[Federal Register Volume 64, Number 137 (Monday, July 19, 1999)]
[Rules and Regulations]
[Pages 38812-38813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18378]
[[Page 38811]]
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Part VI
Department of Housing and Urban Development
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24 CFR Part 570
Community Development Block Grant (CDBG) Program; Clarification of the
Nature of Required CDBG Exenditure Documentation; Final Rule
Federal Register / Vol. 64, No. 137 / Monday, July 19, 1999 / Rules
and Regulations
[[Page 38812]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 570
[Docket No. FR-4449-I-01]
RIN 2506-AC00
Community Development Block Grant (CDBG) Program; Clarification
of the Nature of Required CDBG Expenditure Documentation
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, HUD.
ACTION: Interim rule.
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SUMMARY: This rule clarifies the level of expenditure documentation
that is needed to meet the financial management requirement that
grantees and subrecipients maintain adequate records to identify the
use of Community Development Block Grant (CDBG) funds provided for
assisted activities. This change will provide the public with more
assurance that CDBG funds are used only for allowable purposes.
DATES: Effective Date: August 18, 1999.
Comments Due Date: September 17, 1999.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Rules Docket Clerk, Regulations Division, Office of
the General Counsel, Room 10276, Department of Housing & Urban
Development, 451 Seventh Street, SW, Washington, DC 20410-8000.
Communications should refer to the above docket number and title. A
copy of each communication submitted will be available for public
inspection and copying between 7:30 a.m. and 5:30 p.m. weekdays at the
above address. Facsimile (fax) comments will not be accepted.
FOR FURTHER INFORMATION CONTACT: Sue Miller, Entitlement Communities
Division, Office of Community Planning and Development, Department of
Housing and Urban Development, 451 Seventh Street, SW, Washington, DC
20410, telephone (202) 708-1577. Persons with hearing or speech-
impairments may call 1-800-877-8339 (Federal Information Relay Service
TTY). (Other than the ``800'' number, these are not toll-free numbers.)
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act Statement
The information collection requirements contained in this rule have
been approved by the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520), and assigned OMB control number 2506-0077. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the collection displays a valid
control number.
Background
The Office of Inspector General (OIG) audits have found various
cases in which grantees and subrecipients were not maintaining
sufficient documentation to clearly identify the actual use of
Community Development Block Grant (CDBG) funds provided to assisted
projects. This issue has particularly arisen in regard to special
economic development activities where the funds are ultimately expended
by for-profit businesses. Such lack of appropriate documentation
increases the potential for misuse of CDBG funds. This rule clarifies
the level of documentation that is needed for grantees and
subrecipients to demonstrate compliance with the existing financial
management requirements in 24 CFR parts 84 and 85 relating to
maintaining adequate records to identify the use of funds provided for
assisted activities. This change will provide the public with more
assurance that CDBG funds are used only for allowable purposes.
OMB Uniform Administrative Requirements for grants to local
governments and nonprofit organizations have long required that
grantees and subrecipients maintain records which adequately identify
the source and application of funds provided for financially-assisted
activities. This requirement is found at Sec. 85.20(b)(2) for local
governments and at Sec. 84.21(b)(2) for nonprofit organizations. These
requirements are specifically made applicable to the CDBG program by
Secs. 570.502(a)(4) and (b)(3), respectively. The CDBG regulations at
Sec. 570.506(h) also require maintaining financial records in
accordance with the applicable requirements listed in Sec. 570.502.
Most grantees and subrecipients comply satisfactorily with the
subject requirement, particularly for those activities that the grantee
and/or subrecipient directly implements or for which it procures goods
or services. Problems are most likely to occur in instances where the
grantee and/or subrecipient provides CDBG financial assistance to an
entity that is neither a contractor nor a subrecipient, but rather
possesses characteristics of a ``beneficiary.'' Such entities carry out
assisted activities directly and are not subject to the provisions of
24 CFR part 84 or part 85.
A common example of these latter type of assisted activities is
that of a grantee making a CDBG economic development loan to a for-
profit business to carry out an economic development project. The
private business is then generally responsible for all direct
implementation actions and is not governed by the OMB uniform
administrative requirements. The grantee must thus exercise due
diligence in obtaining documentation from the business to support the
use of CDBG funds in order to ensure that the grantee is in compliance
with its responsibilities under the uniform administrative requirements
which only allow costs that are necessary, reasonable, and adequately
supported to be charged to the CDBG program.
In the example case, the grantee's records relating to its review
and approval of the business' loan application are not sufficient to
provide the adequate documentation of the ``application of funds''
required by Sec. 85.20(b)(2). The grantee's loan agreement with the
business and related security filings, while important, are also not in
themselves adequate to document the actual use of the funds. The
grantee must have records to support the scope of the activity that is
actually accomplished and to clearly demonstrate how the CDBG funds
were used to assist the activity.
This interim rule amends 24 CFR 570.506(h) to clarify the extent of
documentation needed to meet the financial management requirement that
grantees and subrecipients maintain adequate records to identify the
use of funds provided for assisted activities. A broad range of types
of documentation is described in an effort to reflect the myriad of
different activities and financing mechanisms that can be undertaken
with CDBG funds. Comment on this method of addressing the issue of
adequate financial support documentation is welcome.
Justification for Interim Rulemaking
In general, the Department publishes a rule for public comment
before issuing a rule for effect, in accordance with its own
regulations on rulemaking at 24 CFR part 10. Part 10, however, does
provide in Sec. 10.1 for exceptions from that general rule where the
Department finds good cause to omit advance notice and public
participation. The good cause requirement is satisfied when the prior
public procedure is ``impracticable, unnecessary, or contrary to the
public interest.''
[[Page 38813]]
The Department finds that good cause exists to publish this interim
rule for effect without first soliciting public comment because this
rule clarifies requirements already in place for grantees and
subrecipients. In consideration of this fact, advance public comment
was determined not necessary, but HUD welcomes comments from the public
and is soliciting comment on this rule.
Findings and Certifications
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so
doing certifies that this rule will not have a substantial economic
impact on small entities. This interim rule will have no economic
impact on small entities since it is a clarification of existing
policy. Notwithstanding HUD's determination regarding small entities,
HUD specifically invites comments regarding alternatives to this rule
that would meet HUD's objectives as described in this preamble.
Environmental Impact
This amendment is categorically excluded from environmental review
under the National Environmental Policy Act (42 U.S.C. 4321). In
keeping with the exclusion provided for in 24 CFR 50.19(c)(1), this
amendment does not direct, provide for assistance or loan and mortgage
insurance for, or otherwise govern or regulate, real property
acquisition, disposition, leasing, rehabilitation, alteration,
demolition, or new construction; or establish, revise, or provide for
standards for construction or construction materials, manufactured
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(2), this
amendment is categorically excluded because it amends an existing
document where the existing document as a whole would not fall under
the exclusion in 24 CFR 50.19 (c)(1), but the amendment by itself would
do so.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this interim
rule will not have substantial direct effects on States or their
political subdivisions, or the relationship between the Federal
Government and the States, or on the distribution of power and
responsibilities among the various levels of government. The
clarification resulting from this interim rule will not affect the
relationship between the Federal Government and State and local
governments.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance numbers for the
Community Development Block Grants program are 14.218, 14.219, 14.225,
14.227, 14.246, and 14.248.
List of Subjects in 24 CFR Part 570
Administrative practice and procedure, American Samoa, Community
development block grants, Grant programs--education, Grant programs--
housing and community development, Guam, Indians, Lead poisoning, Loan
programs--housing and community development, Low and moderate income
housing, New communities, Northern Mariana Islands, Pacific Islands
Trust Territory, Pockets of poverty, Puerto Rico, Reporting and
recordkeeping requirements, Small cities, Student aid, Virgin Islands.
Accordingly, 24 CFR part 570 is amended as follows:
PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS
1. The authority citation for part 570 continues to read as
follows:
Authority: 42 U.S.C. 3535(d) and 5300-5320.
2. Section 570.506 is amended by revising paragraph (h) to read as
follows:
Sec. 570.506 Records to be maintained.
* * * * *
(h) Financial records, in accordance with the applicable
requirements listed in Sec. 570.502, including source documentation 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
entities are expended. Such documentation must include, to the extent
applicable, invoices, schedules containing comparisons of budgeted
amounts and actual expenditures, construction progress schedules signed
by appropriate parties (e.g., general contractor and/or a project
architect), and/or other documentation appropriate to the nature of the
activity.
* * * * *
Dated: June 16, 1999.
Cardell Cooper,
Assistant Secretary for Community Planning and Development.
[FR Doc. 99-18378 Filed 7-16-99; 8:45 am]
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