[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]


      

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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  

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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.''

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    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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