the
total acquisition cost of the assets.
e. When the depreciation method is used for buildings, a building's shell
may be segregated from each building component (e.g., plumbing system, heating,
and air conditioning system, etc.) and each item depreciated over its estimated
useful life; or the entire building (i.e., the shell and all components) may be
treated as a single asset and depreciated over a single useful life.
f. When the depreciation method is used for a particular class of assets,
no depreciation may be allowed on any such assets that, under subparagraph d,
would be viewed as fully depreciated. However, a reasonable use allowance may
be negotiated for such assets if warranted after taking into consideration the
amount of depreciation previously charged to the Federal Government, the
estimated useful life remaining at time of negotiation, the effect of any
increased maintenance charges or decreased efficiency due to age, and any other
factors pertinent to the utilization of the asset for the purpose contemplated.
g. Where the use allowance method is followed, the use allowance for
buildings and improvement (including land improvements, such as paved parking
areas, fences, and sidewalks) will be computed at an annual rate not exceeding
two percent of acquisition cost.
The use allowance for equipment will be computed at an annual rate not exceeding
six and two-thirds percent of acquisition cost. When the use allowance method is
used for buildings, the entire building must be treated as a single asset; the
building's components (e.g., plumbing system, heating and air conditioning,
etc.) cannot be segregated from the building's shell.
The two percent limitation, however, need not be applied to equipment which is
merely attached or fastened to the building but not permanently fixed to it and
which is used as furnishings or decorations or for specialized purposes (e.g.,
dentist chairs and dental treatment units, counters, laboratory benches bolted
to the floor, dishwashers, modular furniture, carpeting, etc.). Such equipment
will be considered as not being permanently fixed to the building if it can be
removed without the need for costly or extensive alterations or repairs to the
building or the equipment. Equipment that meets these criteria will be subject
to the 6 2/3 percent equipment use allowance limitation.
h. Charges for use allowances or depreciation must be supported by
adequate property records and physical inventories must be taken at least once
every two years (a statistical sampling basis is acceptable) to ensure that
assets exist and are usable and needed. When the depreciation method is
followed, adequate depreciation records indicating the amount of depreciation
taken each period must also be maintained.
12. Donations and contributions.
a. Contributions or donations rendered. Contributions or donations,
including cash, property, and services, made by the organization, regardless of
the recipient, are unallowable.
b. Donated services received:
30
(1) Donated or volunteer services may be furnished to an
organization by professional and technical personnel, consultants, and other
skilled and unskilled labor. The value of these services is not reimbursable
either as a direct or indirect cost. However, the value of donated services may
be used to meet cost sharing or matching requirements in accordance with the
Common Rule.
(2)The value of donated services utilized in the performance of a
direct cost activity shall, when material in amount, be considered in the
determination of the non-profit organization's indirect costs or rate(s) and,
accordingly, shall be allocated a proportionate share of applicable indirect
costs when the following exist:
(a) The aggregate value of the services is material;
(b) The services are supported by a significant amount of the
indirect costs incurred by the non-profit organization; and
(c) The direct cost activity is not pursued primarily for the
benefit of the Federal Government.
(3) In those instances where there is no basis for determining the
fair market value of the services rendered, the recipient and the cognizant
agency shall negotiate an appropriate allocation of indirect cost to the
services.
(4) Where donated services directly benefit a project supported by
an award, the indirect costs allocated to the services will be considered as a
part of the total costs of the project. Such indirect costs may be reimbursed
under the award or used to meet cost sharing or matching requirements.
(5) The value of the donated services may be used to meet cost
sharing or matching requirements under conditions described in Sec..23 of
Circular A-110. Where donated services are treated as indirect costs, indirect
cost rates will separate the value of the donations so that reimbursement will
not be made.
c. Donated goods or space.
(1) Donated goods; i.e., expendable personal property/supplies, and
donated use of space may be furnished to a non-profit organization. The value of
the goods and space is not reimbursable either as a direct or indirect cost.
(2) The value of the donations may be used to meet cost sharing or
matching share requirements under the conditions described in Circular A-110.
Where donations are treated as indirect costs, indirect cost rates will separate
the value of the donations so that reimbursement will not be made.
13. Employee morale, health, and welfare costs.
31
a. The costs of employee information publications, health or first-aid
clinics and/or infirmaries, recreational activities, employee counseling
services, and any other expenses incurred in accordance with the non-profit
organization's established practice or custom for the improvement of working
conditions, employer-employee relations, employee morale, and employee
performance are allowable.
b. Such costs will be equitably apportioned to all activities of the non-
profit organization. Income generated from any of these activities will be
credited to the cost thereof unless such income has been irrevocably set over to
employee welfare organizations.
14. Entertainment costs. Costs of entertainment, including amusement,
diversion, and social activities and any costs directly associated with such
costs (such as tickets to shows or sports events, meals, lodging, rentals,
transportation, and gratuities) are unallowable.
15. Equipment and other capital expenditures.
a For purposes of this subparagraph, the following definitions apply:
(1) "Capital Expenditures" means expenditures for the acquisition
cost of capital assets (equipment, buildings, land), or expenditures to make
improvements to capital assets that materially increase their value or useful
life. Acquisition cost means the cost of the asset including the cost to put it
in place. Acquisition cost for equipment, for example, means the net invoice
price of the equipment, including the cost of any modifications, attachments,
accessories, or auxiliary apparatus necessary to make it usable for the purpose
for which it is acquired. Ancillary charges, such as taxes, duty, protective in
transit insurance, freight, and installation may be included in, or excluded
from the acquisition cost in accordance with the non-profit organization's
regular accounting practices.
(2) "Equipment" means an article of nonexpendable, tangible personal
property having a useful life of more than one year and an acquisition cost
which equals or exceeds the lesser of the capitalization level established by
the non-profit organization for financial statement purposes, or $5000.
(3) "Special purpose equipment" means equipment which is used only
for research, medical, scientific, or other technical activities. Examples of
special purpose equipment include microscopes, x-ray machines, surgical
instruments, and spectrometers.
(4) "General purpose equipment" means equipment, which is not
limited to research, medical, scientific or other technical activities. Examples
include office equipment and furnishings, modular offices, telephone networks,
information technology equipment and systems, air conditioning equipment,
reproduction and printing equipment, and motor vehicles.
b. The following rules of allowability shall apply to equipment and other
capital expenditures:
32
(1) Capital expenditures for general purpose equipment, buildings,
and land are unallowable as direct charges, except where approved in advance by
the awarding agency.
(2) Capital expenditures for special purpose equipment are allowable
as direct costs, provided that items with a unit cost of $5000 or more have the
prior approval of the awarding agency.
(3) Capital expenditures for improvements to land, buildings, or
equipment which materially increase their value or useful life are unallowable
as a direct cost except with the prior approval of the awarding agency.
(4) When approved as a direct charge pursuant to paragraph 15.b.(1),
(2), and (3) above, capital expenditures will be charged in the period in which
the expenditure is incurred, or as otherwise determined appropriate by and
negotiated with the awarding agency.
(5) Equipment and other capital expenditures are unallowable as
indirect costs. However, see Attachment B, paragraph 11., Depreciation and use
allowance, for rules on the allowability of use allowances or depreciation on
buildings, capital improvements, and equipment. Also, see Attachment B,
paragraph 43., Rental costs of buildings and equipment, for rules on the
allowability of rental costs for land, buildings, and equipment.
(6) The unamortized portion of any equipment written off as a result
of a change in capitalization levels may be recovered by continuing to claim the
otherwise allowable use allowances or depreciation on the equipment, or by
amortizing the amount to be written off over a period of years negotiated with
the cognizant agency.
16. Fines and penalties. Costs of fines and penalties resulting from
violations of, or failure of the organization to comply with Federal, State, and
local laws and regulations are unallowable except when incurred as a result of
compliance with specific provisions of an award or instructions in writing from
the awarding agency.
17. Fund raising and investment management costs.
a. Costs of organized fund raising, including financial campaigns,
endowment drives, solicitation of gifts and bequests, and similar expenses
incurred solely to raise capital or obtain contributions are unallowable.
b. Costs of investment counsel and staff and similar expenses incurred
solely to enhance income from investments are unallowable.
c. Fund raising and investment activities shall be allocated an
appropriate share of indirect costs under the conditions described in
subparagraph B.3 of Attachment A.
18. Gains and losses on depreciable assets.
a. (1) Gains and losses on sale, retirement, or other disposition of
depreciable property shall be included in the year in which they occur as
credits or charges to cost grouping(s) in which the depreciation applicable to
33
such property was included. The amount of the gain or loss to be included as a
credit or charge to the appropriate cost grouping(s) shall be the difference
between the amount realized on the property and the undepreciated basis of the
property.
(2) Gains and losses on the disposition of depreciable property
shall not be recognized as a separate credit or charge under the following
conditions:
(a) The gain or loss is processed through a depreciation
account and is reflected in the depreciation allowable under paragraph 11.
(b) The property is given in exchange as part of the purchase
price of a similar item and the gain or loss is taken into account in
determining the depreciation cost basis of the new item.
(c) A loss results from the failure to maintain permissible
insurance, except as otherwise provided in Attachment B, paragraph 22.
(d) Compensation for the use of the property was provided
through use allowances in lieu of depreciation in accordance with paragraph 9.
(e) Gains and losses arising from mass or extraordinary sales,
retirements, or other dispositions shall be considered on a case-by-case basis.
b. Gains or losses of any nature arising from the sale or exchange of
property other than the property covered in subparagraph a shall be excluded in
computing award costs.
19. Goods or services for personal use. Costs of goods or services for
personal use of the organization's employees are unallowable regardless of
whether the cost is reported as taxable income to the employees.
20. Housing and personal living expenses.
a. Costs of housing (e.g., depreciation, maintenance, utilities,
furnishings, rent, etc.), housing allowances and personal living expenses for/of
the organization's officers are unallowable as fringe benefit or indirect costs
regardless of whether the cost is reported as taxable income to the employees.
These costs are allowable as direct costs to sponsored award when necessary for
the performance of the sponsored award and approved by awarding agencies.
b. The term "officers" includes current and past officers and employees.
21. Idle facilities and idle capacity.
below:
a. As used in this section the following terms have the meanings set forth
(1) "Facilities" means land and buildings or any portion thereof,
equipment individually or collectively, or any other tangible capital asset,
wherever located, and whether owned or leased by the non-profit organization.
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(2) "Idle facilities" means completely unused facilities that are
excess to the non-profit organization's current needs.
(3) "Idle capacity" means the unused capacity of partially used
facilities. It is the difference between: (a) that which a facility could
achieve under 100 percent operating time on a one -shift basis less operating
interruptions resulting from time lost for repairs, setups, unsatisfactory
materials, and other normal delays; and (b) the extent to which the facility was
actually used to meet demands during the accounting period. A multi -shift basis
should be used if it can be shown that this amount of usage would normally be
expected for the type of facility involved.
(4) "Cost of idle facilities or idle capacity" means costs such as
maintenance, repair, housing, rent, and other related costs, e.g., insurance,
interest, property taxes and depreciation or use allowances.
b. The costs of idle facilities are unallowable except to the extent that:
(1) They are necessary to meet fluctuations in workload; or
(2) Although not necessary to meet fluctuations in workload, they
were necessary when acquired and are now idle because of changes in program
requirements, efforts to achieve more economical operations, reorganization,
termination, or other causes which could not have been reasonably foreseen.
Under the exception stated in this subparagraph, costs of idle facilities are
allowable for a reasonable period of time, ordinarily not to exceed one year,
depending on the initiative taken to use, lease, or dispose of such facilities.
c. The costs of idle capacity are normal costs of doing business and are a
factor in the normal fluctuations of usage or indirect cost rates from period to
period. Such costs are allowable, provided that the capacity is reasonably
anticipated to be necessary or was originally reasonable and is not subject to
reduction or elimination by use on other Federal awards, subletting, renting, or
sale, in accordance with sound business, economic, or security practices.
Widespread idle capacity throughout an entire facility or among a group of
assets having substantially the same function may be considered idle facilities.
22. Insurance and indemnification.
a. Insurance includes insurance which the organization is required to
carry, or which is approved, under the terms of the award and any other
insurance which the organization maintains in connection with the general
conduct of its operations. This paragraph does not apply to insurance which
represents fringe benefits for employees (see subparagraphs 8.g and 8.i(2)).
(1) Costs of insurance required or approved, and maintained,
pursuant to the award are allowable.
(2) Costs of other insurance maintained by the organization in
connection with the general conduct of its operations are allowable subject to
the following limitations:
(a) Types and extent of coverage shall be in accordance with
sound business practice and the rates and premiums shall be reasonable under the
circumstances.
35
(b) Costs allowed for business interruption or other similar
insurance shall be limited to exclude coverage of management fees.
(c) Costs of insurance or of any provisions for a reserve
covering the risk of loss or damage to Federal property are allowable only to
the extent that the organization is liable for such loss or damage.
(d) Provisions for a reserve under a self-insurance program
are allowable to the extent that types of coverage, extent of coverage, rates,
and premiums would have been allowed had insurance been purchased to cover the
risks. However, provision for known or reasonably estimated self-insured
liabilities, which do not become payable for more than one year after the
provision is made, shall not exceed the present value of the liability.
(e) Costs of insurance on the lives of trustees, officers, or
other employees holding positions of similar responsibilities are allowable only
to the extent that the insurance represents additional compensation (see
subparagraph 8.g(4)). The cost of such insurance when the organization is
identified as the beneficiary is unallowable.
(f) Insurance against defects. Costs of insurance with
respect to any costs incurred to correct defects in the organization's materials
or workmanship are unallowable.
(g) Medical liability (malpractice) insurance. Medical
liability insurance is an allowable cost of Federal research programs only to
the extent that the Federal research programs involve human subjects or training
of participants in research techniques. Medical liability insurance costs shall
be treated as a direct cost and shall be assigned to individual projects based
on the manner in which the insurer allocates the risk to the population covered
by the insurance.
(3) Actual losses which could have been covered by permissible
insurance (through the purchase of insurance or a self-insurance program) are
unallowable unless expressly provided for in the award, except:
(a) Costs incurred because of losses not covered under nominal
deductible insurance coverage provided in keeping with sound business practice
are allowable.
(b) Minor losses not covered by insurance, such as spoilage,
breakage, and disappearance of supplies, which occur in the ordinary course of
operations, are allowable.
b. Indemnification includes securing the organization against liabilities
to third persons and any other loss or damage, not compensated by insurance or
otherwise. The Federal Government is obligated to indemnify the organization
only to the extent expressly provided in the award.
23. Interest.
a. Costs incurred for interest on borrowed capital, temporary use of
endowment funds, or the use of the non-profit organization's own funds, however
represented, are unallowable. However, interest on debt incurred after
September 29, 1995 to acquire or replace capital assets (including
36
renovations, alterations, equipment, land, and capital assets acquired through
capital leases), acquired after September 29, 1995 and used in support of
Federal awards is allowable, provided that:
(1) For facilities acquisitions (excluding renovations and
alterations) costing over $10 million where the Federal Government's
reimbursement is expected to equal or exceed 40 percent of an asset's cost, the
non-profit organization prepares, prior to the acquisition or replacement of the
capital asset(s), a justification that demonstrates the need for the facility in
the conduct of federally -sponsored activities. Upon request, the needs
justification must be provided to the Federal agency with cost cognizance
authority as a prerequisite to the continued allowability of interest on debt
and depreciation related to the facility. The needs justification for the
acquisition of a facility should include, at a minimum, the following:
(a) A statement of purpose and justification for facility
acquisition or replacement
for the facility
(b) A statement as to why current facilities are not adequate
(c) A statement of planned future use of the facility
(d) A description of the financing agreement to be arranged
(e) A summary of the building contract with estimated cost
information and statement of source and use of funds
(f) A schedule of planned occupancy dates
(2) For facilities costing over $500,000, the non-profit
organization prepares, prior to the acquisition or replacement of the facility,
a lease/purchase analysis in accordance with the provisions of Sec. .30
through .37 of Circular A-110, which shows that a financed purchase or capital
lease is less costly to the organization than other leasing alternatives, on a
net present value basis. Discount rates used should be equal to the non-profit
organization's anticipated interest rates and should be no higher than the fair
market rate available to the non-profit organization from an unrelated ("arm's
length") third -party. The lease/purchase analysis shall include a comparison of
the net present value of the projected total cost comparisons of both
alternatives over the period the asset is expected to be used by the non-profit
organization. The cost comparisons associated with purchasing the facility shall
include the estimated purchase price, anticipated operating and maintenance
costs (including property taxes, if applicable) not included in the debt
financing, less any estimated asset salvage value at the end of the period
defined above. The cost comparison for a capital lease shall include the
estimated total lease payments, any estimated bargain purchase option, operating
and maintenance costs, and taxes not included in the capital leasing
arrangement, less any estimated credits due under the lease at the end of the
period defined above. Projected operating lease costs shall be based on the
anticipated cost of leasing comparable facilities at fair market rates under
rental agreements that would be renewed or reestablished over the period defined
above, and any expected maintenance costs and allowable property taxes to be
borne by the non-profit organization directly or as part of the lease
arrangement.
37
(3) The actual interest cost claimed is predicated upon interest
rates that are no higher than the fair market rate available to the non-profit
organization from an unrelated ("arm's length") third party.
(4) Investment earnings, including interest income, on bond or loan
principal, pending payment of the construction or acquisition costs, are used to
offset allowable interest cost. Arbitrage earnings reportable to the Internal
Revenue Service are not required to be offset against allowable interest costs.
(5) Reimbursements are limited to the least costly alternative based
on the total cost analysis required under subparagraph (b). For example, if an
operating lease is determined to be less costly than purchasing through debt
financing, then reimbursement is limited to the amount determined if leasing had
been used. In all cases where a lease/purchase analysis is performed, Federal
reimbursement shall be based upon the least expensive alternative.
conditions:
(6) Non-profit organizations are also subject to the following
(a) Interest on debt incurred to finance or refinance assets
acquired before or reacquired after September 29, 1995, is not allowable.
unallowable.
(b) Interest attributable to fully depreciated assets is
(c) For debt arrangements over $1 million, unless the non-
profit organization makes an initial equity contribution to the asset purchase
of 25 percent or more, non-profit organizations shall reduce claims for interest
expense by an amount equal to imputed interest earnings on excess cash flow,
which is to be calculated as follows. Annually, non-profit organizations shall
prepare a cumulative (from the inception of the project) report of monthly cash
flows that includes inflows and outflows, regardless of the funding source.
Inflows consist of depreciation expense, amortization of capitalized
construction interest, and annual interest expense. For cash flow calculations,
the annual inflow figures shall be divided by the number of months in the year
(usually 12) that the building is in service for monthly amounts. Outflows
consist of initial equity contributions, debt principal payments (less the pro
rata share attributable to the unallowable costs of land) and interest payments.
Where cumulative inflows exceed cumulative outflows, interest shall be
calculated on the excess inflows for that period and be treated as a reduction
to allowable interest expense. The rate of interest to be used to compute
earnings on excess cash flows shall be the three month Treasury Bill closing
rate as of the last business day of that month.
(d) Substantial relocation of federally -sponsored activities
from a facility financed by indebtedness, the cost of which was funded in whole
or part through Federal reimbursements, to another facility prior to the
expiration of a period of 20 years requires notice to the Federal cognizant
agency. The extent of the relocation, the amount of the Federal participation in
the financing, and the depreciation and interest charged to date may require
negotiation and/or downward adjustments of replacement space charged to Federal
programs in the future.
(e) The allowable costs to acquire facilities and equipment
are limited to a fair market value available to the non-profit organization from
an unrelated ("arm's length") third party.
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b. For non-profit organizations subject to "full coverage"' under the Cost
Accounting Standards (CAS) as defined at 48 CFR 9903.201, the interest
allowability provisions of subparagraph a do not apply. Instead, these
organizations' sponsored agreements are subject to CAS 414 (48 CFR 9903.414),
cost of money as an element of the cost of facilities capital, and CAS 417 (48
CFR 9903.417), cost of money as an element of the cost of capital assets under
construction.
c. The following definitions are to be used for purposes of this
paragraph:
(1) Re -acquired assets means assets held by the non-profit
organization prior to September 29, 1995 that have again come to be held by
the organization, whether through repurchase or refinancing. It does not include
assets acquired to replace older assets.
(2) Initial equity contribution means the amount or value of
contributions made by non-profit organizations for the acquisition of the asset
or prior to occupancy of facilities.
(3) Asset costs means the capitalizable costs of an asset, including
construction costs, acquisition costs, and other such costs capitalized in
accordance with GAAP.
24. Labor relations costs. Costs incurred in maintaining satisfactory
relations between the organization and its employees, including costs of labor
management committees, employee publications, and other related activities are
allowable.
25. Lobbying.
a. Notwithstanding other provisions of this Circular, costs associated
with the following activities are unallowable:
(1) Attempts to influence the outcomes of any Federal, State, or
local election, referendum, initiative, or similar procedure, through in kind or
cash contributions, endorsements, publicity, or similar activity;
(2) Establishing, administering, contributing to, or paying the
expenses of a political party, campaign, political action committee, or other
organization established for the purpose of influencing the outcomes of
elections;
(3) Any attempt to influence: (i) The introduction of Federal or
State legislation; or (ii) the enactment or modification of any pending Federal
or State legislation through communication with any member or employee of the
Congress or State legislature (including efforts to influence State or local
officials to engage in similar lobbying activity), or with any Government
official or employee in connection with a decision to sign or veto enrolled
legislation;
(4) Any attempt to influence: (i) The introduction of Federal or
State legislation; or (ii) the enactment or modification of any pending Federal
or State legislation by preparing, distributing or using publicity or
39
propaganda, or by urging members of the general public or any segment thereof to
contribute to or participate in any mass demonstration, march, rally,
fundraising drive, lobbying campaign or letter writing or telephone campaign; or
(5) Legislative liaison activities, including attendance at
legislative sessions or committee hearings, gathering information regarding
legislation, and analyzing the effect of legislation, when such activities are
carried on in support of or in knowing preparation for an effort to engage in
unallowable lobbying.
b. The following activities are excepted from the coverage of
subparagraph a:
(1) Providing a technical and factual presentation of information on
a topic directly related to the performance of a grant, contract or other
agreement through hearing testimony, statements or letters to the Congress or a
State legislature, or subdivision, member, or cognizant staff member thereof, in
response to a documented request (including a Congressional Record notice
requesting testimony or statements for the record at a regularly scheduled
hearing) made by the recipient member, legislative body or subdivision, or a
cognizant staff member thereof; provided such information is readily obtainable
and can be readily put in deliverable form; and further provided that costs
under this section for travel, lodging or meals are unallowable unless incurred
to offer testimony at a regularly scheduled Congressional hearing pursuant to a
written request for such presentation made by the Chairman or Ranking Minority
Member of the Committee or Subcommittee conducting such hearing.
(2) Any lobbying made unallowable by subparagraph a(3) to influence
State legislation in order to directly reduce the cost, or to avoid material
impairment of the organization's authority to perform the grant, contract, or
other agreement.
(3) Any activity specifically authorized by statute to be undertaken
with funds from the grant, contract, or other agreement.
c. (1) When an organization seeks reimbursement for indirect costs,
total lobbying costs shall be separately identified in the indirect cost rate
proposal, and thereafter treated as other unallowable activity costs in
accordance with the procedures of subparagraph B.3 of Attachment A.
(2) Organizations shall submit, as part of the annual indirect cost
rate proposal, a certification that the requirements and standards of this
paragraph have been complied with.
(3) Organizations shall maintain adequate records to demonstrate
that the determination of costs as being allowable or unallowable pursuant to
paragraph 25 complies with the requirements of this Circular.
(4) Time logs, calendars, or similar records shall not be required
to be created for purposes of complying with this paragraph during any
particular calendar month when: (1) the employee engages in lobbying (as defined
in subparagraphs (a) and (b)) 25 percent or less of the employee's compensated
hours of employment during that calendar month, and (2) within the preceding
five-year period, the organization has not materially misstated allowable or
unallowable costs of any nature, including legislative lobbying costs. When
conditions (1) and (2) are met, organizations are not required to establish
records to support the allowabliliy of claimed costs in addition to records
40
already required or maintained. Also, when conditions (1) and (2) are met, the
absence of time logs, calendars, or similar records will not serve as a basis
for disallowing costs by contesting estimates of lobbying time spent by
employees during a calendar month.
(5) Agencies shall establish procedures for resolving in advance, in
consultation with OMB, any significant questions or disagreements concerning the
interpretation or application of paragraph 25. Any such advance resolution shall
be binding in any subsequent settlements, audits or investigations with respect
to that grant or contract for purposes of interpretation of this Circular;
provided, however, that this shall not be construed to prevent a contractor or
grantee from contesting the lawfulness of such a determination.
d. Executive lobbying costs. Costs incurred in attempting to
improperly influence either directly or indirectly, an employee or officer of
the Executive Branch of the Federal Government to give consideration or to act
regarding a sponsored agreement or a regulatory matter are unallowable. Improper
influence means any influence that induces or tends to induce a Federal employee
or officer to give consideration or to act regarding a federally -sponsored
agreement or regulatory matter on any basis other than the merits of the matter.
26. Losses on other sponsored agreements or contracts. Any excess of costs
over income on any award is unallowable as a cost of any other award. This
includes, but is not limited to, the organization's contributed portion by
reason of cost sharing agreements or any under -recoveries through negotiation of
lump sums for, or ceilings on, indirect costs.
27. Maintenance and repair costs. Costs incurred for necessary maintenance,
repair, or upkeep of buildings and equipment (including Federal property unless
otherwise provided for) which neither add to the permanent value of the property
nor appreciably prolong its intended life, but keep it in an efficient operating
condition, are allowable. Costs incurred for improvements which add to the
permanent value of the buildings and equipment or appreciably prolong their
intended life shall be treated as capital expenditures (see paragraph 15).
28. Materials and supplies costs.
a. Costs incurred for materials, supplies, and fabricated parts necessary
to carry out a Federal award are allowable.
b. Purchased materials and supplies shall be charged at their actual
prices, net of applicable credits. Withdrawals from general stores or
stockrooms should be charged at their actual net cost under any recognized
method of pricing inventory withdrawals, consistently applied. Incoming
transportation charges are a proper part of materials and supplies costs.
c. Only materials and supplies actually used for the performance of a
Federal award may be charged as direct costs.
d. Where federally -donated or furnished materials are used in performing
the Federal award, such materials will be used without charge.
41
29. Meetings and conferences. Costs of meetings and conferences, the primary
purpose of which is the dissemination of technical information, are allowable.
This includes costs of meals, transportation, rental of facilities, speakers'
fees, and other items incidental to such meetings or conferences. But see
Attachment B, paragraphs 14., Entertainment costs, and 33., Participant support
costs.
30. Memberships, subscriptions, and professional activity costs.
a. Costs of the non-profit organization's membership in business,
technical, and professional organizations are allowable.
b. Costs of the non-profit organization's subscriptions to business,
professional, and technical periodicals are allowable.
c. Costs of membership in any civic or community organization are
allowable with prior approval by Federal cognizant agency.
d. Costs of membership in any country club or social or dining club or
organization are unallowable.
31. Organization costs. Expenditures, such as incorporation fees, brokers'
fees, fees to promoters, organizers or management consultants, attorneys,
accountants, or investment counselors, whether or not employees of the
organization, in connection with establishment or reorganization of an
organization, are unallowable except with prior approval of the awarding agency.
32. Page charges in professional journals. Page charges for professional
journal publications are allowable as a necessary part of research costs, where:
a. The research papers report work supported by the Federal Government;
and
b. The charges are levied impartially on all research papers published by
the journal, whether or not by federally -sponsored authors.
33. Participant support costs. Participant support costs are direct costs for
items such as stipends or subsistence allowances, travel allowances, and
registration fees paid to or on behalf of participants or trainees (but not
employees) in connection with meetings, conferences, symposia, or training
projects. These costs are allowable with the prior approval of the awarding
agency.
34. Patent costs.
a. The following costs relating to patent and copyright matters are
allowable: (i) cost of preparing disclosures, reports, and other documents
required by the Federal award and of searching the art to the extent necessary
to make such disclosures; (ii) cost of preparing documents and any other patent
costs in connection with the filing and prosecution of a United States patent
application where title or royalty -free license is required by the Federal
Government to be conveyed to the Federal Government; and (iii) general
counseling services relating to patent and copyright matters, such as advice on
patent and copyright laws, regulations, clauses, and employee agreements (but
42
see paragraphs 37., Professional services costs, and 44., Royalties and other
costs for use of patents and copyrights).
b. The following costs related to patent and copyright matter are
unallowable:
(1) Cost of preparing disclosures, reports, and other documents and
of searching the art to the extent necessary to make disclosures not required by
the award
(2) Costs in connection with filing and prosecuting any foreign
patent application, or any United States patent application, where the Federal
award does not require conveying title or a royalty -free license to the Federal
Government (but see paragraph 45., Royalties and other costs for use of patents
and copyrights).
35. Plant and homeland security costs. Necessary and reasonable expenses
incurred for routine and homeland security to protect facilities, personnel, and
work products are allowable. Such costs include, but are not limited to, wages
and uniforms of personnel engaged in security activities; equipment; barriers;
contractual security services; consultants; etc. Capital expenditures for
homeland and plant security purposes are subject to paragraph 15., Equipment and
other capital expenditures, of this Circular.
36. Pre -agreement costs. Pre -award costs are those incurred prior to the
effective date of the award directly pursuant to the negotiation and in
anticipation of the award where such costs are necessary to comply with the
proposed delivery schedule or period of performance. Such costs are allowable
only to the extent that they would have been allowable if incurred after the
date of the award and only with the written approval of the awarding agency.
37. Professional services costs.
a. Costs of professional and consultant services rendered by persons who
are members of a particular profession or possess a special skill, and who are
not officers or employees of the non-profit organization, are allowable, subject
to subparagraphs b and c when reasonable in relation to the services rendered
and when not contingent upon recovery of the costs from the Federal Government.
In addition, legal and related services are limited under Attachment B,
paragraph 10.
b. In determining the allowability of costs in a particular case, no
single factor or any special combination of factors is necessarily
determinative. However, the following factors are relevant:
(1) The nature and scope of the service rendered in relation to the
service required.
(2) The necessity of contracting for the service, considering the
non-profit organization's capability in the particular area.
(3) The past pattern of such costs, particularly in the years prior
to Federal awards.
43
(4) The impact of Federal awards on the non-profit organization's
business (i.e., what new problems have arisen).
(5) Whether the proportion of Federal work to the non-profit
organization's total business is such as to influence the non-profit
organization in favor of incurring the cost, particularly where the services
rendered are not of a continuing nature and have little relationship to work
under Federal grants and contracts.
(6) Whether the service can be performed more economically by direct
employment rather than contracting.
(7) The qualifications of the individual or concern rendering the
service and the customary fees charged, especially on non -Federal awards.
(8) Adequacy of the contractual agreement for the service (e.g.,
description of the service, estimate of time required, rate of compensation, and
termination provisions).
c. In addition to the factors in subparagraph b, retainer fees to be
allowable must be supported by evidence of bona fide services available or
rendered
38. Publication and printing costs.
a. Publication costs include the costs of printing (including the
processes of composition, plate -making, press work, binding, and the end
products produced by such processes), distribution, promotion, mailing, and
general handling. Publication costs also include page charges in professional
publications.
b. If these costs are not identifiable with a particular cost objective,
they should be allocated as indirect costs to all benefiting activities of the
non-profit organization.
c. Page charges for professional journal publications are allowable as a
necessary part of research costs where:
(1) The research papers report work supported by the Federal
Government: and
(2) The charges are levied impartially on all research papers
published by the journal, whether or not by federally -sponsored authors.
39. Rearrangement and alteration costs. Costs incurred for ordinary or normal
rearrangement and alteration of facilities are allowable. Special arrangement
and alteration costs incurred specifically for the project are allowable with
the prior approval of the awarding agency.
40. Reconversion costs. Costs incurred in the restoration or rehabilitation of
the non-profit organization's facilities to approximately the same condition
existing immediately prior to commencement of Federal awards, less costs related
to normal wear and tear, are allowable.
44
41. Recruiting costs.
a. Subject to subparagraphs b, c, and d, and provided that the size of
the staff recruited and maintained is in keeping with workload requirements,
costs of "help wanted" advertising, operating costs of an employment office
necessary to secure and maintain an adequate staff, costs of operating an
aptitude and educational testing program, travel costs of employees while
engaged in recruiting personnel, travel costs of applicants for interviews for
prospective employment, and relocation costs incurred incident to recruitment of
new employees, are allowable to the extent that such costs are incurred pursuant
to a well-managed recruitment program. Where the organization uses employment
agencies, costs that are not in excess of standard commercial rates for such
services are allowable.
b. In publications, costs of help wanted advertising that includes color,
includes advertising material for other than recruitment purposes, or is
excessive in size (taking into consideration recruitment purposes for which
intended and normal organizational practices in this respect), are unallowable.
c. Costs of help wanted advertising, special emoluments, fringe benefits,
and salary allowances incurred to attract professional personnel from other
organizations that do not meet the test of reasonableness or do not conform with
the established practices of the organization, are unallowable.
d. Where relocation costs incurred incident to recruitment of a new
employee have been allowed either as an allocable direct or indirect cost, and
the newly hired employee resigns for reasons within his control within twelve
months after being hired, the organization will be required to refund or credit
such relocation costs to the Federal Government.
42. Relocation costs.
a. Relocation costs are costs incident to the permanent change of duty
assignment (for an indefinite period or for a stated period of not less than 12
months) of an existing employee or upon recruitment of a new employee.
Relocation costs are allowable, subject to the limitation described in
subparagraphs b, c, and d, provided that:
(1) The move is for the benefit of the employer.
(2) Reimbursement to the employee is in accordance with an
established written policy consistently followed by the employer.
(3) The reimbursement does not exceed the employee's actual (or
reasonably estimated) expenses.
b. Allowable relocation costs for current employees are limited to the
following:
(1) The costs of transportation of the employee, members of his
immediate family and his household, and personal effects to the new location.
45
(2) The costs of finding a new home, such as advance trips by
employees and spouses to locate living quarters and temporary lodging during the
transition period, up to maximum period of 30 days, including advance trip time.
(3) Closing costs, such as brokerage, legal, and appraisal fees,
incident to the disposition of the employee's former home. These costs, together
with those described in (4), are limited to 8 percent of the sales price of the
employee's former home.
(4) The continuing costs of ownership of the vacant former home
after the settlement or lease date of the employee's new permanent home, such as
maintenance of buildings and grounds (exclusive of fixing up expenses),
utilities, taxes, and property insurance.
(5) Other necessary and reasonable expenses normally incident to
relocation, such as the costs of canceling an unexpired lease, disconnecting and
reinstalling household appliances, and purchasing insurance against loss of or
damages to personal property. The cost of canceling an unexpired lease is
limited to three times the monthly rental.
c. Allowable relocation costs for new employees are limited to those
described in (1) and (2) of subparagraph b. When relocation costs incurred
incident to the recruitment of new employees have been allowed either as a
direct or indirect cost and the employee resigns for reasons within his control
within 12 months after hire, the organization shall refund or credit the Federal
Government for its share of the cost. However, the costs of travel to an
overseas location shall be considered travel costs in accordance with paragraph
50 and not relocation costs for the purpose of this paragraph if dependents are
not permitted at the location for any reason and the costs do not include costs
of transporting household goods.
d. The following costs related to relocation are unallowable:
(1) Fees and other costs associated with acquiring a new home.
(2) A loss on the sale of a former home.
(3) Continuing mortgage principal and interest payments on a home
being sold.
(4) Income taxes paid by an employee related to reimbursed
relocation costs.
43. Rental costs of buildings and equipment.
a. Subject to the limitations described in subparagraphs b. through d. of
this paragraph 43, rental costs are allowable to the extent that the rates are
reasonable in light of such factors as: rental costs of comparable property, if
any; market conditions in the area; alternatives available; and, the type, life
expectancy, condition, and value of the property leased. Rental arrangements
should be reviewed periodically to determine if circumstances have changed and
other options are available.
b. Rental costs under "sale and lease back" arrangements are allowable
only up to the amount that would be allowed had the non-profit organization
46
continued to own the property. This amount would include expenses such as
depreciation or use allowance, maintenance, taxes, and insurance.
c. Rental costs under "less -than -arms -length" leases are allowable only up
to the amount (as explained in subparagraph b. of this paragraph 43.) that would
be allowed had title to the property vested in the non-profit organization. For
this purpose, a less -than -arms -length lease is one under which one party to the
lease agreement is able to control or substantially influence the actions of the
other. Such leases include, but are not limited to those between (i) divisions
of a non-profit organization; (ii) non-profit organizations under common control
through common officers, directors, or members; and (iii) a non-profit
organization and a director, trustee, officer, or key employee of the non-profit
organization or his immediate family, either directly or through corporations,
trusts, or similar arrangements in which they hold a controlling interest. For
example, a non-profit organization may establish a separate corporation for the
sole purpose of owning property and leasing it back to the non-profit
organization.
d. Rental costs under leases which are required to be treated as capital
leases under GAAP are allowable only up to the amount (as explained in
subparagraph b) that would be allowed had the non-profit organization purchased
the property on the date the lease agreement was executed. The provisions of
Financial Accounting Standards Board Statement 13, Accounting for Leases, shall
be used to determine whether a lease is a capital lease. Interest costs related
to capital leases are allowable to the extent they meet the criteria in
subparagraph 23. Unallowable costs include amounts paid for profit, management
fees, and taxes that would not have been incurred had the non-profit
organization purchased the facility.
44. Royalties and other costs for use of patents and copyrights.
a. Royalties on a patent or copyright or amortization of the cost of
acquiring by purchase a copyright, patent, or rights thereto, necessary for the
proper performance of the award are allowable unless:
(1) The Federal Government has a license or the right to free use of
the patent or copyright.
(2) The patent or copyright has been adjudicated to be invalid, or
has been administratively determined to be invalid.
(3) The patent or copyright is considered to be unenforceable.
(4) The patent or copyright is expired.
b. Special care should be exercised in determining reasonableness where
the royalties may have arrived at as a result of less -than -arm's-length
bargaining, e.g.:
(1) Royalties paid to persons, including corporations, affiliated
with the non-profit organization.
(2) Royalties paid to unaffiliated parties, including corporations,
under an agreement entered into in contemplation that a Federal award would be
made.
47
(3) Royalties paid under an agreement entered into after an award is
made to a non-profit organization.
c. In any case involving a patent or copyright formerly owned by the non-
profit organization, the amount of royalty allowed should not exceed the cost
which would have been allowed had the non-profit organization retained title
thereto.
45. Selling and marketing. Costs of selling and marketing any products or
services of the non-profit organization are unallowable (unless allowed under
Attachment B, paragraph 1. as allowable public relations cost. However, these
costs are allowable as direct costs, with prior approval by awarding agencies,
when they are necessary for the performance of Federal programs.
46. Specialized service facilities.
a. The costs of services provided by highly complex or specialized
facilities operated by the non-profit organization, such as computers, wind
tunnels, and reactors are allowable, provided the charges for the services meet
the conditions of either 46 b. or c. and, in addition, take into account any
items of income or Federal financing that qualify as applicable credits under
Attachment A, subparagraph A.5. of this Circular.
b. The costs of such services, when material, must be charged directly to
applicable awards based on actual usage of the services on the basis of a
schedule of rates or established methodology that (i) does not discriminate
against federally -supported activities of the non-profit organization, including
usage by the non-profit organization for internal purposes, and (ii) is designed
to recover only the aggregate costs of the services. The costs of each service
shall consist normally of both its direct costs and its allocable share of all
indirect costs. Rates shall be adjusted at least biennially, and shall take
into consideration over/under applied costs of the previous period(s).
c. Where the costs incurred for a service are not material, they may be
allocated as indirect costs.
d. Under some extraordinary circumstances, where it is in the best
interest of the Federal Government and the institution to establish alternative
costing arrangements, such arrangements may be worked out with the cognizant
Federal agency.
47. Taxes.
a. In general, taxes which the organization is required to pay and which
are paid or accrued in accordance with GAAP, and payments made to local
governments in lieu of taxes which are commensurate with the local government
services received are allowable, except for (i) taxes from which exemptions are
available to the organization directly or which are available to the
organization based on an exemption afforded the Federal Government and in the
latter case when the awarding agency makes available the necessary exemption
certificates, (ii) special assessments on land which represent capital
improvements, and (iii) Federal income taxes.
b. Any refund of taxes, and any payment to the organization of interest
thereon, which were allowed as award costs, will be credited either as a cost
reduction or cash refund, as appropriate, to the Federal Government.
48
48. Termination costs applicable to sponsored agreements.
Termination of awards generally gives rise to the incurrence of costs, or the
need for special treatment of costs, which would not have arisen had the Federal
award not been terminated. Cost principles covering these items are set forth
below. They are to be used in conjunction with the other provisions of this
Circular in termination situations.
a. The cost of items reasonably usable on the non-profit organization's
other work shall not be allowable unless the non-profit organization submits
evidence that it would not retain such items at cost without sustaining a loss.
In deciding whether such items are reasonably usable on other work of the non-
profit organization, the awarding agency should consider the non-profit
organization's plans and orders for current and scheduled activity.
Contemporaneous purchases of common items by the non-profit organization shall
be regarded as evidence that such items are reasonably usable on the non-profit
organization's other work. Any acceptance of common items as allocable to the
terminated portion of the Federal award shall be limited to the extent that the
quantities of such items on hand, in transit, and on order are in excess of the
reasonable quantitative requirements of other work.
b. If in a particular case, despite all reasonable efforts by the non-
profit organization, certain costs cannot be discontinued immediately after the
effective date of termination, such costs are generally allowable within the
limitations set forth in this Circular, except that any such costs continuing
after termination due to the negligent or willful failure of the non-profit
organization to discontinue such costs shall be unallowable.
c. Loss of useful value of special tooling, machinery, and is generally
allowable if:
(1) Such special tooling, special machinery, or equipment is not
reasonably capable of use in the other work of the non-profit organization,
(2) The interest of the Federal Government is protected by transfer
of title or by other means deemed appropriate by the awarding agency, and
(3) The loss of useful value for any one terminated Federal award is
limited to that portion of the acquisition cost which bears the same ratio to
the total acquisition cost as the terminated portion of the Federal award bears
to the entire terminated Federal award and other Federal awards for which the
special tooling, special machinery, or equipment was acquired.
d. Rental costs under unexpired leases are generally allowable where
clearly shown to have been reasonably necessary for the performance of the
terminated Federal award less the residual value of such leases, if:
(1) the amount of such rental claimed does not exceed the reasonable
use value of the property leased for the period of the Federal award and such
further period as may be reasonable, and -
(2) the non-profit organization makes all reasonable efforts to
terminate, assign, settle, or otherwise reduce the cost of such lease. There
also may be included the cost of alterations of such leased property, provided
49
such alterations were necessary for the performance of the Federal award, and of
reasonable restoration required by the provisions of the lease.
e. Settlement expenses including the following are generally allowable:
(1) Accounting, legal, clerical, and similar costs reasonably
necessary for:
(a) The preparation and presentation to the awarding agency of
settlement claims and supporting data with respect to the terminated portion of
the Federal award, unless the termination is for default (see Subpart .61 of
Circular A-110); and
(b) The termination and settlement of subawards.
(2) Reasonable costs for the storage, transportation, protection,
and disposition of property provided by the Federal Government or acquired or
produced for the Federal award, except when grantees or contractors are
reimbursed for disposals at a predetermined amount in accordance with Subparts
.32 through .37 of Circular A-110.
(3) Indirect costs related to salaries and wages incurred as
settlement expenses in subparagraphs (1) and (2). Normally, such indirect costs
shall be limited to fringe benefits, occupancy cost, and immediate supervision.
f. Claims under sub awards, including the allocable portion of claims
which are common to the Federal award, and to other work of the non-profit
organization are generally allowable.
An appropriate share of the non-profit organization's indirect expense may be
allocated to the amount of settlements with subcontractors and/or subgrantees,
provided that the amount allocated is otherwise consistent with the basic
guidelines contained in Attachment A. The indirect expense so allocated shall
exclude the same and similar costs claimed directly or indirectly as settlement
expenses.
49. Training costs.
a. Costs of preparation and maintenance of a program of instruction
including but not limited to on-the-job, classroom, and apprenticeship training,
designed to increase the vocational effectiveness of employees, including
training materials, textbooks, salaries or wages of trainees (excluding overtime
compensation which might arise therefrom), and (i) salaries of the director of
training and staff when the training program is conducted by the organization;
or (ii) tuition and fees when the training is in an institution not operated by
the organization, are allowable.
b. Costs of part-time education, at an undergraduate or post -graduate
college level, including that provided at the organization's own facilities, are
allowable only when the course or degree pursued is relative to the field in
which the employee is now working or may reasonably be expected to work, and are
limited to:
(1) Training materials.
(2) Textbooks.
50
(3) Fees charges by the educational institution.
(4) Tuition charged by the educational institution or, in lieu of
tuition, instructors' salaries and the related share of indirect costs of the
educational institution to the extent that the sum thereof is not in excess of
the tuition which would have been paid to the participating educational
institution.
(5) Salaries and related costs of instructors who are employees of
the organization.
(6) Straight -time compensation of each employee for time spent
attending classes during working hours not in excess of 156 hours per year and
only to the extent that circumstances do not permit the operation of classes or
attendance at classes after regular working hours; otherwise, such compensation
is unallowable.
c. Costs of tuition, fees, training materials, and textbooks (but not
subsistence, salary, or any other emoluments) in connection with full-time
education, including that provided at the organization's own facilities, at a
post -graduate (but not undergraduate) college level, are allowable only when the
course or degree pursued is related to the field in which the employee is now
working or may reasonably be expected to work, and only where the costs receive
the prior approval of the awarding agency. Such costs are limited to the costs
attributable to a total period not to exceed one school year for each employee
so trained. In unusual cases the period may be extended.
d. Costs of attendance of up to 16 weeks per employee per year at
specialized programs specifically designed to enhance the effectiveness of
executives or managers or to prepare employees for such positions are allowable.
Such costs include enrollment fees, training materials, textbooks and related
charges, employees' salaries, subsistence, and travel. Costs allowable under
this paragraph do not include those for courses that are part of a degree -
oriented curriculum, which are allowable only to the extent set forth in
subparagraphs b and c.
e. Maintenance expense, and normal depreciation or fair rental, on
facilities owned or leased by the organization for training purposes are
allowable to the extent set forth in paragraphs 11, 27, and 50.
f. Contributions or donations to educational or training institutions,
including the donation of facilities or other properties, and scholarships or
fellowships, are unallowable.
g. Training and education costs in excess of those otherwise allowable
under subparagraphs b and c may be allowed with prior approval of the awarding
agency. To be considered for approval, the organization must demonstrate that
such costs are consistently incurred pursuant to an established training and
education program, and that the course or degree pursued is relative to the
field in which the employee is now working or may reasonably be expected to
work.
50. Transportation costs. Transportation costs include freight, express,
cartage, and postage charges relating either to goods purchased, in process, or
delivered. These costs are allowable. When such costs can readily be identified
with the items involved, they may be directly charged as transportation costs or
51
added to the cost of such items (see paragraph 28). Where identification with
the materials received cannot readily be made, transportation costs may be
charged to the appropriate indirect cost accounts if the organization follows a
consistent, equitable procedure in this respect.
51. Travel costs.
a. General. Travel costs are the expenses for transportation, lodging,
subsistence, and related items incurred by employees who are in travel status on
official business of the non-profit organization. Such costs may be charged on
an actual cost basis, on a per diem or mileage basis in lieu of actual costs
incurred, or on a combination of the two, provided the method used is applied to
an entire trip and not to selected days of the trip, and results in charges
consistent with those normally allowed in like circumstances in the non-profit
organization's non -federally -sponsored activities.
b. Lodging and subsistence. Costs incurred by employees and officers for
travel, including costs of lodging, other subsistence, and incidental expenses,
shall be considered reasonable and allowable only to the extent such costs do
not exceed charges normally allowed by the non-profit organization in its
regular operations as the result of the non-profit organization's written travel
policy. In the absence of an acceptable, written non-profit organization policy
regarding travel costs, the rates and amounts established under subchapter I of
Chapter 57, Title 5, United States Code ("Travel and Subsistence Expenses;
Mileage Allowances"), or by the Administrator of General Services, or by the
President (or his or her designee) pursuant to any provisions of such subchapter
shall apply to travel under Federal awards (48 CFR 31.205-46(a)).
c. Commercial air travel.
(1) Airfare costs in excess of the customary standard commercial
airfare (coach or equivalent), Federal Government contract airfare (where
authorized and available), or the lowest commercial discount airfare are
unallowable except when such accommodations would: (a) require circuitous
routing; (b) require travel during unreasonable hours; (c) excessively prolong
travel; (d) result in additional costs that would offset the transportation
savings; or (e) offer accommodations not reasonably adequate for the traveler's
medical needs. The non-profit organization must justify and document these
conditions on a case-by-case basis in order for the use of first-class airfare
to be allowable in such cases.
(2) Unless a pattern of avoidance is detected, the Federal
Government will generally not question a non-profit organization's
determinations that customary standard airfare or other discount airfare is
unavailable for specific trips if the non-profit organization can demonstrate
either of the following: (a) that such airfare was not available in the
specific case; or (b) that it is the non-profit organization's overall practice
to make routine use of such airfare.
d. Air travel by other than commercial carrier. Costs of travel by non-
profit organization -owned, -leased, or -chartered aircraft include the cost of
lease, charter, operation (including personnel costs), maintenance,
depreciation, insurance, and other related costs. The portion of such costs
that exceeds the cost of allowable commercial air travel, as provided for in
subparagraph] c., is unallowable.
52
e. Foreign travel. Direct charges for foreign travel costs are allowable
only when the travel has received prior approval of the awarding agency. Each
separate foreign trip must receive such approval. For purposes of this
provision, "foreign travel" includes any travel outside Canada, Mexico, the
United States, and any United States territories and possessions. However, the
term "foreign travel" for a non-profit organization located in a foreign country
means travel outside that country.
52. Trustees. Travel and subsistence costs of trustees (or directors) are
allowable. The costs are subject to restrictions regarding lodging, subsistence
and air travel costs provided in paragraph 51.
53
ATTACHMENT C
Circular No. A-122
NON-PROFIT ORGANIZATIONS NOT SUBJECT TO THIS CIRCULAR
Advance Technology Institute (ATI), Charleston, South Carolina
Aerospace Corporation, El Segundo, California
American Institutes of Research (AIR), Washington D.C.
Argonne National Laboratory, Chicago, Illinois
Atomic Casualty Commission, Washington, D.C.
Battelle Memorial Institute, Headquartered in Columbus, Ohio
Brookhaven National Laboratory, Upton, New York
Charles Stark Draper Laboratory, Incorporated, Cambridge, Massachusetts
CNA Corporation (CNAC), Alexandria, Virginia
Environmental Institute of Michigan, Ann Arbor, Michigan
Georgia Institute of Technology/Georgia Tech Applied Research Corporation/
Georgia Tech Research Institute, Atlanta, Georgia
Hanford Environmental Health Foundation, Richland, Washington
IIT Research Institute, Chicago, Illinois
Institute of Gas Technology, Chicago, Illinois
Institute for Defense Analysis, Alexandria, Virginia
LMI, McLean, Virginia
Mitre Corporation, Bedford, Massachusetts
Mitretek Systems, Inc., Falls Church, Virginia
National Radiological Astronomy Observatory, Green Bank, West Virginia
National Renewable Energy Laboratory, Golden, Colorado
Oak Ridge Associated Universities, Oak Ridge, Tennessee
Rand Corporation, Santa Monica, California
Research Triangle Institute, Research Triangle Park, North Carolina
Riverside Research Institute, New York, New York
South Carolina Research Authority (SCRA), Charleston, South Carolina
54
Southern Research Institute, Birmingham, Alabama
Southwest Research Institute, San Antonio, Texas
SRI International, Menlo Park, California
Syracuse Research Corporation, Syracuse, New York
Universities Research Association, Incorporated (National Acceleration Lab),
Argonne, Illinois
Urban Institute, Washington D.C.
Non-profit insurance companies, such as Blue Cross and Blue Shield Organizations
Other non-profit organizations as negotiated with awarding agencies
55
No Text
Appendix B
OMB Circular A-133
Audits of States, Local Governments, and Non -Profit Organizations
No Text
Circular No. A-133
Revised to show changes published in the Federal Register June 27, 2003
Audits of States, Local Governments, and Non -Profit Organizations
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Audits of States, Local Governments, and Non -Profit Organizations
1. Purpose. This Circular is issued pursuant to the Single Audit Act of
1984, P.L. 98-502, and the Single Audit Act Amendments of 1996, P.L. 104-156.
It sets forth standards for obtaining consistency and uniformity among Federal
agencies for the audit of States, local governments, and non-profit
organizations expending Federal awards.
2. Authority. Circular A-133 is issued under the authority of sections
503, 1111, and 7501 et seq. of title 31, United States Code, and Executive
Orders 8248 and 11541.
3. Rescission and Supersession. This Circular rescinds Circular A-128,
"Audits of State and Local Governments," issued April 12, 1985, and supersedes
the prior Circular A-133, "Audits of Institutions of Higher Education and
Other Non -Profit Institutions," issued April 22, 1996. For effective dates,
see paragraph 10.
4. Policy. Except as provided herein, the standards set forth in this
Circular shall be applied by all Federal agencies. If any statute
specifically prescribes policies or specific requirements that differ from the
standards provided herein, the provisions of the subsequent statute shall
govern.
Federal agencies shall apply the provisions of the sections of this
Circular to non -Federal entities, whether they are recipients expending
Federal awards received directly from Federal awarding agencies, or are
subrecipients expending Federal awards received from a pass-through entity (a
recipient or another subrecipient).
This Circular does not apply to non -U.S. based entities expending
Federal awards received either directly as a recipient or indirectly as a
subrecipient.
5. Definitions. The definitions of key terms used in this Circular are
contained in §.105 in the Attachment to this Circular.
6. Required Action. The specific requirements and responsibilities of
Federal agencies and non -Federal entities are set forth in the Attachment to
this Circular. Federal agencies
making awards to non -Federal entities, either directly or indirectly, shall
adopt the language in the Circular in codified regulations as provided in
Section 10 (below), unless different provisions are required by Federal
statute or are approved by the Office of Management and Budget (OMB).
7. OMB Responsibilities. OMB will review Federal agency regulations and
implementation of this Circular, and will provide interpretations of policy
requirements and assistance to ensure uniform, effective and efficient
implementation.
8. Information Contact. Further information concerning Circular A-133 may
be obtained by contacting the Financial Standards and Reporting Branch, Office
of Federal Financial Management, Office of Management and Budget, Washington,
DC 20503, telephone (202) 395-3993.
1
9. Review Date. This Circular will have a policy review three years from
the date of issuance.
10. Effective Dates. The standards set forth in § .400 of the Attachment
to this Circular, which apply directly to Federal agencies, shall be effective
July 1, 1996, and shall apply to audits of fiscal years beginning after June
30, 1996, except as otherwise specified in § .400(a).
The standards set forth in this Circular that Federal agencies shall
apply to non -Federal entities shall be adopted by Federal agencies in codified
regulations not later than 60 days after publication of this final revision
in the Federal Register, so that they will apply to audits of fiscal years
beginning after June 30, 1996, with the exception that § .305(b) of the
Attachment applies to audits of fiscal years beginning after June 30, 1998.
The requirements of Circular A-128, although the Circular is rescinded, and
the 1990 version of Circular A-133 remain in effect for audits of fiscal years
beginning on or before June 30, 1996.
The revisions published in the Federal Register June 27, 2003, are
effective for fiscal years ending after December 31, 2003, and early
implementation is not permitted with the exception of the definition of
oversight agency for audit which is effective July 28, 2003.
Attachment
2
Augustine T. Smythe
Acting Director
PART --AUDITS OF STATES, LOCAL GOVERNMENTS, AND NON-PROFIT
ORGANIZATIONS
Subpart A --General
Sec.
100 Purpose.
105 Definitions.
Subpart B --Audits
.200 Audit requirements.
.205 Basis for determining Federal awards expended.
.210 Subrecipient and vendor determinations.
.215 Relation to other audit requirements.
.220 Frequency of audits.
_.225 Sanctions.
.230 Audit costs.
.235 Program -specific audits.
Subpart C--Auditees
.300 Auditee responsibilities.
.305 Auditor selection.
.310 Financial statements.
.315 Audit findings follow-up.
.320 Report submission.
Subpart D --Federal Agencies and Pass -Through Entities
.400 Responsibilities.
.405 Management decision.
Subpart E --Auditors
.500 Scope of audit.
.505 Audit reporting.
.510 Audit findings.
.515 Audit working papers.
.520 Major program determination.
.525 Criteria for Federal program risk.
.530 Criteria for a low-risk auditee.
Appendix A to Part _ - Data Collection Form (Form SF -SAC).
Appendix B to Part _ - Circular A-133 Compliance Supplement.
Subpart A --General
§_.100 Purpose.
This part sets forth standards for obtaining consistency and uniformity
among Federal agencies for the audit of non -Federal entities expending Federal
awards.
§ .105 Definitions.
Auditee means any non -Federal entity that expends Federal awards which
must be audited under this part.
Auditor means an auditor, that is a public accountant or a Federal,
State or local government audit organization, which meets the general
standards specified in generally accepted government auditing standards
(GAGAS). The term auditor does not include internal auditors of non-profit
organizations.
Audit finding means deficiencies which the auditor is required by
§ .510(a) to report in the schedule of findings and questioned costs.
CFDA number means the number assigned to a Federal program in the
Catalog of Federal Domestic Assistance (CFDA).
Cluster of programs means a grouping of closely related programs that
share common compliance requirements. The types of clusters of programs are
research and development (R&D), student financial aid (SFA), and other
clusters. "Other clusters" are as defined by the Office of Management and
Budget (OMB) in the compliance supplement or as designated by a State for
Federal awards the State provides to its subrecipients that meet the
definition of a cluster of programs. When designating an "other cluster," a
State shall identify the Federal awards included in the cluster and advise the
subrecipients of compliance requirements applicable to the cluster, consistent
with § .400(d)(1) and § .400(d)(2), respectively. A cluster of programs
shall be considered as one program for determining major programs, as
described in §.520, and, with the exception of R&D as described in
§ .200(c), whether a program -specific audit may be elected.
Cognizant agency for audit means the Federal agency designated to carry
out the responsibilities described in § .400(a).
Compliance supplement refers to the Circular A-133 Compliance
Supplement, included as Appendix B to Circular A-133, or such documents as
OMB or its designee may issue to replace it. This document is available from
the Government Printing Office, Superintendent of Documents, Washington, DC
20402-9325.
Corrective action means action taken by the auditee that:
(1) Corrects identified deficiencies;
(2) Produces recommended improvements; or
(3) Demonstrates that audit findings are either invalid or do not
warrant auditee action.
Federal agency has the same meaning as the term agency in Section 551(1)
of title 5, United States Code.
Federal award means Federal financial assistance and Federal cost -
reimbursement contracts that non -Federal entities receive directly from
Federal awarding agencies or indirectly from pass-through entities. It does
4
not include procurement contracts, under grants or contracts, used to buy
goods or services from vendors. Any audits of such vendors shall be covered
by the terms and conditions of the contract. Contracts to operate Federal
Government owned, contractor operated facilities (GOCOs) are excluded from the
requirements of this part.
Federal awarding agency means the Federal agency that provides an award
directly to the recipient.
Federal financial assistance means assistance that non -Federal entities
receive or administer in the form of grants, loans, loan guarantees, property
(including donated surplus property), cooperative agreements, interest
subsidies, insurance, food commodities, direct appropriations, and other
assistance, but does not include amounts received as reimbursement for
services rendered to individuals as described in §.205(h) and § .205(i).
Federal program means:
(1) All Federal awards to a non -Federal entity assigned a single
number in the CFDA.
(2) When no CFDA number is assigned, all Federal awards from the same
agency made for the same purpose should be combined and considered one
program.
(3) Notwithstanding paragraphs (1) and (2) of this definition, a
cluster of programs. The types of clusters of programs are:
(i) Research and development (R&D);
(ii) Student financial aid (SFA); and
(iii) "Other clusters," as described in the definition of cluster
of programs in this section.
GAGAS means generally accepted government auditing standards issued by
the Comptroller General of the United States, which are applicable to
financial audits.
Generally accepted accounting principles has the meaning specified in
generally accepted auditing standards issued by the American Institute of
Certified Public Accountants (AICPA).
Indian tribe means any Indian tribe, band, nation, or other organized
group or community, including any Alaskan Native village or regional or
village corporation (as defined in, or established under, the Alaskan Native
Claims Settlement Act) that is recognized by the United States as eligible for
the special programs and services provided by the United States to Indians
because of their status as Indians.
Internal control means a process, effected by an entity's management and
other personnel, designed to provide reasonable assurance regarding the
achievement of objectives in the following categories:
(1) Effectiveness and efficiency of operations;
(2) Reliability of financial reporting; and
(3) Compliance with applicable laws and regulations.
Internal control pertaining to the compliance requirements for Federal
programs (Internal control over Federal programs) means a process --effected by
5
an entity's management and other personnel --designed to provide reasonable
assurance regarding the achievement of the following objectives for Federal
programs:
(1) Transactions are properly recorded and accounted for to:
(i) Permit the preparation of reliable financial statements and
Federal reports;
(ii) Maintain accountability over assets; and
(iii) Demonstrate compliance with laws, regulations,
requirements;
Transactions are executed in compliance with:
compliance
(2)
agreements
and
compliance
and other
(i) Laws, regulations, and the provisions of contracts or grant
that could have a direct and material effect on a Federal program;
(ii) Any other laws and regulations that are identified in the
supplement; and
(3) Funds, property, and other assets are
from unauthorized use or disposition.
Loan means a Federal loan or loan guarantee
a non -Federal entity.
safeguarded against loss
received or administered by
Local government means any unit of local government within a State,
including a county, borough, municipality, city, town, township, parish, local
public authority, special district, school district, intrastate district,
council of governments, and any other instrumentality of local government.
Major program means a
major program in accordance
program by a Federal agency
.215 (c) .
Management decision
or pass-through entity of
the issuance of a written
Federal program determined by the auditor to be a
with § .520 or a program identified as a major
or pass-through entity in accordance with
means the evaluation by the Federal awarding agency
the audit findings and corrective action plan and
decision as to what corrective action is necessary.
Non -Federal entity means a State, local government, or non-profit
organization.
Non-profit organization means:
(1) any corporation, trust, association, cooperative, or other
organization that:
(i) Is operated primarily for scientific, educational, service,
charitable, or similar purposes in the public interest;
(ii) Is not organized primarily for profit; and
(iii) Uses its net proceeds to maintain, improve, or expand its
operations; and
(2) The term non-profit organization includes non-profit institutions
of higher education and hospitals.
6
OMB means the Executive Office of the President, Office of Management
and Budget.
Oversight agency for audit means the Federal awarding agency that
provides the predominant amount of direct funding to a recipient not assigned
a cognizant agency for audit. When there is no direct funding, the Federal
agency with the predominant indirect funding shall assume the oversight
responsibilities. The duties of the oversight agency for audit are described
in S .400(b).
Effective July 28, 2003, the following is added to this definition:
A Federal agency with oversight for an auditee may reassign oversight to
another Federal agency which provides substantial funding and agrees to
be the oversight agency for audit. Within 30 days after any
reassignment, both the old and the new oversight agency for audit shall
notify the auditee, and, if known, the auditor of the reassignment."
Pass-through entity means a non -Federal entity that provides a Federal
award to a subrecipient to carry out a Federal program.
Program -specific audit means an audit of one Federal program as provided
for in § .200(c) and § .235.
Questioned cost means a cost that is questioned by the auditor because
of an audit finding:
(1) Which resulted from a violation or possible violation of a
provision of a law, regulation, contract, grant, cooperative agreement, or
other agreement or document governing the use of Federal funds, including
funds used to match Federal funds;
(2) Where the costs, at the time of the audit, are not supported by
adequate documentation; or
(3) Where the costs incurred appear unreasonable and do not reflect
the actions a prudent person would take in the circumstances.
Recipient means a non -Federal entity that expends Federal awards
received directly from a Federal awarding agency to carry out a Federal
program.
Research and development (R&D) means all research activities, both basic
and applied, and all development activities that are performed by a non -
Federal entity. Research is defined as a systematic study directed toward
fuller scientific knowledge or understanding of the subject studied. The term
research also includes activities involving the training of individuals in
research techniques where such activities utilize the same facilities as other
research and development activities and where such activities are not included
in the instruction function. Development is the systematic use of knowledge
and understanding gained from research directed toward the production of
useful materials, devices, systems, or methods, including design and
development of prototypes and processes.
Single audit means an audit which includes both the entity's financial
statements and the Federal awards as described in § .500.
State means any State of the United States, the District of Columbia,
the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the
Commonwealth of the Northern Mariana Islands, and the Trust Territory of the
7
Pacific Islands, any instrumentality thereof, any multi -State, regional, or
interstate entity which has governmental functions, and any Indian tribe as
defined in this section.
Student Financial Aid (SFA) includes those programs of general student
assistance, such as those authorized by Title IV of the Higher Education Act
of 1965, as amended, (20 U.S.C. 1070 et seq.) which is administered by the
U.S. Department of Education, and similar programs provided by other Federal
agencies. It does not include programs which provide fellowships or similar
Federal awards to students on a competitive basis, or for specified studies or
research.
Subrecipient means a non -Federal entity that expends Federal awards
received from a pass-through entity to carry out a Federal program, but does
not include an individual that is a beneficiary of such a program. A
subrecipient may also be a recipient of other Federal awards directly from a
Federal awarding agency. Guidance on distinguishing between a subrecipient
and a vendor is provided in § .210.
Types of compliance requirements refers to the types of compliance
requirements listed in the compliance supplement. Examples include:
activities allowed or unallowed; allowable costs/cost principles; cash
management; eligibility; matching, level of effort, earmarking; and,
reporting.
Vendor means a dealer, distributor, merchant, or other seller providing
goods or services that are required for the conduct of a Federal program.
These goods or services may be for an organization's own use or for the use of
beneficiaries of the Federal program. Additional guidance on distinguishing
between a subrecipient and a vendor is provided in § .210.
Subpart B --Audits
§_.200 Audit requirements.
(a) Audit required. Non -Federal entities that expend $300,000
($500,000 for fiscal years ending after December 31, 2003) or more in a year
in Federal awards shall have a single or program -specific audit conducted for
that year in accordance with the provisions of this part. Guidance on
determining Federal awards expended is provided in § .205.
(b) Single audit. Non -Federal entities that expend $300,000 ($500,000
for fiscal years ending after December 31, 2003) or more in a year in Federal
awards shall have a single audit conducted in accordance with § .500 except
when they elect to have a program -specific audit conducted in accordance with
paragraph (c) of this section.
(c) Program -specific audit election. When an auditee expends Federal
awards under only one Federal program (excluding R&D) and the Federal
program's laws, regulations, or grant agreements do not require a financial
statement audit of the auditee, the auditee may elect to have a program -
specific audit conducted in accordance with § .235. A program -specific
audit may not be elected for R&D unless all of the Federal awards expended
were received from the same Federal agency, or the same Federal agency and the
same pass-through entity, and that Federal agency, or pass-through entity in
the case of a subrecipient, approves in advance a program -specific audit.
(d) Exemption when Federal awards expended are less than $300,000
($500,000 for fiscal years ending after December 31, 2003). Non -Federal
8
entities that expend less than $300,000 ($500,000 for fiscal years ending
after December 31, 2003) a year in Federal awards are exempt from Federal
audit requirements for that year, except as noted in § .215(a), but records
must be available for review or audit by appropriate officials of the Federal
agency, pass-through entity, and General Accounting Office (GAO).
(e) Federally Funded Research and Development Centers (FFRDC).
Management of an auditee that owns or operates a FFRDC may elect to treat the
FFRDC as a separate entity for purposes of this part.
§_.205 Basis for determining Federal awards expended.
(a) Determining Federal awards expended. The determination of when an
award is expended should be based on when the activity related to the award
occurs. Generally, the activity pertains to events that require the non -
Federal entity to comply with laws, regulations, and the provisions of
contracts or grant agreements, such as: expenditure/expense transactions
associated with grants, cost -reimbursement contracts, cooperative agreements,
and direct appropriations; the disbursement of funds passed through to
subrecipients; the use of loan proceeds under loan and loan guarantee
programs; the receipt of property; the receipt of surplus property; the
receipt or use of program income; the distribution or consumption of food
commodities; the disbursement of amounts entitling the non -Federal entity to
an interest subsidy; and, the period when insurance is in force.
(b) Loan and loan guarantees (loans). Since the Federal Government is
at risk for loans until the debt is repaid, the following guidelines shall be
used to calculate the value of Federal awards expended under loan programs,
except as noted in paragraphs (c) and (d) of this section:
plus
Government
received.
(1)
Value of new loans made or received during the fiscal year;
(2) Balance of loans from previous years for which the Federal
imposes continuing compliance requirements; plus
(3) Any interest subsidy, cash, or administrative cost allowance
(c) Loan and loan guarantees (loans) at institutions of higher
education. When loans are made to students of an institution of higher
education but the institution does not make the loans, then only the value of
loans made during the year shall be considered Federal awards expended in that
year. The balance of loans for previous years is not included as Federal
awards expended because the lender accounts for the prior balances.
(d) Prior loan and loan guarantees (loans). Loans, the proceeds of
which were received and expended in prior -years, are not considered Federal
awards expended under this part when the laws, regulations, and the provisions
of contracts or grant agreements pertaining to such loans impose no continuing
compliance requirements other than to repay the loans.
(e) Endowment
endowment funds which
in each year in which
funds. The cumulative balance of Federal awards for
are federally restricted are considered awards expended
the funds are still restricted.
(f) Free rent. Free rent received by itself is not considered a
Federal award expended under this part. However, free rent received as part
9
of an award to carry out a Federal program shall be included in determining
Federal awards expended and subject to audit under this part.
(g) Valuing non-cash assistance. Federal non-cash assistance, such as
free rent, food stamps, food commodities, donated property, or donated surplus
property, shall be valued at fair market value at the time of receipt or the
assessed value provided by the Federal agency.
(h) Medicare. Medicare payments to a non -Federal entity for providing
patient care services to Medicare eligible individuals are not considered
Federal awards expended under this part.
(i) Medicaid. Medicaid payments to a subrecipient for providing
patient care services to Medicaid eligible individuals are not considered
Federal awards expended under this part unless a State requires the funds to
be treated as Federal awards expended because reimbursement is on a cost -
reimbursement basis.
(j) Certain loans provided by the National Credit Union
Administration. For purposes of this part, loans made from the National
Credit Union Share Insurance Fund and the Central Liquidity Facility that are
funded by contributions from insured institutions are not considered Federal
awards expended.
x_.210 Subrecipient and vendor determinations.
(a) General. An auditee may be a recipient, a subrecipient, and a
vendor. Federal awards expended as a recipient or a subrecipient would be
subject to audit under this part. The payments received for goods or services
provided as a vendor would not be considered Federal awards. The guidance in
paragraphs (b) and (c) of this section should be considered in determining
whether payments constitute a Federal award or a payment for goods and
services.
(b) Federal award. Characteristics indicative of a Federal award
received by a subrecipient are when the organization:
assistance;
(1) Determines who is eligible to receive what Federal financial
(2) Has its performance measured against whether the objectives
of the Federal program are met;
(3) Has responsibility for programmatic decision making;
(4) Has responsibility for adherence to applicable Federal
program compliance requirements; and
(5) Uses the Federal funds to carry out a program of the
organization as compared to providing goods or services for a program of the
pass-through entity.
(c) Payment for goods and services. Characteristics indicative of a
payment for goods and services received by a vendor are when the organization:
(1) Provides the goods and services within normal business
operations;
10
purchasers;
(2) Provides similar goods or services to many different
(3) Operates in a competitive environment;
(4) Provides goods or services that are ancillary to the
operation of the Federal program; and
program.
(5) Is not subject to compliance requirements of the Federal
(d) Use of -judgment in making determination. There may be unusual
circumstances or exceptions to the listed characteristics. In making the
determination of whether a subrecipient or vendor relationship exists, the
substance of the relationship is more important than the form of the
agreement. It is not expected that all of the characteristics will be present
and judgment should be used in determining whether an entity is a subrecipient
or vendor.
(e) For-profit subrecipient. Since this part does not apply to for-
profit subrecipients, the pass-through entity is responsible for establishing
requirements, as necessary, to ensure compliance by for-profit subrecipients.
The contract with the for-profit subrecipient should describe applicable
compliance requirements and the for-profit subrecipient's compliance
responsibility. Methods to ensure compliance for Federal awards made to for-
profit subrecipients may include pre -award audits, monitoring during the
contract, and post -award audits.
(f) Compliance responsibility for vendors. In most cases, the
auditee's compliance responsibility for vendors is only to ensure that the
procurement, receipt, and payment for goods and services comply with laws,
regulations, and the provisions of contracts or grant agreements. Program
compliance requirements normally do not pass through to vendors. However, the
auditee is responsible for ensuring compliance for vendor transactions which
are structured such that the vendor is responsible for program compliance or
the vendor's records must be reviewed to determine program compliance. Also,
when these vendor transactions relate to a major program, the scope of the
audit shall include determining whether these transactions are in compliance
with laws, regulations, and the provisions of contracts or grant agreements.
x_.215 Relation to other audit requirements.
(a) Audit under this part in lieu of other audits. An audit made in
accordance with this part shall be in lieu of any financial audit required
under individual Federal awards. To the extent this audit meets a Federal
agency's needs, it shall rely upon and use such audits. The provisions of
this part neither limit the authority of Federal agencies, including their
Inspectors General, or GAO to conduct or arrange for additional audits (e.g.,
financial audits, performance audits, evaluations, inspections, or reviews)
nor authorize any auditee to constrain Federal agencies from carrying out
additional audits. Any additional audits shall be planned and performed in
such a way as to build upon work performed by other auditors.
(b) Federal agency to pay for additional audits. A Federal agency
that conducts or contracts for additional audits shall, consistent with other
applicable laws and regulations, arrange for funding the full cost of such
additional audits.
11
(c) Request for a program to be audited as a major program. A Federal
agency may request an auditee to have a particular Federal program audited as
a major program in lieu of the Federal agency conducting or arranging for the
additional audits. To allow for planning, such requests should be made at
least 180 days prior to the end of the fiscal year to be audited. The
auditee, after consultation with its auditor, should promptly respond to such
request by informing the Federal agency whether the program would otherwise be
audited as a major program using the risk-based audit approach described in
§ .520 and, if not, the estimated incremental cost. The Federal agency
shall then promptly confirm to the auditee whether it wants the program
audited as a major program. If the program is to be audited as a major
program based upon this Federal agency request, and the Federal agency agrees
to pay the full incremental costs, then the auditee shall have the program
audited as a major program. A pass-through entity may use the provisions of
this paragraph for a subrecipient.
.220 Frequency of audits.
Except for the provisions for biennial audits provided in paragraphs (a)
and (b) of this section, audits required by this part shall be performed
annually. Any biennial audit shall cover both years within the biennial
period.
(a) A State or local government that is required by constitution or
statute, in effect on January 1, 1987, to undergo its audits less frequently
than annually, is permitted to undergo its audits pursuant to this part
biennially. This requirement must still be in effect for the biennial period
under audit.
(b) Any non-profit organization that had biennial audits for all
biennial periods ending between July 1, 1992, and January 1, 1995, is
permitted to undergo its audits pursuant to this part biennially.
.225 Sanctions.
No audit costs may be charged to Federal awards when audits required by
this part have not been made or have been made but not in accordance with this
part. In cases of continued inability or unwillingness to have an audit
conducted in accordance with this part, Federal agencies and pass-through
entities shall take appropriate action using sanctions such as:
(a) Withholding a percentage of Federal awards until the audit is
completed satisfactorily;
(b) Withholding or disallowing overhead costs;
(c) Suspending Federal awards until the audit is conducted; or
(d) Terminating the Federal award.
.230 Audit costs.
(a) Allowable costs. Unless prohibited by law, the cost of audits
made in accordance with the provisions of this part are allowable charges to
Federal awards. The charges may be considered a direct cost or an allocated
indirect cost, as determined in accordance with the provisions of applicable
OMB cost principles circulars, the Federal Acquisition Regulation (FAR) (48
CFR parts 30 and 31), or other applicable cost principles or regulations.
12
(b) Unallowable costs. A non -Federal entity shall not charge the
following to a Federal award:
(1) The cost of any audit under the Single Audit Act Amendments
of 1996 (31 U.S.C. 7501 et seq.) not conducted in accordance with this part.
(2) The cost of auditing a non -Federal entity which has Federal
awards expended of less than $300,000 ($500,000 for fiscal years ending after
December 31, 2003) per year and is thereby exempted under § .200(d) from
having an audit conducted under this part. However, this does not prohibit a
pass-through entity from charging Federal awards for the cost of limited scope
audits to monitor its subrecipients in accordance with §.400(d)(3),
provided the subrecipient does not have a single audit. For purposes of this
part, limited scope audits only include agreed-upon procedures engagements
conducted in accordance with either the AICPA's generally accepted auditing
standards or attestation standards, that are paid for and arranged by a pass-
through entity and address only one or more of the following types of
compliance requirements: activities allowed or unallowed; allowable
costs/cost principles; eligibility; matching, level of effort, earmarking;
and, reporting.
§ .235 Program -specific audits.
(a) Program -specific audit guide available. In many cases, a program -
specific audit guide will be available to provide specific guidance to the
auditor with respect to internal control, compliance requirements, suggested
audit procedures, and audit reporting requirements. The auditor should
contact the Office of Inspector General of the Federal agency to determine
whether such a guide is available. When a current program -specific audit
guide is available, the auditor shall follow GAGAS and the guide when
performing a program -specific audit.
(b) Program -specific audit guide not available. (1) When a program -
specific audit guide is not available, the auditee and auditor shall have
basically the same responsibilities for the Federal program as they would have
for an audit of a major program in a single audit.
(2) The auditee shall prepare the financial statement(s) for the
Federal program that includes, at a minimum, a schedule of expenditures of
Federal awards for the program and notes that describe the significant
accounting policies used in preparing the schedule, a summary schedule of
prior audit findings consistent with the requirements of § .315(b), and a
corrective action plan consistent with the requirements of § .315(c).
(3) The auditor shall:
(i) Perform an audit of the financial statement(s) for the
Federal program in accordance with GAGAS;
(ii) Obtain an understanding of internal control and
perform tests of internal control over the Federal program consistent with the
requirements of §.500(c) for a major program;
(iii) Perform procedures to determine whether the auditee
has complied with laws, regulations, and the provisions of contracts or grant
agreements that could have a direct and material effect on the Federal program
consistent with the requirements of §_.500(d) for a major program; and
13
(iv) Follow up on prior audit findings, perform procedures
to assess the reasonableness of the summary schedule of prior audit findings
prepared by the auditee, and report, as a current year audit finding, when the
auditor concludes that the summary schedule of prior audit findings materially
misrepresents the status of any prior audit finding in accordance with the
requirements of § .5OO(e).
(4) The auditor's report(s) may be in the form of either
combined or separate reports and may be organized differently from the manner
presented in this section. The auditor's report(s) shall state that the audit
was conducted in accordance with this part and include the following:
(i) An opinion (or disclaimer of opinion) as to whether
the financial statement(s) of the Federal program is presented fairly in all
material respects in conformity with the stated accounting policies;
(ii) A report on internal control related to the Federal
program, which shall describe the scope of testing of internal control and the
results of the tests;
(iii) A report on compliance which includes an opinion (or
disclaimer of opinion) as to whether the auditee complied with laws,
regulations, and the provisions of contracts or grant agreements which could
have a direct and material effect on the Federal program; and
(iv) A schedule of findings and questioned costs for the
Federal program that includes a summary of the auditor's results relative to
the Federal program in a format consistent with §.5O5(d)(1) and findings
and questioned costs consistent with the requirements of § .5O5(d)(3).
(c) Report submission for program -specific audits.
(1) The audit shall be completed and the reporting required by paragraph
(c)(2) or (c)(3) of this section submitted within the earlier of 30 days after
receipt of the auditor's report(s), or nine months after the end of the audit
period, unless a longer period is agreed to in advance by the Federal agency
that provided the funding or a different period is specified in a program -
specific audit guide. (However, for fiscal years beginning on or before June
30, 1998, the audit shall be completed and the required reporting shall be
submitted within the earlier of 30 days after receipt of the auditor's
report(s), or 13 months after the end of the audit period, unless a different
period is specified in a program -specific audit guide.) Unless restricted by
law or regulation, the auditee shall make report copies available for public
inspection.
(2) When a program -specific audit guide is available, the
auditee shall submit to the Federal clearinghouse designated by OMB the data
collection form prepared in accordance with §.32O(b), as applicable to a
program -specific audit, and the reporting required by the program -specific
audit guide to be retained as an archival copy. Also, the auditee shall
submit to the Federal awarding agency or pass-through entity the reporting
required by the program -specific audit guide.
(3) When a program -specific audit guide is not available, the
reporting package for a program -specific audit shall consist of the financial
statement(s) of the Federal program, a summary schedule of prior audit
findings, and a corrective action plan as described in paragraph (b)(2) of
this section, and the auditor's report(s) described in paragraph (b)(4) of
this section. The data collection form prepared in accordance with
14
§ .320(b), as applicable to a program -specific audit, and one copy of this
reporting package shall be submitted to the Federal clearinghouse designated
by OMB to be retained as an archival copy. Also, when the schedule of
findings and questioned costs disclosed audit findings or the summary schedule
of prior audit findings reported the status of any audit findings, the auditee
shall submit one copy of the reporting package to the Federal clearinghouse on
behalf of the Federal awarding agency, or directly to the pass-through entity
in the case of a subrecipient. Instead of submitting the reporting package to
the pass-through entity, when a subrecipient is not required to submit a
reporting package to the pass-through entity, the subrecipient shall provide
written notification to the pass-through entity, consistent with the
requirements of §.320(e)(2). A subrecipient may submit a copy of the
reporting package to the pass-through entity to comply with this notification
requirement.
(d) Other sections of this part may apply. Program -specific audits
are subject to § .100 through § .215(b), §_.220 through §.230,
§.300 through § .305, § .315, §_.320(f) through §_.320(j), § .400
through §.405, §.510 through § .515, and other referenced provisions
of this part unless contrary to the provisions of this section, a program -
specific audit guide, or program laws and regulations.
Subpart C--Auditees
§_.300 Auditee responsibilities.
The auditee shall:
(a) Identify, in its accounts, all Federal awards received and
expended and the Federal programs under which they were received. Federal
program and award identification shall include, as applicable, the CFDA title
and number, award number and year, name of the Federal agency, and name of the
pass-through entity.
(b) Maintain internal control over Federal programs that provides
reasonable assurance that the auditee is managing
Federal awards in compliance with laws, regulations, and the provisions of
contracts or grant agreements that could have a material effect on each of its
Federal programs.
(c) Comply with laws, regulations, and the provisions of contracts or
grant agreements related to each of its Federal programs.
(d) Prepare appropriate financial statements, including the schedule
of expenditures of Federal awards in accordance with § .310.
(e) Ensure that the audits required by this part are properly
performed and submitted when due. When extensions to the report submission
due date required by § .320(a) are granted by the cognizant or oversight
agency for audit, promptly notify the Federal clearinghouse designated by OMB
and each pass-through entity providing Federal awards of the extension.
(f) Follow up and take corrective action on audit findings, including
preparation of a summary schedule of prior audit findings and a corrective
action plan in accordance with § .315(b) and § .315(c), respectively.
§_.305 Auditor selection.
15
(a) Auditor procurement. In procuring audit services, auditees shall
follow the procurement standards prescribed by the Grants Management Common
Rule (hereinafter referred to as the "A-102 Common Rule") published March 11,
1988 and amended April 19, 1995 [insert appropriate CFR citation], Circular
A-110, "Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals and Other Non -Profit
Organizations," or the FAR (48 CFR part 42), as applicable (OMB Circulars are
available from the Office of Administration, Publications Office, room 2200,
New Executive Office Building, Washington, DC 20503). Whenever possible,
auditees shall make positive efforts to utilize small businesses, minority-
owned firms, and women's business enterprises, in procuring audit services as
stated in the A-102 Common Rule, OMB Circular A-110, or the -FAR (48 CFR part
42), as applicable. In requesting proposals for audit services, the
objectives and scope of the audit should be made clear. Factors to be
considered in evaluating each proposal for audit services include the
responsiveness to the request for proposal, relevant experience, availability
of staff with professional qualifications and technical abilities, the results
of external quality control reviews, and price.
(b) Restriction on auditor preparing indirect cost proposals. An
auditor who prepares the indirect cost proposal or cost allocation plan may
not also be selected to perform the audit required by this part when the
indirect costs recovered by the auditee during the prior year exceeded $1
million. This restriction applies to the base year used in the preparation of
the indirect cost proposal or cost allocation plan and any subsequent years in
which the resulting indirect cost agreement or cost allocation plan is used to
recover costs. To minimize any disruption in existing contracts for audit
services, this paragraph applies to audits of fiscal years beginning after
June 30, 1998.
(c) Use of Federal auditors. Federal auditors may perform all or part
of the work required under this part if they comply fully with the
requirements of this part.
§_.310 Financial statements.
(a) Financial statements. The auditee shall prepare financial
statements that reflect its financial position, results of operations or
changes in net assets, and, where appropriate, cash flows for the fiscal year
audited. The financial statements shall be for the same organizational unit
and fiscal year that is chosen to meet the requirements of this part.
However, organization -wide financial statements may also include departments,
agencies, and other organizational units that have separate audits in
accordance with § .500(a) and prepare separate financial statements.
(b) Schedule of expenditures of Federal awards. The auditee shall
also prepare a schedule of expenditures of Federal awards for the period
covered by the auditee's financial statements. While not required, the
auditee may choose to provide information requested by Federal awarding
agencies and pass-through entities to make the schedule easier to use. For
example, when a Federal program has multiple award years, the auditee may list
the amount of Federal awards expended for each award year separately. At a
minimum, the schedule shall:
(1) List individual Federal programs by Federal agency. For
Federal programs included in a cluster of programs, list individual Federal
programs within a cluster of programs. For R&D, total Federal awards expended
shall be -shown either by individual award or by Federal agency and major
subdivision within the Federal agency. For example, the National Institutes
of Health is a major subdivision in the Department of Health and Human
Services.
16
(2) For Federal awards received as a subrecipient, the name of
the pass-through entity and identifying number assigned by the pass-through
entity shall be included.
(3) Provide total Federal awards expended for each individual
Federal program and the CFDA number or other identifying number when the CFDA
information is not available.
(4) Include notes that describe the significant accounting
policies used in preparing the schedule.
(5) To the extent practical, pass-through entities should
identify in the schedule the total amount provided to subrecipients from each
Federal program.
(6) Include, in either the schedule or a note to the schedule,
the value of the Federal awards expended in the form of non-cash assistance,
the amount of insurance in effect during the year, and loans or loan
guarantees outstanding at year end. While not required, it is preferable to
present this information in the schedule.
§ .315 Audit findings follow-up.
(a) General. The auditee is responsible for follow-up and corrective
action on all audit findings. As part of this responsibility, the auditee
shall prepare a summary schedule of prior audit findings. The auditee shall
also prepare a corrective action plan for current year audit findings. The
summary schedule of prior audit findings and the corrective action plan shall
include the reference numbers the auditor assigns to audit findings under
§ .510(c). Since the summary schedule may include audit findings from
multiple years, it shall include the fiscal year in which the finding
initially occurred.
(b) Summary schedule of prior audit findings. The summary schedule of
prior audit findings shall report the status of all audit findings included in
the prior audit's schedule of findings and questioned costs relative to
Federal awards. The summary schedule shall also include audit findings
reported in the prior audit's summary schedule of prior audit findings except
audit findings listed as corrected in accordance with paragraph (b)(1) of this
section, or no longer valid or not warranting further action in accordance
with paragraph (b)(4) of this section.
(1) When audit findings were fully corrected, the summary
schedule need only list the audit findings and state that corrective action
was taken.
(2) When audit findings were not corrected or were only
partially corrected, the summary schedule shall describe the planned
corrective action as well as any partial corrective action taken.
(3) When corrective action taken is significantly different from
corrective action previously reported in a corrective action plan or in the
Federal agency's or pass-through entity's management decision, the summary
schedule shall provide an explanation.
(4) When the auditee believes the audit findings are no longer
valid or do not warrant further action, the reasons for this position shall be
described in the summary schedule. A valid reason for considering an audit
finding as not warranting further action is that all of the following have
occurred:
(i) Two years have passed since the audit report in which
17
the finding occurred was submitted to the Federal clearinghouse;
(ii) The Federal agency or pass-through entity is not
currently following up with the auditee on the audit finding; and
(iii) A management decision was not issued.
(c) Corrective action plan. At the completion of the audit, the
auditee shall prepare a corrective action plan to address each audit finding
included in the current year auditor's reports. The corrective action plan
shall provide the name(s) of the contact person(s) responsible for corrective
action, the corrective action planned, and the anticipated completion date.
If the auditee does not agree with the audit findings or believes corrective
action is not required, then the corrective action plan shall include an
explanation and specific reasons.
§ .320 Report submission.
(a) General. The audit shall be completed and the data collection
form described in paragraph (b) of this section and reporting package
described in paragraph (c) of this section shall be submitted within the
earlier of 30 days after receipt of the auditor's report(s), or nine months
after the end of the audit period, unless a longer period is agreed to in
advance by the cognizant or oversight agency for audit. (However, for fiscal
years beginning on or before June 30, 1998, the audit shall be completed and
the data collection form and reporting package shall be submitted within the
earlier of 30 days after receipt of the auditor's report(s), or 13 months
after the end of the audit period.) Unless restricted by law or regulation,
the auditee shall make copies available for public inspection.
(b) Data Collection. (1) The auditee shall submit a data collection
form which states whether the audit was completed in accordance with this part
and provides information about the auditee, its Federal programs, and the
results of the audit. The form shall be approved by OMB, available from the
Federal clearinghouse designated by OMB, and include data elements similar to
those presented in this paragraph. A senior level representative of the
auditee (e.g., State controller, director of finance, chief executive officer,
or chief financial officer) shall sign a statement to be included as part of
the form certifying that: the auditee complied with the requirements of this
part, the form was prepared in accordance with this part (and the instructions
accompanying the form), and the information included in the form, in its
entirety, are accurate and complete.
elements:
(2) The data collection form shall include the following data
(i) The type of report the auditor issued on the financial statements of
the auditee (i.e., unqualified opinion, qualified opinion, adverse
opinion, or disclaimer of opinion).
(ii) Where applicable, a statement that reportable conditions in internal
control were disclosed by the audit of the financial statements and
whether any such conditions were material weaknesses.
(iii) A statement as to whether the audit disclosed any noncompliance which
is material to the financial statements of the auditee.
(iv) Where applicable, a statement that reportable conditions in internal
control over major programs were disclosed by the audit and whether
any such conditions were material weaknesses.
(v) The type of report the auditor issued on compliance for major
18
programs (i.e., unqualified opinion, qualified opinion, adverse
opinion, or disclaimer of opinion).
(vi) A list of the Federal awarding agencies which will receive a copy of
the reporting package pursuant to S .320(d)(2) of OMB Circular
A-133.
(vii) A yes or no statement as to whether the auditee qualified as a low-
risk auditee under § .530 of OMB Circular A-133.
(viii) The dollar threshold used to distinguish between Type A and Type B
programs as defined in §.520(b) of OMB Circular A-133.
(ix) The Catalog of Federal Domestic Assistance (CFDA) number for each
Federal program, as applicable.
(x) The name of each Federal program and identification of each major
program. Individual programs within a cluster of programs should be
listed in the same level of detail as they are listed in the schedule
of expenditures of Federal awards.
(xi) The amount of expenditures in the schedule of expenditures of Federal
awards associated with each Federal program.
(xii) For each Federal program, a yes or no statement as to whether there
are audit findings in each of the following types of compliance
requirements and the total amount of any questioned costs:
(A) Activities allowed or unallowed.
(B) Allowable costs/cost principles.
(C) Cash management.
(D) Davis -Bacon Act.
(E) Eligibility.
(F) Equipment and real property management.
(G) Matching, level of effort, earmarking.
(H) Period of availability of Federal funds.
(I) Procurement and suspension and debarment.
(J) Program income.
(K) Real property acquisition and relocation assistance.
(L) Reporting.
(M) Subrecipient monitoring.
(N) Special tests and provisions.
(xiii) Auditee Name, Employer Identification Number(s), Name and Title of
Certifying Official, Telephone Number, Signature, and Date.
(xiv) Auditor Name, Name and Title of Contact Person, Auditor Address,
Auditor Telephone Number, Signature, and Date.
(xv) Whether the auditee has either a cognizant or oversight agency for
audit.
(xvi) The name of the cognizant or oversight agency for audit determined in
accordance with §.400(a) and §.400(b), respectively.
(3) Using the information included in the reporting package
described in paragraph (c) of this section, the auditor shall complete the
applicable sections of the form. The auditor shall sign a statement to be
included as part of the data collection form that indicates, at a minimum, the
source of the information included in the form, the auditor's responsibility
for the information, that the form is not a substitute for the reporting
package described in paragraph (c) of this section, and that the content of
19
the form is limited to the data elements prescribed by OMB.
(c) Reporting package. The reporting package shall include the:
(1) Financial statements and schedule of expenditures of
Federal awards discussed in §_ .310(a) and §_.310(b), respectively;
§ .315(b);
(2) Summary schedule of prior audit findings discussed in
(3) Auditor's report(s) discussed in § .505; and
(4) Corrective action plan discussed in § .315(c).
(d) Submission to clearinghouse. All auditees shall submit to the
Federal clearinghouse designated by OMB the data collection form described in
paragraph (b) of this section and one copy of the reporting package described
in paragraph (c) of this section for:
and
(1) The Federal clearinghouse to retain as an archival copy;
(2) Each Federal awarding agency when the schedule of findings
and questioned costs disclosed audit findings relating to Federal awards that
the Federal awarding agency provided directly or the summary schedule of prior
audit findings reported the status of any audit findings relating to Federal
awards that the Federal awarding agency provided directly.
(e) Additional submission by subrecipients. (1) In addition to the
requirements discussed in paragraph (d) of this section, auditees that are
also subrecipients shall submit to each pass-through entity one copy of the
reporting package described in paragraph (c) of this section for each pass-
through entity when the schedule of findings and questioned costs disclosed
audit findings relating to Federal awards that the pass-through entity
provided or the summary schedule of prior audit findings reported the status
of any audit findings relating to Federal awards that the pass-through entity
provided.
(2) Instead of submitting the reporting package to a pass-
through entity, when a subrecipient is not required to submit a reporting
package to a pass-through entity pursuant to paragraph (e)(1) of this section,
the subrecipient shall provide written notification to the pass-through entity
that: an audit of the subrecipient was conducted in accordance with this part
(including the period covered by the audit and the name, amount, and CFDA
number of the Federal award(s) provided by the pass-through entity); the
schedule of findings and questioned costs disclosed no audit findings relating
to the Federal award(s) that the pass-through entity provided; and, the
summary schedule of prior audit findings did not report on the status of any
audit findings relating to the Federal award(s) that the pass-through entity
provided. A subrecipient may submit a copy of the reporting package described
in paragraph (c) of this section to a pass-through entity to comply with this
notification requirement.
(f) Requests for report copies. In response to requests by a Federal
agency or pass-through entity, auditees shall submit the appropriate copies of
the reporting package described in paragraph (c) of this section and, if
requested, a copy of any management letters issued by the auditor.
(g) Report retention requirements. Auditees shall keep one copy of
the data collection form described in paragraph (b) of this section and one
copy of the reporting package described in paragraph (c) of this section on
file for three years from the date of submission to the Federal clearinghouse
20
designated by OMB. Pass-through entities shall keep subrecipients'
submissions on file for three years from date of receipt.
(h) Clearinghouse responsibilities. The Federal clearinghouse
designated by OMB shall distribute the reporting packages received in
accordance with paragraph (d)(2) of this section and § .235(c)(3) to
applicable Federal awarding agencies, maintain a data base of completed
audits, provide appropriate information to Federal agencies, and follow up
with known auditees which have not submitted the required data collection
forms and reporting packages.
(i) Clearinghouse address. The address of the Federal clearinghouse
currently designated by OMB is Federal Audit Clearinghouse, Bureau of the
Census, 1201 E. 10th Street, Jeffersonville, IN 47132.
(j) Electronic filing. Nothing in this part shall preclude electronic
submissions to the Federal clearinghouse in such manner as may be approved by
OMB. With OMB approval, the Federal clearinghouse may pilot test methods of
electronic submissions.
Subpart D --Federal Agencies and Pass -Through Entities
§_.400 Responsibilities.
(a) Cognizant agency for audit responsibilities. Recipients expending
more than $25 million ($50 million for fiscal years ending after December 31,
2003) a year in Federal awards shall have a cognizant agency for audit. The
designated cognizant agency for audit shall be the Federal awarding agency
that provides the predominant amount of direct funding to a recipient unless
OMB makes a specific cognizant agency for audit assignment.
Following is effective for fiscal years ending on or before December 31, 2003:
To provide for continuity of cognizance, the determination of the predominant
amount of direct funding shall be based upon direct Federal awards expended in
the recipient's fiscal years ending in 1995, 2000, 2005, and every fifth year
thereafter. For example, audit cognizance for periods ending in 1997 through
2000 will be determined based on Federal awards expended in 1995. (However,
for States and local governments that expend more than $25 million a year in
Federal awards and have previously assigned cognizant agencies for audit, the
requirements of this paragraph are not effective until fiscal years beginning
after June 30, 2000.)
Following is effective for fiscal years ending after December 31, 2003:
The determination of the predominant amount of direct funding shall be based
upon direct Federal awards expended in the recipient's fiscal years ending in
2004, 2009, 2014, and every fifth year thereafter. For example, audit
cognizance for periods ending in 2006 through 2010 will be determined based on
Federal awards expended in 2004. (However, for 2001 through 2005,the
cognizant agency for audit is determined based on the predominant amount of
direct Federal awards expended in the recipient's fiscal year ending in 2000).
Notwithstanding the manner in which audit cognizance is determined, a Federal
awarding agency with cognizance for an auditee may reassign cognizance to
another Federal awarding agency which provides substantial direct funding and
agrees to be the cognizant agency for audit. Within 30 days after any
reassignment, both the old and the new cognizant agency for audit shall notify
the auditee, and, if known, the auditor of the reassignment. The cognizant
agency for audit shall:
auditors.
(1) Provide technical audit advice and liaison to auditees and
(2) Consider auditee requests for extensions to the report
21
submission due date required by §.320(a). The cognizant agency for audit
may grant extensions for good cause.
(3) Obtain or conduct quality control reviews of selected
audits made by non -Federal auditors, and provide the results, when
appropriate, to other interested organizations.
(4) Promptly inform other affected Federal agencies and
appropriate Federal law enforcement officials of any direct reporting by the
auditee or its auditor of irregularities or illegal acts, as required by GAGAS
or laws and regulations.
(5) Advise the auditor and, where appropriate, the auditee of
any deficiencies found in the audits when the deficiencies require corrective
action by the auditor. When advised of deficiencies, the auditee shall work
with the auditor to take corrective action. If corrective action is not
taken, the cognizant agency for audit shall notify the auditor, the auditee,
and applicable Federal awarding agencies and pass-through entities of the
facts and make recommendations for follow-up action. Major inadequacies or
repetitive substandard performance by auditors shall be referred to
appropriate State licensing agencies and professional bodies for disciplinary
action.
(6) Coordinate, to the extent practical, audits or reviews
made by or for Federal agencies that are in addition to the audits made
pursuant to this part, so that the additional audits or reviews build upon
audits performed in accordance with this part.
(7) Coordinate a management decision for audit findings that
affect the Federal programs of more than one agency.
(8) Coordinate the audit work and reporting responsibilities
among auditors to achieve the most cost-effective audit.
(9) For biennial audits permitted under § .220, consider
auditee requests to qualify as a low-risk auditee under § .530(a).
(b) Oversight agency for audit responsibilities. An auditee which
does not have a designated cognizant agency for audit will be under the
general oversight of the Federal agency determined in accordance with
§ .105. The oversight agency for audit:
requested.
(1) Shall provide technical advice to auditees and auditors as
(2) May assume all or some of the responsibilities normally
performed by a cognizant agency for audit.
(c) Federal awarding agency responsibilities. The Federal awarding
agency shall perform the following for the Federal awards it makes:
(1) Identify Federal awards made by informing each recipient
of the CFDA title and number, award name and number, award year, and if the
award is for R&D. When some of this information is not available, the Federal
agency shall provide information necessary to clearly describe the Federal
award.
(2) Advise recipients of requirements imposed on them by
Federal laws, regulations, and the provisions of contracts or grant
agreements.
(3) Ensure that audits are completed and reports are received
22
in a timely
auditors as
manner and in accordance with the requirements of this part.
(4) Provide technical advice and counsel to auditees and
requested.
(5) Issue a management decision on audit findings within six
months after receipt of the audit report and ensure that the recipient takes
appropriate and timely corrective action.
(6) Assign a person responsible for providing annual updates
of the compliance supplement to OMB.
(d) Pass-through entity responsibilities. A pass-through entity shall
perform the following for the Federal awards it makes:
(1) Identify Federal awards made by informing each
subrecipient of CFDA title and number, award name and number, award year, if
the award is R&D, and name of Federal agency. When some of this information
is not available, the pass-through entity shall provide the best information
available to describe the Federal award.
(2) Advise subrecipients of requirements imposed on them by
Federal laws, regulations, and the provisions of contracts or grant agreements
as well as any supplemental requirements imposed by the pass-through entity.
(3) Monitor the activities of subrecipients as necessary to
ensure that Federal awards are used for authorized purposes in compliance with
laws, regulations, and the provisions of contracts or grant agreements and
that performance goals are achieved.
(4) Ensure that subrecipients expending $300,000 ($500,000 for
fiscal years ending after December 31, 2003) or more in Federal awards during
the subrecipient's fiscal year have met the audit requirements of this part
for that fiscal year.
(5) Issue a management decision on audit findings within six
months after receipt of the subrecipient's audit report and ensure that the
subrecipient takes appropriate and timely corrective action.
(6) Consider whether subrecipient audits necessitate
adjustment of the pass-through entity's own records.
(7) Require each subrecipient to permit the pass-through
entity and auditors to have access to the records and financial statements as
necessary for the pass-through entity to comply with this part.
§_.405 Management decision.
(a) General. The management decision shall clearly state whether or
not the audit finding is sustained, the reasons for the decision, and the
expected auditee action to repay disallowed costs, make financial adjustments,
or take other action. If the auditee has not completed corrective action, a
timetable for follow-up should be given. Prior to issuing the management
decision, the Federal agency or pass-through entity may request
additional information or documentation from the auditee, including a request
for auditor assurance related to the documentation, as a way of mitigating
disallowed costs. The management decision should describe any appeal process
available to the auditee.
(b) Federal agency. As provided in § .400(a)(7), the cognizant
agency for audit shall be responsible for coordinating a management decision
for audit findings that affect the programs of more than one Federal agency.
23
As provided in § .400(c)(5), a Federal awarding agency is responsible for
issuing a management decision for findings that relate to Federal awards it
makes to recipients. Alternate arrangements may be made on a case-by-case
basis by agreement among the Federal agencies concerned.
(c) Pass-through entity. As provided in § .400(d)(5), the pass-
through entity shall be responsible for making the management decision for
audit findings that relate to Federal awards it makes to subrecipients.
(d) Time requirements. The entity responsible for making the
management decision shall do so within six months of receipt of the audit
report. Corrective action should be initiated within six months after receipt
of the audit report and proceed as rapidly as possible.
(e) Reference numbers. Management decisions shall include the
reference numbers the auditor assigned to each audit finding in accordance
with § .510(c).
Subpart E --Auditors
§.500 Scope of audit.
(a) General. The audit shall be conducted in accordance with GAGAS.
The audit shall cover the entire operations of the auditee; or, at the option
of the auditee, such audit shall include a series of audits that cover
departments, agencies, and other organizational units which expended or
otherwise administered Federal awards during such fiscal year, provided that
each such audit shall encompass the financial statements and schedule of
expenditures of Federal awards for each such department, agency, and other
organizational unit, which shall be considered to be a non -Federal entity.
The financial statements and schedule of expenditures of Federal awards shall
be for the same fiscal year.
(b) Financial statements. The auditor shall determine whether the
financial statements of the auditee are presented fairly in all material
respects in conformity with generally accepted accounting principles. The
auditor shall also determine whether the schedule of expenditures of Federal
awards is presented fairly in all material respects in relation to the
auditee's financial statements taken as a whole.
(c) Internal control. (1) In addition to the requirements of GAGAS,
the auditor shall perform procedures to obtain an understanding of internal
control over Federal programs sufficient to plan the audit to support a low
assessed level of control risk for major programs.
(2) Except as provided in paragraph (c)(3) of this section,
the auditor shall:
(i) Plan the testing of internal control over major
programs to support a low assessed level of control risk for the assertions
relevant to the compliance requirements for each major program; and
(ii) Perform testing of internal control as planned in
paragraph (c)(2)(i) of this section.
(3) When internal control over some or all of the compliance
requirements for a major program are likely to be ineffective in preventing or
detecting noncompliance, the planning and performing of testing described in
paragraph (c)(2) of this section are not required for those compliance
requirements. However, the auditor shall report a reportable condition
(including whether any such condition is a material weakness) in accordance
with § .510, assess the related control risk at the maximum, and consider
whether additional compliance tests are required because of ineffective
24
internal control.
(d) Compliance. (1) In addition to the requirements of GAGAS, the
auditor shall determine whether the auditee has complied with laws,
regulations, and the provisions of contracts or grant agreements that may have
a direct and material effect on each of its major programs.
(2) The principal compliance requirements applicable to most
Federal programs and the compliance requirements of the largest Federal
programs are included in the compliance supplement.
(3) For the compliance requirements related to Federal
programs contained in the compliance supplement, an audit of these compliance
requirements will meet the requirements of this part. Where there have been
changes to the compliance requirements and the changes are not reflected in
the compliance supplement, the auditor shall determine the current compliance
requirements and modify the audit procedures accordingly. For those Federal
programs not covered in the compliance supplement, the auditor should use the
types of compliance requirements contained in the compliance supplement as
guidance for identifying the types of compliance requirements to test, and
determine the requirements governing the Federal program by reviewing the
provisions of contracts and grant agreements and the laws and regulations
referred to in such contracts and grant agreements.
(4) The compliance testing shall include tests of transactions
and such other auditing procedures necessary to provide the auditor sufficient
evidence to support an opinion on compliance.
(e) Audit follow-up. The auditor shall follow-up on prior audit
findings, perform procedures to assess the reasonableness of the summary
schedule of prior audit findings prepared by the auditee in accordance with
§ .315(b), and report, as a current year audit finding, when the auditor
concludes that the summary schedule of prior audit findings materially
misrepresents the status of any prior audit finding. The auditor shall
perform audit follow-up procedures regardless of whether a prior audit finding
relates to a major program in the current year.
(f) Data Collection Form. As required in § .320(b)(3), the auditor
shall complete and sign specified sections of the data collection form.
§_.505 Audit reporting.
The auditor's report(s) may be in the form of either combined or
separate reports and may be organized differently from the manner presented in
this section. The auditor's report(s) shall state that the audit was
conducted in accordance with this part and include the following:
(a) An opinion (or disclaimer of opinion) as to whether the financial
statements are presented fairly in all material respects in conformity with
generally accepted accounting principles and an opinion (or disclaimer of
opinion) as to whether the schedule of expenditures of Federal awards is
presented fairly in all material respects in relation to the financial
statements taken as a whole.
(b) A report on internal control related to the financial statements
and major programs. This report shall describe the scope of testing of
internal control and the results of the tests, and, where applicable, refer to
the separate schedule of findings and questioned costs described in paragraph
(d) of this section.
(c) A report on compliance with laws, regulations, and the provisions
of contracts or grant agreements, noncompliance with which could have a
25
material effect on the financial statements. This report shall also include
an opinion (or disclaimer of opinion) as to whether the auditee complied with
laws, regulations, and the provisions of contracts or grant agreements which
could have a direct and material effect on each major program, and, where
applicable, refer to the separate schedule of findings and questioned costs
described in paragraph (d) of this section.
(d) A schedule of findings and questioned costs which shall include
the following three components:
(1) A summary of the auditor's results which shall include:
(i) The type of report the auditor issued on the
financial statements of the auditee (i.e., unqualified opinion, qualified
opinion, adverse opinion, or disclaimer of opinion);
(ii) Where applicable, a statement that reportable
conditions in internal control were disclosed by the audit of the financial
statements and whether any such conditions were material weaknesses;
(iii) A statement as to whether the audit disclosed any
noncompliance which is material to the financial statements of the auditee;
(iv) Where applicable, a statement that reportable
conditions in internal control over major programs were disclosed by the audit
and whether any such conditions were material weaknesses;
(v) The type of report the auditor issued on compliance
for major programs (i.e., unqualified opinion, qualified opinion, adverse
opinion, or disclaimer of opinion);
(vi) A statement as to whether the audit disclosed any
audit findings which the auditor is required to report under § .510(a);
(vii) An identification of major programs;
(viii)The dollar threshold used to distinguish between
Type A and Type B programs, as described in § .520(b); and
(ix) A statement as to whether the auditee qualified as
a low-risk auditee under § .530.
(2) Findings relating to the financial statements which are
required to be reported in accordance with GAGAS.
(3) Findings and questioned costs for Federal awards which
shall include audit findings as defined in § .510(a).
(i) Audit findings (e.g., internal control findings,
compliance findings, questioned costs, or fraud) which relate to the same
issue should be presented as a single audit finding. Where practical, audit
findings should be organized by Federal agency or pass-through entity.
(ii) Audit findings which relate to both the financial
statements and Federal awards, as reported under paragraphs (d)(2) and (d)(3)
of this section, respectively, should be reported in both sections of the
schedule. However, the reporting in one section of the schedule may be in
summary form with a reference to a detailed reporting in the other section of
the schedule.
§_.510 Audit findings.
26
(a) Audit findings reported. The auditor shall report the following
as audit findings in a schedule of findings and questioned costs:
(1) Reportable conditions in internal control over major
programs. The auditor's determination of whether a deficiency in internal
control is a reportable condition for the purpose of reporting an audit
finding is in relation to a type of compliance requirement for a major program
or an audit objective identified in the compliance supplement. The auditor
shall identify reportable conditions which are individually or cumulatively
material weaknesses.
(2) Material noncompliance with the provisions of laws,
regulations, contracts, or grant agreements related to a major program. The
auditor's determination of whether a noncompliance with the provisions of
laws, regulations, contracts, or grant agreements is material for the purpose
of reporting an audit finding is in relation to a type of compliance
requirement for a major program or an audit objective identified in the
compliance supplement.
(3) Known questioned costs which are greater than $10,000 for
a type of compliance requirement for a major program. Known questioned costs
are those specifically identified by the auditor. In evaluating the effect of
questioned costs on the opinion on compliance, the auditor considers the best
estimate of total costs questioned (likely questioned costs), not just the
questioned costs specifically identified (known questioned costs). The
auditor shall also report known questioned costs when likely questioned costs
are greater than $10,000 for a type of compliance requirement for a major
program. In reporting questioned costs, the auditor shall include information
to provide proper perspective for judging the prevalence and consequences of
the questioned costs.
(4) Known questioned costs which are greater than $10,000 for
a Federal program which is not audited as a major program. Except for audit
follow-up, the auditor is not required under this part to perform audit
procedures for such a Federal program; therefore, the auditor will normally
not find questioned costs for a program which is not audited as a major
program. However, if the auditor does become aware of questioned costs for a
Federal program which is not audited as a major program (e.g., as part of
audit follow-up or other audit procedures) and the known questioned costs are
greater than $10,000, then the auditor shall report this as an audit finding.
(5) The circumstances concerning why the auditor's report on
compliance for major programs is other than an unqualified opinion, unless
such circumstances are otherwise reported as audit findings in the schedule of
findings and questioned costs for Federal awards.
(6) Known fraud affecting a Federal award, unless such fraud
is otherwise reported as an audit finding in the schedule of findings and
questioned costs for Federal awards. This paragraph does not require the
auditor to make an additional reporting when the auditor confirms that the
fraud was reported outside of the auditor's reports under the direct reporting
requirements of GAGAS.
(7) Instances where the results of audit follow-up procedures
disclosed that the summary schedule of prior audit findings prepared by the
auditee in accordance with § .315(b) materially misrepresents the status of
any prior audit finding.
(b) Audit finding detail. Audit findings shall be presented in
sufficient detail for the auditee to prepare a corrective action plan and take
corrective action and for Federal agencies and pass-through entities to arrive
at a management decision. The following specific information shall be
27
included, as applicable, in audit findings:
(1) Federal program and specific Federal award identification
including the CFDA title and number, Federal award number and year, name of
Federal agency, and name of the applicable pass-through entity. When
information, such as the CFDA title and number or Federal award number, is not
available, the auditor shall provide the best information available to
describe the Federal award.
(2) The criteria or specific requirement upon which the audit
finding is based, including statutory, regulatory, or other citation.
(3) The condition found, including facts that support the
deficiency identified in the audit finding.
(4) Identification of questioned costs and how they were
computed.
(5) Information to provide proper perspective for judging the
prevalence and consequences of the audit findings, such as whether the audit
findings represent an isolated instance or a systemic problem. Where
appropriate, instances identified shall be related to the universe and the
number of cases examined and be quantified in terms of dollar value.
(6) The possible asserted effect to provide sufficient
information to the auditee and Federal agency, or pass-through entity in the
case of a subrecipient, to permit them to determine the cause and effect to
facilitate prompt and proper corrective action.
(7) Recommendations to prevent future occurrences of the
deficiency identified in the audit finding.
(8) Views of responsible officials of the auditee when there
is disagreement with the audit findings, to the extent practical.
(c) Reference numbers. Each audit finding in the schedule of findings
and questioned costs shall include a reference number to allow for easy
referencing of the audit findings during follow-up.
§ .515 Audit working papers.
(a) Retention of working papers. The auditor shall retain working
papers and reports for a minimum of three years after the date of issuance of
the auditor's report(s) to the auditee, unless the auditor is notified in
writing by the cognizant agency for audit, oversight agency for audit, or
pass-through entity to extend the retention period. When the auditor is aware
that the Federal awarding agency, pass-through entity, or auditee is
contesting an audit finding, the auditor shall contact the parties contesting
the audit finding for guidance prior to destruction of the working papers and
reports.
(b) Access to working papers. Audit working papers shall be made
available upon request to the cognizant or oversight agency for audit or its
designee, a Federal agency providing direct or indirect funding, or GAO at the
completion of the audit, as part of a quality review, to resolve audit
findings, or to carry out oversight responsibilities consistent with the
purposes of this part. Access to working papers includes the right of Federal
agencies to obtain copies of working papers, as is reasonable and necessary.
28
§ .520 Major program determination.
(a) General. The auditor shall use a risk-based approach to determine
which Federal programs are major programs. This risk-based approach shall
include consideration of: Current and prior audit experience, oversight by
Federal agencies and pass-through entities, and the inherent risk of the
Federal program. The process in paragraphs (b) through (i) of this section
shall be followed.
(b) Step 1. (1) The auditor shall identify the larger Federal
programs, which shall be labeled Type A programs. Type A programs are defined
as Federal programs with Federal awards expended during the audit period
exceeding the larger of:
(i) $300,000 or three percent (.03) of total Federal
awards expended in the case of an auditee for which total Federal awards
expended equal or exceed $300,000 but are less than or equal to $100 million.
(ii) $3 million or three -tenths of one percent (.003) of
total Federal awards expended in the case of an auditee for which total
Federal awards expended exceed $100 million but are less than or equal to $10
billion.
(iii) $30 million or 15 hundredths of one percent (.0015)
of total Federal awards expended in the case of an auditee for which total
Federal awards expended exceed $10 billion.
(2) Federal programs not labeled Type A under paragraph (b)(1)
of this section shall be labeled Type B programs.
(3) The inclusion of large loan and loan guarantees (loans)
should not result in the exclusion of other programs as Type A programs. When
a Federal program providing loans significantly affects the number or size of
Type A programs, the auditor shall consider this Federal program as a Type A
program and exclude its values in determining other Type A programs.
(4) For biennial audits permitted under § .220, the
determination of Type A and Type B programs shall be based upon the Federal
awards expended during the two-year period.
(c) Step 2. (1) The auditor shall identify Type A programs which are
low-risk. For a Type A program to be considered low-risk, it shall have been
audited as a major program in at least one of the two most recent audit
periods (in the most recent audit period in the case of a biennial audit),
and, in the most recent audit period, it shall have had no audit findings
under § .510(a). However, the auditor may use judgment and consider that
audit findings from questioned costs under § .510(a)(3) and § .510(a)(4),
fraud under § .510(a)(6), and audit follow-up for the summary schedule of
prior audit findings under § .510(a)(7) do not preclude the Type A program
from being low-risk. The auditor shall consider: the criteria in § .525(c),
§ .525(d)(1), § .525(d)(2), and § .525(d)(3); the results of audit
follow-up; whether any changes in personnel or systems affecting a Type A
program have significantly increased risk; and apply professional judgment in
determining whether a Type A program is low-risk.
(2) Notwithstanding paragraph (c)(1) of this section, OMB may
approve a Federal awarding agency's request that a Type A program at certain
recipients may not be considered low-risk. For example, it may be necessary
for a large Type A program to be audited as major each year at particular
recipients to allow the Federal agency to comply with the Government
Management Reform Act of 1994 (31 U.S.C. 3515). The Federal agency shall
notify the recipient and, if known, the auditor at least 180 days prior to the
29
end of the fiscal year to be audited of OMB's approval.
(d) Step 3. (1) The auditor shall identify Type B programs which are
high-risk using professional judgment and the criteria in § .525. However,
should the auditor select Option 2 under Step 4 (paragraph (e)(2)(i)(B) of
this section), the auditor is not required to identify more high-risk Type B
programs than the number of low-risk Type A programs. Except for known
reportable conditions in internal control or compliance problems as discussed
in § .525(b)(1), § .525(b)(2), and § .525(c)(1), a single criteria in
§ .525 would seldom cause a Type B program to be considered high-risk.
(2) The auditor is not expected to perform risk assessments on
relatively small Federal programs. Therefore, the auditor is only required to
perform risk assessments on Type B programs that exceed the larger of:
(i) $100,000 or three -tenths of one percent (.003) of
total Federal awards expended when the auditee has less than or equal to $100
million in total Federal awards expended.
(ii) $300,000 or three -hundredths of one percent (.0003)
of total Federal awards expended when the auditee has more than $100 million
in total Federal awards expended.
(e) Step 4. At a minimum, the auditor shall audit all of the
following as major programs:
(1) All Type A programs, except the auditor may exclude any
Type A programs identified as low-risk under Step 2 (paragraph (c)(1) of this
section).
(2) (i) High-risk Type B programs as identified under
either of the following two options:
(A) Option 1. At least one half of the Type B
programs identified as high-risk under Step 3 (paragraph (d) of this section),
except this paragraph (e)(2)(i)(A) does not require the auditor to audit more
high-risk Type B programs than the number of low-risk Type A programs
identified as low-risk under Step 2.
(B) Option 2. One high-risk Type B program for
each Type A program identified as low-risk under Step 2.
(ii) When identifying which high-risk Type B programs to
audit as major under either Option 1 or 2 in paragraph (e)(2)(1)(A) or (B),
the auditor is encouraged to use an approach which provides an opportunity for
different high-risk Type B programs to be audited as major over a period of
time.
(3) Such additional programs as may be necessary to comply
with the percentage of coverage rule discussed in paragraph (f) of this
section. This paragraph (e)(3) may require the auditor to audit more programs
as major than the number of Type A programs.
(f) Percentage of coverage rule. The auditor shall audit as major
programs Federal programs with Federal awards expended that, in the aggregate,
encompass at least 50 percent of total Federal awards expended. If the
auditee meets the criteria in § .530 for a low-risk auditee, the auditor
need only audit as major programs Federal programs with Federal awards
expended that, in the aggregate, encompass at least 25 percent of total
Federal awards expended.
(g) Documentation of risk. The auditor shall document in the working
30
papers the risk analysis process used in determining major programs.
(h) Auditor's -judgment. When the major program determination was
performed and documented in accordance with this part, the auditor's judgment
in applying the risk-based approach to determine major programs shall be
presumed correct. Challenges by Federal agencies and pass-through entities
shall only be for clearly improper use of the guidance in this part. However,
Federal agencies and pass-through entities may provide auditors guidance about
the risk of a particular Federal program and the auditor shall consider this
guidance in determining major programs in audits not yet completed.
(i) Deviation from use of risk criteria. For first-year audits, the
auditor may elect to determine major programs as all Type A programs plus any
Type B programs as necessary to meet the percentage of coverage rule discussed
in paragraph (f) of this section. Under this option, the auditor would not be
required to perform the procedures discussed in paragraphs (c), (d), and (e)
of this section.
(1) A first-year audit is the first year the entity is audited
under this part or the first year of a change of auditors.
(2) To ensure that a frequent change of auditors would not
preclude audit of high-risk Type B programs, this election for first-year
audits may not be used by an auditee more than once in every three years.
§ .525 Criteria for Federal program risk.
(a) General_ The auditor's determination should be based on an
overall evaluation of the risk of noncompliance occurring which could be
material to the Federal program. The auditor shall use auditor judgment and
consider criteria, such as described in paragraphs (b), (c), and (d) of this
section, to identify risk in Federal programs. Also, as part of the risk
analysis, the auditor may wish to discuss a particular Federal program with
auditee management and the Federal agency or pass-through entity.
(b) Current and prior audit experience. (1) Weaknesses in internal
control over Federal programs would indicate higher risk. Consideration
should be given to the control environment over Federal programs and such
factors as the expectation of management's adherence to applicable laws and
regulations and the provisions of contracts and grant agreements and the
competence and experience of personnel who administer the Federal programs.
(i) A Federal program administered under multiple
internal control structures may have higher risk. When assessing risk in a
large single audit, the auditor shall consider whether weaknesses are isolated
in a single operating unit (e.g., one college campus) or pervasive throughout
the entity.
(ii) When significant parts of a Federal program are
passed through to subrecipients, a weak system for monitoring subrecipients
would indicate higher risk.
(iii) The extent to which computer processing is used to
administer Federal programs, as well as the complexity of that processing,
should be considered by the auditor in assessing risk. New and recently
modified computer systems may also indicate risk.
(2) Prior audit findings would indicate higher risk,
particularly when the situations identified in the audit findings could have a
significant impact on a Federal program or have not been corrected.
(3) Federal programs not recently audited as major programs
31
may be of higher risk than Federal programs recently audited as major programs
without audit findings.
(c) Oversight exercised by Federal agencies and pass-through entities.
(1) Oversight exercised by Federal agencies or pass-through entities could
indicate risk. For example, recent monitoring or other reviews performed by
an oversight entity which disclosed no significant problems would indicate
lower risk. However, monitoring which disclosed significant problems would
indicate higher risk.
(2) Federal agencies, with the concurrence of OMB, may
identify Federal programs which are higher risk. OMB plans to provide this
identification in the compliance supplement.
(d) Inherent risk of the Federal program. (1) The nature of a
Federal program may indicate risk. Consideration should be given to the
complexity of the program and the extent to which the Federal program
contracts for goods and services. For example, Federal programs that disburse
funds through third party contracts or have eligibility criteria may be of
higher risk. Federal programs primarily involving staff payroll costs may
have a high-risk for time and effort reporting, but otherwise be at low-risk.
(2) The phase of a Federal program in its life cycle at the
Federal agency may indicate risk. For example, a new Federal program with new
or interim regulations may have higher risk than an established program with
time -tested regulations. Also, significant changes in Federal programs, laws,
regulations, or the provisions of contracts or grant agreements may increase
risk.
(3) The phase of a Federal program in its life cycle at the
auditee may indicate risk. For example, during the first and last years that
an auditee participates in a Federal program, the risk may be higher due to
start-up or closeout of program activities and staff.
(4) Type B programs with larger Federal awards expended would
be of higher risk than programs with substantially smaller Federal awards
expended.
§_.530 Criteria for a low-risk auditee.
An auditee which meets all of the following conditions for each of the
preceding two years (or, in the case of biennial audits, preceding two audit
periods) shall qualify as a low-risk auditee and be eligible for reduced audit
coverage in accordance with § .520:
(a) Single audits were performed on an annual basis in accordance with
the provisions of this part. A non -Federal entity that has biennial audits
does not qualify as a low-risk auditee, unless agreed to in advance by the
cognizant or oversight agency for audit.
(b) The auditor's opinions on the financial statements and the
schedule of expenditures of Federal awards were unqualified. However, the
cognizant or oversight agency for audit may judge that an opinion
qualification does not affect the management of Federal awards and provide a
waiver.
(c) There were no deficiencies in internal control which were
identified as material weaknesses under the requirements of GAGAS. However,
the cognizant or oversight agency for audit may judge that any identified
material weaknesses do not affect the management of Federal awards and provide
a waiver.
32
(d) None of the Federal programs had audit findings from any of the
following in either of the preceding two years (or, in the case of biennial
audits, preceding two audit periods) in which they were classified as Type A
programs:
(1) Internal control deficiencies which were identified as
material weaknesses;
(2) Noncompliance with the provisions of laws, regulations,
contracts, or grant agreements which have a material effect on the Type A
program; or
(3) Known or likely questioned costs that exceed five percent
of the total Federal awards expended for a Type A program during the year.
Appendix A to Part _ - Data Collection Form (Form SF -SAC)
[insert SF -SAC after finalized]
Appendix B to Part _ - Circular A-133 Compliance Supplement
Note: Provisional OMB Circular A-133 Compliance Supplement is available
from the Office of Administration, Publications Office, room 2200, New
Executive Office Building, Washington, DC 20503.
33
No Text
Appendix C
24 CFR 570 CDBG Regulations
Subpart C, Eligible Activities
No Text
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.200
Subpart C—Eligible Activities
SOURCE: 53 FR 34439, Sept. 6, 1988, unless
otherwise noted.
§ 570.200 General policies.
(a) Determination of eligibility. An ac-
tivity may be assisted in whole or in
part with CDBG funds only if all of the
following requirements are met:
(1) Compliance with section 105 of the
Act. Each activity must meet the eligi-
bility requirements of section 105 of
the Act as further defined in this sub-
part.
(2) Compliance with national objectives.
Grant recipients under the Entitlement
and HUD -administered Small Cities
programs and recipients of insular area
funds under section 106 of the Act must
certify that their projected use of funds
has been developed so as to give max-
imum feasible priority to activities
which will carry out one of the na-
tional objectives of benefit to low- and
moderate -income families or aid in the
prevention or elimination of slums or
blight. The projected use of funds may
also include activities that the recipi-
ent certifies are designed to meet other
community development needs having
a particular urgency because existing
conditions pose a serious and imme-
diate threat to the health or welfare of
the community where other financial
resources are not available to meet
such needs. Consistent with the fore-
going, each recipient under the Entitle-
ment or HUD -administered Small Cit-
ies programs, and each recipient of in-
sular area funds under section 106 of
the Act must ensure and maintain evi-
dence that each of its activities as-
sisted with CDBG funds meets one of
the three national objectives as con-
tained in its certification. Criteria for
determining whether an activity ad-
dresses one or more of these objectives
are found in § 570.208.
(3) Compliance with the primary objec-
tive. The primary objective of the Act
is described in section 101(c) of the Act.
Consistent with this objective, Entitle-
ment recipients, recipients of the HUD -
administered Small Cities program in
Hawaii, and recipients of insular area
funds under section 106 of the Act must
ensure that over a period of time speci-
fied in their certification not to exceed
37
three years, not less than 70 percent of
the aggregate of CDBG fund expendi-
tures shall be for activities meeting
the criteria under §570.208(a) or under
§570.208(d)(5) or (6) for benefiting low -
and moderate -income persons. For
grants under section 107 of the Act, in-
sular area recipients must meet this
requirement for each separate grant.
See §570.420(e)(3) for additional discus-
sion of the primary objective require-
ment for insular areas funded under
section 106 of the Act. The require-
ments for the HUD -administered Small
Cities program in New York are at
§570.420(e)(2). Additional requirements
for the HUD -administered Small Cities
program in Hawaii are at §570.430(e). In
determining the percentage of funds
expended for such activities:
(i) Cost of administration and plan-
ning eligible under §570.205 and §570.206
will be assumed to benefit low and
moderate income persons in the same
proportion as the remainder of the
CDBG funds and, accordingly shall be
excluded from the calculation;
(ii) Funds deducted by HUD for re-
payment of urban renewal temporary
loans pursuant to §570.802(b) shall be
excluded;
(iii) Funds expended for the repay-
ment of loans guaranteed under the
provisions of subpart M shall also be
excluded;
(iv) Funds expended for the acquisi-
tion, new construction or rehabilita-
tion of property for housing that quali-
fies under §570.208(a)(3) shall be count-
ed for this purpose but shall be limited
to an amount determined by multi-
plying the total cost (including CDBG
and non-CDBG costs) of the acquisi-
tion, construction or rehabilitation by
the percent of units in such housing to
be occupied by low and moderate in-
come persons.
(v) Funds expended for any other ac-
tivities qualifying under §570.208(a)
shall be counted for this purpose in
their entirety.
(4) Compliance with environmental re-
view procedures. The environmental re-
view procedures set forth at 24 CFR
part 58 must be completed for each ac-
tivity (or project as defined in 24 CFR
part 58), as applicable.
§ 570.200
(5) Cost principles. Costs incurred,
whether charged on a direct or an indi-
rect basis, must be in conformance
with OMB Circulars A-87, "Cost Prin-
ciples for State, Local and Indian Trib-
al Governments"; A-122, "Cost Prin-
ciples for Non-profit Organizations"; or
A-21, "Cost Principles for Educational
Institutions," as applicable.' All items
of cost listed in Attachment B of these
Circulars that require prior Federal
agency approval are allowable without
prior approval of HUD to the extent
they comply with the general policies
and principles stated in Attachment A
of such circulars and are otherwise eli-
gible under this subpart C, except for
the following:
(i) Depreciation methods for fixed as-
sets shall not be changed without
HUD's specific approval or, if charged
through a cost allocation plan, the
Federal cognizant agency.
(ii) Fines and penalties (including pu-
nitive damages) are unallowable costs
to the CDBG program.
(iii) Pre -award costs are limited to
those authorized under paragraph (h) of
this section.
(b) Special policies governing facilities.
The following special policies apply to:
(1) Facilities containing both eligible
and ineligible uses. A public facility oth-
erwise eligible for assistance under the
CDBG program may be provided with
CDBG funds even if it is part of a mul-
tiple use building containing ineligible
uses, if:
(i) The facility which is otherwise el-
igible and proposed for assistance will
occupy a designated and discrete area
within the larger facility; and
(ii) The recipient can determine the
costs attributable to the facility pro-
posed for assistance as separate and
distinct from the overall costs of the
multiple -use building and/or facility.
Allowable costs are limited to those at-
tributable to the eligible portion of the
building or facility.
(2) Fees for use of facilities. Reasonable
fees may be charged for the use of the
facilities assisted with CDBG funds,
but charges such as excessive member -
'These circulars are available from the
American Communities Center by calling
the following toll-free numbers: (800) 998-9999
or (800) 983-2209 (TDD).
38
24 CFR Ch. V (4-1-07 Edition)
ship fees, which will have the effect of
precluding low and moderate income
persons from using the facilities, are
not permitted.
(c) Special assessments under the CDBG
program. The following policies relate
to special assessments under the CDBG
program:
(1) Definition of special assessment. The
term "special assessment" means the
recovery of the capital costs of a public
improvement, such as streets, water or
sewer lines, curbs, and gutters, through
a fee or charge levied or filed as a lien
against a parcel of real estate as a di-
rect result of benefit derived from the
installation of a public improvement,
or a one-time charge made as a condi-
tion of access to a public improvement.
This term does not relate to taxes, or
the establishment of the value of real
estate for the purpose of levying real
estate, property, or ad valorem taxes,
and does not include periodic charges
based on the use of a public improve-
ment, such as water or sewer user
charges, even if such charges include
the recovery of all or some portion of
the capital costs of the public improve-
ment.
(2) Special assessments to recover cap-
ital costs. Where CDBG funds are used
to pay all or part of the cost of a public
improvement, special assessments may
be imposed as follows:
(i) Special assessments to recover the
CDBG funds may be made only against
properties owned and occupied by per-
sons not of low and moderate income.
Such assessments constitute program
income.
(ii) Special assessments to recover
the non-CDBG portion may be made
provided that CDBG funds are used to
pay the special assessment in behalf of
all properties owned and occupied by
low and moderate income persons; ex-
cept that CDBG funds need not be used
to pay the special assessments in be-
half of properties owned and occupied
by moderate income persons if the
grant recipient certifies that it does
not have sufficient CDBG funds to pay
the assessments in behalf of all of the
low and moderate income owner -occu-
pant persons. Funds collected through
such special assessments are not pro-
gram income.
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.200
(3) Public improvements not initially as-
sisted with CDBG funds. The payment of
special assessments with CDBG funds
constitutes CDBG assistance to the
public improvement. Therefore, CDBG
funds may be used to pay special as-
sessments provided:
(i) The installation of the public im-
provements was carried out in compli-
ance with requirements applicable to
activities assisted under this part in-
cluding environmental, citizen partici-
pation and Davis -Bacon requirements;
(ii) The installation of the public im-
provement meets a criterion for na-
tional objectives in §570.208(a)(1), (b),
or (c); and
(iii) The requirements of
§ 570.200 (c) (2) (i i) are met.
(d) Consultant activities. Consulting
services are eligible for assistance
under this part for professional assist-
ance in program planning, development
of community development objectives,
and other general professional guid-
ance relating to program execution.
The use of consultants is governed by
the following:
(1) Employer-employee type of relation-
ship. No person providing consultant
services in an employer-employee type
of relationship shall receive more than
a reasonable rate of compensation for
personal services paid with CDBG
funds. In no event, however, shall such
compensation exceed the equivalent of
the daily rate paid for Level IV of the
Executive Schedule. Such services
shall be evidenced by written agree-
ments between the parties which detail
the responsibilities, standards, and
compensation.
(2) Independent contractor relationship.
Consultant services provided under an
independent contractor relationship
are governed by the procurement re-
quirements in 24 CFR 85.36, and are not
subject to the compensation limitation
of Level IV of the Executive Schedule.
(e) Recipient determinations required as
a condition of eligibility. In several in-
stances under this subpart, the eligi-
bility of an activity depends on a spe-
cial local determination. Recipients
shall maintain documentation of all
such determinations. A written deter-
mination is required for any activity
carried out under the authority of
§§ 570.201 (f), 570.201 (i) (2), 570.201 (p),
39
570.201(q), 570.202(b)(3), 570.206(f), 570.209,
570.210, and 570.309.
(f) Means of carrying out eligible activi-
ties. (1) Activities eligible under this
subpart, other than those authorized
under §570.204(a), may be undertaken,
subject to local law:
(i) By the recipient through:
(A) Its employees, or
(B) Procurement contracts governed
by the requirements of 24 CFR 85.36; or
(ii) Through loans or grants under
agreements with subrecipients, as de-
fined at §570.500(c); or
(iii) By one or more public agencies,
including existing local public agen-
cies, that are designated by the chief
executive officer of the recipient.
(2) Activities made eligible under
§570.204(a) may only be undertaken by
entities specified in that section.
(g) Limitation on planning and admin-
istrative costs. No more than 20 percent
of the sum of any grant, plus program
income, shall be expended for planning
and program administrative costs, as
defined in §§570.205 and 507.206, respec-
tively. Recipients of entitlement
grants under subpart D of this part
shall conform with this requirement by
limiting the amount of CDBG funds ob-
ligated for planning plus administra-
tion during each program year to an
amount no greater than 20 percent of
the sum of its entitlement grant made
for that program year (if any) plus the
program income received by the recipi-
ent and its subrecipients (if any) dur-
ing that program year.
(h) Reimbursement for pre -award costs.
The effective date of the grant agree-
ment is the program year start date or
the date that the consolidated plan is
received by HUD, whichever is later.
For a Section 108 loan guarantee, the
effective date of the grant agreement is
the date of HUD execution of the grant
agreement amendment for the par-
ticular loan guarantee commitment.
(1) Prior to the effective date of the
grant agreement, a recipient may incur
costs or may authorize a subrecipient
to incur costs, and then after the effec-
tive date of the grant agreement pay
for those costs using its CDBG funds,
provided that:
(i) The activity for which the costs
are being incurred is included, prior to
§ 570.200
the costs being incurred, in a consoli-
dated plan action plan, an amended
consolidated plan action plan, or an ap-
plication under subpart M of this part,
except that a new entitlement grantee
preparing to receive its first allocation
of CDBG funds may incur costs nec-
essary to develop its consolidated plan
and undertake other administrative ac-
tions necessary to receive its first
grant, prior to the costs being included
in its consolidated plan;
(ii) Citizens are advised of the extent
to which these pre -award costs will af-
fect future grants;
(iii) The costs and activities funded
are in compliance with the require-
ments of this part and with the Envi-
ronmental Review Procedures stated in
24 CFR part 58;
(iv) The activity for which payment
is being made complies with the statu-
tory and regulatory provisions in effect
at the time the costs are paid for with
CDBG funds;
(v) CDBG payment will be made dur-
ing a time no longer than the next two
program years following the effective
date of the grant agreement or amend-
ment in which the activity is first in-
cluded; and
(vi) The total amount of pre -award
costs to be paid during any program
year pursuant to this provision is no
more than the greater of 25 percent of
the amount of the grant made for that
year or $300,000.
(2) Upon the written request of the
recipient, HUD may authorize payment
of pre -award costs for activities that do
not meet the criteria at paragraph
(h)(1)(v) or (h)(1)(vi) of this section, if
HUD determines, in writing, that there
is good cause for granting an exception
upon consideration of the following
factors, as applicable:
(i) Whether granting the authority
would result in a significant contribu-
tion to the goals and purposes of the
CDBG program;
(ii) Whether failure to grant the au-
thority would result in undue hardship
to the recipient or beneficiaries of the
activity;
(iii) Whether granting the authority
would not result in a violation of a
statutory provision or any other regu-
latory provision;
40
24 CFR Ch. V (4-1-07 Edition)
(iv) Whether circumstances are clear-
ly beyond the recipient's control; or
(v) Any other relevant consider-
ations.
(i) Urban Development Action Grant.
Grant assistance may be provided with
Urban Development Action Grant
funds, subject to the provisions of sub-
part G, for:
(1) Activities eligible for assistance
under this subpart; and
(2) Notwithstanding the provisions of
§570.207, such other activities as the
Secretary may determine to be con-
sistent with the purposes of the Urban
Development Action Grant program.
(j) Faith -based activities. (1) Organiza-
tions that are religious or faith -based
are eligible, on the same basis as any
other organization, to participate in
the CDBG program. Neither the Fed-
eral government nor a State or local
government receiving funds under
CDBG programs shall discriminate
against an organization on the basis of
the organization's religious character
or affiliation.
(2) Organizations that are directly
funded under the CDBG program may
not engage in inherently religious ac-
tivities, such as worship, religious in-
struction, or proselytization, as part of
the programs or services funded under
this part. If an organization conducts
such activities, the activities must be
offered separately, in time or location,
from the programs or services funded
under this part, and participation must
be voluntary for the beneficiaries of
the HUD -funded programs or services.
(3) A religious organization that par-
ticipates in the CDBG program will re-
tain its independence from Federal,
State, and local governments, and may
continue to carry out its mission, in-
cluding the definition, practice, and ex-
pression of its religious beliefs, pro-
vided that it does not use direct CDBG
funds to support any inherently reli-
gious activities, such as worship, reli-
gious instruction, or proselytization.
Among other things, faith -based orga-
nizations may use space in their facili-
ties to provide CDBG-funded services,
without removing religious art, icons,
scriptures, or other religious symbols.
In addition, a CDBG-funded religious
organization retains its authority over
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.201
its internal governance, and it may re-
tain religious terms in its organiza-
tion's name, select its board members
on a religious basis, and include reli-
gious references in its organization's
mission statements and other gov-
erning documents.
(4) An organization that participates
in the CDBG program shall not, in pro-
viding program assistance, discrimi-
nate against a program beneficiary or
prospective program beneficiary on the
basis of religion or religious belief.
(5) CDBG funds may not be used for
the acquisition, construction, or reha-
bilitation of structures to the extent
that those structures are used for in-
herently religious activities. CDBG
funds may be used for the acquisition,
construction, or rehabilitation of
structures only to the extent that
those structures are used for con-
ducting eligible activities under this
part. Where a structure is used for both
eligible and inherently religious activi-
ties, CDBG funds may not exceed the
cost of those portions of the acquisi-
tion, construction, or rehabilitation
that are attributable to eligible activi-
ties in accordance with the cost ac-
counting requirements applicable to
CDBG funds in this part. Sanctuaries,
chapels, or other rooms that a CDBG-
funded religious congregation uses as
its principal place of worship, however,
are ineligible for CDBG-funded im-
provements. Disposition of real prop-
erty after the term of the grant, or any
change in use of the property during
the term of the grant, is subject to gov-
ernment -wide regulations governing
real property disposition (see 24 CFR
parts 84 and 85).
(6) If a State or local government vol-
untarily contributes its own funds to
supplement federally funded activities,
the State or local government has the
option to segregate the Federal funds
or commingle them. However, if the
funds are commingled, this section ap-
plies to all of the commingled funds.
153 FR 34439, Sept. 6, 1988, as amended at 54
FR 47031, Nov. 8, 1989; 57 FR 27119, June 17,
1992; 60 FR 1943, Jan. 5, 1995; 60 FR 17445, Apr.
6, 1995; 60 FR 56910, Nov. 9, 1995; 61 FR 11476,
Mar. 20, 1996; 61 FR 18674, Apr. 29, 1996; 65 FR
70215, Nov. 21, 2000; 68 FR 56404, Sept. 30, 2003;
69 FR 32778, June 10, 2004; 70 FR 76369, Dec.
23, 2005]
41
§ 570.201 Basic eligible activities.
CDBG funds may be used for the fol-
lowing activities:
(a) Acquisition. Acquisition in whole
or in part by the recipient, or other
public or private nonprofit entity, by
purchase, long-term lease, donation, or
otherwise, of real property (including
air rights, water rights, rights-of-way,
easements, and other interests therein)
for any public purpose, subject to the
limitations of §570.207.
(b) Disposition. Disposition, through
sale, lease, donation, or otherwise, of
any real property acquired with CDBG
funds or its retention for public pur-
poses, including reasonable costs of
temporarily managing such property or
property acquired under urban renewal,
provided that the proceeds from any
such disposition shall be program in-
come subject to the requirements set
forth in §570.504.
(c) Public facilities and improvements.
Acquisition, construction, reconstruc-
tion, rehabilitation or installation of
public facilities and improvements, ex-
cept as provided in §570.207(a), carried
out by the recipient or other public or
private nonprofit entities. (However,
activities under this paragraph may be
directed to the removal of material and
architectural barriers that restrict the
mobility and accessibility of elderly or
severely disabled persons to public fa-
cilities and improvements, including
those provided for in §570.207(a)(1).) In
undertaking such activities, design fea-
tures and improvements which pro-
mote energy efficiency may be in-
cluded. Such activities may also in-
clude the execution of architectural de-
sign features, and similar treatments
intended to enhance the aesthetic qual-
ity of facilities and improvements re-
ceiving CDBG assistance, such as deco-
rative pavements, railings, sculptures,
pools of water and fountains, and other
works of art. Facilities designed for use
in providing shelter for persons having
special needs are considered public fa-
cilities and not subject to the prohibi-
tion of new housing construction de-
scribed in §570.207(b)(3). Such facilities
include shelters for the homeless; con-
valescent homes; hospitals, nursing
homes; battered spouse shelters; half-
way houses for run -away children, drug
offenders or parolees; group homes for
§ 570.201
mentally retarded persons and tem-
porary housing for disaster victims. In
certain cases, nonprofit entities and
subrecipients including those specified
in § 570.204 may acquire title to public
facilities. When such facilities are
owned by nonprofit entities or sub -
recipients, they shall be operated so as
to be open for use by the general public
during all normal hours of operation.
Public facilities and improvements eli-
gible for assistance under this para-
graph are subject to the policies in
§ 570.200(b).
(d) Clearance and remediation activi-
ties. Clearance, demolition, and re-
moval of buildings and improvements,
including movement of structures to
other sites and remediation of known
or suspected environmental contami-
nation. Demolition of HUD -assisted or
HUD -owned housing units may be un-
dertaken only with the prior approval
of HUD. Remediation may include
project -specific environmental assess-
ment costs not otherwise eligible under
§570.205.
(e) Public services. Provision of public
services (including labor, supplies, and
materials) including but not limited to
those concerned with employment,
crime prevention, child care, health,
drug abuse, education, fair housing
counseling, energy conservation, wel-
fare (but excluding the provision of in-
come payments identified under
§ 570.207(b) (4)), homebuyer downpay-
ment assistance, or recreational needs.
To be eligible for CDBG assistance, a
public service must be either a new
service or a quantifiable increase in
the level of an existing service above
that which has been provided by or on
behalf of the unit of general local gov-
ernment (through funds raised by the
unit or received by the unit from the
State in which it is located) in the 12
calendar months before the submission
of the action plan. (An exception to
this requirement may be made if HUD
determines that any decrease in the
level of a service was the result of
events not within the control of the
unit of general local government.) The
amount of CDBG funds used for public
services shall not exceed paragraphs (e)
(1) or (2) of this section, as applicable:
(I) The amount of CDBG funds used
for public services shall not exceed 15
42
24 CFR Ch. V (4-1-07 Edition)
percent of each grant, except that for
entitlement grants made under subpart
D of this part, the amount shall not ex-
ceed 15 percent of the grant plus 15 per-
cent of program income, as defined in
§570.500(a). For entitlement grants
under subpart D of this part, compli-
ance is based on limiting the amount of
CDBG funds obligated for public serv-
ice activities in each program year to
an amount no greater than 15 percent
of the entitlement grant made for that
program year plus 15 percent of the
program income received during the
grantee's immediately preceding pro-
gram year.
(2) A recipient which obligated more
CDBG funds for public services than 15
percent of its grant funded from Fed-
eral fiscal year 1982 or 1983 appropria-
tions (excluding program income and
any assistance received under Public
Law 98-8), may obligate more CDBG
funds than allowable under paragraph
(e)(1) of this section, so long as the
total amount obligated in any program
year does not exceed:
(i) For an entitlement grantee, 15%
of the program income it received dur-
ing the preceding program year; plus
(ii) A portion of the grant received
for the program year which is the high-
est of the following amounts:
(A) The amount determined by apply-
ing the percentage of the grant it obli-
gated for public services in the 1982
program year against the grant for its
current program year;
(B) The amount determined by apply-
ing the percentage of the grant it obli-
gated for public services in the 1983
program year against the grant for its
current program year;
(C) The amount of funds it obligated
for public services in the 1982 program
year; or,
(D) The amount of funds it obligated
for public services in the 1983 program
year.
(0 Interim assistance. (1) The following
activities may be undertaken on an in-
terim basis in areas exhibiting objec-
tively determinable signs of physical
deterioration where the recipient has
determined that immediate action is
necessary to arrest the deterioration
and that permanent improvements will
be carried out as soon as practicable:
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.201
(i) The repairing of streets, side-
walks, parks, playgrounds, publicly
owned utilities, and public buildings;
and
(ii) The execution of special garbage,
trash, and debris removal, including
neighborhood cleanup campaigns, but
not the regular curbside collection of
garbage or trash in an area.
(2) In order to alleviate emergency
conditions threatening the public
health and safety in areas where the
chief executive officer of the recipient
determines that such an emergency
condition exists and requires imme-
diate resolution, CDBG funds may be
used for:
(i) The activities specified in para-
graph (f) (1) of this section, except for
the repair of parks and playgrounds;
(ii) The clearance of streets, includ-
ing snow removal and similar activi-
ties, and
(iii) The improvement of private
properties.
(3) All activities authorized under
paragraph (f) (2) of this section are lim-
ited to the extent necessary to allevi-
ate emergency conditions.
(g) Payment of non -Federal share. Pay-
ment of the non -Federal share required
in connection with a Federal grant-in-
aid program undertaken as part of
CDBG activities, provided, that such
payment shall be limited to activities
otherwise eligible and in compliance
with applicable requirements under
this subpart.
(h) Urban renewal completion. Pay-
ment of the cost of completing an
urban renewal project funded under
title I of the Housing Act of 1949 as
amended. Further information regard-
ing the eligibility of such costs is set
forth in § 570.801.
(i) Relocation. Relocation payments
and other assistance for permanently
and temporarily relocated individuals
families, businesses, nonprofit organi-
zations, and farm operations where the
assistance is (1) required under the pro-
visions of §570.606 (b) or (c); or (2) de-
termined by the grantee to be appro-
priate under the provisions of
§ 570.606(d).
(j) Loss of rental income. Payments to
housing owners for losses of rental in-
come incurred in holding, for tem-
porary periods, housing units to be
43
used for the relocation of individuals
and families displaced by program ac-
tivities assisted under this part.
(k) Housing services. Housing services,
as provided in section 105(a)(21) of the
Act (42 U.S.C. 5305(a)(21)).
(1) Privately owned utilities. CDBG
funds may be used to acquire, con-
struct, reconstruct, rehabilitate, or in-
stall the distribution lines and facili-
ties of privately owned utilities, in-
cluding the placing underground of new
or existing distribution facilities and
lines.
(m) Construction of housing. CDBG
funds may be used for the construction
of housing assisted under section 17 of
the United States Housing Act of 1937.
(n) Homeownership assistance. CDBG
funds may be used to provide direct
homeownership assistance to low- or
moderate -income households in accord-
ance with section 105(a) of the Act.
(o)(1) The provision of assistance ei-
ther through the recipient directly or
through public and private organiza-
tions, agencies, and other subrecipients
(including nonprofit and for-profit sub -
recipients) to facilitate economic de-
velopment by:
(i) Providing credit, including, but
not limited to, grants, loans, loan
guarantees, and other forms of finan-
cial support, for the establishment,
stabilization, and expansion of micro -
enterprises;
(ii) Providing technical assistance,
advice, and business support services to
owners of microenterprises and persons
developing microenterprises; and
(iii) Providing general support, in-
cluding, but not limited to, peer sup-
port programs, counseling, child care,
transportation, and other similar serv-
ices, to owners of microenterprises and
persons developing microenterprises.
(2) Services provided this paragraph
(o) shall not be subject to the restric-
tions on public services contained in
paragraph (e) of this section.
(3) For purposes of this paragraph (o),
"persons developing microenterprises"
means such persons who have expressed
interest and who are, or after an initial
screening process are expected to be,
actively working toward developing
businesses, each of which is expected to
be a microenterprise at the time it is
formed.
§ 570.202
(4) Assistance under this paragraph
(o) may also include training, technical
assistance, or other support services to
increase the capacity of the recipient
or subrecipient to carry out the activi-
ties under this paragraph (o).
(p) Technical assistance. Provision of
technical assistance to public or non-
profit entities to increase the capacity
of such entities to carry out eligible
neighborhood revitalization or eco-
nomic development activities. (The re-
cipient must determine, prior to the
provision of the assistance, that the ac-
tivity for which it is attempting to
build capacity would be eligible for as-
sistance under this subpart C, and that
the national objective claimed by the
grantee for this assistance can reason-
ably be expected to be met once the en-
tity has received the technical assist-
ance and undertakes the activity.) Ca-
pacity building for private or public
entities (including grantees) for other
purposes may be eligible under § 570.205.
(q) Assistance to institutions of higher
education. Provision of assistance by
the recipient to institutions of higher
education when the grantee determines
that such an institution has dem-
onstrated a capacity to carry out eligi-
ble activities under this subpart C.
[53 FR 34439, Sept. 6, 1988, as amended at 53
FR 31239, Aug. 17, 1988; 55 FR 29308, July 18,
1990; 57 FR 27119, June 17, 1992; 60 FR 1943,
Jan. 5, 1995; 60 FR 56911, Nov. 9, 1995; 61 FR
18674, Apr. 29, 1996; 65 FR 70215, Nov. 21, 2000;
67 FR 47213, July 17, 2002; 71 FR 30034, May 24,
2006]
§ 570.202 Eligible rehabilitation and
preservation activities.
(a) Types of buildings and improve-
ments eligible for rehabilitation assist-
ance. CDBG funds may be used to fi-
nance the rehabilitation of:
(1) Privately owned buildings and im-
provements for residential purposes;
improvements to a single-family resi-
dential property which is also used as a
place of business, which are required in
order to operate the business, need not
be considered to be rehabilitation of a
commercial or industrial building, if
the improvements also provide general
benefit to the residential occupants of
the building;
44
24 CFR Ch. V (4-1-07 Edition)
(2) Low-income public housing and
other publicly owned residential build-
ings and improvements;
(3) Publicly or privately owned com-
mercial or industrial buildings, except
that the rehabilitation of such build-
ings owned by a private for-profit busi-
ness is limited to improvement to the
exterior of the building, abatement of
asbestos hazards, lead-based paint haz-
ard evaluation and reduction, and the
correction of code violations;
(9) Nonprofit -owned nonresidential
buildings and improvements not eligi-
ble under § 570.201(c); and
(5) Manufactured housing when such
housing constitutes part of the commu-
nity's permanent housing stock.
(b) Types of assistance. CDBG funds
may be used to finance the following
types of rehabilitation activities, and
related costs, either singly, or in com-
bination, through the use of grants,
loans, loan guarantees, interest supple-
ments, or other means for buildings
and improvements described in para-
graph (a) of this section, except that
rehabilitation of commercial or indus-
trial buildings is limited as described
in paragraph (a) (3) of this section.
(1) Assistance to private individuals
and entities, including profit making
and nonprofit organizations, to acquire
for the purpose of rehabilitation, and
to rehabilitate properties, for use or re-
sale for residential purposes;
(2) Labor, materials, and other costs
of rehabilitation of properties, includ-
ing repair directed toward an accumu-
lation of deferred maintenance, re-
placement of principal fixtures and
components of existing structures, in-
stallation of security devices, includ-
ing smoke detectors and dead bolt
locks, and renovation through alter-
ations, additions to, or enhancement of
existing structures and improvements,
abatement of asbestos hazards (and
other contaminants) in buildings and
improvements that may be undertaken
singly, or in combination;
(3) Loans for refinancing existing in-
debtedness secured by a property being
rehabilitated with CDBG funds if such
financing is determined by the recipi-
ent to be necessary or appropriate to
achieve the locality's community de-
velopment objectives;
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.203
(4) Improvements to increase the effi-
cient use of energy in structures
through such means as installation of
storm windows and doors, siding, wall
and attic insulation, and conversion,
modification, or replacement of heat-
ing and cooling equipment, including
the use of solar energy equipment;
(5) Improvements to increase the effi-
cient use of water through such means
as water savings faucets and shower
heads and repair of water leaks;
(6) Connection of residential struc-
tures to water distribution lines or
local sewer collection lines;
(7) For rehabilitation carried out
with CDBG funds, costs of:
(i) Initial homeowner warranty pre-
miums;
(ii) Hazard insurance premiums, ex-
cept where assistance is provided in the
form of a grant; and
(iii) Flood insurance premiums for
properties covered by the Flood Dis-
aster Protection Act of 1973, pursuant
to § 570.605.
(8) Costs of acquiring tools to be lent
to owners, tenants, and others who will
use such tools to carry out rehabilita-
tion;
(9) Rehabilitation services, such as
rehabilitation counseling, energy au-
diting, preparation of work specifica-
tions, loan processing, inspections, and
other services related to assisting own-
ers, tenants, contractors, and other en-
tities, participating or seeking to par-
ticipate in rehabilitation activities au-
thorized under this section, under sec-
tion 312 of the Housing Act of 1964, as
amended, under section 810 of the Act,
or under section 17 of the United States
Housing Act of 1937;
(10) Assistance for the rehabilitation
of housing under section 17 of the
United States Housing Act of 1937; and
(11) Improvements designed to re-
move material and architectural bar-
riers that restrict the mobility and ac-
cessibility of elderly or severely dis-
abled persons to buildings and improve-
ments eligible for assistance under
paragraph (a) of this section.
(c) Code enforcement. Costs incurred
for inspection for code violations and
enforcement of codes (e.g., salaries and
related expenses of code enforcement
inspectors and legal proceedings, but
not including the cost of correcting the
45
violations) in deteriorating or deterio-
rated areas when such enforcement to-
gether with public or private improve-
ments, rehabilitation, or services to be
provided may be expected to arrest the
decline of the area.
(d) Historic preservation. CDBG funds
may be used for the rehabilitation,
preservation or restoration of historic
properties, whether publicly or pri-
vately owned. Historic properties are
those sites or structures that are ei-
ther listed in or eligible to be listed in
the National Register of Historic
Places, listed in a State or local inven-
tory of historic places, or designated as
a State or local landmark or historic
district by appropriate law or ordi-
nance. Historic preservation, however,
is not authorized for buildings for the
general conduct of government.
(e) Renovation of closed buildings.
CDBG funds may be used to renovate
closed buildings, such as closed school
buildings, for use as an eligible public
facility or to rehabilitate such build-
ings for housing.
(1) Lead-based paint activities. Lead-
based paint activities pursuant to
§570.608.
[53 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21,
1988, as amended at 60 FR 1944, Jan. 5, 1995;
60 FR 56911, Nov. 9, 1995; 64 FR 50225, Sept. 15,
1999; 71 FR 30035, May 24, 2006]
§ 570.203 Special economic develop-
ment activities.
A recipient may use CDBG funds for
special economic development activi-
ties in addition to other activities au-
thorized in this subpart that may be
carried out as part of an economic de-
velopment project. Guidelines for se-
lecting activities to assist under this
paragraph are provided at § 570.209. The
recipient must ensure that the appro-
priate level of public benefit will be de-
rived pursuant to those guidelines be-
fore obligating funds under this au-
thority. Special activities authorized
under this section do not include as-
sistance for the construction of new
housing. Activities eligible under this
section may include costs associated
with project -specific assessment or re-
mediation of known or suspected envi-
ronmental contamination. Special eco-
nomic development activities include:
§ 570.204
(a) The acquisition, construction, re-
construction, rehabilitation or instal-
lation of commercial or industrial
buildings, structures, and other real
property equipment and improvements,
including railroad spurs or similar ex-
tensions. Such activities may be car-
ried out by the recipient or public or
private nonprofit subrecipients.
(b) The provision of assistance to a
private for-profit business, including,
but not limited to, grants, loans, loan
guarantees, interest supplements, tech-
nical assistance, and other forms of
support, for any activity where the as-
sistance is appropriate to carry out an
economic development project, exclud-
ing those described as ineligible in
§570.207(a). In selecting businesses to
assist under this authority, the recipi-
ent shall minimize, to the extent prac-
ticable, displacement of existing busi-
nesses and jobs in neighborhoods.
(c) Economic development services in
connection with activities eligible
under this section, including, but not
limited to, outreach efforts to market
available forms of assistance; screening
of applicants; reviewing and under-
writing applications for assistance;
preparation of all necessary agree-
ments; management of assisted activi-
ties; and the screening, referral, and
placement of applicants for employ-
ment opportunities generated by
CDBG-eligible economic development
activities, including the costs of pro-
viding necessary training for persons
filling those positions.
[53 FR 34439, Sept. 6, 1988, as amended at 60
FR 1944, Jan. 5, 1995; 71 FR 30035, May 24,
2006]
§ 570.204 Special activities by Commu-
nity -Based Development Organiza-
tions (CBDOs).
(a) Eligible activities. The recipient
may provide CDBG funds as grants or
loans to any CBDO qualified under this
section to carry out a neighborhood re-
vitalization, community economic de-
velopment, or energy conservation
project. The funded project activities
may include those listed as eligible
under this subpart, and, except as de-
scribed in paragraph (b) of this section,
activities not otherwise listed as eligi-
ble under this subpart. For purposes of
qualifying as a project under para -
46
24 CFR Ch. V (4-1-07 Edition)
graphs (a)(1), (a)(2), and (a)(3) of this
section, the funded activity or activi-
ties may be considered either alone or
in concert with other project activities
either being carried out or for which
funding has been committed. For pur-
poses of this section:
(1) Neighborhood revitalization
project includes activities of sufficient
size and scope to have an impact on the
decline of a geographic location within
the jurisdiction of a unit of general
local government (but not the entire
jurisdiction) designated in comprehen-
sive plans, ordinances, or other local
documents as a neighborhood, village,
or similar geographical designation; or
the entire jurisdiction of a unit of gen-
eral local government which is under
25,000 population;
(2) Community economic develop-
ment project includes activities that
increase economic opportunity, prin-
cipally for persons of low- and mod-
erate -income, or that stimulate or re-
tain businesses or permanent jobs, in-
cluding projects that include one or
more such activities that are clearly
needed to address a lack of affordable
housing accessible to existing or
planned jobs and those activities speci-
fied at 24 CFR 91.1(a)(1)(iii); activities
under this paragraph may include costs
associated with project -specific assess-
ment or remediation of known or sus-
pected environmental contamination;
(3) Energy conservation project in-
cludes activities that address energy
conservation, principally for the ben-
efit of the residents of the recipient's
jurisdiction; and
(4) To carry out a project means that
the CBDO undertakes the funded ac-
tivities directly or through contract
with an entity other than the grantee,
or through the provision of financial
assistance for activities in which it re-
tains a direct and controlling involve-
ment and responsibilities.
(b) Ineligible activities. Notwith-
standing that CBDOs may carry out ac-
tivities that are not otherwise eligible
under this subpart, this section does
not authorize:
(I) Carrying out an activity described
as ineligible in §570.207(a);
(2) Carrying out public services that
do not meet the requirements of
§570.201(e), except that:
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.204
(i) Services carried out under this
section that are specifically designed
to increase economic opportunities
through job training and placement
and other employment support serv-
ices, including, but not limited to, peer
support programs, counseling, child
care, transportation, and other similar
services; and
(ii) Services of any type carried out
under this section pursuant to a strat-
egy approved by HUD under the provi-
sions of 24 CFR 91.215(e) shall not be
subject to the limitations in
§570.201(e)(1) or (2), as applicable;
(3) Providing assistance to activities
that would otherwise be eligible under
§ 570.203 that do not meet the require-
ments of §570.209; or
(4) Carrying out an activity that
would otherwise be eligible under
§570.205 or §570.206, but that would re-
sult in the recipient's exceeding the
spending limitation in §570.200(g).
(c) Eligible CBDOs. (1) A CBDO quali-
fying under this section is an organiza-
tion which has the following character-
istics:
(i) Is an association or corporation
organized under State or local law to
engage in community development ac-
tivities (which may include housing
and economic development activities)
primarily within an identified geo-
graphic area of operation within the ju-
risdiction of the recipient, or in the
case of an urban county, the jurisdic-
tion of the county; and
(ii) Has as its primary purpose the
improvement of the physical, economic
or social environment of its geographic
area of operation by addressing one or
more critical problems of the area,
with particular attention to the needs
of persons of low and moderate income;
and
(iii) May be either non-profit or for-
profit, provided any monetary profits
to its shareholders or members must be
only incidental to its operations; and
(iv) Maintains at least 51 percent of
its governing body's membership for
low- and moderate -income residents of
its geographic area of operation, own-
ers or senior officers of private estab-
lishments and other institutions lo-
cated in and serving its geographic
area of operation, or representatives of
low- and moderate -income neighbor -
47
hood organizations located in its geo-
graphic area of operation; and
(v) Is not an agency or instrumen-
tality of the recipient and does not per-
mit more than one-third of the mem-
bership of its governing body to be ap-
pointed by, or to consist of, elected or
other public officials or employees or
officials of an ineligible entity (even
though such persons may be otherwise
qualified under paragraph (c) (1) (iv) of
this section); and
(vi) Except as otherwise authorized
in paragraph (c) (1) (v) of this section,
requires the members of its governing
body to be nominated and approved by
the general membership of the organi-
zation, or by its permanent governing
body; and
(vii) Is not subject to requirements
under which its assets revert to the re-
cipient upon dissolution; and
(viii) Is free to contract for goods and
services from vendors of its own choos-
ing.
(2) A CBDO that does not meet the
criteria in paragraph (c)(1) of this sec-
tion may also qualify as an eligible en-
tity under this section if it meets one
of the following requirements:
(i) Is an entity organized pursuant to
section 30I (d) of the Small Business In-
vestment Act of 1958 (15 U.S.C. 681(d)),
including those which are profit mak-
ing; or
(ii) Is an SBA approved Section 501
State Development Company or Sec-
tion 502 Local Development Company,
or an SBA Certified Section 503 Com-
pany under the Small Business Invest-
ment Act of 1958, as amended; or
(iii) Is a Community Housing Devel-
opment Organization (CHDO) under 24
CFR 92.2, designated as a CHDO by the
HOME Investment Partnerships pro-
gram participating jurisdiction, with a
geographic area of operation of no
more than one neighborhood, and has
received HOME funds under 24 CFR
92.300 or is expected to receive HOME
funds as described in and documented
in accordance with 24 CFR 92.300(e).
(3) A CBDO that does not qualify
under paragraph (c) (1) or (2) of this sec-
tion may also be determined to qualify
as an eligible entity under this section
if the recipient demonstrates to the
§ 570.205
satisfaction of HUD, through the provi-
sion of information regarding the orga-
nization's charter and by-laws, that
the organization is sufficiently similar
in purpose, function, and scope to those
entities qualifying under paragraph
(c) (1) or (2) of this section.
[60 FR 1944, Jan. 5, 1995, as amended at 71 FR
30035, May 24, 2006]
§ 570.205 Eligible planning, urban en-
vironmental design and policy -plan-
ning -management -capacity building
activities.
(a) Planning activities which consist
of all costs of data gathering, studies,
analysis, and preparation of plans and
the identification of actions that will
implement such plans, including, but
not limited to:
(1) Comprehensive plans;
(2) Community development plans;
(3) Functional plans, in areas such as:
(i) Housing, including the develop-
ment of a consolidated plan;
(ii) Land use and urban environ-
mental design;
(iii) Economic development;
(iv) Open space and recreation;
(v) Energy use and conservation;
(vi) Floodplain and wetlands manage-
ment in accordance with the require-
ments of Executive Orders 11988 and
11990;
(vii) Transportation;
(viii) Utilities; and
(ix) Historic preservation.
(4) Other plans and studies such as:
(i) Small area and neighborhood
plans;
(ii) Capital improvements programs;
(iii) Individual project plans (but ex-
cluding engineering and design costs
related to a specific activity which are
eligible as part of the cost of such ac-
tivity under §§570.201-570.204);
(iv) The reasonable costs of general
environmental, urban environmental
design and historic preservation stud-
ies; and general environmental
assessment- and remediation -oriented
planning related to properties with
known or suspected environmental
contamination. However, costs nec-
essary to comply with 24 CFR part 58,
including project specific environ-
mental assessments and clearances for
activities eligible for assistance under
this part, are eligible as part of the
48
24 CFR Ch. V (4-1-07 Edition)
cost of such activities under §§570.201-
570.204. Costs for such specific assess-
ments and clearances may also be in-
curred under this paragraph but would
then be considered planning costs for
the purposes of §570.200(g);
(v) Strategies and action programs to
implement plans, including the devel-
opment of codes, ordinances and regu-
lations;
(vi) Support of clearinghouse func-
tions, such as those specified in Execu-
tive Order 12372; and
(vii) Analysis of impediments to fair
housing choice.
(viii) Developing an inventory of
properties with known or suspected en-
vironmental contamination.
(6) Policy—planning—management—
capacity building activities which will
enable the recipient to:
(1) Determine its needs;
(2) Set long-term goals and short-
term objectives, including those re-
lated to urban environmental design;
(3) Devise programs and activities to
meet these goals and objectives;
(4) Evaluate the progress of such pro-
grams and activities in accomplishing
these goals and objectives; and
(5) Carry out management, coordina-
tion and monitoring of activities nec-
essary for effective planning implemen-
tation, but excluding the costs nec-
essary to implement such plans.
[53 FR 34439, Sept. 6, 1988, as amended at 56
FR 56127, Oct. 31, 1991; 60 FR 1915, Jan. 5, 1995;
71 FR 30035, May 24, 2006]
§ 570.206 Program administrative
costs.
Payment of reasonable administra-
tive costs and carrying charges related
to the planning and execution of com-
munity development activities assisted
in whole or in part with funds provided
under this part and, where applicable,
housing activities (described in para-
graph (g) of this section) covered in the
recipient's housing assistance plan.
This does not include staff and over-
head costs directly related to carrying
out activities eligible under § 570.201
through §570.204, since those costs are
eligible as part of such activities.
(a) General management, oversight and
coordination. Reasonable costs of over-
all program management, coordina-
tion, monitoring, and evaluation. Such
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.206
costs include, but are not necessarily
limited to, necessary expenditures for
the following:
(1) Salaries, wages, and related costs
of the recipient's staff, the staff of
local public agencies, or other staff en-
gaged in program administration. In
charging costs to this category the re-
cipient may either include the entire
salary, wages, and related costs allo-
cable to the program of each person
whose primary responsibilities with re-
gard to the program involve program
administration assignments, or the pro
rata share of the salary, wages, and re-
lated costs of each person whose job in-
cludes any program administration as-
signments. The recipient may use only
one of these methods during the pro-
gram year (or the grant period for
grants under subpart F). Program ad-
ministration includes the following
types of assignments:
(i) Providing local officials and citi-
zens with information about the pro-
gram;
(ii) Preparing program budgets and
schedules, and amendments thereto;
(iii) Developing systems for assuring
compliance with program require-
ments;
(iv) Developing interagency agree-
ments and agreements with subrecipi-
ents and contractors to carry out pro-
gram activities;
(v) Monitoring program activities for
progress and compliance with program
requirements;
(vi) Preparing reports and other doc-
uments related to the program for sub-
mission to HUD;
(vii) Coordinating the resolution of
audit and monitoring findings;
(viii) Evaluating program results
against stated objectives; and
(ix) Managing or supervising persons
whose primary responsibilities with re-
gard to the program include such as-
signments as those described in para-
graph (a)(1)(i) through (viii) of this sec-
tion.
(2) Travel costs incurred for official
business in carrying out the program;
(3) Administrative services performed
under third party contracts or agree-
ments, including such services as gen-
eral legal services, accounting services,
and audit services; and
49
(4) Other costs for goods and services
required for administration of the pro-
gram, including such goods and serv-
ices as rental or purchase of equip-
ment, insurance, utilities, office sup-
plies, and rental and maintenance (but
not purchase) of office space.
(b) Public information. The provisions
of information and other resources to
residents and citizen organizations par-
ticipating in the planning, implemen-
tation, or assessment of activities
being assisted with CDBG funds.
(c) Fair housing activities. Provision of
fair housing services designed to fur-
ther the fair housing objectives of the
Fair Housing Act (92 U.S.C. 3601-20) by
making all persons, without regard to
race, color, religion, sex, national ori-
gin, familial status or handicap, aware
of the range of housing opportunities
available to them; other fair housing
enforcement, education, and outreach
activities; and other activities de-
signed to further the housing objective
of avoiding undue concentrations of as-
sisted persons in areas containing a
high proportion of low and moderate
income persons.
(d) [Reserved]
(e) Indirect costs. Indirect costs may
be charged to the CDBG program under
a cost allocation plan prepared in ac-
cordance with OMB Circular A-21, A-
87, or A-122 as applicable.
(f) Submission of applications for fed-
eral programs. Preparation of docu-
ments required for submission to HUD
to receive funds under the CDBG and
UDAG programs. In addition, CDBG
funds may be used to prepare applica-
tions for other Federal programs where
the recipient determines that such ac-
tivities are necessary or appropriate to
achieve its community development
objectives.
(g) Administrative expenses to facilitate
housing. CDBG funds may be used for
necessary administrative expenses in
planning or obtaining financing for
housing as follows: for entitlement re-
cipients, assistance authorized by this
paragraph is limited to units which are
identified in the recipient's HUD ap-
proved housing assistance plan; for
HUD -administered small cities recipi-
ents, assistance authorized by the
paragraph is limited to facilitating the
purchase or occupancy of existing units
§ 570.207
which are to be occupied by low and
moderate income households, or the
construction of rental or owner units
where at least 20 percent of the units in
each project will be occupied at afford-
able rents/costs by low and moderate
income persons. Examples of eligible
actions are as follows:
(1) The cost of conducting prelimi-
nary surveys and analysis of market
needs;
(2) Site and utility plans, narrative
descriptions of the proposed construc-
tion, preliminary cost estimates, urban
design documentation, and "sketch
drawings," but excluding architectural,
engineering, and other details ordi-
narily required for construction pur-
poses, such as structural, electrical,
plumbing, and mechanical details;
(3) Reasonable costs associated with
development of applications for mort-
gage and insured loan commitments,
including commitment fees, and of ap-
plications and proposals under the Sec-
tion 8 Housing Assistance Payments
Program pursuant to 24 CFR parts 880-
883;
(4) Fees associated with processing of
applications for mortgage or insured
loan commitments under programs in-
cluding those administered by HUD,
Farmers Horne Administration
(FmHA), Federal National Mortgage
Association (FNMA), and the Govern-
ment National Mortgage Association
(GNMA) ;
(5) The cost of issuance and adminis-
tration of mortgage revenue bonds used
to finance the acquisition, rehabilita-
tion or construction of housing, but ex-
cluding costs associated with the pay-
ment or guarantee of the principal or
interest on such bonds; and
(6) Special outreach activities which
result in greater landlord participation
in Section 8 Housing Assistance Pay-
ments Program -Existing Housing or
similar programs for low and moderate
income persons.
(h) Section 17 of the United States
Housing Act of 1937. Reasonable costs
equivalent to those described in para-
graphs (a), (b), (e) and (1) of this section
for overall program management of the
Rental Rehabilitation and Housing De-
velopment programs authorized under
section 17 of the United States Housing
Act of 1937, whether or not such activi-
50
24 CFR Ch. V (4-1-07 Edition)
ties are otherwise assisted with funds
provided under this part.
(i) Whether or not such activities are
otherwise assisted by funds provided
under this part, reasonable costs equiv-
alent to those described in paragraphs
(a), (b), (e), and (f) of this section for
overall program management of:
(1) A Federally designated Empower-
ment Zone or Enterprise Community;
and
(2) The HOME program under title II
of the Cranston -Gonzalez National Af-
fordable Housing Act (42 U.S.C. 12701
note) .
[53 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21,
1988, as amended at 54 FR 37411, Sept. 8, 1989;
60 FR 56912, Nov. 9, 1995; 69 FR 32778, June 10,
2004]
§ 570.207 Ineligible activities.
The general rule is that any activity
that is not authorized under the provi-
sions of §§570.201-570.206 is ineligible to
be assisted with CDBG funds. This sec-
tion identifies specific activities that
are ineligible and provides guidance in
determining the eligibility of other ac-
tivities frequently associated with
housing and community development.
(a) The following activities may not
be assisted with CDBG funds:
(1) Buildings or portions thereof used
for the general conduct of government as
defined at §570.3(d) cannot be assisted
with CDBG funds. This does not in-
clude, however, the removal of archi-
tectural barriers under §570.201(c) in-
volving any such building. Also, where
acquisition of real property includes an
existing improvement which is to be
used in the provision of a building for
the general conduct of government, the
portion of the acquisition cost attrib-
utable to the land is eligible, provided
such acquisition meets a national ob-
jective described in § 570.208.
(2) General government expenses. Ex-
cept as otherwise specifically author-
ized in this subpart or under OMB Cir-
cular A-87, expenses required to carry
out the regular responsibilities of the
unit of general local government are
not eligible for assistance under this
part.
(3) Political activities. CDBG funds
shall not be used to finance the use of
facilities or equipment for political
purposes or to engage in other partisan
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.207
political activities, such as candidate
forums, voter transportation, or voter
registration. However, a facility origi-
nally assisted with CDBG funds may be
used on an incidental basis to hold po-
litical meetings, candidate forums, or
voter registration campaigns, provided
that all parties and organizations have
access to the facility on an equal basis,
and are assessed equal rent or use
charges, if any.
(b) The following activities may not
be assisted with CDBG funds unless au-
thorized under provisions of § 570.203 or
as otherwise specifically noted herein
or when carried out by an entity under
the provisions of §570.204.
(1) Purchase of equipment. The pur-
chase of equipment with CDBG funds is
generally ineligible.
(i) Construction equipment. The pur-
chase of construction equipment is in-
eligible, but compensation for the use
of such equipment through leasing, de-
preciation, or use allowances pursuant
to OMB Circulars A-21, A-87 or A-122 as
applicable for an otherwise eligible ac-
tivity is an eligible use of CDBG funds.
However, the purchase of construction
equipment for use as part of a solid
waste disposal facility is eligible under
§ 570.201(c).
(ii) Fire protection equipment. Fire pro-
tection equipment is considered for
this purpose to be an integral part of a
public facility and thus, purchase of
such equipment would be eligible under
§ 570.201(c).
(iii) Furnishings and personal property.
The purchase of equipment, fixtures,
motor vehicles, furnishings, or other
personal property not an integral
structural fixture is generally ineli-
gible. CDBG funds may be used, how-
ever, to purchase or to pay deprecia-
tion or use allowances (in accordance
with OMB Circular A-21, A-87 or A-122,
as applicable) for such items when nec-
essary for use by a recipient or its sub -
recipients in the administration of ac-
tivities assisted with CDBG funds, or
when eligible as fire fighting equip-
ment, or when such items constitute
all or part of a public service pursuant
to §570.201(e).
(2) Operating and maintenance ex-
penses. The general rule is that any ex-
pense associated with repairing, oper-
ating or maintaining public facilities,
51
improvements and services is ineli-
gible. Specific exceptions to this gen-
eral rule are operating and mainte-
nance expenses associated with public
service activities, interim assistance,
and office space for program staff em-
ployed in carrying out the CDBG pro-
gram. For example, the use of CDBG
funds to pay the allocable costs of op-
erating and maintaining a facility used
in providing a public service would be
eligible under §570.201(e), even if no
other costs of providing such a service
are assisted with such funds. Examples
of ineligible operating and mainte-
nance expenses are:
(i) Maintenance and repair of pub-
licly owned streets, parks, play-
grounds, water and sewer facilities,
neighborhood facilities, senior centers,
centers for persons with a disabilities,
parking and other public facilities and
improvements. Examples of mainte-
nance and repair activities for which
CDBG funds may not be used include
the filling of pot holes in streets, re-
pairing of cracks in sidewalks, the
mowing of recreational areas, and the
replacement of expended street light
bulbs; and
(ii) Payment of salaries for staff,
utility costs and similar expenses nec-
essary for the operation of public
works and facilities.
(3) New housing construction. For the
purpose of this paragraph, activities in
support of the development of low or
moderate income housing including
clearance, site assemblage, provision of
site improvements and provision of
public improvements and certain hous-
ing pre -construction costs set forth in
§570.206(g), are not considered as activi-
ties to subsidize or assist new residen-
tial construction. CDBG funds may not
be used for the construction of new per-
manent residential structures or for
any program to subsidize or assist such
new construction, except:
(i) As provided under the last resort
housing provisions set forth in 24 CFR
part 42;
(ii) As authorized under §570.201(m)
or (n);
(iii) When carried out by an entity
pursuant to § 570.204(a);
(4) Income payments. The general rule
is that CDBG funds may not be used for
income payments. For purposes of the
§ 570.208
CDBG program, "income payments"
means a series of subsistence -type
grant payments made to an individual
or family for items such as food, cloth-
ing, housing (rent or mortgage), or
utilities, but excludes emergency grant
payments made over a period of up to
three consecutive months to the pro-
vider of such items or services on be-
half of an individual or family.
153 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21,
1988, as amended at 60 FR 1945, Jan. 5, 1995;
60 FR 56912, Nov. 9, 1995; 65 FR 70215, Nov. 21,
2000]
§ 570.208 Criteria for national objec-
tives.
The following criteria shall be used
to determine whether a CDBG-assisted
activity complies with one or more of
the national objectives as required
under §570.200(a)(2):
(a) Activities benefiting low- and mod-
erate -income persons. Activities meeting
the criteria in paragraph (a) (1), (2), (3),
or (4) of this section as applicable, will
be considered to benefit low and mod-
erate income persons unless there is
substantial evidence to the contrary.
In assessing any such evidence, the full
range of direct effects of the assisted
activity will be considered. (The recipi-
ent shall appropriately ensure that ac-
tivities that meet these criteria do not
benefit moderate income persons to the
exclusion of low income persons.)
(1) Area benefit activities. (i) An activ-
ity, the benefits of which are available
to all the residents in a particular
area, where at least 51 percent of the
residents are low and moderate income
persons. Such an area need not be co-
terminous with census tracts or other
officially recognized boundaries but
must be the entire area served by the
activity. An activity that serves an
area that is not primarily residential
in character shall not qualify under
this criterion.
(ii) For metropolitan cities and urban
counties, an activity that would other-
wise qualify under §570.208(a)(1)(i) ex-
cept that the area served contains less
than 51 percent low and moderate in-
come residents will also be considered
to meet the objective of benefiting low
and moderate income persons where
the proportion of low and moderate in-
come persons in the area is within the
52
24 CFR Ch. V (4-1-07 Edition)
highest quartile of all areas in the re-
cipient's jurisdiction in terms of the
degree of concentration of such per-
sons. In applying this exception, HUD
will determine the lowest proportion a
recipient may use to qualify an area
for this purpose as follows:
(A) All census block groups in the re-
cipient's jurisdiction shall be rank or-
dered from the block group of highest
proportion of low and moderate income
persons to the block group with the
lowest. For urban counties, the rank
ordering shall cover the entire area
constituting the urban county and
shall not be done separately for each
participating unit of general local gov-
ernment.
(B) In any case where the total num-
ber of a recipient's block groups does
not divide evenly by four, the block
group which would be fractionally di-
vided between the highest and second
quartiles shall be considered to be part
of the highest quartile.
(C) The proportion of low and mod-
erate income persons in the last census
block group in the highest quartile
shall be identified. Any service area lo-
cated within the recipient's jurisdic-
tion and having a proportion of low and
moderate income persons at or above
this level shall be considered to be
within the highest quartile.
(D) If block group data are not avail-
able for the entire jurisdiction, other
data acceptable to the Secretary may
be used in the above calculations.
(iii) An activity to develop, establish,
and operate for up to two years after
the establishment of, a uniform emer-
gency telephone number system serv-
ing an area having less than the per-
centage of low- and moderate -income
residents required under paragraph
(a) (1) (i) of this section or (as applica-
ble) paragraph (a) (1) (ii) of this section,
provided the recipient obtains prior
HUD approval. To obtain such ap-
proval, the recipient must:
(A) Demonstrate that the system will
contribute significantly to the safety
of the residents of the area. The re-
quest for approval must include a list
of the emergency services that will
participate in the emergency telephone
number system;
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.208
(B) Submit information that serves
as a basis for HUD to determine wheth-
er at least 51 percent of the use of the
system will be by low- and moderate -
income persons. As available, the re-
cipient must provide information that
identifies the total number of calls ac-
tually received over the preceding 12 -
month period for each of the emer-
gency services to be covered by the
emergency telephone number system
and relates those calls to the geo-
graphic segment (expressed as nearly
as possible in terms of census tracts,
block numbering areas, block groups,
or combinations thereof that are con-
tained within the segment) of the serv-
ice area from which the calls were gen-
erated. In analyzing this data to meet
the requirements of this section, HUD
will assume that the distribution of in-
come among the callers generally re-
flects the income characteristics of the
general population residing in the same
geographic area where the callers re-
side. If HUD can conclude that the
users have primarily consisted of low -
and moderate -income persons, no fur-
ther submission is needed by the recipi-
ent. If a recipient plans to make other
submissions for this purpose, it may re-
quest that HUD review its planned
methodology before expending the ef-
fort to acquire the information it ex-
pects to use to make its case;
(C) Demonstrate that other Federal
funds received by the recipient are in-
sufficient or unavailable for a uniform
emergency telephone number system.
For this purpose, the recipient must
submit a statement explaining whether
the lack of funds is due to the insuffi-
ciency of the amount of the available
funds, restrictions on the use of such
funds, or the prior commitment of
funds by the recipient for other pur-
poses; and
(D) Demonstrate that the percentage
of the total costs of the system paid for
by CDBG funds does not exceed the per-
centage of low- and moderate -income
persons in the service area of the sys-
tem. For this purpose, the recipient
must include a description of the
boundaries of the service area of the
emergency telephone number system,
the census divisions that fall within
the boundaries of the service area (cen-
sus tracts or block numbering areas),
53
the total number of persons and the
total number of low- and moderate -in-
come persons within each census divi-
sion, the percentage of low- and mod-
erate -income persons within the serv-
ice area, and the total cost of the sys-
tem.
(iv) An activity for which the assist-
ance to a public improvement that pro-
vides benefits to all the residents of an
area is limited to paying special assess-
ments (as defined in §570.200(c)) levied
against residential properties owned
and occupied by persons of low and
moderate income.
(v) For purposes of determining qual-
ification under this criterion, activi-
ties of the same type that serve dif-
ferent areas will be considered sepa-
rately on the basis of their individual
service area.
(vi) In determining whether there is a
sufficiently large percentage of low -
and moderate -income persons residing
in the area served by an activity to
qualify under paragraph (a)(1) (i), (ii),
or (vii) of this section, the most re-
cently available decennial census infor-
mation must be used to the fullest ex-
tent feasible, together with the section
8 income limits that would have ap-
plied at the time the income informa-
tion was collected by the Census Bu-
reau. Recipients that believe that the
census data does not reflect current
relative income levels in an area, or
where census boundaries do not coin-
cide sufficiently well with the service
area of an activity, may conduct (or
have conducted) a current survey of
the residents of the area to determine
the percent of such persons that are
low and moderate income. HUD will ac-
cept information obtained through
such surveys, to be used in lieu of the
decennial census data, where it deter-
mines that the survey was conducted
in such a manner that the results meet
standards of statistical reliability that
are comparable to that of the decennial
census data for areas of similar size.
Where there is substantial evidence
that provides a clear basis to believe
that the use of the decennial census
data would substantially overstate the
proportion of persons residing there
that are low and moderate income,
HUD may require that the recipient
§ 570.208
rebut such evidence in order to dem
onstrate compliance with section
105(c)(2) of the Act.
(vii) Activities meeting the require
ments of paragraph (d) (5) (i) of this sec
tion may be considered to qualify
under this paragraph, provided that the
area covered by the strategy is either a
Federally -designated Empowerment
Zone or Enterprise Community or pri-
marily residential and contains a per-
centage of low- and moderate -income
residents that is no less than the per-
centage computed by HUD pursuant to
paragraph (a) (1) (ii) of this section or 70
percent, whichever is less, but in no
event less than 51 percent. Activities
meeting the requirements of paragraph
(d) (6) (i) of this section may also be con-
sidered to qualify under paragraph
(a)(1) of this section.
(2) Limited clientele activities. (i) An
activity which benefits a limited clien-
tele, at least 51 percent of whom are
low- or moderate -income persons. (The
following kinds of activities may not
qualify under paragraph (a)(2) of this
section: activities, the benefits of
which are available to all the residents
of an area; activities involving the ac-
quisition, construction or rehabilita-
tion of property for housing; or activi-
ties where the benefit to low- and mod-
erate -income persons to be considered
is the creation or retention of jobs, ex-
cept as provided in paragraph (a)(2)(iv)
of this section.) To qualify under para-
graph (a)(2) of this section, the activity
must meet one of the following tests:
(A) Benefit a clientele who are gen-
erally presumed to be principally low
and moderate income persons. Activi-
ties that exclusively serve a group of
persons in any one or a combination of
the following categories may be pre-
sumed to benefit persons, 51 percent of
whom are low- and moderate -income:
abused children, battered spouses, el-
derly persons, adults meeting the Bu-
reau of the Census' Current Population
Reports definition of "severely dis-
abled," homeless persons, illiterate
adults, persons living with AIDS, and
migrant farm workers; or
(B) Require information on family
size and income so that it is evident
that at least 51 percent of the clientele
are persons whose family income does
24 CFR Ch. V (4-1-07 Edition)
- not exceed the low and moderate in-
come limit; or
(C) Have income eligibility require-
- ments which limit the activity exclu-
- sively to low and moderate income per-
sons; or
(D) Be of such nature and be in such
location that it may be concluded that
the activity's clientele will primarily
be low and moderate income persons.
(ii) An activity that serves to remove
material or architectural barriers to
the mobility or accessibility of elderly
persons or of adults meeting the Bu-
reau of the Census' Current Population
Reports definition of "severely dis-
abled" will be presumed to qualify
under this criterion if it is restricted,
to the extent practicable, to the re-
moval of such barriers by assisting:
(A) The reconstruction of a public fa-
cility or improvement, or portion
thereof, that does not qualify under
paragraph (a)(1) of this section;
(B) The rehabilitation of a privately
owned nonresidential building or im-
provement that does not qualify under
paragraph (a) (1) or (9) of this section;
or
(C) The rehabilitation of the common
areas of a residential structure that
contains more than one dwelling unit
and that does not qualify under para-
graph (a) (3) of this section.
(iii) A microenterprise assistance ac-
tivity carried out in accordance with
the provisions of §570.201(o) with re-
spect to those owners of microenter-
prises and persons developing micro -
enterprises assisted under the activity
during each program year who are low -
and moderate -income persons. For pur-
poses of this paragraph, persons deter-
mined to be low and moderate income
may be presumed to continue to qual-
ify as such for up to a three-year pe-
riod.
(iv) An activity designed to provide
job training and placement and/or
other employment support services, in-
cluding, but not limited to, peer sup-
port programs, counseling, child care,
transportation, and other similar serv-
ices, in which the percentage of low -
and moderate -income persons assisted
is less than 51 percent may qualify
under this paragraph in the following
limited circumstance:
54
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.208
(A) In such cases where such training
or provision of supportive services as-
sists business(es), the only use of CDBG
assistance for the project is to provide
the job training and/or supportive serv-
ices; and
(B) The proportion of the total cost
of the project borne by CDBG funds is
no greater than the proportion of the
total number of persons assisted who
are low or moderate income.
(3) Housing activities. An eligible ac-
tivity carried out for the purpose of
providing or improving permanent resi-
dential structures which, upon comple-
tion, will be occupied by low- and mod-
erate -income households. This would
include, but not necessarily be limited
to, the acquisition or rehabilitation of
property by the recipient, a sub -
recipient, a developer, an individual
homebuyer, or an individual home-
owner; conversion of nonresidential
structures; and new housing construc-
tion. If the structure contains two
dwelling units, at least one must be so
occupied, and if the structure contains
more than two dwelling units, at least
51 percent of the units must be so occu-
pied. Where two or more rental build-
ings being assisted are or will be lo-
cated on the same or contiguous prop-
erties, and the buildings will be under
common ownership and management,
the grouped buildings may be consid-
ered for this purpose as a single struc-
ture. Where housing activities being
assisted meet the requirements of para-
graph §570.208 (d) (5) (ii) or (d) (6) (ii) of
this section, all such housing may also
be considered for this purpose as a sin-
gle structure. For rental housing, occu-
pancy by low and moderate income
households must be at affordable rents
to qualify under this criterion. The re-
cipient shall adopt and make public its
standards for determining "affordable
rents" for this purpose. The following
shall also qualify under this criterion:
(i) When less than 51 percent of the
units in a structure will be occupied by
low and moderate income households,
CDBG assistance may be provided in
the following limited circumstances:
(A) The assistance is for an eligible
activity to reduce the development
cost of the new construction of a mul-
tifamily, non -elderly rental housing
project;
55
(B) Not less than 20 percent of the
units will be occupied by low and mod-
erate income households at affordable
rents; and
(C) The proportion of the total cost
of developing the project to be borne by
CDBG funds is no greater than the pro-
portion of units in the project that will
be occupied by low and moderate in-
come households.
(ii) When CDBG funds are used to as-
sist rehabilitation eligible under
§ 570.202(b) (9) or (10) in direct support of
the recipient's Rental Rehabilitation
program authorized under 24 CFR part
511, such funds shall be considered to
benefit low and moderate income per-
sons where not less than 51 percent of
the units assisted, or to be assisted, by
the recipient's Rental Rehabilitation
program overall are for low and mod-
erate income persons.
(iii) When CDBG funds are used for
housing services eligible under
§570.201(k), such funds shall be consid-
ered to benefit low- and moderate -in-
come persons if the housing units for
which the services are provided are
HOME -assisted and the requirements
at 24 CFR 92.252 or 92.254 are met.
(4) Job creation or retention activities.
An activity designed to create or re-
tain permanent jobs where at least 51
percent of the jobs, computed on a full
time equivalent basis, involve the em-
ployment of low- and moderate -income
persons. To qualify under this para-
graph, the activity must meet the fol-
lowing criteria:
(i) For an activity that creates jobs,
the recipient must document that at
least 51 percent of the jobs will be held
by, or will be available to, low- and
moderate -income persons.
(ii) For an activity that retains jobs,
the recipient must document that the
jobs would actually be lost without the
CDBG assistance and that either or
both of the following conditions apply
with respect to at least 51 percent of
the jobs at the time the CDBG assist-
ance is provided:
(A) The job is known to be held by a
low- or moderate -income person; or
(B) The job can reasonably be ex-
pected to turn over within the fol-
lowing two years and that steps will be
taken to ensure that it will be filled
by, or made available to, a low- or
§ 570.208
moderate -income person upon turn-
over.
(iii) Jobs that are not held or filled
by a low- or moderate -income person
may be considered to be available to
low- and moderate -income persons for
these purposes only if:
(A) Special skills that can only be ac-
quired with substantial training or
work experience or education beyond
high school are not a prerequisite to
fill such jobs, or the business agrees to
hire unqualified persons and provide
training; and
(B) The recipient and the assisted
business take actions to ensure that
low- and moderate -income persons re-
ceive first consideration for filling
such jobs.
(iv) For purposes of determining
whether a job is held by or made avail-
able to a low- or moderate -income per-
son, the person may be presumed to be
a low- or moderate -income person if:
(A) He/she resides within a census
tract (or block numbering area) that
either:
(1) Meets the requirements of para-
graph (a) (4) (v) of this section; or
(2) Has at least 70 percent of its resi-
dents who are low- and moderate -in-
come persons; or
(B) The assisted business is located
within a census tract (or block num-
bering area) that meets the require-
ments of paragraph (a) (4) (v) of this sec-
tion and the job under consideration is
to be located within that census tract.
(v) A census tract (or block num-
bering area) qualifies for the presump-
tions permitted under paragraphs
(a) (4) (iv) (A) (1) and (B) of this section if
it is either part of a Federally -des-
ignated Empowerment Zone or Enter-
prise Community or meets the fol-
lowing criteria:
(A) It has a poverty rate of at least 20
percent as determined by the most re-
cently available decennial census infor-
mation;
(B) It does not include any portion of
a central business district, as this term
is used in the most recent Census of
Retail Trade, unless the tract has a
poverty rate of at least 30 percent as
determined by the most recently avail-
able decennial census information; and
56
24 CFR Ch. V (4-1-07 Edition)
(C) It evidences pervasive poverty
and general distress by meeting at
least one of the following standards:
(1) All block groups in the census
tract have poverty rates of at least 20
percent;
(2) The specific activity being under-
taken is located in a block group that
has a poverty rate of at least 20 per-
cent; or
(3) Upon the written request of the
recipient, HUD determines that the
census tract exhibits other objectively
determinable signs of general distress
such as high incidence of crime, nar-
cotics use, homelessness, abandoned
housing, and deteriorated infrastruc-
ture or substantial population decline.
(vi) As a general rule, each assisted
business shall be considered to be a
separate activity for purposes of deter-
mining whether the activity qualifies
under this paragraph, except:
(A) In certain cases such as where
CDBG funds are used to acquire, de-
velop or improve a real property (e.g.,
a business incubator or an industrial
park) the requirement may be met by
measuring jobs in the aggregate for all
the businesses which locate on the
property, provided such businesses are
not otherwise assisted by CDBG funds.
(B) Where CDBG funds are used to
pay for the staff and overhead costs of
an entity making loans to businesses
exclusively from non-CDBG funds, this
requirement may be met by aggre-
gating the jobs created by all of the
businesses receiving loans during each
program year.
(C) Where CDBG funds are used by a
recipient or subrecipient to provide
technical assistance to businesses, this
requirement may be met by aggre-
gating the jobs created or retained by
all of the businesses receiving tech-
nical assistance during each program
year.
(D) Where CDBG funds are used for
activities meeting the criteria listed at
§570.209(b)(2)(v), this requirement may
be met by aggregating the jobs created
or retained by all businesses for which
CDBG assistance is obligated for such
activities during the program year, ex-
cept as provided at paragraph (d)(7) of
this section.
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.208
(E) Where CDBG funds are used by a
Community Development Financial In-
stitution to carry out activities for the
purpose of creating or retaining jobs,
this requirement may be met by aggre-
gating the jobs created or retained by
all businesses for which CDBG assist-
ance is obligated for such activities
during the program year, except as pro-
vided at paragraph (d)(7) of this sec-
tion.
(F) Where CDBG funds are used for
public facilities or improvements
which will result in the creation or re-
tention of jobs by more than one busi-
ness, this requirement may be met by
aggregating the jobs created or re-
tained by all such businesses as a re-
sult of the public facility or improve-
ment.
(I) Where the public facility or im-
provement is undertaken principally
for the benefit of one or more par-
ticular businesses, but where other
businesses might also benefit from the
assisted activity, the requirement may
be met by aggregating only the jobs
created or retained by those businesses
for which the facility/improvement is
principally undertaken, provided that
the cost (in CDBG funds) for the facil-
ity/improvement is less than $10,000 per
permanent full-time equivalent job to
be created or retained by those busi-
nesses.
(2) In any case where the cost per job
to be created or retained (as deter-
mined under paragraph (a) (4) (vi) (F) (1)
of this section) is $10,000 or more, the
requirement must be met by aggre-
gating the jobs created or retained as a
result of the public facility or improve-
ment by all businesses in the service
area of the facility/improvement. This
aggregation must include businesses
which, as a result of the public facility/
improvement, locate or expand in the
service area of the facility/improve-
ment between the date the recipient
identifies the activity in its action
plan under part 91 of this title and the
date one year after the physical com-
pletion of the facility/improvement. In
addition, the assisted activity must
comply with the public benefit stand-
ards at §570.209(b).
(b) Activities which aid in the preven-
tion or elimination of slums or blight. Ac-
tivities meeting one or more of the fol -
57
lowing criteria, in the absence of sub-
stantial evidence to the contrary, will
be considered to aid in the prevention
or elimination of slums or blight:
(1) Activities to address slums or blight
on an area basis. An activity will be
considered to address prevention or
elimination of slums or blight in an
area if:
(i) The area, delineated by the recipi-
ent, meets a definition of a slum,
blighted, deteriorated or deteriorating
area under State or local law;
(ii) The area also meets the condi-
tions in either paragraph (A) or (B):
(A) At least 25 percent of properties
throughout the area experience one or
more of the following conditions:
(I) Physical deterioration of build-
ings or improvements;
(2) Abandonment of properties;
(3) Chronic high occupancy turnover
rates or chronic high vacancy rates in
commercial or industrial buildings;
(4) Significant declines in property
values or abnormally low property val-
ues relative to other areas in the com-
munity; or
(5) Known or suspected environ-
mental contamination.
(B) The public improvements
throughout the area are in a general
state of deterioration.
(iii) Documentation is to be main-
tained by the recipient on the bound-
aries of the area and the conditions and
standards used that qualified the area
at the time of its designation. The re-
cipient shall establish definitions of
the conditions listed at
§ 570.208(b) (1) (ii) (A), and maintain
records to substantiate how the area
met the slums or blighted criteria. The
designation of an area as slum or
blighted under this section is required
to be redetermined every 10 years for
continued qualification. Documenta-
tion must be retained pursuant to the
recordkeeping requirements contained
at § 570.506 (b) (8) (ii).
(iv) The assisted activity addresses
one or more of the conditions which
contributed to the deterioration of the
area. Rehabilitation of residential
buildings carried out in an area meet-
ing the above requirements will be con-
sidered to address the area's deteriora-
tion only where each such building re-
habilitated is considered substandard
§ 570.208
under local definition before rehabili-
tation, and all deficiencies making a
building substandard have been elimi-
nated if less critical work on the build-
ing is undertaken. At a minimum, the
local definition for this purpose must
be such that buildings that it would
render substandard would also fail to
meet the housing quality standards for
the Section 8 Housing Assistance Pay-
ments Program -Existing Housing (24
CFR 882.109).
(2) Activities to address slums or blight
on a spot basis. The following activities
may be undertaken on a spot basis to
eliminate specific conditions of blight,
physical decay, or environmental con-
tamination that are not located in a
slum or blighted area: acquisition;
clearance; relocation; historic preser-
vation; remediation of environ-
mentally contaminated properties; or
rehabilitation of buildings or improve-
ments. However, rehabilitation must
be limited to eliminating those condi-
tions that are detrimental to public
health and safety. If acquisition or re-
location is undertaken, it must be a
precursor to another eligible activity
(funded with CDBG or other resources)
that directly eliminates the specific
conditions of blight or physical decay,
or environmental contamination.
(3) Activities to address slums or blight
in an urban renewal area. An activity
will be considered to address preven-
tion or elimination of slums or blight
in an urban renewal area if the activity
is:
(i) Located within an urban renewal
project area or Neighborhood Develop-
ment Program (NDP) action area; i.e.,
an area in which funded activities were
authorized under an urban renewal
Loan and Grant Agreement or an an-
nual NDP Funding Agreement, pursu-
ant to title I of the Housing Act of 1949;
and
(ii) Necessary to complete the urban
renewal plan, as then in effect, includ-
ing initial land redevelopment per-
mitted by the plan.
NOTE: Despite the restrictions in (b) (1) and
(2) of this section, any rehabilitation activ-
ity which benefits low and moderate income
persons pursuant to paragraph (a)(3) of this
section can be undertaken without regard to
the area in which it is located or the extent
or nature of rehabilitation assisted.
58
24 CFR Ch. V (4-1-07 Edition)
(c) Activities designed to meet commu-
nity development needs having a par-
ticular urgency. In the absence of sub-
stantial evidence to the contrary, an
activity will be considered to address
this objective if the recipient certifies
that the activity is designed to allevi-
ate existing conditions which pose a se-
rious and immediate threat to the
health or welfare of the community
which are of recent origin or which re-
cently became urgent, that the recipi-
ent is unable to finance the activity on
its own, and that other sources of fund-
ing are not available. A condition will
generally be considered to be of recent
origin if it developed or became critical
within 18 months preceding the certifi-
cation by the recipient.
(d) Additional criteria. (1) Where the
assisted activity is acquisition of real
property, a preliminary determination
of whether the activity addresses a na-
tional objective may be based on the
planned use of the property after acqui-
sition. A final determination shall be
based on the actual use of the property,
excluding any short-term, temporary
use. Where the acquisition is for the
purpose of clearance which will elimi-
nate specific conditions of blight or
physical decay. the clearance activity
shall be considered the actual use of
the property. However, any subsequent
use or disposition of the cleared prop-
erty shall be treated as a "change of
use" under § 570.505.
(2) Where the assisted activity is re-
location assistance that the recipient
is required to provide, such relocation
assistance shall be considered to ad-
dress the same national objective as is
addressed by the displacing activity.
Where the relocation assistance is vol-
untary on the part of the grantee the
recipient may qualify the assistance ei-
ther on the basis of the national objec-
tive addressed by the displacing activ-
ity or on the basis that the recipients
of the relocation assistance are low and
moderate income persons.
(3) In any case where the activity un-
dertaken for the purpose of creating or
retaining jobs is a public improvement
and the area served is primarily resi-
dential, the activity must meet the re-
quirements of paragraph (a)(1) of this
section as well as those of paragraph
(a)(4) of this section in order to qualify
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.209
as benefiting low and moderate income
persons.
(4) CDBG funds expended for planning
and administrative costs under § 570.205
and § 570.206 will be considered to ad-
dress the national objectives.
(5) Where the grantee has elected to
prepare an area revitalization strategy
pursuant to the authority of §91.215(e)
of this title and HUD has approved the
strategy, the grantee may also elect
the following options:
(i) Activities undertaken pursuant to
the strategy for the purpose of creating
or retaining jobs may, at the option of
the grantee, be considered to meet the
requirements of this paragraph under
the criteria at paragraph (a)(1)(vii) of
this section in lieu of the criteria at
paragraph (a) (4) of this section; and
(ii) All housing activities in the area
for which, pursuant to the strategy,
CDBG assistance is obligated during
the program year may be considered to
be a single structure for purposes of ap-
plying the criteria at paragraph (a)(3)
of this section.
(6) Where CDBG-assisted activities
are carried out by a Community Devel-
opment Financial Institution whose
charter limits its investment area to a
primarily residential area consisting of
at least 51 percent low- and moderate -
income persons, the grantee may also
elect the following options:
(i) Activities carried out by the Com-
munity Development Financial Insti-
tution for the purpose of creating or re-
taining jobs may, at the option of the
grantee, be considered to meet the re-
quirements of this paragraph under the
criteria at paragraph (a)(1)(vii) of this
section in lieu of the criteria at para-
graph (a) (4) of this section; and
(ii) All housing activities for which
the Community Development Finan-
cial Institution obligates CDBG assist-
ance during the program year may be
considered to be a single structure for
purposes of applying the criteria at
paragraph (a) (3) of this section.
(7) Where an activity meeting the cri-
teria at § 570.209(b) (2) (v) may also meet
the requirements of either paragraph
(d) (5) (i) or (d) (6) (i) of this section, the
grantee may elect to qualify the activ-
ity under either the area benefit cri-
teria at paragraph (a)(1)(vii) of this
section or the job aggregation criteria
59
at paragraph (a) (4) (vi) (D) of this sec-
tion, but not both. Where an activity
may meet the job aggregation criteria
at both paragraphs (a) (4) (vi) (D) and (E)
of this section, the grantee may elect
to qualify the activity under either cri-
terion, but not both.
[53 FR 34439, Sept. 6, 1988; 53 FR 41330, Oct. 21,
1988, as amended at 60 FR 1945, Jan. 5, 1995;
60 FR 17445, Apr. 6, 1995; 60 FR 56912, Nov. 9,
1995; 61 FR 18674, Apr. 29, 1996; 71 FR 30035,
May 24, 2006]
§ 570.209 Guidelines for evaluating
and selecting economic develop-
ment projects.
The following guidelines are provided
to assist the recipient to evaluate and
select activities to be carried out for
economic development purposes. Spe-
cifically, these guidelines are applica-
ble to activities that are eligible for
CDBG assistance under § 570.203. These
guidelines also apply to activities car-
ried out under the authority of § 570.204
that would otherwise be eligible under
§ 570.203, were it not for the involve-
ment of a Community -Based Develop-
ment Organization (CBDO). (This
would include activities where a CBDO
makes loans to for-profit businesses.)
These guidelines are composed of two
components: guidelines for evaluating
project costs and financial require-
ments; and standards for evaluating
public benefit. The standards for evalu-
ating public benefit are mandatory, but
the guidelines for evaluating projects
costs and financial requirements are
not.
(a) Guidelines and objectives for evalu-
ating project costs and financial require-
ments. HUD has developed guidelines
that are designed to provide the recipi-
ent with a framework for financially
underwriting and selecting CDBG-as-
sisted economic development projects
which are financially viable and will
make the most effective use of the
CDBG funds. These guidelines, also re-
ferred to as the underwriting guide-
lines, are published as appendix A to
this part. The use of the underwriting
guidelines published by HUD is not
mandatory. However, grantees electing
not to use these guidelines would be ex-
pected to conduct basic financial un-
derwriting prior to the provision of
CDBG financial assistance to a for-
§ 570.209
profit business. Where appropriate,
HUD's underwriting guidelines recog-
nize that different levels of review are
appropriate to take into account dif-
ferences in the size and scope of a pro-
posed project, and in the case of a
microenterprise or other small busi-
ness to take into account the dif-
ferences in the capacity and level of so-
phistication among businesses of dif-
fering sizes. Recipients are encouraged,
when they develop their own programs
and underwriting criteria, to also take
these factors into account. The objec-
tives of the underwriting guidelines are
to ensure:
(1) That project costs are reasonable;
(2) That all sources of project financ-
ing are committed;
(3) That to the extent practicable,
CDBG funds are not substituted for
non -Federal financial support;
(4) That the project is financially fea-
sible;
(5) That to the extent practicable,
the return on the owner's equity in-
vestment will not be unreasonably
high; and
(6) That to the extent practicable,
CDBG funds are disbursed on a pro rata
basis with other finances provided to
the project.
(b) Standards for evaluating public ben-
efit. The grantee is responsible for
making sure that at least a minimum
level of public benefit is obtained from
the expenditure of CDBG funds under
the categories of eligibility governed
by these guidelines. The standards set
forth below identify the types of public
benefit that will be recognized for this
purpose and the minimum level of each
that must be obtained for the amount
of CDBG funds used. Unlike the guide-
lines for project costs and financial re-
quirements covered under paragraph
(a) of this section, the use of the stand-
ards for public benefit is mandatory.
Certain public facilities and improve-
ments eligible under §570.201(c) of the
regulations, which are undertaken for
economic development purposes, are
also subject to these standards, as
specified in § 570.208 (a) (4) (vi) (F) (2) .
(1) Standards for activities in the aggre-
gate. Activities covered by these guide-
lines must, in the aggregate, either:
60
24 CFR Ch. V (4-1-07 Edition)
(i) Create or retain at least one full-
time equivalent, permanent job per
$35,000 of CDBG funds used; or
(ii) Provide goods or services to resi-
dents of an area, such that the number
of low- and moderate -income persons
residing in the areas served by the as-
sisted businesses amounts to at least
one low- and moderate -income person
per $350 of CDBG funds used.
(2) Applying the aggregate standards.
(i) A metropolitan city or an urban
county shall apply the aggregate
standards under paragraph (b)(1) of this
section to all applicable activities for
which CDBG funds are first obligated
within each single CDBG program year,
without regard to the source year of
the funds used for the activities. A
grantee under the HUD -Administered
Small Cities or Insular Areas CDBG
programs shall apply the aggregate
standards under paragraph (b)(1) of this
section to all funds obligated for appli-
cable activities from a given grant;
program income obligated for applica-
ble activities will, for these purposes,
be aggregated with the most recent
open grant. For any time period in
which a community has no open HUD -
Administered or Insular Areas grants,
the aggregate standards shall be ap-
plied to all applicable activities for
which program income is obligated
during that period.
(ii) The grantee shall apply the ag-
gregate standards to the number of
jobs to be created/retained, or to the
number of persons residing in the area
served (as applicable), as determined at
the time funds are obligated to activi-
ties.
(iii) Where an activity is expected
both to create or retain jobs and to
provide goods or services to residents
of an area, the grantee may elect to
count the activity under either the
jobs standard or the area residents
standard, but not both.
(iv) Where CDBG assistance for an
activity is limited to job training and
placement and/or other employment
support services, the jobs assisted with
CDBG funds shall be considered to be
created or retained jobs for the pur-
poses of applying the aggregate stand-
ards.
(v) Any activity subject to these
guidelines which meets one or more of
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.209
the following criteria may, at the
grantee's option, be excluded from the
aggregate standards described in para-
graph (b)(1) of this section:
(A) Provides jobs exclusively for un-
employed persons or participants in
one or more of the following programs:
(1) Jobs Training Partnership Act
(JTPA);
(� Jobs Opportunities for Basic
Skills (JOBS); or
(.) Aid to Families with Dependent
Children (AFDC);
(B) Provides jobs predominantly for
residents of Public and Indian Housing
units;
(C) Provides jobs predominantly for
homeless persons;
(D) Provides jobs predominantly for
low -skilled, low- and moderate -income
persons, where the business agrees to
provide clear opportunities for pro-
motion and economic advancement,
such as through the provision of train-
ing;
(E) Provides jobs predominantly for
persons residing within a census tract
(or block numbering area) that has at
least 20 percent of its residents who are
in poverty;
(F) Provides assistance to busi-
ness(es) that operate(s) within a census
tract (or block numbering area) that
has at least 20 percent of its residents
who are in poverty;
(G) Stabilizes or revitalizes a neigh-
borhood that has at least 70 percent of
its residents who are low- and mod-
erate -income;
(H) Provides assistance to a Commu-
nity Development Financial Institu-
tion that serve an area that is predomi-
nantly low- and moderate -income per-
sons;
(I) Provides assistance to a Commu-
nity -Based Development Organization
serving a neighborhood that has at
least 70 percent of its residents who are
low- and moderate -income;
(J) Provides employment opportuni-
ties that are an integral component of
a project designed to promote spatial
deconcentration of low- and moderate -
income and minority persons;
(K) With prior HUD approval, pro-
vides substantial benefit to low-income
persons through other innovative ap-
proaches;
61
(L) Provides services to the residents
of an area pursuant to a strategy ap-
proved by HUD under the provisions of
§91.215(e) of this title;
(M) Creates or retains jobs through
businesses assisted in an area pursuant
to a strategy approved by HUD under
the provisions of §91.215(e) of this title.
(N) Directly involves the economic
development or redevelopment of envi-
ronmentally contaminated properties.
(3) Standards for individual activities.
Any activity subject to these guide-
lines which falls into one or more of
the following categories will be consid-
ered by HUD to provide insufficient
public benefit, and therefore may under
no circumstances be assisted with
CDBG funds:
(i) The amount of CDBG assistance
exceeds either of the following, as ap-
plicable:
(A) $50,000 per full-time equivalent,
permanent job created or retained; or
(B) $1,000 per low- and moderate -in-
come person to which goods or services
are provided by the activity.
(ii) The activity consists of or in-
cludes any of the following:
(A) General promotion of the commu-
nity as a whole (as opposed to the pro-
motion of specific areas and programs);
(B) Assistance to professional sports
teams;
(C) Assistance to privately -owned
recreational facilities that serve a pre-
dominantly higher -income clientele,
where the recreational benefit to users
or members clearly outweighs employ-
ment or other benefits to low- and
moderate -income persons;
(D) Acquisition of land for which the
specific proposed use has not yet been
identified; and
(E) Assistance to a for-profit business
while that business or any other busi-
ness owned by the same person(s) or
entity(ies) is the subject of unresolved
findings of noncompliance relating to
previous CDBG assistance provided by
the recipient.
(4) Applying the individual activity
standards. (i) Where an activity is ex-
pected both to create or retain jobs and
to provide goods or services to resi-
dents of an area, it will be disqualified
only if the amount of CDBG assistance
exceeds both of the amounts in para-
graph (b) (3) (i) of this section.
§ 570.210
(ii) The individual activity standards
in paragraph (b) (3) (i) of this section
shall be applied to the number of jobs
to be created or retained, or to the
number of persons residing in the area
served (as applicable), as determined at
the time funds are obligated to activi-
ties.
(iii) Where CDBG assistance for an
activity is limited to job training and
placement and/or other employment
support services, the jobs assisted with
CDBG funds shall be considered to be
created or retained jobs for the pur-
poses of applying the individual activ-
ity standards in paragraph (b) (3) (i) of
this section.
(c) Amendments to economic develop-
ment projects after review determinations.
If, after the grantee enters into a con-
tract to provide assistance to a project,
the scope or financial elements of the
project change to the extent that a sig-
nificant contract amendment is appro-
priate, the project should be reevalu-
ated under these and the recipient's
guidelines. (This would include, for ex-
ample, situations where the business
requests a change in the amount or
terms of assistance being provided, or
an extension to the loan payment pe-
riod required in the contract.) If a re-
evaluation of the project indicates that
the financial elements and public ben-
efit to be derived have also substan-
tially changed, then the recipient
should make appropriate adjustments
in the amount, type, terms or condi-
tions of CDBG assistance which has
been offered, to reflect the impact of
the substantial change. (For example,
if a change in the project elements re-
sults in a substantial reduction of the
total project costs, it may be appro-
priate for the recipient to reduce the
amount of total CDBG assistance.) If
the amount of CDBG assistance pro-
vided to the project is increased, the
amended project must still comply
with the public benefit standards under
paragraph (b) of this section.
(d) Documentation. The grantee must
maintain- sufficient records to dem-
onstrate the level of public benefit,
based on the above standards, that is
actually achieved upon completion of
the CDBG-assisted economic develop-
ment activity(ies) and how that com-
pares to the level of such benefit an -
62
24 CFR Ch. V (4-1-07 Edition)
ticipated when the CDBG assistance
was obligated. If the grantee's actual
results show a pattern of substantial
variation from anticipated results, the
grantee is expected to take all actions
reasonably within its control to im-
prove the accuracy of its projections. If
the actual results demonstrate that
the recipient has failed the public ben-
efit standards, HUD may require the
recipient to meet more stringent
standards in future years as appro-
priate.
[60 FR 1947, Jan. 5, 1995, as amended at 60 FR
17445, Apr. 6, 1995; 71 FR 30035, May 24, 2006]
EFFECTIVE DATE NOTE: At 72 FR 12535, Mar.
15, 2007, § 570.209 was amended by revising
paragraph (b)(2)(1), effective April 16, 2007.
For the convenience of the user, the revised
text is set forth as follows:
§ 570.209 Guidelines for evaluating and se-
lecting economic development projects.
(b) * * *
(2) Applying the aggregate standards. (i) A
metropolitan city, an urban county, or an
Insular Area shall apply the aggregate stand-
ards under paragraph (b) (1) of this section to
all applicable activities for which CDBG
funds are first obligated within each single
CDBG program year, without regard to the
source year of the funds used for the activi-
ties. For Insular Areas, the preceding sen-
tence applies to grants received in program
years after Fiscal Year 2004. A grantee under
the HUD -administered Small Cities program
in New York, or Insular Areas CDBG pro-
grams grants prior to Fiscal Year 2005, shall
apply the aggregate standards under para-
graph (b) (1) of this section to all funds obli-
gated for applicable activities from a given
grant; program income obligated for applica-
ble activities will, for these purposes, be ag-
gregated with the most recent open grant.
For any time period in which a community
has no open HUD -administered grant, the ag-
gregate standards shall be applied to all ap-
plicable activities for which program income
is obligated during that period.
§ 570.210 Prohibition on use of assist-
ance for employment relocation ac-
tivities.
(a) Prohibition. CDBG funds may not
be used to directly assist a business, in-
cluding a business expansion, in the re-
location of a plant, facility, or oper-
ation from one LMA to another LMA if
the relocation is likely to result in a
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.210
significant loss of jobs in the LMA
from which the relocation occurs.
(b) Definitions. The following defini-
tions apply to this section:
(1) Directly assist. Directly assist
means the provision of CDBG funds for
activities pursuant to:
(i) §570.203(b); or
(ii) §§ 570.201(a)—(d), 570.201(1),
570.203(a), or §570.204 when the grantee,
subrecipient, or, in the case of an ac-
tivity carried out pursuant to § 570.204,
a Community Based Development Or-
ganization (CDBO) enters into an
agreement with a business to under-
take one or more of these activities as
a condition of the business relocating a
facility, plant, or operation to the
grantee's LMA. Provision of public fa-
cilities and indirect assistance that
will provide benefit to multiple busi-
nesses does not fall under the defini-
tion of "directly assist," unless it in-
cludes the provision of infrastructure
to aid a specific business that is the
subject of an agreement with the spe-
cific assisted business.
(2) Labor market area (LMA). For met-
ropolitan areas, an LMA is an area de-
fined as such by the BLS. An LMA is
an economically integrated geographic
area within which individuals can live
and find employment within a reason-
able distance or can readily change em-
ployment without changing their place
of residence. In addition, LMAs are
nonoverlapping and geographically ex-
haustive. For metropolitan areas,
grantees must use employment data, as
defined by the BLS, for the LMA in
which the affected business is cur-
rently located and from which current
jobs may be lost. For non -metropolitan
areas, an LMA is either an area defined
by the BLS as an LMA, or a state may
choose to combine non -metropolitan
LMAs. States are required to define or
reaffirm prior definitions of their
LMAs on an annual basis and retain
records to substantiate such areas
prior to any business relocation that
would be impacted by this rule. Metro-
politan LMAs cannot be combined, nor
can a non -metropolitan LMA be com-
bined with a metropolitan LMA. For
the HUD -administered Small Cities
Program, each of the three partici-
pating counties in Hawaii will be con-
sidered to be its own LMA. Recipients
63
of Fiscal Year 1999 Small Cities Pro-
gram funding in New York will follow
the requirements for State CDBG re-
cipients.
(3) Operation. A business operation
includes, but is not limited to, any
equipment, employment opportunity,
production capacity or product line of
the business.
(4) Significant loss of jobs. (i) A loss of
jobs is significant if: The number of
jobs to be lost in the LMA in which the
affected business is currently located is
equal to or greater than one-tenth of
one percent of the total number of per-
sons in the labor force of that LMA; or
in all cases, a loss of 500 or more jobs.
Notwithstanding the aforementioned, a
loss of 25 jobs or fewer does not con-
stitute a significant loss of jobs.
(ii) A job is considered to be lost due
to the provision of CDBG assistance if
the job is relocated within three years
of the provision of assistance to the
business; or the time period within
which jobs are to be created as speci-
fied by the agreement between the
business and the recipient if it is
longer than three years.
(c) Written agreement. Before directly
assisting a business with CDBG funds,
the recipient, subrecipient, or a CDBO
(in the case of an activity carried out
pursuant to § 570.204) shall sign a writ-
ten agreement with the assisted busi-
ness. The written agreement shall in-
clude:
(1) Statement. A statement from the
assisted business as to whether the as-
sisted activity will result in the reloca-
tion of any industrial or commercial
plant, facility, or operation from one
LMA to another, and, if so, the number
of jobs that will be relocated from each
LMA;
(2) Required information. If the assist-
ance will not result in a relocation cov-
ered by this section, a certification
from the assisted business that neither
it, nor any of its subsidiaries, has plans
to relocate jobs at the time the agree-
ment is signed that would result in a
significant job loss as defined in this
rule; and
(3) Reimbursement of assistance. The
agreement shall provide for reimburse-
ment of any assistance provided to, or
expended on behalf of, the business in
the event that assistance results in a
§ 570.300
relocation prohibited under this sec-
tion.
(d) Assistance not covered by this sec-
tion. This section does not apply to:
(1) Relocation assistance. Relocation
assistance required by the Uniform As-
sistance and Real Property Acquisition
Policies Act of 1970, (URA) (42 U.S.C.
4601-4655);
(2) Microenterprises. Assistance to
microenterprises as defined by Section
102(a)(22) of the Housing and Commu-
nity Development Act of 1974; and
(3) Arms -length transactions. Assist-
ance to a business that purchases busi-
ness equipment, inventory, or other
physical assets in an arms -length
transaction, including the assets of an
existing business, provided that the
purchase does not result in the reloca-
tion of the sellers' business operation
(including customer base or list, good-
will, product lines, or trade names)
from one LMA to another LMA and
does not produce a significant loss of
jobs in the LMA from which the reloca-
tion occurs.
[70 FR 76369, Dec. 23, 2005]
Subpart D—Entitlement Grants
SOURCE: 53 FR 34449, Sept. 6, 1988, unless
otherwise noted.
§ 570.300 General.
This subpart describes the policies
and procedures governing the making
of community development block
grants to entitlement communities.
The policies and procedures set forth in
subparts A, C, J, K, and 0 of this part
also apply to entitlement grantees.
§ 570.301 Activity locations and float -
funding.
The consolidated plan, action plan,
and amendment submission require-
ments referred to in this section are
those in 24 CFR part 91.
(a) For activities for which the grant-
ee has not yet decided on a specific lo-
cation, such as when the grantee is al-
locating an amount of funds to be used
for making loans or grants to busi-
nesses or for residential rehabilitation,
the description in the action plan or
any amendment shall identify who may
apply for the assistance, the process by
24 CFR Ch. V (4-1-07 Edition)
which the grantee expects to select
who will receive the assistance (includ-
ing selection criteria), and how much
and under what terms the assistance
will be provided, or in the case of a
planned public facility or improve-
ment, how it expects to determine its
location.
(b) Float -funded activities and guaran-
tees. A recipient may use undisbursed
funds in the 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
the funds immediately, subject to the
limitations described below. Such
funds shall be referred to as the "float"
for purposes of this section and the ac-
tion plan. Each activity carried out
using the float must meet all of the
same requirements that apply to
CDBG-assisted activities generally, and
must be expected to produce program
income in an amount at least equal to
the amount of the float so used. When-
ever the recipient proposes to fund an
activity with the float, it must include
the activity in its action plan or amend
the action plan for the current pro-
gram year. For purposes of this sec-
tion, an activity that uses such funds
will be called a "float -funded activity."
(1) Each float -funded activity must
be individually listed and described as
such in the action plan.
(2) (i) The expected time period be-
tween obligation of assistance for a
float -funded activity and receipt of
program income in an amount at least
equal to the full amount drawn from
the float to fund the activity may not
exceed 2.5 years. An activity from
which program income sufficient to re-
cover the full amount of the float as-
sistance is expected to be generated
more than 2.5 years after obligation
may not be funded from the float, but
may be included in an action plan if it
is funded from CDBG funds other than
the float (e.g., grant funds or proceeds
from an approved Section 108 loan
guarantee).
(ii) Any extension of the repayment
period for a float -funded activity shall
be considered to be a new float -funded
activity for these purposes and may be
implemented by the grantee only if the
extension is made subject to the same
64
Appendix D
24 CFR 570 CDBG Regulations
Subpart J, Grant Administration
No Text
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.500
Generally, within 60 days after the con-
clusion of the hearing, the ALJ shall
prepare a written decision which in-
cludes a Statement of findings and con-
clusions, and the reasons or basis
therefor, on all the material issues of
fact, law or discretion presented on the
record and the appropriate sanction or
denial thereof. The decision shall be
based on consideration of the whole
record or those parts thereof cited by a
party and supported by and in accord-
ance with the reliable, probative, and
substantial evidence. A copy of the de-
cision shall be furnished to the parties
immediately by first class mail and
shall include a notice that any requests
for review by the Secretary must be
made in writing to the Secretary with-
in 30 days of the receipt of the decision.
(8) Record. The transcript of testi-
mony and exhibits, together with the
decision of the ALJ and all papers and
requests filed in the proceeding, con-
stitutes the exclusive record for deci-
sion and, on payment of its reasonable
cost, shall be made available to the
parties. After reaching the initial deci-
sion, the ALJ shall certify to the com-
plete record and forward the record to
the Secretary.
(9) Review by the Secretary. The deci-
sion by the ALJ shall constitute the
final decision of HUD unless, within 30
days after the receipt of the decision,
either the respondent or the Assistant
Secretary for Community Planning and
Development files an exception and re-
quest for review by the Secretary. The
excepting party must transmit simul-
taneously to the Secretary and the
other party the request for review and
the bases of the party's exceptions to
the findings of the ALJ. The other
party shall be allowed 30 days from re-
ceipt of the exception to provide the
Secretary and the excepting party with
a written reply. The Secretary shall
then review the record of the case, in-
cluding the exceptions and the reply.
On the basis of such review, the Sec-
retary shall issue a written determina-
tion, including a Statement of the ra-
tionale therefor, affirming, modifying
or revoking the decision of the ALJ.
The Secretary's decision shall be made
and transmitted to the parties within
60 days after the decision of the ALJ
was furnished to the parties.
(10) Judicial review. The respondent
may seek judicial review of HUD's de-
cision pursuant to section 111(c) of the
Act.
1570.497 Condition of State election to
administer State CDBG Program.
Pursuant to section 106(d) (2) (A) (i) of
the Act, a State has the right to elect,
in such manner and at such time as the
Secretary may prescribe, to administer
funds allocated under subpart A of this
part for use in nonentitlement areas of
the State. After January 26, 1995, any
State which elects to administer the
allocation of CDBG funds for use in
nonentitlement areas of the State in
any year must, in addition to all other
requirements of this subpart, submit a
pledge by the State in accordance with
section 108(d)(2) of the Act, and in a
form acceptable to HUD, of any future
CDBG grants it may receive under sub-
part A and this subpart. Such pledge
shall be for the purpose of assuring re-
payment of any debt obligations (as de-
fined in §570.701), in accordance with
their terms, that HUD may have guar-
anteed in the respective State on be-
half of any nonentitlement public enti-
ty (as defined in § 570.701) or its des-
ignated public agency prior to the
State's election.
[59 FR 66604, Dec. 27, 1994)
Subpart J—Grant Administration
SOURCE: 53 FR 8058, Mar. 11, 1988, unless
otherwise noted.
§ 570.500 Definitions.
For the purposes of this subpart, the
following terms shall apply:
(a) Program income means gross in-
come received by the recipient or a
subrecipient directly generated from
the use of CDBG funds, except as pro-
vided in paragraph (a)(4) of this sec-
tion.
(1) Program income includes, but is
not limited to, the following:
(i) Proceeds from the disposition by
sale or Long-term lease of real property
purchased or improved with CDBG
funds;
(ii) Proceeds from the disposition of
equipment purchased with CDBG funds;
135
§ 570.500
(iii) Gross income from the use or
rental of real or personal property ac-
quired by the recipient or by a sub -
recipient with CDBG funds, less costs
incidental to generation of the income;
(iv) Gross income from the use or
rental of real property, owned by the
recipient or by a subrecipient, that was
constructed or improved with CDBG
funds, less costs incidental to genera-
tion of the income;
(v) Payments of principal and inter-
est on loans made using CDBG funds,
except as provided in paragraph (a)(3)
of this section;
(vi) Proceeds from the sale of loans
made with CDBG funds;
(vii) Proceeds from sale of obliga-
tions secured by loans made with
CDBG funds;
(viii) [Reserved]
(ix) Interest earned on program in-
come pending its disposition; and
(x) Funds collected through special
assessments made against properties
owned and occupied by households not
of low and moderate income, where the
assessments are used to recover all or
part of the CDBG portion of a public
improvement.
(2) Program income does not include
income earned (except for interest de-
scribed in §570.513) on grant advances
from the U.S. Treasury. The following
items of income earned on grant ad-
vances must be remitted to HUD for
transmittal to the U.S. Treasury, and
will not be reallocated under section
106(c) or (d) of the Act:
(i) Interest earned from the invest-
ment of the initial proceeds of a grant
advance by the U.S. Treasury;
(ii) Interest earned on loans or other
forms of assistance provided with
CDBG funds that are used for activities
determined by HUD either to be ineli-
gible or to fail to meet a national ob-
jective in accordance with the require-
ments of subpart C of this part, or that
fail substantially to meet any other re-
quirement of this part; and
(iii) Interest earned on the invest-
ment of amounts reimbursed to the
CDBG program account prior to the
use of the reimbursed funds for eligible
purposes.
(3) The calculation of the amount of
program income for the recipient's
CDBG program as a whole (i.e., com-
24 CFR Ch. V (4-1-07 Edition)
prising activities carried out by a
grantee and its subrecipients) shall ex-
clude payments made by subrecipients
of principal and/or interest on CDBG-
funded loans received from grantees if
such payments are made using program
income received by the subrecipient.
(By making such payments, the sub -
recipient shall be deemed to have
transferred program income to the
grantee.) The amount of program in-
come derived from this calculation
shall be used for reporting purposes, for
purposes of applying the requirement
under §570.504(b)(2)(iii), and in deter-
mining limitations on planning and ad-
ministration and public services activi-
ties to be paid for with CDBG funds.
(4) Program income does not include:
(i) Any income received in a single
program year by the recipient and all
its subrecipients if the total amount of
such income does not exceed $25,000;
and
(ii) Amounts generated by activities
that are financed by a loan guaranteed
under section 108 of the Act and meet
one or more of the public benefit cri-
teria specified at §570.209(b)(2)(v) or are
carried out in conjunction with a grant
under section 108(q) in an area deter-
mined by HUD to meet the eligibility
requirements for designation as an
Urban Empowerment Zone pursuant to
24 CFR part 597, subpart B. Such exclu-
sion shall not apply if CDBG funds are
used to repay the guaranteed loan.
When such a guaranteed loan is par-
tially repaid with CDBG funds, the
amount generated shall be prorated to
reflect the percentage of CDBG funds
used. Amounts generated by activities
financed with loans guaranteed under
section 108 which are not defined as
program income shall be treated as
miscellaneous revenue and shall not be
subject to any of the requirements of
this part, except that the use of such
funds shall be limited to activities that
are located in a revitalization strategy
area and implement a HUD approved
area revitalization strategy pursuant
to §91.215(e) of this title. However, such
treatment shall not affect the right of
the Secretary to require the section 108
borrower to pledge such amounts as se-
curity for the guaranteed loan. The de-
termination whether such amounts
shall constitute program income shall
136
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.502
be governed by the provisions of the
contract required at §570.705(b)(1).
(5) Examples of other receipts that
are not considered program income are
proceeds from fund raising activities
carried out by subrecipients receiving
CDBG assistance (the costs of fund-
raising are generally unallowable
under the applicable OMB circulars ref-
erenced in 24 CFR 84.27), funds col-
lected through special assessments
used to recover the non-CDBG portion
of a public improvement, and proceeds
from the disposition of real property
acquired or improved with CDBG funds
when the disposition occurs after the
applicable time period specified in
§570.503(b)(8) for subrecipient-con-
trolled property, or in § 570.505 for re-
cipient -controlled property.
(b) Revolving fund means a separate
fund (with a set of accounts that are
independent of other program ac-
counts) established for the purpose of
carrying out specific activities which,
in turn, generate payments to the fund
for use in carrying out the same activi-
ties. Each revolving loan fund's cash
balance must be held in an interest-
bearing account, and any interest paid
on CDBG funds held in this account
shall be considered interest earned on
grant advances and must be remitted
to HUD for transmittal to the U.S.
Treasury no less frequently than annu-
ally. (Interest paid by borrowers on eli-
gible loans made from the revolving
loan fund shall be program income and
treated accordingly.)
(c) Subrecipient means a public or pri-
vate nonprofit agency, authority, or
organization, or a for-profit entity au-
thorized under § 570.201(0), receiving
CDBG funds from the recipient or an-
other subrecipient to undertake activi-
ties eligible for such assistance under
subpart C of this part. The term ex-
cludes an entity receiving CDBG funds
from the recipient under the authority
of § 570.204, unless the grantee explic-
itly designates it as a subrecipient. The
term includes a public agency des-
ignated by a unit of general local gov-
ernment to receive a loan guarantee
under subpart M of this part, but does
not include contractors providing sup-
plies. equipment, construction, or serv-
ices subject to the procurement re-
quirements in 24 CFR 85.36 or 84.40, as
applicable.
[53 FR 8058, Mar. 11, 1988, as amended at 57
FR 27120, June 17, 1992; 60 FR 1952, Jan. 5,
1995; 60 FR 17445, Apr. 6, 1995; 60 FR 56914,
Nov. 9, 1995]
§ 570.501 Responsibility for grant ad-
ministration.
(a) One or more public agencies, in-
cluding existing local public agencies,
may be designated by the chief execu-
tive officer of the recipient to under-
take activities assisted by this part. A
public agency so designated shall be
subject to the same requirements as
are applicable to subrecipients.
(b) The recipient is responsible for
ensuring that CDBG funds are used in
accordance with all program require-
ments. The use of designated public
agencies, subrecipients, or contractors
does not relieve the recipient of this re-
sponsibility. The recipient is also re-
sponsible for determining the adequacy
of performance under subrecipient
agreements and procurement con-
tracts, and for taking appropriate ac-
tion when performance problems arise,
such as the actions described in
§ 570.910. Where a unit of general Local
government is participating with, or as
part of, an urban county, or as part of
a metropolitan city, the recipient is re-
sponsible for applying to the unit of
general local government the same re-
quirements as are applicable to sub -
recipients, except that the five-year pe-
riod identified under § 570.503(b) (8) (i)
shall begin with the date that the unit
of general local government is no
longer considered by HUD to be a part
of the metropolitan city or urban coun-
ty, as applicable, instead of the date
that the subrecipient agreement ex-
pires.
[53 FR 8058, Mar. 11, 1988, as amended at 57
FR 27120, June 17, 1992]
§ 570.502 Applicability of uniform ad-
ministrative requirements.
(a) Recipients and subrecipients that
are governmental entities (including
public agencies) shall comply with the
requirements and standards of OMB
Circular No. A-87, "Cost Principles for
State, Local, and Indian Tribal Govern-
ments"; OMB Circular A-128, "Audits
137
§ 570.502
of State and Local Governments" (im-
plemented at 24 CFR part 44); and with
the following sections of 24 CFR part 85
"Uniform Administrative Require-
ments for Grants and Cooperative
Agreements to State and Local Gov-
ernments" or the related CDBG provi-
sion, as specified in this paragraph:
(1) Section 85.3, "Definitions";
(2) Section 85.6, "Exceptions";
(3) Section 85.12, "Special grant or
subgrant conditions for 'high-risk'
grantees";
(4) Section 85.20, "Standards for fi-
nancial management systems," except
paragraph (a);
(5) Section 85.21, "Payment," except
as modified by § 570.513;
(6) Section 85.22, "Allowable costs";
(7) Section 85.26, "Non-federal au-
dits";
(8) Section 85.32, "Equipment," ex-
cept in all cases in which the equip-
ment is sold, the proceeds shall be pro-
gram income;
(9) Section 85.33, "Supplies";
(10) Section 85.34, "Copyrights";
(11) Section 85.35, "Subawards to
debarred and suspended parties";
(12) Section 85.36, "Procurement," ex-
cept paragraph (a);
(13) Section 85.37, "Subgrants";
(14) Section 85.40, "Monitoring and
reporting program performance," ex-
cept paragraphs (b) through (d) and
paragraph (f);
(15) Section 85.41, "Financial report-
ing," except paragraphs (a), (b), and (e);
(16) Section 85.42, "Retention and ac-
cess requirements for records," except
that the period shall be four years;
(17) Section 85.43, "Enforcement";
(18) Section 85.44, "Termination for
convenience";
(19) Section 85.51 "Later disallow-
ances and adjustments" and
(20) Section 85.52, "Collection of
amounts due."
(b) Subrecipients, except subrecipi-
ents that are governmental entities,
shall comply with the requirements
and standards of OMB Circular No. A-
122, "Cost Principles for Non-profit Or-
ganizations," or OMB Circular No. A-
21, "Cost Principles for Educational In-
stitutions," as applicable, and OMB
Circular A-133, "Audits of Institutions
of Higher Education and Other Non-
profit Institutions" (as set forth in 24
24 CFR Ch. V (4-1-07 Edition)
CFR part 45). Audits shall be conducted
annually. Such subrecipients shall also
comply with the following provisions of
the Uniform Administrative require-
ments of OMB Circular A-110 (imple-
mented at 24 CFR part 84, "Uniform
Administrative Requirements for
Grants and Agreements With Institu-
tions of Higher Education, Hospitals
and Other Non -Profit Organizations")
or the related CDBG provision, as spec-
ified in this paragraph:
(1) Subpart A—"General";
(2) Subpart B—"Pre-Award Require-
ments," except for §84.12, "Forms for
Applying for Federal Assistance";
(3) Subpart C—"Post-Award Require-
ments," except for:
(i) Section 84.22, "Payment Require-
ments." Grantees shall follow the
standards of §§85.20(b)(7) and 85.21 in
making payments to subrecipients;
(ii) Section 84.23, "Cost Sharing and
Matching";
(iii) Section 84.24, "Program In-
come." In lieu of §84.24, CDBG sub -
recipients shall follow § 570.504;
(iv) Section 84.25, "Revision of Budg-
et and Program Plans";
(v) Section 84.32, "Real Property." In
lieu of § 84.32, CDBG subrecipients shall
follow § 570.505;
(vi) Section 84.34(g), "Equipment." In
lieu of the disposition provisions of
§84.34(g), the following applies:
(A) In all cases in which equipment is
sold, the proceeds shall be program in-
come (prorated to reflect the extent to
which CDBG funds were used to acquire
the equipment); and
(B) Equipment not needed by the sub -
recipient for CDBG activities shall be
transferred to the recipient for the
CDBG program or shall be retained
after compensating the recipient;
(vii) Section 84.51 (b), (c), (d), (e), (f),
(g), and (h). "Monitoring and Reporting
Program Performance";
(viii) Section 84.52, "Financial Re-
porting";
(ix) Section 84.53(b), "Retention and
access requirements for records." Sec-
tion 84.53(b) applies with the following
exceptions:
(A) The retention period referenced
in §84.53(b) pertaining to individual
CDBG activities shall be four years;
and
138
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.503
(B) The retention period starts from
the date of submission of the annual
performance and evaluation report, as
prescribed in 24 CFR 91.520, in which
the specific activity is reported on for
the final time rather than from the
date of submission of the final expendi-
ture report for the award;
(x) Section 84.61, "Termination." In
lieu of the provisions of §84.61, CDBG
subrecipients shall comply with
§570.503(b)(7); and
(4) Subpart D—"After-the-Award Re-
quirements," except for §84.71, "Close-
out Procedures."
[53 FR 8058, Mar. 11, 1988, as amended at 60
FR 1916, Jan. 5, 1995; 60 FR 56915, Nov. 9, 1995]
§ 570.503 Agreements with subrecipi-
ents.
(a) Before disbursing any CDBG funds
to a subrecipient, the recipient shall
sign a written agreement with the sub -
recipient. The agreement shall remain
in effect during any period that the
subrecipient has control over CDBG
funds, including program income.
(b) At a minimum, the written agree-
ment with the subrecipient shall in-
clude provisions concerning the fol-
lowing following items:
(1) Statement of work. The agreement
shall include a description of the work
to be performed, a schedule for com-
pleting the work, and a budget. These
items shall be in sufficient detail to
provide a sound basis for the recipient
effectively to monitor performance
under the agreement.
(2) Records and reports. The recipient
shall specify in the agreement the par-
ticular records the subrecipient must
maintain and the particular reports
the subrecipient must submit in order
to assist the recipient in meeting its
recordkeeping and reporting require-
ments.
(3) Program income. The agreement
shall include the program income re-
quirements set forth in §570.504(c). The
agreement shall also specify that, at
the end of the program year, the grant-
ee may require remittance of all or
part of any program income balances
(including investments thereof) held by
the subrecipient (except those needed
for immediate cash needs, cash bal-
ances of a revolving loan fund, cash
balances from a lump sum drawdown,
or cash or investments held for section
108 security needs).
(4) Uniform administrative require-
ments. The agreement shall require the
subrecipient to comply with applicable
uniform administrative requirements,
as described in § 570.502.
(5) Other program requirements. The
agreement shall require the sub -
recipient to carry out each activity in
compliance with all Federal laws and
regulations described in subpart K of
these regulations, except that:
(i) The subrecipient does not assume
the recipient's environmental respon-
sibilities described at § 570.604; and
(ii) The subrecipient does not assume
the recipient's responsibility for initi-
ating the review process under the pro-
visions of 24 CFR part 52.
(6) Suspension and termination. The
agreement shall specify that, in ac-
cordance with 24 CFR 85.43, suspension
or termination may occur if the sub -
recipient materially fails to comply
with any term of the award, and that
the award may be terminated for con-
venience in accordance with 24 CFR
85.44.
(7) Reversion of assets. The agreement
shall specify that upon its expiration
the subrecipient shall transfer to the
recipient any CDBG funds on hand at
the time of expiration and any ac-
counts receivable attributable to the
use of CDBG funds. It shall also include
provisions designed to ensure that any
real property under the subrecipient's
control that was acquired or improved
in whole or in part with CDBG funds
(including CDBG funds provided to the
subrecipient in the form of a loan) in
excess of $25,000 is either:
(i) Used to meet one of the national
objectives in §570.208 (formerly
§570.901) until five years after expira-
tion of the agreement, or for such
longer period of time as determined to
be appropriate by the recipient; or
(ii) Not used in accordance with para-
graph (b) (7) (i) of this section, in which
event the subrecipient shall pay to the
recipient an amount equal to the cur-
rent market value of the property less
any portion of the value attributable
to expenditures of non-CDBG funds for
the acquisition of, or improvement to,
the property. The payment is program
income to the recipient. (No payment
139
§ 570.504
is required after the
specified in paragraph
section.)
[53 FR 8058, Mar. 11, 1988,
FR 41331. Oct. 21, 1988; 57
1992; 60 FR 56915, Nov. 9,
Sept. 30, 20031
§ 570.504 Program income.
(a) Recording program income. The re-
ceipt and expenditure of program in-
come as defined in §570.500(a) shall be
recorded as part of the financial trans-
actions of the grant program.
(b) Disposition of program income re-
ceived by recipients. (1) Program income
received before grant closeout may be
retained by the recipient if the income
is treated as additional CDBG funds
subject to all applicable requirements
governing the use of CDBG funds.
(2) If the recipient chooses to retain
program income, that program income
shall be disposed of as follows:
(i) Program income in the form of re-
payments to, or interest earned on, a
revolving fund as defined in §570.500(b)
shall be substantially disbursed from
the fund before additional cash with-
drawals are made from the U.S. Treas-
ury for the same activity. (This rule
does not prevent a lump sum disburse-
ment to finance the rehabilitation of
privately owned properties as provided
for in § 570.513.)
(ii) Substantially all other program
income shall be disbursed for eligible
activities before additional cash with-
drawals are made from the U.S. Treas-
ury.
(iii) At the end of each program year,
the aggregate amount of program in-
come cash balances and any invest-
ment thereof (except those needed for
immediate cash needs, cash balances of
a revolving loan fund, cash balances
from a lump -sum drawdown, or cash or
investments held for section 108 loan
guarantee security needs) that, as of
the last day of the program year, ex-
ceeds one -twelfth of the most recent
grant made pursuant to §570.304 shall
be remitted to HUD as soon as prac-
ticable thereafter, to be placed in the
recipient's line of credit. This provi-
sion applies to program income cash
balances and investments thereof held
by the grantee and its subrecipients.
(This provision shall be applied for the
period of time
(b) (7) (i) of this
as amended at 53
FR 27120, June 17,
1995; 68 FR 56405,
24 CFR Ch. V (4-1-07 Edition)
first time at the end of the program
year for which Federal Fiscal Year 1996
funds are provided.)
(3) Program income on hand at the
time of closeout shall continue to be
subject to the eligibility requirements
in subpart C and all other applicable
provisions of this part until it is ex-
pended.
(4) Unless otherwise provided in any
grant closeout agreement, and subject
to the requirements of paragraph (b)(5)
of this section, income received after
closeout shall not be governed by the
provisions of this part, except that, if
at the time of closeout the recipient
has another ongoing CDBG grant re-
ceived directly from HUD, funds re-
ceived after closeout shall be treated
as program income of the ongoing
grant program.
(5) If the recipient does not have an-
other ongoing grant received directly
from HUD at the time of closeout, in-
come received after closeout from the
disposition of real property or from
loans outstanding at the time of close-
out shall not be governed by the provi-
sions of this part, except that such in-
come shall be used for activities that
meet one of the national objectives in
§ 570.901 and the eligibility require-
ments described in section 105 of the
Act.
(c) Disposition of program income re-
ceived by subrecipients. The written
agreement between the recipient and
the subrecipient, as required by
§ 570.503, shall specify whether program
income received is to be returned to
the recipient or retained by the sub -
recipient. Where program income is to
be retained by the subrecipient, the
agreement shall specify the activities
that will be undertaken with the pro-
gram income and that all provisions of
the written agreement shall apply to
the specified activities. When the sub -
recipient retains program income,
transfers of grant funds by the recipi-
ent to the subrecipient shall be ad-
justed according to the principles de-
scribed in paragraphs (b)(2) (i) and (ii)
of this section. Any program income on
hand when the agreement expires, or
received after the agreement's expira-
tion, shall be paid to the recipient as
required by §570.503(b)(8).
140
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.506
(d) Disposition of certain program in-
come received by urban counties. Pro-
gram income derived from urban coun-
ty program activities undertaken by or
within the jurisdiction of a unit of gen-
eral local government which thereafter
terminates its participation in the
urban county shall continue to be pro-
gram income of the urban county. The
urban county may transfer the pro-
gram income to the unit of general
local government, upon its termination
of urban county participation, provided
that the unit of general local govern-
ment has become an entitlement grant-
ee and agrees to use the program in-
come in its own CDBG entitlement pro-
gram.
[53 FR 8058, Mar. 11, 1988, as amended at 60
FR 56915, Nov. 9, 1995]
§ 570.505 Use of real property.
The standards described in this sec-
tion apply to real property within the
recipient's control which was acquired
or improved in whole or in part using
CDBG funds in excess of $25,000. These
standards shall apply from the date
CDBG funds are first spent for the
property until five years after closeout
of an entitlement recipient's participa-
tion in the entitlement CDBG program
or, with respect to other recipients,
until five years after the closeout of
the grant from which the assistance to
the property was provided.
(a) A recipient may not change the
use or planned use of any such property
(including the beneficiaries of such
use) from that for which the acquisi-
tion or improvement was made unless
the recipient provides affected citizens
with reasonable notice of, and oppor-
tunity to comment on, any proposed
change, and either:
(1) The new use of such property
qualifies as meeting one of the na-
tional objectives in §570.208 (formerly
§570.901) and is not a building for the
general conduct of government; or
(2) The requirements in paragraph (b)
of this section are met.
(b) If the recipient determines, after
consultation with affected citizens,
that it is appropriate to change the use
of the property to a use which does not
qualify under paragraph (a)(1) of this
section, it may retain or dispose of the
property for the changed use if the re-
cipient's CDBG program is reimbursed
in the amount of the current fair mar-
ket value of the property, less any por-
tion of the value attributable to ex-
penditures of non-CDBG funds for ac-
quisition of, and improvements to, the
property.
(c) If the change of use occurs after
closeout, the provisions governing in-
come from the disposition of the real
property in §570.504(b)(4) or (5), as ap-
plicable, shall apply to the use of funds
reimbursed.
(d) Following the reimbursement of
the CDBG program in accordance with
paragraph (b) of this section, the prop-
erty no longer will be subject to any
CDBG requirements.
[53 FR 8058, Mar. 11, 1988, as amended at 53
FR 41331, Oct. 21, 1988]
§ 570.506 Records to be maintained.
Each recipient shall establish and
maintain sufficient records to enable
the Secretary to determine whether
the recipient has met the requirements
of this part. At a minimum, the fol-
lowing records are needed:
(a) Records providing a full descrip-
tion of each activity assisted (or being
assisted) with CDBG funds, including
its location (if the activity has a geo-
graphical locus), the amount of CDBG
funds budgeted, obligated and expended
for the activity, and the provision in
subpart C under which it is eligible.
(b) Records demonstrating that each
activity undertaken meets one of the
criteria set forth in § 570.208. (Where in-
formation on income by family size is
required, the recipient may substitute
evidence establishing that the person
assisted qualifies under another pro-
gram having income qualification cri-
teria at least as restrictive as that
used in the definitions of "low and
moderate income person" and "low and
moderate income household" (as appli-
cable) at §570.3, such as Job Training
Partnership Act (JTPA) and welfare
programs; or the recipient may sub-
stitute evidence that the assisted per-
son is homeless; or the recipient may
substitute a copy of a verifiable certifi-
cation from the assisted person that
his or her family income does not ex-
ceed the applicable income limit estab-
lished in accordance with §570.3; or the
recipient may substitute a notice that
141
§ 570.506
the assisted person is a referral from a
state, county or local employment
agency or other entity that agrees to
refer individuals it determines to be
low and moderate income persons
based on HUD's criteria and agrees to
maintain documentation supporting
these determinations.) Such records
shall include the following informa-
tion:
(1) For each activity determined to
benefit low and moderate income per-
sons, the income limits applied and the
point in time when the benefit was de-
termined.
(2) For each activity determined to
benefit low and moderate income per-
sons based on the area served by the
activity:
(i) The boundaries of the service area;
(ii) The income characteristics of
families and unrelated individuals in
the service area; and
(iii) If the percent of low and mod-
erate income persons in the service
area is less than 51 percent, data show-
ing that the area qualifies under the
exception criteria set forth at
§ 570.208(a)(1)(ii).
(3) For each activity determined to
benefit low and moderate income per-
sons because the activity involves a fa-
cility or service designed for use by a
limited clientele consisting exclusively
or predominantly of low and moderate
income persons:
(i) Documentation establishing that
the facility or service is designed for
the particular needs of or used exclu-
sively by senior citizens, adults meet-
ing the Bureau of the Census' Current
Population Reports definition of "se-
verely disabled," persons living with
AIDS, battered spouses, abused chil-
dren, the homeless, illiterate adults, or
migrant farm workers, for which the
regulations provide a presumption con-
cerning the extent to which low- and
moderate -income persons benefit; or
(ii) Documentation describing how
the nature and, if applicable, the loca-
tion of the facility or service estab-
lishes that it is used predominantly by
low and moderate income persons; or
(iii) Data showing the size and an-
nual income of the family of each per-
son receiving the benefit.
(4) For each activity carried out for
the purpose of providing or improving
24 CFR Ch. V (4-1-07 Edition)
housing which is determined to benefit
low and moderate income persons:
(i) A copy of a written agreement
with each landlord or developer receiv-
ing CDBG assistance indicating the
total number of dwelling units in each
multifamily structure assisted and the
number of those units which will be oc-
cupied by low and moderate income
households after assistance;
(ii) The total cost of the activity, in-
cluding both CDBG and non-CDBG
funds.
(iii) For each unit occupied by a low
and moderate income household, the
size and income of the household;
(iv) For rental housing only:
(A) The rent charged (or to be
charged) after assistance for each
dwelling unit in each structure as-
sisted; and
(B) Such information as necessary to
show the affordability of units occu-
pied (or to be occupied) by low and
moderate income households pursuant
to criteria established and made public
by the recipient;
(v) For each property acquired on
which there are no structures, evidence
of commitments ensuring that the cri-
teria in §570.208(a)(3) will be met when
the structures are built;
(vi) Where applicable, records dem-
onstrating that the activity qualifies
under the special conditions at
§ 570.208(a)(3)(i);
(vii) For any homebuyer assistance
activity qualifying under §570.201(e),
570.201(n), or 570.204, identification of
the applicable eligibility paragraph
and evidence that the activity meets
the eligibility criteria for that provi-
sion; for any such activity qualifying
under §570.208(a), the size and income
of each homebuyer's household; and
(viii) For a §570.201(k) housing serv-
ices activity, identification of the
HOME project(s) or assistance that the
housing services activity supports, and
evidence that project(s) or assistance
meet the HOME program income tar-
geting requirements at 24 CFR 92.252 or
92.254.
(5) For each activity determined to
benefit low and moderate income per-
sons based on the creation of jobs, the
recipient shall provide the documenta-
tion described in either paragraph
(b) (5) (i) or (ii) of this section.
142
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.506
(i) Where the recipient chooses to
document that at least 51 percent of
the jobs will be available to low and
moderate income persons, documenta-
tion for each assisted business shall in-
clude:
(A) A copy of a written agreement
containing:
(1) A commitment by the business
that it will make at least 51 percent of
the jobs available to low and moderate
income persons and will provide train-
ing for any of those jobs requiring spe-
cial skills or education;
(2) A listing by job title of the perma-
nent jobs to be created indicating
which jobs will be available to low and
moderate income persons, which jobs
require special skills or education, and
which jobs are part-time, if any; and
(4 A description of actions to be
taken by the recipient and business to
ensure that low and moderate income
persons receive first consideration for
those jobs; and
(B) A listing by job title of the per-
manent jobs filled, and which jobs of
those were available to low and mod-
erate income persons, and a description
of how first consideration was given to
such persons for those jobs. The de-
scription shall include what hiring
process was used; which low and mod-
erate income persons were interviewed
for a particular job; and which low and
moderate income persons were hired.
(ii) Where the recipient chooses to
document that at least 51 percent of
the jobs will be held by low and mod-
erate income persons, documentation
for each assisted business shall include:
(A) A copy of a written agreement
containing:
(1) A commitment by the business
that at least 51 percent of the jobs, on
a full-time equivalent basis, will be
held by low and moderate income per-
sons; and
(4 A listing by job title of the perma-
nent jobs to be created, identifying
which are part-time, if any;
(B) A listing by job title of the per-
manent jobs filled and which jobs were
initially held by low and moderate in-
come persons; and
(C) For each such low and moderate
income person hired, the size and an-
nual income of the person's family
prior to the person being hired for the
job.
(6) For each activity determined to
benefit low and moderate income per-
sons based on the retention of jobs:
(i) Evidence that in the absence of
CDBG assistance jobs would be lost;
(ii) For each business assisted, a list-
ing by job title of permanent jobs re-
tained, indicating which of those jobs
are part-time and (where it is known)
which are held by low and moderate in-
come persons at the time the CDBG as-
sistance is provided. Where applicable,
identification of any of the retained
jobs (other than those known to be
held by low and moderate income per-
sons) which are projected to become
available to low and moderate income
persons through job turnover within
two years of the time CDBG assistance
is provided. Information upon which
the job turnover projections were based
shall also be included in the record;
(iii) For each retained job claimed to
be held by a low and moderate income
person, information on the size and an-
nual income of the person's family;
(iv) For jobs claimed to be available
to low and moderate income persons
based on job turnover, a description
covering the items required for "avail-
able to" jobs in paragraph (b)(5) of this
section; and
(v) Where jobs were claimed to be
available to low and moderate income
persons through turnover, a listing of
each job which has turned over to date,
indicating which of those jobs were ei-
ther taken by, or available to, low and
moderate income persons. For jobs
made available, a description of how
first consideration was given to such
persons for those jobs shall also be in-
cluded in the record.
(7) For purposes of documenting, pur-
suant to paragraph (b) (5) (i) (B),
(b) (5) (i i) (C) , (b) (6) (iii) or (b) (6) (v) of this
section, that the person for whom a job
was either filled by or made available
to a low- or moderate -income person
based upon the census tract where the
person resides or in which the business
is located, the recipient, in lieu of
maintaining records showing the per-
son's family size and income, may sub-
stitute records showing either the per-
son's address at the time the deter-
mination of income status was made or
143
§ 570.506
the address of the business providing
the job, as applicable, the census tract
in which that address was located, the
percent of persons residing in that
tract who either are in poverty or who
are low- and moderate -income, as ap-
plicable, the data source used for deter-
mining the percentage, and a descrip-
tion of the pervasive poverty and gen-
eral distress in the census tract in suf-
ficient detail to demonstrate how the
census tract met the criteria in
§570.208(a)(4)(v), as applicable.
(8) For each activity determined to
aid in the prevention or elimination of
slums or blight based on addressing one
or more of the conditions which quali-
fied an area as a slum or blighted area:
(i) The boundaries of the area; and
(ii) A description of the conditions
which qualified the area at the time of
its designation in sufficient detail to
demonstrate how the area met the cri-
teria in §570.208(b)(1).
(9) For each residential rehabilita-
tion activity determined to aid in the
prevention or elimination of slums or
blight in a slum or blighted area:
(i) The local definition of "sub-
standard";
(ii) A pre -rehabilitation inspection
report describing the deficiencies in
each structure to be rehabilitated; and
(iii) Details and scope of CDBG as-
sisted rehabilitation, by structure.
(10) For each activity determined to
aid in the prevention or elimination of
slums or blight based on the elimi-
nation of specific conditions of blight
or physical decay not located in a slum
or blighted area:
(i) A description of the specific condi-
tion of blight or physical decay treat-
ed; and
(ii) For rehabilitation carried out
under this category, a description of
the specific conditions detrimental to
public health and safety which were
identified and the details and scope of
the CDBG assisted rehabilitation by
structure.
(11) For each activity determined to
aid in the prevention or elimination of
slums or blight based on addressing
slums or blight in an urban renewal
area, a copy of the Urban Renewal
Plan, as in effect at the time the activ-
ity is carried out, including maps and
supporting documentation.
24 CFR Ch. V (4-1-07 Edition)
(12) For each activity determined to
meet a community development need
having a particular urgency:
(i) Documentation concerning the na-
ture and degree of seriousness of the
condition requiring assistance;
(ii) Evidence that the recipient cer-
tified that the CDBG activity was de-
signed to address the urgent need;
(iii) Information on the timing of the
development of the serious condition;
and
(iv) Evidence confirming that other
financial resources to alleviate the
need were not available.
(c) Records that demonstrate that
the recipient has made the determina-
tions required as a condition of eligi-
bility of certain activities, as pre-
scribed in §§ 570.201(f), 570.201 (i) (2),
570.201 (p), 570.201(q), 570.202(b)(3),
570.206(0, 570.209, 570.210, and 570.309.
(d) Records which demonstrate com-
pliance with § 570.505 regarding any
change of use of real property acquired
or improved with CDBG assistance.
(e) Records that demonstrate compli-
ance with the citizen participation re-
quirements prescribed in 24 CFR part
91, subpart B, for entitlement recipi-
ents, or in 24 CFR part 91, subpart C,
for HUD -administered small cities re-
cipients.
(0 Records which demonstrate com-
pliance with the requirements in
§570.606 regarding acquisition, displace-
ment, relocation, and replacement
housing.
(g) Fair housing and equal oppor-
tunity records containing:
(1) Documentation of the analysis of
impediments and the actions the re-
cipient has carried out with its housing
and community development and other
resources to remedy or ameliorate any
impediments to fair housing choice in
the recipient's community.
(2) Data on the extent to which each
racial and ethnic group and single -
headed households (by gender of house-
hold head) have applied for, partici-
pated in, or benefited from, any pro-
gram or activity funded in whole or in
part with CDBG funds. Such informa-
tion shall be used only as a basis for
further investigation as to compliance
with nondiscrimination requirements.
No recipient is required to attain or
maintain any particular statistical
144
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.507
measure by race, ethnicity, or gender
in covered programs.
(3) Data on employment in each of
the recipient's operating units funded
in whole or in part with CDBG funds,
with such data maintained in the cat-
egories prescribed on the Equal Em-
ployment Opportunity Commission's
EEO -4 form; and documentation of any
actions undertaken to assure equal em-
ployment opportunities to all persons
regardless of race, color, national ori-
gin, sex or handicap in operating units
funded in whole or in part under this
part.
(4) Data indicating the race and eth-
nicity of households (and gender of sin-
gle heads of households) displaced as a
result of CDBG funded activities, to-
gether with the address and census
tract of the housing units to which
each displaced household relocated.
Such information shall be used only as
a basis for further investigation as to
compliance with nondiscrimination re-
quirements. No recipient is required to
attain or maintain any particular sta-
tistical measure by race, ethnicity, or
gender in covered programs.
(5) Documentation of actions under-
taken to meet the requirements of
§570.607(b) which implements section 3
of the Housing Development Act of
1968, as amended (12 U.S.C. 1701U) rel-
ative to the hiring and training of low
and moderate income persons and the
use of local businesses.
(6) Data indicating the racial/ethnic
character of each business entity re-
ceiving a contract or subcontract of
$25,000 or more paid, or to be paid, with
CDBG funds, data indicating which of
those entities are women's business en-
terprises as defined in Executive Order
12138, the amount of the contract or
subcontract, and documentation of re-
cipient's affirmative steps to assure
that minority business and women's
business enterprises have an equal op-
portunity to obtain or compete for con-
tracts and subcontracts as sources of
supplies, equipment, construction and
services. Such affirmative steps may
include, but are not limited to, tech-
nical assistance open to all businesses
but designed to enhance opportunities
for these enterprises and special out-
reach efforts to inform them of con-
tract opportunities. Such steps shall
not include preferring any business in
the award of any contract or sub-
contract solely or in part on the basis
of race or gender.
(7) Documentation of the affirmative
action measures the recipient has
taken to overcome prior discrimina-
tion, where the courts or HUD have
found that the recipient has previously
discriminated against persons on the
ground of race, color, national origin
or sex in administering a program or
activity funded in whole or in part
with CDBG funds.
(h) Financial records, in accordance
with the applicable requirements listed
in §570.502, including source docu-
mentation for entities not subject to
parts 84 and 85 of this title. Grantees
shall maintain evidence to support how
the CDBG funds provided to such enti-
ties are expended. Such documentation
must include, to the extent applicable,
invoices, schedules containing com-
parisons of budgeted amounts and ac-
tual expenditures, construction
progress schedules signed by appro-
priate parties (e.g., general contractor
and/or a project architect), and/or
other documentation appropriate to
the nature of the activity.
(i) Agreements and other records re-
lated to lump sum disbursements to
private financial institutions for fi-
nancing rehabilitation as prescribed in
§ 570.513; and
(j) Records required to be maintained
in accordance with other applicable
laws and regulations set forth in sub-
part K of this part.
(Approved by the Office of Management and
Budget under control number 2506-0077)
[53 FR 34454, Sept. 6, 1988; 53 FR 41330, Oct. 21,
1988, as amended at 60 FR 1916, 1953, Jan. 5,
1995; 60 FR 56915, Nov. 9, 1995; 61 FR 18674,
Apr. 29, 1996; 64 FR 38813, July 19, 1999; 70 FR
76370, Dec. 23, 20051
§ 570.507 Reports.
(a) Performance and evaluation re-
port—(1) Entitlement grant recipients and
HUD -administered small cities recipients
in Hawaii. The annual performance and
evaluation report shall be submitted in
accordance with 24 CFR part 91.
(2) HUD -administered Small Cities re-
cipients in New York, and Hawaii recipi-
ents for pre -FY 1995 grants -0) Content.
145
§ 570.508
Each performance and evaluation re-
port must contain completed copies of
all forms and narratives prescribed by
HUD, including a summary of the cit-
izen comments received on the report.
(ii) Timing. The performance and
evaluation report on each grant shall
be submitted:
(A) No later than October 31 for all
grants executed before April 1 of the
same calendar year. The first report
should cover the period from the execu-
tion of the grant until September 30.
Reports on grants made after March 31
of a calendar year will be due October
31 of the following calendar year, and
the reports will cover the period of
time from the execution of the grant
until September 30 of the calendar year
following grant execution. After the
initial submission, the performance
and evaluation report will be sub-
mitted annually on October 31 until
completion of the activities funded
under the grant;
(B) Hawaii grantees will submit their
small cities performance and evalua-
tion report for each pre -FY 1995 grant
no later than 90 days after the comple-
tion of their most recent program year.
After the initial submission, the per-
formance and evaluation report will be
submitted annually until completion of
the activities funded under the grant;
and
(C) No later than 90 days after the
criteria for grant closeout, as described
in §570.509(a), have been met.
(iii) Citizen comments on the report.
Each recipient shall make copies of the
performance and evaluation report
available to its citizens in sufficient
time to permit the citizens to com-
ment on the report before its submis-
sion to HUD. Each recipient may deter-
mine the specific manner and times the
report will be made available to citi-
zens consistent with the preceding sen-
tence.
(b) Equal employment opportunity re-
ports. Recipients of entitlement grants
or HUD -administered small cities
grants shall submit to HUD each year a
report (HUD/EEO-4) on recipient em-
ployment containing data as of June
30.
(c) Minority business enterprise reports.
Recipients of entitlement grants, HUD -
administered small cities grants or
24 CFR Ch. V (4-1-07 Edition)
Urban Development Action Grants
shall submit to HUD, by April 30, a re-
port on contracts and subcontract ac-
tivity during the first half of the fiscal
year and by October 31 a report on such
activity during the second half of the
year.
(d) Other reports. Recipients may be
required to submit such other reports
and information as HUD determines
are necessary to carry out its respon-
sibilities under the Act or other appli-
cable laws.
(Approved by the Office of Management and
Budget under control numbers 2506-0077 for
paragraph (a) and 2529-0008 for paragraph (b)
and 2506-0066 for paragraph (c))
153 FR 34456, Sept. 6, 1988, as amended at 60
FR 1916, Jan. 5, 1995; 61 FR 32269, June 21,
19961
§ 570.508 Public access to program
records.
Notwithstanding 24 CFR 85.42(f), re-
cipients shall provide citizens with rea-
sonable access to records regarding the
past use of CDBG funds, consistent
with applicable State and local laws re-
garding privacy and obligations of con-
fidentiality.
§ 570.509 Grant closeout procedures.
(a) Criteria for closeout. A grant will
be closed out when HUD determines, in
consultation with the recipient, that
the following criteria have been met:
(1) All costs to be paid with CDBG
funds have been incurred, with the ex-
ception of closeout costs (e.g., audit
costs) and costs resulting from contin-
gent liabilities described in the close-
out agreement pursuant to paragraph
(c) of this section. Contingent liabil-
ities include, but are not limited to,
third -party claims against the recipi-
ent, as well as related administrative
costs.
(2) With respect to activities (such as
rehabilitation of privately owned prop-
erties) which are financed by means of
escrow accounts, loan guarantees, or
similar mechanisms, the work to be as-
sisted with CDBG funds (but excluding
program income) has actually been
completed.
(3) Other responsibilities of the re-
cipient under the grant agreement and
applicable laws and regulations appear
to have been carried out satisfactorily
146
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.509
or there is no further Federal interest
in keeping the grant agreement open
for the purpose of securing perform-
ance.
(b) Closeout actions. (1) Within 90 days
of the date it is determined that the
criteria for closeout have been met, the
recipient shall submit to HUD a copy
of the final performance and evalua-
tion report described in 24 CFR part 91.
If an acceptable report is not sub-
mitted, an audit of the recipient's
grant activities may be conducted by
HUD.
(2) Based on the information provided
in the performance report and other
relevant information, HUD, in con-
sultation with the recipient, will pre-
pare a closeout agreement in accord-
ance with paragraph (c) of this section.
(3) HUD will cancel any unused por-
tion of the awarded grant, as shown in
the signed grant closeout agreement.
Any unused grant funds disbursed from
the U.S. Treasury which are in the pos-
session of the recipient shall be re-
funded to HUD.
(4) Any costs paid with CDBG funds
which were not audited previously
shall be subject to coverage in the re-
cipient's next single audit performed in
accordance with 24 CFR part 44. The re-
cipient may be required to repay HUD
any disallowed costs based on the re-
sults of the audit, or on additional
HUD reviews provided for in the close-
out agreement.
(c) Closeout agreement. Any obliga-
tions remaining as of the date of the
closeout shall be covered by the terms
of a closeout agreement. The agree-
ment shall be prepared by the HUD
field office in consultation with the re-
cipient. The agreement shall identify
the grant being closed out, and include
provisions with respect to the fol-
lowing:
(1) Identification of any closeout
costs or contingent liabilities subject
to payment with CDBG funds after the
closeout agreement is signed;
(2) Identification of any unused grant
funds to be canceled by HUD;
(3) Identification of any program in-
come on deposit in financial institu-
tions at the time the closeout agree-
ment is signed:
(4) Description of the recipient's re-
sponsibility after closeout for:
(i) Compliance with all program re-
quirements, certifications and assur-
ances in using program income on de-
posit at the time the closeout agree-
ment is signed and in using any other
remaining CDBG funds available for
closeout costs and contingent liabil-
ities;
(ii) Use of real property assisted with
CDBG funds in accordance with the
principles described in § 570.505;
(iii) Compliance with requirements
governing program income received
subsequent to grant closeout, as de-
scribed in §570.504(b)(4) and (5); and
(iv) Ensuring that flood insurance
coverage for affected property owners
is maintained for the mandatory pe-
riod;
(5) Other provisions appropriate to
any special circumstances of the grant
closeout, in modification of or in addi-
tion to the obligations in paragraphs
(c) (1) through (4) of this section. The
agreement shall authorize monitoring
by HUD, and shall provide that find-
ings of noncompliance may be taken
into account by HUD, as unsatisfactory
performance of the recipient, in the
consideration of any future grant
award under this part.
(d) Status of consolidated plan after
closeout. Unless otherwise provided in a
closeout agreement, the Consolidated
Plan will remain in effect after close-
out until the expiration of the program
year covered by the last approved con-
solidated plan.
(e) Termination of grant for conven-
ience. Grant assistance provided under
this part may be terminated for con-
venience in whole or in part before the
completion of the assisted activities, in
accordance with the provisions of 24
CFR 85.44. The recipient shall not incur
new obligations for the terminated por-
tions after the effective date, and shall
cancel as many outstanding obliga-
tions as possible. HUD shall allow full
credit to the recipient for those por-
tions of obligations which could not be
canceled and which had been properly
incurred by the recipient in carrying
out the activities before the termi-
nation. The closeout policies contained
in this section shall apply in such
cases, except where the approved grant
is terminated in its entirety. Responsi-
bility for the environmental review to
147
§ 570.510
be performed under 24 CFR part 50 or 24
CFR part 58, as applicable, shall be de-
termined as part of the closeout proc-
ess.
(f) Termination for cause. In cases in
which the Secretary terminates the re-
cipient's grant under the authority of
subpart 0 of this part, or under the
terms of the grant agreement, the
closeout policies contained in this sec-
tion shall apply, except where the ap-
proved grant is cancelled in its en-
tirety. The provisions in 24 CFR 85.43(c)
on the effects of termination shall also
apply. HUD shall determine whether an
environmental assessment or finding of
inapplicability is required, and if such
review is required, HUD shall perform
it in accordance with 24 CFR part 50.
[53 FR 8058, Mar. 11, 1988, as amended at 56
FR 56128, Oct. 31, 1991; 60 FR 1916, Jan. 5, 1995;
60 FR 16379, Mar. 30, 19951
§ 570.510 Transferring projects from
urban counties to metropolitan cit-
ies.
Section 106(c)(3) of the Act authorizes
the Secretary to transfer unobligated
grant funds from an urban county to a
new metropolitan city, provided: the
city was an included unit of general
local government in the urban county
immediately before its qualification as
a metropolitan city; the funds to be
transferred were received by the coun-
ty before the qualification of the city
as a metropolitan city; the funds to be
transferred had been programmed by
the urban county for use in the city be-
fore such qualification; and the city
and county agree to transfer responsi-
bility for the administration of the
funds being transferred from the coun-
ty's letter of credit to the city's letter
of credit. The following rules apply to
the transfer of responsibility for an ac-
tivity from an urban county to the new
metropolitan city.
(a) The urban county and the metro-
politan city must execute a legally
binding agreement which shall specify:
(1) The amount of funds to be trans-
ferred from the urban county's letter of
credit to the metropolitan city's letter
of credit;
(2) The activities to be carried out by
the city with the funds being trans-
ferred;
24 CFR Ch. V (4-1-07 Edition)
(3) The county's responsibility for all
expenditures and unliquidated obliga-
tions associated with the activities be-
fore the time of transfer, including a
statement that responsibility for all
audit and monitoring findings associ-
ated with those expenditures and obli-
gations shall remain with the county;
(4) The responsibility of the metro-
politan city for all other audit and
monitoring findings;
(5) How program income (if any) from
the activities specified shall be divided
between the metropolitan city and the
urban county; and
(6) Such other provisions as may be
required by HUD.
(b) Upon receipt of a request for the
transfer of funds from an urban county
to a metropolitan city and a copy of
the executed agreement, HUD, in con-
sultation with the Department of the
Treasury, shall establish a date upon
which the funds shall be transferred
from the letter of credit of the urban
county to the letter of credit of the
metropolitan city, and shall take all
necessary actions to effect the re-
quested transfer of funds.
(c) HUD shall notify the metropoli-
tan city and urban county of any spe-
cial audit and monitoring rules which
apply to the transferred funds when the
date of the transfer is communicated
to the city and the county.
§ 570.511 Use of escrow accounts for
rehabilitation of privately owned
residential property.
(a) Limitations. A recipient may with-
draw funds from its letter of credit for
immediate deposit into an escrow ac-
count for use in funding loans and
grants for the rehabilitation of pri-
vately owned residential property
under §570.202(a)(1). The following addi-
tional limitations apply to the use of
escrow accounts for residential reha-
bilitation loans and grants closed after
September 7, 1990:
(1) The use of escrow accounts under
this section is limited to loans and
grants for the rehabilitation of pri-
marily residential properties con-
taining no more than four dwelling
units (and accessory neighborhood -
scale non-residential space within the
same structure, if any, e.g., a store
front below a dwelling unit).
148
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.513
(2) An escrow account shall not be
used unless the contract between the
property owner and the contractor se-
lected to do the rehabilitation work
specifically provides that payment to
the contractor shall be made through
an escrow account maintained by the
recipient, by a subrecipient as defined
in §570.500(c), by a public agency des-
ignated under §570.501(a), or by an
agent under a procurement contact
governed by the requirements of 24
CFR 85.36. No deposit to the escrow ac-
count shall be made until after the
contract has been executed between
the property owner and the rehabilita-
tion contractor.
(3) All funds withdrawn under this
section shall be deposited into one in-
terest earning account with a financial
institution. Separate bank accounts
shall not be established for individual
loans and grants.
(4) The amount of funds deposited
into an escrow account shall be limited
to the amount expected to be disbursed
within 10 working days from the date
of deposit. If the escrow account, for
whatever reason, at any time contains
funds exceeding 10 days cash needs, the
grantee immediately shall transfer the
excess funds to its program account. In
the program account, the excess funds
shall be treated as funds erroneously
drawn in accordance with the require-
ments of U.S. Treasury Financial Man-
ual, paragraph 6-2075.30.
(5) Funds deposited into an escrow
account shall be used only to pay the
actual costs of rehabilitation incurred
by the owner under the contract with a
private contractor. Other eligible costs
related to the rehabilitation loan or
grant, e.g., the recipient's administra-
tive costs under § 570.206 or rehabilita-
tion services costs under §570.202(b)(9),
are not permissible uses of escrowed
funds. Such other eligible rehabilita-
tion costs shall be paid under normal
CDBG payment procedures (e.g., from
withdrawals of grant funds under the
recipient's letter of credit with the
Treasury).
(b) Interest. Interest earned on escrow
accounts established in accordance
with this section, less any service
charges for the account, shall be remit-
ted to HUD at Least quarterly but not
more frequently than monthly. Inter-
est earned on escrow accounts is not
required to be remitted to HUD to the
extent the interest is attributable to
the investment of program income.
(c) Remedies for noncompliance. If HUD
determines that a recipient has failed
to use an escrow account in accordance
with this section, HUD may, in addi-
tion to imposing any other sanctions
provided for under this part, require
the recipient to discontinue the use of
escrow accounts, in whole or in part.
[55 FR 32369, Aug. 8, 1990]
§570.512 [Reserved]
§ 570.513 Lump sum drawdown for fi-
nancing of property rehabilitation
activities.
Subject to the conditions prescribed
in this section, recipients may draw
funds from the letter of credit in a
lump sum to establish a rehabilitation
fund in one or more private financial
institutions for the purpose of financ-
ing the rehabilitation of privately
owned properties. The fund may be
used in conjunction with various reha-
bilitation financing techniques, includ-
ing loans, interest subsidies, loan guar-
antees, loan reserves, or such other
uses as may be approved by HUD con-
sistent with the objectives of this sec-
tion. The fund may also be used for
making grants, but only for the pur-
pose of leveraging non-CDBG funds for
the rehabilitaton of the same property.
(a) Limitation on drawdown of grant
funds. (1) The funds that a recipient de-
posits to a rehabilitation fund shall not
exceed the grant amount that the re-
cipient reasonably expects will be re-
quired, together with anticipated pro-
gram income from interest and loan re-
payments, for the rehabilitation activi-
ties during the period specified in the
agreement to undertake activities,
based on either:
(i) Prior level of rehabilitation activ-
ity; or
(ii) Rehabilitation staffing and man-
agement capacity during the period
specified in the agreement to under-
take activities.
(2) No grant funds may be deposited
under this section solely for the pur-
pose of investment, notwithstanding
that the interest or other income is to
149
§570.513
be used for the rehabilitation activi-
ties.
(3) The recipient's rehabilitation pro-
gram administrative costs and the ad-
ministrative costs of the financial in-
stitution may not be funded through
lump sum drawdown. Such costs must
be paid from periodic letter of credit
withdrawals in accordance with stand-
ard procedures or from program in-
come, other than program income gen-
erated by the lump sum distribution.
(b) Standards to be met. The following
standards shall apply to all lump sum
drawdowns of CDBG funds for rehabili-
tation:
(1) Eligible rehabilitation activities. The
rehabilitation fund shall be used to fi-
nance the rehabilitation of privately
owned properties eligible under the
general policies in §570.200 and the spe-
cific provisions of either §570.202, in-
cluding the acquisition of properties
for rehabilitation, or § 570.203.
(2) Requirements for agreement. The re-
cipient shall execute a written agree-
ment with one or more private finan-
cial institutions for the operation of
the rehabilitation fund. The agreement
shall specify the obligations and re-
sponsibilities of the parties, the terms
and conditions on which CDBG funds
are to be deposited and used or re-
turned, the anticipated level of reha-
bilitation activities by the financial in-
stitution, the rate of interest and other
benefits to be provided by the financial
institution in return for the lump sum
deposit, and such other terms as are
necessary for compliance with the pro-
visions of this section. Upon execution
of the agreement, a copy must be pro-
vided to the HUD field office for its
record and use in monitoring. Any
modifications made during the term of
the agreement must also be provided to
HUD.
(3) Period to undertake activities. The
agreement must provide that the reha-
bilitation fund may only be used for
authorized activities during a period of
no more than two years. The lump sum
deposit shall be made only after the
agreement is fully executed.
(4) Time limit on use of deposited funds.
Use of the deposited funds for rehabili-
tation financing assistance must start
(e.g., first loan must be made, sub-
sidized or guaranteed) within 45 days of
24 CFR Ch. V (4-1-07 Edition)
the deposit. In addition, substantial
disbursements from the fund must
occur within 180 days of the receipt of
the deposit. (Where CDBG funds are
used as a guarantee, the funds that
must be substantially disbursed are the
guaranteed funds.) For a recipient with
an agreement specifying two years to
undertake activities, the disbursement
of 25 percent of the fund (deposit plus
any interest earned) within 180 days
will be regarded as meeting this re-
quirement. If a recipient with an agree-
ment specifying two years to under-
take activities determines that it has
had substantial disbursement from the
fund within the 180 days although it
had not met this 25 percent threshold,
the justification for the recipient's de-
termination shall be included in the
program file. Should use of deposited
funds not start within 45 days, or sub-
stantial disbursement from such fund
not occur within 180 days, the recipient
may be required by HUD to return all
or part of the deposited funds to the re-
cipient's letter of credit.
(5) Progam activity. Recipients shall
review the level of program activity on
a yearly basis. Where activity is sub-
stantially below that anticipated, pro-
gram funds shall be returned to the re-
cipient's letter of credit.
(6) Termination of agreement. In the
case of substantial failure by a private
financial institution to comply with
the terms of a lump sum drawdown
agreement, the recipient shall termi-
nate its agreement, provide written
justification for the action, withdraw
all unobligated deposited funds from
the private financial institution, and
return the funds to the recipient's let-
ter of credit.
(7) Return of unused deposits. At the
end of the period specified in the agree-
ment for undertaking activities, all un -
obligated deposited funds shall be re-
turned to the recipient's letter of cred-
it unless the recipient enters into a
new agreement conforming to the re-
quirements of this section. In addition,
the recipient shall reserve the right to
withdraw any unobligated deposited
funds required by HUD in the exercise
of corrective or remedial actions au-
thorized under §570.910(b), §570.911,
5570.912 or § 570.913.
150
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.600
(8) Rehabilitation loans made with non-
CDBG funds. If the deposited funds or
program income derived from deposited
funds are used to subsidize or guar-
antee repayment of rehabilitation
loans made with non-CDBG funds, or to
provide a supplemental loan or grant
to the borrower of the non-CDBG
funds, the rehabilitation activities are
considered to be CDBG-assisted activi-
ties subject to the requirements appli-
cable to such activities, except that re-
payment of non-CDBG funds shall not
be treated as program income.
(9) Provision of consideration. In con-
sideration for the lump sum deposit by
the recipient in a private financial in-
stitution, the deposit must result in
appropriate benefits in support of the
recipient's local rehabilitation pro-
gram. Minimum requirements for such
benefits are:
(i) Grantees shall require the finan-
cial institution to pay interest on the
lump sum deposit.
(A) The interest rate paid by the fi-
nancial institution shall be no more
than three points below the rate on one
year Treasury obligations at constant
maturity.
(B) When an agreement sets a fixed
interest rate for the entire term of the
agreement, the rate should be based on
the rate at the time the agreement is
excuted.
(C) The agreement may provide for
an interest rate that would fluctuate
periodically during the term of the
agreement, but at no time shall the
rate be established at more than three
points below the rate on one year
Treasury obligations at constant matu-
rity.
(ii) In addition to the payment of in-
terest, at least one of the following
benefits must be provided by the finan-
cial institution:
(A) Leverage of the deposited funds
so that the financial institution com-
mits private funds for loans in the re-
habilitation program in an amount
substantially in excess of the amount
of the lump sum deposit;
(B) Commitment of private funds by
the financial institution for rehabilita-
tion loans at below market interest
rates, at higher than normal risk, or
with longer than normal repayment pe-
riods; or
(C) Provision of administrative serv-
ices in support of the rehabilitation
program by the participating financial
institution at no cost or at lower than
actual cost.
(c) Program income. Interest earned on
lump sum deposits and payments on
loans made from such deposits are pro-
gram income and, during the period of
the agreement, shall be used for reha-
bilitation activities under the provi-
sions of this section.
(d) Outstanding findings. Notwith-
standing any other provision of this
section, no recipient shall enter into a
new agreement during any period of
time in which an audit or monitoring
finding on a previous lump sum draw-
down agreement remains unresolved.
(e) Prior notification. The recipient
shall provide the HUD field office with
written notification of the amount of
funds to be distributed to a private fi-
nancial institution before distribution
under the provisions of this section.
(f) Recordkeeping requirements. The re-
cipient shall maintain in its files a
copy of the written agreement and re-
lated documents establishing conform-
ance with this section and concerning
performance by a financial institution
in accordance with the agreement.
Subpart K—Other Program
Requirements
SOURCE: 53 FR 34456, Sept. 6, 1988, unless
otherwise noted.
§ 570.600 General.
(a) This subpart K enumerates laws
that the Secretary will treat as appli-
cable to grants made under section 106
of the Act, other than grants to States
made pursuant to section 106(d) of the
Act, for purposes of the Secretary's de-
terminations under section 104(e)(1) of
the Act, including statutes expressly
made applicable by the Act and certain
other statutes and Executive Orders for
which the Secretary has enforcement
responsibility. This subpart K applies
to grants made under the Insular areas
program in § 570.405, with the exception
of § 570.612. The absence of mention
herein of any other statute for which
the Secretary does not have direct en-
forcement responsibility is not in-
tended to be taken as an indication
151
Appendix E
24 CFR 570 CDBG Regulations
Subpart K, Other Requirements
No Text
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.600
(8) Rehabilitation loans made with non-
CDBG funds. If the deposited funds or
program income derived from deposited
funds are used to subsidize or guar-
antee repayment of rehabilitation
loans made with non-CDBG funds, or to
provide a supplemental loan or grant
to the borrower of the non-CDBG
funds, the rehabilitation activities are
considered to be CDBG-assisted activi-
ties subject to the requirements appli-
cable to such activities, except that re-
payment of non-CDBG funds shall not
be treated as program income.
(9) Provision of consideration. In con-
sideration for the lump sum deposit by
the recipient in a private financial in-
stitution, the deposit must result in
appropriate benefits in support of the
recipient's local rehabilitation pro-
gram. Minimum requirements for such
benefits are:
(i) Grantees shall require the finan-
cial institution to pay interest on the
lump sum deposit.
(A) The interest rate paid by the fi-
nancial institution shall be no more
than three points below the rate on one
year Treasury obligations at constant
maturity.
(B) When an agreement sets a fixed
interest rate for the entire term of the
agreement, the rate should be based on
the rate at the time the agreement is
excuted.
(C) The agreement may provide for
an interest rate that would fluctuate
periodically during the term of the
agreement, but at no time shall the
rate be established at more than three
points below the rate on one year
Treasury obligations at constant matu-
rity.
(ii) In addition to the payment of in-
terest, at least one of the following
benefits must be provided by the finan-
cial institution:
(A) Leverage of the deposited funds
so that the financial institution com-
mits private funds for loans in the re-
habilitation program in an amount
substantially in excess of the amount
of the lump sum deposit;
(B) Commitment of private funds by
the financial institution for rehabilita-
tion loans at below market interest
rates, at higher than normal risk, or
with longer than normal repayment pe-
riods; or
(C) Provision of administrative serv-
ices in support of the rehabilitation
program by the participating financial
institution at no cost or at lower than
actual cost.
(c) Program income. Interest earned on
lump sum deposits and payments on
Loans made from such deposits are pro-
gram income and, during the period of
the agreement, shall be used for reha-
bilitation activities under the provi-
sions of this section.
(d) Outstanding findings. Notwith-
standing any other provision of this
section, no recipient shall enter into a
new agreement during any period of
time in which an audit or monitoring
finding on a previous lump sum draw-
down agreement remains unresolved.
(e) Prior notification. The recipient
shall provide the HUD field office with
written notification of the amount of
funds to be distributed to a private fi-
nancial institution before distribution
under the provisions of this section.
(f) Recordkeeping requirements. The re-
cipient shall maintain in its files a
copy of the written agreement and re-
lated documents establishing conform-
ance with this section and concerning
performance by a financial institution
in accordance with the agreement.
Subpart K—Other Program
Requirements
SOURCE: 53 FR 34456, Sept. 6, 1988, unless
otherwise noted.
§ 570.600 General.
(a) This subpart K enumerates laws
that the Secretary will treat as appli-
cable to grants made under section 106
of the Act, other than grants to States
made pursuant to section 106(d) of the
Act, for purposes of the Secretary's de-
terminations under section 104(e)(1) of
the Act, including statutes expressly
made applicable by the Act and certain
other statutes and Executive Orders for
which the Secretary has enforcement
responsibility. This subpart K applies
to grants made under the Insular areas
program in §570.405, with the exception
of § 570.612. The absence of mention
herein of any other statute for which
the Secretary does not have direct en-
forcement responsibility is not in-
tended to be taken as an indication
151
§ 570.601
that, in the Secretary's opinion, such
statute or Executive Order is not appli-
cable to activities assisted under the
Act. For laws that the Secretary will
treat as applicable to grants made to
States under section 106(d) of the Act
for purposes of the determination re-
quired to be made by the Secretary
pursuant to section 104(e)(2) of the Act,
see § 570.487.
(b) This subpart also sets forth cer-
tain additional program requirements
which the Secretary has determined to
be applicable to grants provided under
the Act as a matter of administrative
discretion.
(c) In addition to grants made pursu-
ant to section 106(b) and 106(d)(2)(B) of
the Act (subparts D and F, respec-
tively), the requirements of this sub-
part K are applicable to grants made
pursuant to sections 107 and 119 of the
Act (subparts E and G, respectively),
and to loans guaranteed pursuant to
subpart M.
[53 FR 34456, Sept. 6, 1988, as amended at 61
FR 11477, Mar. 20, 1996]
EFFECTIVE DATE NOTE: At 72 FR 12536, Mar.
15, 2007, § 570.600 was amended by revising
paragraph (a), effective April 16, 2007. For the
convenience of the user, the revised text is
set forth as follows:
§ 570.600 General.
(a) This subpart K enumerates laws that
the Secretary will treat as applicable to
grants made under section 106 of the Act,
other than grants to states made pursuant to
section 106(d) of the Act. for purposes of the
Secretary's determinations under section
104(e)(1) of the Act, including statutes ex-
pressly made applicable by the Act and cer-
tain other statutes and Executive Orders for
which the Secretary has enforcement respon-
sibility. This subpart K applies to grants
made under the Insular Areas Program in
§570.405 and 5 570.440 with the exception of
§ 570.612. The absence of mention herein of
any other statute for which the Secretary
does not have direct enforcement responsi-
bility is not intended to be taken as an indi-
cation that, in the Secretary's opinion, such
statute or Executive Order is not applicable
to activities assisted under the Act. For laws
that the Secretary will treat as applicable to
grants made to states under section 106(d) of
the Act for purposes of the determination re-
quired to be made by the Secretary pursuant
to section 104(e)(2) of the Act, see 5570.487.
24 CFR Ch. V (4-1-07 Edition)
§ 570.601 Public Law 88-352 and Public
Law 90-284; affirmatively fur-
thering fair housing; Executive
Order 11063.
(a) The following requirements apply
according to sections 104(b) and 107 of
the Act:
(1) Public Law 88-352, which is title
VI of the Civil Rights Act of 1964 (42
U.S.C. 2000d et seq.), and implementing
regulations in 24 CFR part 1.
(2) Public Law 90-284, which is the
Fair Housing Act (42 U.S.C. 3601-3620).
In accordance with the Fair Housing
Act, the Secretary requires that grant-
ees administer all programs and activi-
ties related to housing and community
development in a manner to affirma-
tively further the policies of the Fair
Housing Act. Furthermore, in accord-
ance with section 104(b)(2) of the Act,
for each community receiving a grant
under subpart D of this part, the cer-
tification that the grantee will affirm-
atively further fair housing shall spe-
cifically require the grantee to assume
the responsibility of fair housing plan-
ning by conducting an analysis to iden-
tify impediments to fair housing choice
within its jurisdiction, taking appro-
priate actions to overcome the effects
of any impediments identified through
that analysis, and maintaining records
reflecting the analysis and actions in
this regard.
(b) Executive Order 11063, as amended
by Executive Order 12259 (3 CFR, 1959-
1963 Comp., p. 652; 3 CFR, 1980 Comp., p.
307) (Equal Opportunity in Housing),
and implementing regulations in 24
CFR part 107, also apply.
[61 FR 11477, Mar. 20, 1996]
§ 570.602 Section 109 of the Act.
Section 109 of the Act requires that
no person in the United States shall on
the grounds of race, color, national ori-
gin, religion, or sex be excluded from
participation in, be denied the benefits
of, or be subjected to discrimination
under any program or activity receiv-
ing Federal financial assistance made
available pursuant to the Act. Section
109 also directs that the prohibitions
against discrimination on the basis of
age under the Age Discrimination Act
and the prohibitions against discrimi-
nation on the basis of disability under
Section 504 shall apply to programs or
152
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.606
activities receiving Federal financial
assistance under Title I programs. The
policies and procedures necessary to
ensure enforcement of section 109 are
codified in 24 CFR part 6.
[64 FR 3802, Jan. 25, 1999]
§ 570.603 Labor standards.
(a) Section 110(a) of the Act contains
labor standards that apply to nonvol-
unteer labor financed in whole or in
part with assistance received under the
Act. In accordance with section 110(a)
of the Act, the Contract Work Hours
and Safety Standards Act (40 U.S.C. 327
et seq.) also applies. However, these re-
quirements apply to the rehabilitation
of residential property only if such
property contains not less than 8 units.
(b) The regulations in 24 CFR part 70
apply to the use of volunteers.
[61 FR 11477, Mar. 20, 1996]
§ 570.604 Environmental standards.
For purposes of section 104(g) of the
Act, the regulations in 24 CFR part 58
specify the other provisions of law
which further the purposes of the Na-
tional Environmental Policy Act of
1969, and the procedures by which
grantees must fulfill their environ-
mental responsibilities. In certain
cases, grantees assume these environ-
mental review, decisionmaking, and
action responsibilities by execution of
grant agreements with the Secretary.
[61 FR 11477, Mar. 20, 1996]
§ 570.605 National Flood Insurance
Program.
Notwithstanding the date of HUD ap-
proval of the recipient's application
(or, in the case of grants made under
subpart D of this part or HUD -adminis-
tered small cities recipients in Hawaii,
the date of submission of the grantee's
consolidated plan, in accordance with
24 CFR part 91), section 202(a) of the
Flood Disaster Protection Act of 1973
(42 U.S.C. 4106) and the regulations in
44 CFR parts 59 through 79 apply to
funds provided under this part 570.
[61 FR 11477, Mar. 20, 1996]
§ 570.606 Displacement, relocation, ac-
quisition, and replacement of hous-
ing.
(a) General policy for minimizing dis-
placement. Consistent with the other
goals and objectives of this part, grant-
ees (or States or state recipients, as ap-
plicable) shall assure that they have
taken all reasonable steps to minimize
the displacement of persons (families,
individuals, businesses, nonprofit orga-
nizations, and farms) as a result of ac-
tivities assisted under this part.
(b) Relocation assistance for displaced
persons at URA levels. (1) A displaced
person shall be provided with reloca-
tion assistance at the levels described
in, and in accordance with the require-
ments of 49 CFR part 24, which con-
tains the government -wide regulations
implementing the Uniform Relocation
Assistance and Real Property Acquisi-
tion Policies Act of 1970 (URA) (42
U.S.C. 4601-4655).
(2) Displaced person. (i) For purposes
of paragraph (b) of this section, the
term "displaced person" means any per-
son (family, individual, business, non-
profit organization, or farm) that
moves from real property, or moves his
or her personal property from real
property, permanently and involun-
tarily, as a direct result of rehabilita-
tion, demolition, or acquisition for an
activity assisted under this part. A per-
manent, involuntary move for an as-
sisted activity includes a permanent
move from real property that is made:
(A) After notice by the grantee (or
the state recipient, if applicable) to
move permanently from the property,
if the move occurs after the initial offi-
cial submission to HUD (or the State,
as applicable) for grant, loan, or loan
guarantee funds under this part that
are later provided or granted.
(B) After notice by the property
owner to move permanently from the
property, if the move occurs after the
date of the submission of a request for
financial assistance by the property
owner (or person in control of the site)
that is later approved for the requested
activity.
(C) Before the date described in para-
graph (b) (2) (i) (A) or (B) of this section,
if either HUD or the grantee (or State,
153
§ 570.606
as applicable) determines that the dis-
placement directly resulted from ac-
quisition, rehabilitation, or demolition
for the requested activity.
(D) After the "initiation of negotia-
tions" if the person is the tenant -occu-
pant of a dwelling unit and any one of
the following three situations occurs:
(1) The tenant has not been provided
with a reasonable opportunity to lease
and occupy a suitable decent, safe, and
sanitary dwelling in the same building/
complex upon the completion of the
project, including a monthly rent that
does not exceed the greater of the ten-
ant's monthly rent and estimated aver-
age utility costs before the initiation
of negotiations or 30 percent of the
household's average monthly gross in-
come; or
(2) The tenant is required to relocate
temporarily for the activity but the
tenant is not offered payment for all
reasonable out-of-pocket expenses in-
curred in connection with the tem-
porary relocation, including the cost of
moving to and from the temporary lo-
cation and any increased housing costs,
or other conditions of the temporary
relocation are not reasonable; and the
tenant does not return to the building/
complex; or
(.) The tenant is required to move to
another unit in the building/complex,
but is not offered reimbursement for
all reasonable out-of-pocket expenses
incurred in connection with the move.
(ii) Notwithstanding the provisions of
paragraph (b) (2) (i) of this section, the
term "displaced person-" does not in-
clude:
(A) A person who is evicted for cause
based upon serious or repeated viola-
tions of material terms of the lease or
occupancy agreement. To exclude a
person on this basis, the grantee (or
State or state recipient, as applicable)
must determine that the eviction was
not undertaken for the purpose of evad-
ing the obligation to provide relocation
assistance under this section;
(B) A person who moves into the
property after the date of the notice
described in paragraph (b) (2) (i) (A) or
(B) of this section, but who received a
written notice of the expected displace-
ment before occupancy.
(C) A person who is not displaced as
described in 49 CFR 24.2(g)(2).
24 CFR Ch. V (4-1-07 Edition)
(D) A person who the grantee (or
State, as applicable) determines is not
displaced as a direct result of the ac-
quisition, rehabilitation, or demolition
for an assisted activity. To exclude a
person on this basis, HUD must concur
in that determination.
(iii) A grantee (or State or state re-
cipient, as applicable) may, at any
time, request HUD to determine wheth-
er a person is a displaced person under
this section.
(3) Initiation of negotiations. For pur-
poses of determining the type of re-
placement housing assistance to be
provided under paragraph (b) of this
section, if the displacement is the di-
rect result of privately undertaken re-
habilitation, demolition, or acquisition
of real property, the term "initiation of
negotiations" means the execution of
the grant or loan agreement between
the grantee (or State or state recipi-
ent, as applicable) and the person own-
ing or controlling the real property.
(c) Residential antidisplacement and re-
location assistance plan. The grantee
shall comply with the requirements of
24 CFR part 42, subpart B.
(d) Optional relocation assistance.
Under section 105(a)(11) of the Act, the
grantee may provide (or the State may
permit the state recipient to provide,
as applicable) relocation payments and
other relocation assistance to persons
displaced by activities that are not
subject to paragraph (b) or (c) of this
section. The grantee may also provide
(or the State may also permit the state
recipient to provide, as applicable) re-
location assistance to persons receiv-
ing assistance under paragraphs (b) or
(c) of this section at levels in excess of
those required by these paragraphs.
Unless such assistance is provided
under State or local law, the grantee
(or state recipient, as applicable) shall
provide such assistance only upon the
basis of a written determination that
the assistance is appropriate (see, e.g.,
24 CFR 570.201(i), as applicable). The
grantee (or state recipient, as applica-
ble) must adopt a written policy avail-
able to the public that describes the re-
location assistance that the grantee (or
state recipient, as applicable) has
elected to provide and that provides for
equal relocation assistance within each
class of displaced persons.
154
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.611
(e) Acquisition of real property. The ac-
quisition of real property for an as-
sisted activity is subject to 49 CFR
part 24, subpart B.
(f) Appeals. If a person disagrees with
the determination of the grantee (or
the state recipient, as applicable) con-
cerning the person's eligibility for, or
the amount of, a relocation payment
under this section, the person may file
a written appeal of that determination
with the grantee (or state recipient, as
applicable). The appeal procedures to
be followed are described in 49 CFR
24.10. In addition, a low- or moderate -
income household that has been dis-
placed from a dwelling may file a writ-
ten request for review of the grantee's
decision to the HUD Field Office. For
purposes of the State CDBG program, a
low- or moderate -income household
may file a written request for review of
the state recipient's decision with the
State.
(g) Responsibility of grantee or State.
(1) The grantee (or State, if applicable)
is responsible for ensuring compliance
with the requirements of this section,
notwithstanding any third party's con-
tractual obligation to the grantee to
comply with the provisions of this sec-
tion. For purposes of the State CDBG
program, the State shall require state
recipients to certify that they will
comply with the requirements of this
section.
(2) The cost of assistance required
under this section may be paid from
local public funds, funds provided
under this part, or funds available from
other sources.
(3) The grantee (or State and state
recipient, as applicable) must maintain
records in sufficient detail to dem-
onstrate compliance with the provi-
sions of this section.
(Approved by the Office of Management and
Budget under OMB control number 2506-0102)
[61 FR 11477, Mar. 20, 1996, as amended at 61
FR 51760, Oct. 3, 1996]
§ 570.607 Employment and contracting
opportunities.
To the extent that they are otherwise
applicable, grantees shall comply with:
(a) Executive Order 11246, as amended
by Executive Orders 11375, 11478, 12086,
and 12107 (3 CFR 1964-1965 Comp. p. 339•
3 CFR, 1966-1970 Comp., p. 684; 3 CFR,
1966-1970., p. 803; 3 CFR, 1978 Comp., p.
230; 3 CFR, 1978 Comp., p. 264 (Equal
Employment Opportunity), and Execu-
tive Order 13279 (Equal Protection of
the Laws for Faith -Based and Commu-
nity Organizations), 67 FR 77141, 3 CFR,
2002 Comp., p. 258; and the imple-
menting regulations at 41 CFR chapter
60; and
(b) Section 3 of the Housing and
Urban Development Act of 1968 (12
U.S.C. 1701u) and implementing regula-
tions at 24 CFR part 135.
[68 FR 56405, Sept. 30, 2003]
§ 570.608 Lead-based paint.
The Lead -Based Paint Poisoning Pre-
vention Act (42 U.S.C. 4821-4846), the
Residential Lead -Based Paint Hazard
Reduction Act of 1992 (42 U.S.C. 4851-
4856), and implementing regulations at
part 35, subparts A, B, J, K, and R of
this part apply to activities under this
program.
[64 FR 50226, Sept. 15, 1999]
§570.609 Use of debarred, suspended
or ineligible contractors or sub -
recipients.
The requirements set forth in 24 CFR
part 5 apply to this program.
[61 FR 5209, Feb. 9, 1996]
§ 570.610 Uniform administrative re-
quirements and cost principles.
The recipient, its agencies or instru-
mentalities, and subrecipients shall
comply with the policies, guidelines,
and requirements of 24 CFR part 85 and
OMB Circulars A-87, A-110 (imple-
mented at 24 CFR part 84), A-122, A-133
(implemented at 24 CFR part 45), and
A-128 z (implemented at 24 CFR part
44), as applicable, as they relate to the
acceptance and use of Federal funds
under this part. The applicable sections
of 24 CFR parts 84 and 85 are set forth
at § 570.502.
[60 FR 56916, Nov. 9, 1995]
§ 570.611 Conflict of interest.
(a) Applicability. (1) In the procure-
ment of supplies, equipment, construc-
tion, and services by recipients and by
subrecipients, the conflict of interest
155
'See footnote 1 at §570.200(a) (5).
§570.611
provisions in 24 CFR 85.36 and 29 CFR
84.42, respectively, shall apply.
(2) In all cases not governed by 24
CFR 85.36 and 84.42, the provisions of
this section shall apply. Such cases in-
clude the acquisition and disposition of
real property and the provision of as-
sistance by the recipient or by its sub -
recipients to individuals, businesses,
and other private entities under eligi-
ble activities that authorize such as-
sistance (e.g., rehabilitation, preserva-
tion, and other improvements of pri-
vate properties or facilities pursuant to
§ 570.202; or grants, loans, and other as-
sistance to businesses, individuals, and
other private entities pursuant to
§ 570.203, 570.204, 570.955, or 570.703(i)).
(b) Conflicts prohibited. The general
rule is that no persons described in
paragraph (c) of this section who exer-
cise or have exercised any functions or
responsibilities with respect to CDBG
activities assisted under this part, or
who are in a position to participate in
a decisionmaking process or gain in-
side information with regard to such
activities, may obtain a financial in-
terest or benefit from a CDBG-assisted
activity, or have a financial interest in
any contract, subcontract, or agree-
ment with respect to a CDBG-assisted
activity, or with respect to the pro-
ceeds of the CDBG-assisted activity, ei-
ther for themselves or those with
whom they have business or immediate
family ties, during their tenure or for
one year thereafter. For the UDAG pro-
gram, the above restrictions shall
apply to all activities that are a part of
the UDAG project, and shall cover any
such financial interest or benefit dur-
ing, or at any time after, such person's
tenure.
(c) Persons covered. The conflict of in-
terest provisions of paragraph (b) of
this section apply to any person who is
an employee, agent, consultant, officer,
or elected official or appointed official
of the recipient, or of any designated
public agencies, or of subrecipients
that are receiving funds under this
part.
(d) Exceptions. Upon the written re-
quest of the recipient, HUD may grant
an exception to the provisions of para-
graph (b) of this section on a case-by-
case basis when it has satisfactorily
met the threshold requirements of
24 CFR Ch. V (4-1-07 Edition)
(d)(1) of this section, taking into ac-
count the cumulative effects of para-
graph (d)(2) of this section.
(1) Threshold requirements. HUD will
consider an exception only after the re-
cipient has provided the following doc-
umentation:
(i) A disclosure of the nature of the
conflict, accompanied by an assurance
that there has been public disclosure of
the conflict and a description of how
the public disclosure was made; and
(ii) An opinion of the recipient's at-
torney that the interest for which the
exception is sought would not violate
State or local law.
(2) Factors to be considered for excep-
tions. In determining whether to grant
a requested exception after the recipi-
ent has satisfactorily met the require-
ments of paragraph (d)(1) of this sec-
tion, HUD shall conclude that such an
exception will serve to further the pur-
poses of the Act and the effective and
efficient administration of the recipi-
ent's program or project, taking into
account the cumulative effect of the
following factors, as applicable:
(i) Whether the exception would pro-
vide a significant cost benefit or an es-
sential degree of expertise to the pro-
gram or project that would otherwise
not be available;
(ii) Whether an opportunity was pro-
vided for open competitive bidding or
negotiation;
(iii) Whether the person affected is a
member of a group or class of low- or
moderate -income persons intended to
be the beneficiaries of the assisted ac-
tivity, and the exception will permit
such person to receive generally the
same interests or benefits as are being
made available or provided to the
group or class;
(iv) Whether the affected person has
withdrawn from his or her functions or
responsibilities, or the decisionmaking
process with respect to the specific as-
sisted activity in question;
(v) Whether the interest or benefit
was present before the affected person
was in a position as described in para-
graph (b) of this section;
(vi) Whether undue hardship will re-
sult either to the recipient or the per-
son affected when weighed against the
public interest served by avoiding the
prohibited conflict; and
156
Ofc. of Asst. Secy., Comm. Planning, Develop., HUD §570.614
(vii) Any other relevant consider-
ations.
[60 FR 56916, Nov. 9, 1995]
§570.612 Executive Order 12372.
(a) General. Executive Order 12372,
Intergovernmental Review of Federal
Programs, and the Department's imple-
menting regulations at 24 CFR part 52,
allow each State to establish its own
process for review and comment on
proposed Federal financial assistance
programs.
(b) Applicability. Executive Order
12372 applies to the CDBG Entitlement
program and the UDAG program. The
Executive Order applies to all activi-
ties proposed to be assisted under
UDAG, but it applies to the Entitle-
ment program only where a grantee
proposes to use funds for the planning
or construction (reconstruction or in-
stallation) of water or sewer facilities.
Such facilities include storm sewers as
well as all sanitary sewers, but do not
include water and sewer lines con-
necting a structure to the lines in the
public right-of-way or easement. It is
the responsibility of the grantee to ini-
tiate the Executive Order review proc-
ess if it proposes to use its CDBG or
UDAG funds for activities subject to
review.
§ 570.613 Eligibility restrictions for
certain resident aliens.
(a) Restriction. Certain newly legal-
ized aliens, as described in 24 CFR part
49, are not eligible to apply for benefits
under covered activities funded by the
programs listed in paragraph (e) of this
section. "Benefits" under this section
means financial assistance, public serv-
ices, jobs and access to new or rehabili-
tated housing and other facilities made
available under covered activities fund-
ed by programs listed in paragraph (e)
of this section. "Benefits" do not in-
clude relocation services and payments
to which displacees are entitled by law.
(b) Covered activities. "Covered activi-
ties" under this section means activi-
ties meeting the requirements of
§570.208(a) that either:
(1) Have income eligibility require-
ments limiting the benefits exclusively
to low and moderate income persons;
or
(2) Are targeted geographically or
otherwise to primarily benefit low and
moderate income persons (excluding
activities serving the public at large,
such as sewers, roads, sidewalks, and
parks), and that provide benefits to
persons on the basis of an application.
(c) Limitation on coverage. The restric-
tions under this section apply only to
applicants for new benefits not being
received by covered resident aliens as
of the effective date of this section.
(d) Compliance. Compliance can be ac-
complished by obtaining certification
as provided in 24 CFR 49.20.
(e) Programs affected. (1) The Commu-
nity Development Block Grant pro-
gram for small cities, administered
under subpart F of part 570 of this title
until closeout of the recipient's grant.
(2) The Community Development
Block Grant program for entitlement
grants, administered under subpart D
of part 570 of this title.
(3) The Community Development
Block Grant program for States, ad-
ministered under subpart I of part 570
of this title until closeout of the unit
of general local government's grant by
the State.
(4) The Urban Development Action
Grants program, administered under
subpart G of part 570 of this title until
closeout of the recipient's grant.
[55 FR 18494, May 2, 1990]
§ 570.614 Architectural Barriers Act
and the Americans with Disabilities
Act.
(a) The Architectural Barriers Act of
1968 (42 U.S.C. 4151-4157) requires cer-
tain Federal and Federally funded
buildings and other facilities to be de-
signed, constructed, or altered in ac-
cordance with standards that insure
accessibility to, and use by, physically
handicapped people. A building or facil-
ity designed, constructed, or altered
with funds allocated or reallocated
under this part after December 11, 1995,
and that meets the definition of "resi-
dential structure" as defined in 24 CFR
40.2 or the definition of "building" as
defined in 41 CFR 101-19.602(a) is sub-
ject to the requirements of the Archi-
tectural Barriers Act of 1968 (42 U.S.C.
4151-4157) and shall comply with the
Uniform Federal Accessibility Stand-
ards (appendix A to 24 CFR part 40 for
157
§ 570.700
residential structures, and appendix A
to 41 CFR part 101-19, subpart 101-19.6,
for general type buildings).
(b) The Americans with Disabilities
Act (42 U.S.C. 12131; 47 U.S.C. 155, 201,
218 and 225) (ADA) provides comprehen-
sive civil rights to individuals with dis-
abilities in the areas of employment,
public accommodations, State and
local government services, and tele-
communications. It further provides
that discrimination includes a failure
to design and construct facilities for
first occupancy no later than January
26, 1993, that are readily accessible to
and usable by individuals with disabil-
ities. Further, the ADA requires the re-
moval of architectural barriers and
communication barriers that are struc-
tural in nature in existing facilities,
where such removal is readily achiev-
able—that is, easily accomplishable
and able to be carried out without
much difficulty or expense.
[60 FR 56917, Nov. 9, 1995]
Subpart L [Reserved]
Subpart M—Loan Guarantees
SOURCE: 59 FR 66604, Dec. 27, 1994, unless
otherwise noted.
§ 570.700 Purpose.
This subpart contains requirements
governing the guarantee under section
108 of the Act of debt obligations as de-
fined in § 570.701.
§ 570.701 Definitions.
Borrower means the public entity or
its designated public agency that
issues debt obligations under this sub-
part.
Debt obligation means a promissory
note or other obligation issued by a
public entity or its designated public
agency and guaranteed by HUD under
this subpart, or a trust certificate or
other obligation offered by HUD or by
a trust or other offeror approved for
purposes of this subpart by HUD which
is guaranteed by HUD under this sub-
part and is based on and backed by a
trust or pool composed of notes or
other obligations issued by public enti-
ties or their designated public agencies
24 CFR Ch. V (4-1-07 Edition)
and guaranteed or eligible for guar-
antee by HUD under this subpart.
Designated public agency means a pub-
lic agency designated by a public enti-
ty to issue debt obligations as borrower
under this subpart.
Entitlement public entity means a met-
ropolitan city or an urban county re-
ceiving a grant under subpart D of this
part.
Guaranteed loan funds means the pro-
ceeds payable to the borrower from the
issuance of debt obligations under this
subpart.
Nonentitlement public entity means
any unit of general local government
in a nonentitlement area.
Public entity shall have the meaning
provided for the term "Eligible public
entity" in section 108(o) of the Act.
State -assisted public entity means a
unit of general local government in a
nonentitlement area which is assisted
by a State as required in §570.704(b)(9)
and § 570.705 (b) (2) .
[59 FR 66604, Dec. 27, 1994, as amended at 61
FR 11481, Mar. 20, 1996]
§ 570.702 Eligible applicants.
The following public entities may
apply for loan guarantee assistance
under this subpart.
(a) Entitlement public entities.
(b) Nonentitlement public entities
that are assisted in the submission of
applications by States that administer
the CDBG program (under subpart I of
this part). Such assistance shall con-
sist, at a minimum, of the certifi-
cations required under §570.704(b)(9)
(and actions pursuant thereto).
(c) Nonentitlement public entities el-
igible to apply for grant assistance
under subpart F of this part.
§ 570.703 Eligible activities.
Guaranteed loan funds may be used
for the following activities, provided
such activities meet the requirements
of § 570.200. However, guaranteed loan
funds may not be used to reimburse the
CDBG program account or line of cred-
it for costs incurred by the public enti-
ty or designated public agency and paid
with CDBG grant funds or program in-
come.
(a) Acquisition of improved or unim-
proved real property in fee or by long -
158