# CHAPTER 4.0: Participant Exercises

## 4.1 Overview

The questions and answers provided here are reproduced from the
subrecipient handbook [Playing by the Rules]{.underline}. They may be
used in a training scenario to:

-   Identify the level of knowledge of participants at the beginning of
    training (for advanced subrecipients).

-   Initiate discussions around key issues identified during the
    trainers' presentations.

-   Establish participant comprehension of materials presented in the
    sessions.

## 4.2 Exercise for Financial Management

### Circle the Correct Answer

###  

1.  Which of the following are components of an organization's system of
    *internal controls* for financial management?

```{=html}
<!-- -->
```
(a) Written procedures and policies.

(b) Specified job responsibilities.

(c) Job qualifications.

(d) Accounting records.

(e) All of the above.

```{=html}
<!-- -->
```
2.  The sole purpose of *accounting records* is to provide reliable and
    up-to-date information on the cash controlled by an organization or
    agency.

**TRUE** **FALSE**

3.  An expenditure by a subrecipient will be considered an *allowable*
    CDBG expense if it is necessary to carry out an approved activity,
    and is not explicitly prohibited by Federal, state or local
    regulations.

**TRUE** **FALSE**

4.  *Source documentation* does not have to be located in the CDBG
    project files.

**TRUE** **FALSE**

5.  An effective system of *budget controls* requires a periodic
    comparison of actual obligations and expenditures against planned
    obligations and expenditures, and against projected accomplishments
    for such outlays.

**TRUE** **FALSE**

6.  Interest income from CDBG advances and revolving loan accounts may
    be retained by the subrecipient as program income.

**TRUE** **FALSE**

*The answers are on next page.*

## Exercise for Financial Management (continued)

## [Answers to questions from preceding page]{.underline}

1\. "(e) All of the above."

2\. ***FALSE.*** The purpose of accounting records is to provide
information *not only on cash* but also on *all the assets and
liabilities* of an organization, including property, receivables,
payables, and other obligations.

3\. ***FALSE.*** The fact that an expenditure is both necessary and not
explicitly prohibited by law and program regulations *is only part of
the criteria* that must be met for it *to be considered an allowable
CDBG expense*. In addition, the expenditure must:

-   Have been authorized by the grantee (through an approved budget or
    other mechanism).

-   Be reasonable.

-   Have been treated by the subrecipient in a manner consistent with
    its normal procedures for computing costs.

-   Be allocable to an approved CDBG cost objective.

-   Be net of all applicable credits.

4\. ***TRUE.** Source documentation* *does not have to be stored in the
CDBG project files* *so long as it is readily available to be reviewed
by the grantee, HUD, or other authorized representatives*. In general,
however, subrecipients will find that it is more efficient in the long
run to maintain as much project information as possible in files
specifically dedicated to their CDBG activities.

5\. ***TRUE.***

6\. ***FALSE.*** One of the primary purposes of a subrecipient's *cash
management* system is to minimize the time between receipt of CDBG funds
and their disbursement; therefore, if the subrecipient's system is
working efficiently, *there shouldn't be any interest income* generated
on cash advances. In fact, 24 CFR 570.500(a)(2) makes explicit that *the
definition of program income does not include interest earned on the
investment of the initial proceeds of a grant advance, including funds
advanced from a grantee to a subrecipient*, and any such funds must be
promptly remitted to the U.S. Treasury. Moreover, 570.500(b) makes it
clear that cash balances held in a revolving fund must be held in an
interest-bearing account and that any interest earned on funds held in
such an account will be considered to be interest income generated on a
cash advance and must be remitted to the Treasury at least annually.

## 4.3 Exercise for Procurement and Contracting

### Circle the Correct Answer

1.  The reason for Federal competitive procurement requirements is:

```{=html}
<!-- -->
```
(a) To ensure that supplies, equipment, and services are acquired
    efficiently.

(b) To help guarantee a "fair" price for items or services bought with
    Federal funds.

(c) To give the public confidence in the procurement practices of
    Federal assistance programs.

(d) To allow more firms, particularly local firms, small businesses, and
    minority- or women-owned businesses, to have an opportunity to
    compete for work under Federal programs.

(e) All of the above.

```{=html}
<!-- -->
```
2.  A cost or price analysis and documentation of the procurement
    process are only required for *major purchases*.

**TRUE** **FALSE**

3.  A governmental subrecipient is justified in breaking up a
    procurement into components of \$100,000 or less in order to utilize
    the "small purchase" procedures so long as the procurement process
    for each purchase is still competitive.

**TRUE** **FALSE**

4.  The "Section 3" requirements for awarding work to local business
    concerns takes precedence over the competitive procurement
    requirements.

**TRUE** **FALSE**

*The answers are on next page.*

## Exercise for Procurement and Contracting (continued)

**[Answers to questions from preceding page]{.underline}**

1.  "(e) All of the above."

2.  ***FALSE***. A subrecipient must do a cost or price analysis and
    maintain documentation of the procurement process for *every*
    procurement. However, the level of complexity of the analysis and
    detail of the documentation should vary by the size of the
    procurement and the extent of competitiveness in the process.
    Therefore, the purchase of desktop stationary supplies will require
    that the subrecipient maintain a very modest level of documentation
    of how comparative prices were analyzed (through catalogs and/or
    price quotes). A sole source procurement, on the other hand, will
    require much more extensive documentation to justify the
    noncompetitive process and to demonstrate that the price incurred
    was fair.

3.  ***FALSE***. The standard for "small purchases" is that the
    procurement for services, supplies, or property does not cost more
    than \$100,000 *in the aggregate*. Therefore, for example, it is not
    allowable to break up arbitrarily a \$150,000 procurement of
    weatherization materials into three \$50,000 purchases just to be
    able to use the less complicated "small purchase" procedures. The
    purchase of such materials should be handled through a *sealed bid*
    method of procurement, with the larger purchase volume entailed in
    this approach likely to result in lower per unit prices.

4.  ***FALSE***. *Both* sets of requirements must be satisfied.
    Therefore, the competitive procurement procedures adopted by the
    subrecipient also must be designed to facilitate and encourage local
    businesses to compete for the proposed work.

## 4.4 Exercise for Property Management and Disposition

### Circle the Correct Answer

1.  For **real property** controlled by a subrecipient and acquired or
    improved with CDBG funds in excess of \$25,000, what is the
    *minimum* period of time following the expiration of the
    Subrecipient Agreement that such property must be used to continue
    to meet a national objective?

```{=html}
<!-- -->
```
(a) 1 year. (b) 3 years.

> \(c\) 5 years. (d) 10 years.
>
> \(e\) As long a period as the grantee feels is appropriate.

2.  When are the proceeds from a subrecipient's sale of equipment
    purchased with CDBG funds considered to be **program income?**

```{=html}
<!-- -->
```
(a) Never.

(b) When the proceeds are returned to the grantee as compensation for
    the original CDBG funding.

(c) When the net proceeds exceed the compensation due to the grantee.

(d) When the depreciated value of the equipment exceeds the CDBG portion
    of the original acquisition cost.

(e) Always.

```{=html}
<!-- -->
```
3.  A non-profit subrecipient has in inventory a computer acquired with
    CDBG funds that is currently worth less than \$500. The subrecipient
    may retain it without paying the grantee for its current value if
    the grantee does not need it for any other Federally sponsored
    program or project.

**TRUE** **FALSE**

4.  The Federal Government's copyright license for any written work
    developed by a subrecipient with CDBG funds does not preclude the
    subrecipient from reproducing or otherwise publishing such work.

**TRUE** **FALSE**

*The answers are on next page.*

**Exercise for Property Management and Disposition (continued)**

**[Answers to questions from preceding page]{.underline}**

1.  The correct answer is "(c) 5 years." Although a grantee may
    stipulate a longer time period (in a closeout agreement, for
    example), 5 years is the *minimum* period during which such property
    must continue to be used to address a CDBG National Objective. If,
    on the other hand, during that time period a national objective is
    no longer being met or the subrecipient chooses to dispose of the
    real property, the subrecipient must reimburse the grantee for the
    fair market value of the property, less any portion attributable to
    non-CDBG funds.

```{=html}
<!-- -->
```
2.  The correct answer is "(e) always," with the qualification that if a
    portion of the equipment purchase was financed with non-CDBG funds,
    only the CDBG portion of the proceeds would be program income for
    the purposes of the CDBG program.

3.  ***FALSE*.** The pertinent regulations for non-profit subrecipients
    \[24 CFR 570.502(a)(8) and (b)(3)(vi)\] require that, regardless of
    the dollar value, equipment acquired with CDBG funds and no longer
    needed by the subrecipient for CDBG activities must be transferred
    to the grantee or retained by the subrecipient only after
    compensating the grantee.

4.  ***TRUE*.** Although the Federal Government reserves a copyright
    license on such work, it is a *nonexclusive* license.

## 4.5 Exercise for Record-Keeping and Reporting Requirements

**Review the following examples and indicate whether the approach being
taken is adequate or inadequate. Where you feel the approach is
"inadequate," explain why and what might be done differently.**

1.  John Smith, the program director for the CDBG-funded housing
    rehabilitation activities of Housing Alliance, Inc., worked
    diligently with his staff to ensure that every case file contained
    the information specified in the Subrecipient Agreement for
    necessary records. As a result, in preparing periodic progress
    reports, Mr. Smith was able to review each case file and be
    confident of finding all the data necessary to be included in the
    reports.

> Adequate?
>
> Inadequate? Comment:
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

2.  Four years had passed since the submission of the grantee's final
    Comprehensive Annual Performance and Evaluation Report detailing
    Family Support, Inc.'s counseling services. The independent public
    accountant (IPA) audit performed for Family Support for the time
    period in question had not included any findings or questioned costs
    relating to this project. Joanne White, the executive director of
    Family Support, Inc., consequently directed her staff to discard the
    records of this CDBG-funded activity.

> Adequate?
>
> Inadequate? Comment:
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3.  Delroy Blaise wanted his subrecipient agency to take advantage of
    the efficiencies of automated data processing for its record-keeping
    and reporting functions but did not have anybody on his staff with
    computer expertise. Therefore, he hired a computer consultant who
    assisted the agency in purchasing a microcomputer and wrote specific
    software for entering data and generating reports for all the
    information currently required by the grantee, and trained the staff
    in its use.

> Adequate?
>
> Inadequate? Comment:
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

*The answers are on next page.*

## Exercise for Record-Keeping and Reporting Requirements (continued)

**[Answers to questions from preceding page]{.underline}**

Each of the three cases on the previous page is an example of a
situation where the subrecipient in all probability is in *technical
compliance with the requirements* for record keeping and reporting but
may not be taking sufficient action to maximize the efficiency of its
operations to avoid future problems.

1.  Although John Smith has taken pains to ensure that his agency could
    provide the grantee with the required report data, the necessity of
    having to comb through each case file each time a report is due
    might not be an efficient use of his agency's personnel resources.
    Mr. Smith's organization should also have developed summary sheets
    of the case files and chronological program logs with key
    characteristics, from which periodic aggregate tallies could be
    derived much more efficiently.

```{=html}
<!-- -->
```
2.  The 4-year retention rule for records might best be viewed as a
    *minimum*. It is always theoretically possible that an entity like
    the HUD Office of the Inspector General (OIG) or the General
    Accounting Office (GAO) may show up to perform an audit after the 4
    years have elapsed and request access to such records in support of
    some questionable costs. Therefore, even after 4 years, for your own
    protection, it is probably best to place the records in storage for
    a year or so rather than to discard or destroy them.

3.  When automating record-keeping and reporting functions, a key
    consideration is **ongoing flexibility.** In this case, because the
    software was designed specifically for the *current*
    records/reporting requirements, if the data desired by either the
    subrecipient or the grantee changed, it is not clear that the agency
    had acquired the technical capacity to modify its computer system
    accordingly. The agency may have been better served if it had
    purchased a more "user friendly" generic software package that its
    own staff could learn to modify.

These examples have been included to remind the reader that the
requirements contained in the handbook represent **minimum standards**
for administrative, financial, and management systems. These minimums
should not automatically become your maximums. Although HUD cannot
*require* grantees and subrecipients to go beyond these regulatory
standards, it is often in your agency's interest to strive for the "best
management practice" possible, or to build an extra margin into your
systems, in recognition of the fact that there will always be some
unexpected demands on these systems or other problems that will arise
over time.

**4.6 Exercise for Other Administrative and Program Requirements**

**[Circle the Correct Answer]{.underline}**

1.  Available program income must be used by the subrecipient before
    requesting additional grant funds from the grantee.

**TRUE** **FALSE**

2.  Program income must be used by the subrecipient for the same
    CDBG-funded activity that generated it.

**TRUE** **FALSE**

3.  Amendments to the Subrecipient Agreement are only necessary if the
    amount of the CDBG funding or the period in which it will be
    available is to be changed.

**TRUE** **FALSE**

4.  Regardless of the National Objective being addressed by a
    CDBG-funded public construction activity, in carrying out that
    activity, a subrecipient must ensure that to the greatest extent
    feasible, jobs are made available to local low- and moderate-income
    persons.

**TRUE** **FALSE**

5.  Davis-Bacon "prevailing wage" standards apply to all CDBG-funded
    construction or rehabilitation projects.

**TRUE** **FALSE**

6.  Subrecipients are required to perform an environmental review before
    incurring any program expenses in connection with a CDBG-funded
    activity.

**TRUE** **FALSE**

7.  In areas identified by FEMA as having special flood hazards, the
    National Flood Insurance requirements apply only to CDBG-funded new
    construction projects.

**TRUE** **FALSE**

8\. The "one-for-one replacement" rule for low/moderate income dwelling
units that are demolished as a result of a CDBG-funded project only
applies if the unit was occupied at the time that the CDBG project was
initiated.

**TRUE** **FALSE**

9.  In a structure to be rehabilitated that has historic significance
    and is found to contain lead paint, the lead-based paint abatement
    requirements take precedence over the historic preservation
    requirements.

**TRUE** **FALSE**

10. If a contractor, who sits on the board of directors of a non-profit
    subrecipient, offers to donate his time to perform rehabilitation on
    the subrecipient's homeless shelter, there is no conflict of
    interest if the contractor is only reimbursed for the cost of
    materials.

**TRUE** **FALSE**

11. A grantee may only perform an on-site monitoring at a time
    convenient to the subrecipient, and during that monitoring the
    grantee does not have a right to inspect individual client files.

**TRUE** **FALSE**

*The answers are on next page.*

## Exercise on Other Administrative and Program Requirements (continued) 

**[Answers to questions from preceding pages]{.underline}**

1.  ***TRUE.*** According to 24 CFR 570.504(b)(2), program income on
    hand must be used before drawing down additional grant funds,
    **except** in the instance of program income in a revolving fund, in
    which case the subrecipient must use the program income for the
    activity for which the revolving fund was established before drawing
    down additional funds for that same activity.

2.  ***FALSE.*** The Subrecipient Agreement must specify whether the
    subrecipient will be allowed to retain program income \[per 24 CFR
    570.504(c)\]. The Agreement should also specify the CDBG activities
    for which this program income may be used, which do not have to be
    the same activities that generated it. For example, the Agreement
    could specify that program income generated from repayment of
    economic development loans to for-profit businesses is to be used
    subsequently for housing rehabilitation loans. On the other hand,
    the grantee could authorize the subrecipient to keep the income in a
    revolving fund, in which case it would have to be used for making
    other economic development loans.

3.  ***FALSE.*** In addition to changes to the total funding and period
    of performance, there are a variety of other circumstances under
    which a formal amendment to the Agreement should be executed. For
    example, a formal amendment should be made if additional activities
    are added to the scope of work, funds are substantially re-budgeted
    among activities, or the performance objectives for a particular
    activity are modified. Although sometimes incorrectly dismissed as a
    mere formality, written amendments serve to protect both the grantee
    and the subrecipient by making explicitly clear what the current
    expectations and legal responsibilities are for each party to the
    agreement.

4.  ***TRUE.*** A requirement of Section 3 of the Housing and Community
    Development Act of 1974, as amended, states that it is the
    responsibility of grantees and subrecipients to make every
    reasonable effort to ensure that such employment opportunities are
    created for low- and moderate-income persons within in the area.

5.  ***FALSE*.** In general, Davis-Bacon "prevailing wage" standards
    apply only to construction contracts in excess of \$2,000 for
    construction work financed in whole or in part with CDBG assistance.
    For rehabilitation or new construction of residential properties, a
    CDBG-financed project is only subject to Davis-Bacon requirements if
    the property includes eight (8) or more units.

6.  ***FALSE.*** Although a subrecipient is not allowed to incur program
    expenses for a CDBG project prior to the receipt of environmental
    clearance, it is the *grantee* that has the responsibility of
    completing the environmental review, *not* the subrecipient.

7.  ***FALSE.*** The National Flood Insurance Program requirements apply
    to *any CDBG-funded acquisition or construction project (including
    rehabilitation)* in a community that has had notice from FEMA for
    more than a year that the project area has special flood hazards.

8.  ***FALSE.*** The "one-for-one replacement" requirement applies if
    the low/moderate-income unit had been *occupiable* and not just if
    it was actually occupied.

9.  ***FALSE.*** Both the lead-based paint abatement and the historic
    preservation requirements must be satisfied. If the subrecipient
    cannot comply with both sets of requirements with the available
    funding, then it cannot assist the unit.

10. ***FALSE*.** Even if the contractor only receives reimbursement for
    materials "at cost," the contractor will be considered to have a
    "financial interest" and therefore a conflict would exist. However,
    the grantee could request that HUD provide an exception in
    accordance with § 570.611(d) in this type of instance, where the
    contractor's interest does not include payment for his or her
    services.

```{=html}
<!-- -->
```
11. ***FALSE.*** In its efforts to fulfill its oversight
    responsibilities, a grantee is given broad discretion in the
    establishment of schedules for on-site visits and for examining any
    program records that it deems necessary for monitoring compliance
    with CDBG requirements. However, it is good practice to consider the
    subrecipient's situation when scheduling such a visit, so as not to
    create too much of an inconvenience.

## 4.7 Exercise for Audits

### Circle the Correct Answer

1.  A non-profit subrecipient that has expended \$35,000 in Federal
    financial assistance in a single year must have:

```{=html}
<!-- -->
```
(a) An audit of its entire operations.

(b) A program-specific financial audit for each Federal award.

(c) Either (a) or (b).

(d) No audit is required.

```{=html}
<!-- -->
```
2.  A non-profit subrecipient that has expended a total of \$350,000 in
    Federal financial assistance in a single year, but only from one
    Federal program, must have:

```{=html}
<!-- -->
```
(a) An audit of its entire operations.

(b) A program-specific financial audit for the Federal award.

(c) Either (a)" or (b).

```{=html}
<!-- -->
```
3.  Which of the following are necessary components of a financial audit
    report under the Single Audit Act?

```{=html}
<!-- -->
```
(a) An organizational chart or description of the entity's
    organizational structure.

(b) Financial statements and schedule of Federal assistance.

(c) An inventory of non-disposable property.

(d) An itemization of personnel positions and salaries.

(e) An evaluation of internal control systems.

(f) A report on compliance.

(g) An assessment of the entity's efficiency and effectiveness in its
    operation of the Federal program(s).

```{=html}
<!-- -->
```
4.  A subrecipient may procure independent audit services from any
    source of its choosing.

**TRUE** **FALSE**

5.  Cost considerations must be the dominant factor in the selection of
    auditors.

**TRUE** **FALSE**

6.  Since the Single Audit Act mandates a single audit for non-profit
    subrecipients that expend a certain level of funds in a single year
    from multiple Federal programs, the non-profit can charge the *full*
    cost of the audit to those Federal programs.

**TRUE** **FALSE**

*The answers are on next page.*

## Exercise for Audits (continued) 

Answers to questions from preceding pages

1.  "(d)." No audit is required because the subrecipient expended less
    than the \$300,00 in total Federal assistance that triggers the
    requirement for an audit.

2.  \(c\) The subrecipient may have either type of audit.

3.  "(b)," "(e)," and "(f)."

4.  ***FALSE.*** Subrecipients must follow procurement rules in either
    the Federal Acquisition Regulation or in 24 CFR Parts 84 or 85, as
    applicable.

5.  ***FALSE.*** Cost should only be a selection factor when the other
    selection criteria such as the qualifications and independence of
    the firms being considered have been met.

6.  ***TRUE.*** Since the audit is a mandated Federal requirement, the
    Federal programs can pay the full cost of the audit.

## 4.8 Exercise for Closeout Procedures

**[Circle the Correct Answer]{.underline}**

1.  On the date that its Subrecipient Agreement with the Midtown
    Community Development Agency expired, the non-profit Family Services
    Organization submitted final performance, financial status, and
    inventory reports, and a final request for payment. Once the final
    payment is received from the grantee, can this subrecipient consider
    itself "closed-out?"

**YES** **NO**

2.  Although it is CDBG-funded, \$500,000 housing rehabilitation effort
    over the last year had not yet been audited, when the funds were
    fully expended and assisted units completed, the Mica City Housing
    Authority submitted its final reports to the Mica City CD Office and
    received certification that the grantee considered its program to be
    closed-out. Must the Mica City Housing Authority still arrange for
    an audit of its CDBG funds?

**YES** **NO**

3.  As a subrecipient under Central County's CDBG program, the city of
    Lobos had implemented a public facilities effort aimed at removing
    architectural barriers, with the municipality agreeing in the
    Subrecipient Agreement to match the CDBG funds in the project on a
    dollar-for-dollar basis with city funds. The project had been
    formally closed out by the time that the city contracted for an IPA
    audit of this activity. The completed audit, however, revealed that
    the final costs of the public facilities effort and the amount
    contributed as the city's match against the CDBG assistance were
    less than the figures previously submitted by Lobos in its final
    reports for closeout. Can the grantee still disallow some of the
    expenses covered with CDBG funds?

**YES** **NO**

4.  The subrecipient, Housing Resources, Inc., had been operating a
    CDBG-funded rehabilitation grant program for low- and
    moderate-income households. *After closeout*, one of the property
    owners that had been assisted by the program decided *not* to make
    the rehabilitated unit, which had been recently vacated, available
    to a low- or moderate-income tenant, and under the recapture
    provisions of the program, returned the amount of the assistance
    (plus an interest penalty) to Housing Resources, Inc. Can Housing
    Resources keep these funds for its own use?

**YES** **NO**

*The answers are on the next page.*

## Exercise for Closeout Procedures (continued)

Answers to questions from preceding page

1.  **NO.** It is up to the grantee to determine when the conditions for
    "closeout" have been satisfied, consistent with its standard
    procedures (which should be spelled out in writing for
    subrecipients). Once these conditions have been met, the grantee
    should either enter into a closeout agreement with the subrecipient
    or send written notification to the subrecipient regarding the
    latter's closeout status along with any special conditions or
    continuing responsibilities which the subrecipient must satisfy.
    Until a subrecipient receives such formal notification, it should
    ***not*** assume that any CDBG-activity has been closed out.

2.  **YES.** The applicable regulations are clear that the closeout of a
    CDBG award does *not* affect the subrecipient's audit requirements.
    And, according to OMB Circular A--133, any entity that expends
    \$500,000 or more a year in Federal financial assistance must have
    an audit completed in accordance with the standards found in that
    circular.

```{=html}
<!-- -->
```
3.  **YES.** 24 CFR 84.72 and 85.51 specify that even after closeout of
    the CDBG project, the grantee has the right to disallow costs and
    recover funds based on a later audit. In this case, the grantee
    could choose to reduce the allowable CDBG costs to a level equal to
    the actual amount of cash match contributed by the city of Lobos.

4.  **NO.** According to 24 CFR 570.503(b)(7), at the expiration of the
    Subrecipient Agreement, the subrecipient must transfer to the
    grantee any CDBG funds on hand and *any accounts receivable
    attributable to the use of CDBG funds*. The obligations of assisted
    property owners to reimburse the subrecipient under recapture
    provisions of a funding agreement would constitute accounts
    receivable. Therefore, the subrecipient would need to return these
    funds to the grantee.