CITY OF REDWOOD CITYLocal Government

Finding# SA 2019-001: Monitoring CDBG Program Activities for Compliance with Program Rules & Regulations CFDA Number: 14.218 CFDA Title: Community Development Block Grants/Entitlement Grants (CDBG) Federal Agency: Department of Housing and Urban Development Federal Award Identification Number: B-18-MC-06-0014 Criteria: The audit cost charged to the CDBG program must be a proportionate share of the cost. [2 CFR 200.425(a); 24 CFR 570.502]. Additionally, the City utilized a standard loan agreement for CDBG and HOME under 24 CFR 92.504(c), HOME written agreement must be a stand-alone document that included all required provisions. Condition: The City underwent a monitoring review by the grantor in July 2019 related to the fiscal year 2017 CDBG and HOME Programs, the results of which were issued in December 2019. The monitoring review results included two findings related to the CDBG program and one concern pertaining to the City not having separate funds for CDBG and HOME. The first finding for the CDBG program was related to the City overcharging its CDBG program. The City received other federal funding. However, the City charged the cost of the single audit to the CDBG program only. The second finding for the CDBG and HOME program, wherein the City utilized its standard loan agreement and affordability restriction document to convey HOME requirements. The City used the same agreement to provide the City's AHF, CDBG, and HOME funding to HHDC. The HOME agreement does not contain all the HOME provisions, and some provisions lack sufficient detail. The reported concern is the City keeps track of CDBG and HOME in the same fund. Under the combined entitlement fund, each CDBG and HOME activity is assigned a unique department number. The CDBG and HOME program income is also set up in the same fund: Fund 258 ? Federal Community Development Block Grant (CDBG & HOME) Fund 257 ? Rental Income Fund (CDBG and HOME) Questioned Costs: We questioned the prior year costs noted by HUD as identified by HUD in the first finding above. Based on our review of City?s reconciliation, the overcharged audit fee for FY17 and FY18 was $4,061.43, which City is in process of reimbursing to HUD by March 31, 2020. Effect: The effects listed in HUD?s monitoring visit letter include: Finding one - The CDBG program was overcharged. Finding two - The written agreement is missing required provisions and some provisions lack sufficient detail. When HOME requirements are not conveyed in a stand-alone document, it is easy to miss required provisions or use other program's requirements. The written agreement is an important management tool. It is used to ensure compliance and performance. Provisions specified in HOME regulations are minimally required provisions. Concern - At the fund level, it is not clear if the tracking is for CDBG or HOME. Cause: The causes listed in HUD?s monitoring visit letter include: Finding one - The City staff were not sufficiently trained on financial management requirements. The City did not know to allocate a proportionate share of the audit cost to the CDBG program. Finding two - The City staff were not sufficiently trained and did not know that a HOME written agreement must be a stand-alone document. Concern one - The City has decided to track CDBG and HOME in the same fund. Recommendation: Overall, the City should respond and address the recommendations as stated in HUD?s monitoring visit letter in a timely manner. Below are HUD?s recommendation: Finding One - Within 30 days of the date of this letter, HUD requests that the City repay HUD the amount that was overcharged to the CDBG program. On 02/06/2020, City issued a check of $1,565.63 to HUD for the overcharge related to the SEFA audit fee. Finding two - To address this deficiency, HUD requests that the City execute an addendum agreement. The HOME written agreement must be a stand-alone document with all the provisions in sufficient detail. 24 CFR 92.504 delineates the types of written agreements and the required content. Specific required provisions depend on the activity and the role of the parties. Agreement with a CHDO using CHDO set-aside funds includes and requires the same provisions as a written agreement with any other owner, developer, or sponsor and applicable requirements. 24 CFR 92.504(c)(3) lists out the required and recommended provisions that should be in the agreement with HHDC. City has since obtained an outside legal counsel to start drafting the agreement. Concern one - HUD recommends that the City consider setting up a separate fund for CDBG and HOME entitlement and program income. As the City's project portfolio grows, creating a separate fund for each program will make tracking expenditures clearer.

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