U.  S. Department of Housing and Urban Development

Public and Indian Housing

Special Attention of: **Notice PIH 99-32 (TDHEs)**

ONAP Administrators; Issued: July 29, 1999

Grants Evaluation Expires: July 31, 2000

Supervisors and Staff

Cross Reference: 24 CFR Part 1000

**SUBJECT:** Determination of recipient administrative capacity to
undertake the Indian Housing Block Grant (IHBG) program

**PURPOSE:** This Notice establishes the basis upon which the Department
will determine if a recipient of Indian Housing Block Grant (IHBG)
funds, authorized by the Native American Housing Assistance and
Self-Determination Act of 1996 (NAHASDA) (Pub. L. 104-330), has the
administrative capacity to undertake Indian Housing Block Grant (IHBG)
program activities in accordance with the program regulations at 24 CFR
Part 1000.

**BACKGROUND:** Evaluation of a recipient's administrative capacity in
the IHBG program is part of the Office of Native American Program's
(ONAP) oversight responsibilities under the NAHASDA and program
regulations at 24 CFR Part 1000. This oversight responsibility generally
arises in three ways. Section 1000.6 provides that IHBG recipients must
have the administrative capacity to undertake the affordable housing
activities proposed. This capacity includes the existence of adequate
systems of internal control necessary to administer these activities
effectively without waste, fraud, or mismanagement. Pursuant to section
405 of NAHASDA and §1000.520, ONAP also reviews the performances of each
recipient at least annually, including the recipient's continuing
capacity to carry out eligible activities in a timely manner. In
addition, a recipient must demonstrate, pursuant to §1000.58, that it
has the administrative capacity and controls to responsibly manage the
investment of IHBG funds. This Notice addresses the first two
situations. Determinations of administrative capacity which deal with
the investment of IHBG funds in accordance with §1000.58 are addressed
in a separate Notice PIH 99-4 (TDHEs), Administrative Requirements for
Investing Indian Housing Block Grant Funds.

**DEFINITION AND STANDARDS:** Administrative capacity measures a
recipient's ability to effectively undertake the affordable housing
activities in its Indian Housing Plan (IHP) in accordance with the
requirements of NAHASDA and 24 CFR Part 1000. Administrative capacity
can be demonstrated by: a history of satisfactory performance, financial
stability, management systems which meet the requirements of Part 85,
policies and procedures that meet the requirements of Part 1000,
compliance with previous awards, experienced employees and the existence
of an organizational structure, development and operating policies and
systems, and experience which minimize the potential for fraud, waste,
and mismanagement,. In general, the following basic requirements of
§1000.26 and related systems will be evaluated in making a determination
regarding a recipient's administrative capacity to undertake the IHBG
program:

-   History of satisfactory performance - The recipient has a proven
    record of acceptable compliance and performance in implementing
    prior ONAP, other Federal, tribal, and other programs of a similar
    nature and scope to those activities proposed in its IHP. In
    addition to other areas noted within this Notice, the following
    compliance areas are of particular importance in the IHBG program:

-   Indian Preference (§1000.48-.54)

-   Labor standards (§1000.16)

-   Environmental clearance (§1000.18-.24, 24 CFR Part 58)

-   Lead based paint (§1000.40, Section 302 of the Lead based Paint
    Poisoning Prevention Act)

-   Accessibility (§1000.12, 24 CFR Part 8, Section 504 of the
    Rehabilitation Act of 1973)

-   Flood Insurance (§1000.38)

-   Financially stable - Previous programs have been administered in an
    effective manner which has maintained the financial stability of the
    recipient to undertake the proposed IHBG program activities. If the
    recipient is an Indian Housing Authority the amount and trends in
    the recipient's operating reserves may be evaluated in relationship
    to the anticipated IHBG amount.

-   Acceptable management systems (§85.20) - At a minimum, financial
    management systems are in place which meet the following standards.

-   Financial reporting (§§85.20, 85.41)

-   Accounting records (§§85.20, 85.32, 85.33)

-   Internal control (§85.20)

-   Allowable costs (§§85.20, 85.22, OMB Circular A-87)

-   Source documentation (§85.20)

-   Cash management (§§85.12, 85.20, 85.21)

-   Records retention (§1000.552)

-   Budget control

-   Development and Operating policies - Managerial and operational
    systems are in place which meet the following standards of the IHBG
    program.

-   Admissions and Occupancy (§§1000.104-.110, 1000.120, 1000.124-.156,
    NAHASDA §102(c)(5)(c))

-   Management/Personnel (OMB Circular A-87)

-   Maintenance (NAHASDA Sec. 102 (c)(5)(e) and 203 (e))

-   Travel (OMB Circular A-87)

-   Procurement (§§85.36, 85.35, 1000.26)

-   Real property acquisition (§1000.14, 49 CFR Part 24)

-   Relocation (§1000.14, 49 CFR Part 24)

-   Conflict of interest (§1000.30-.36)

-   Audit (OMB Circular A-133, §§85.26, 1000.544-550) - Independent
    audits of the recipient's financial statements, program compliance,
    and internal controls have been obtained in a timely manner and any
    findings have been resolved in accordance with established
    timeframes, as applicable.

-   Is otherwise responsible - Any other relevant information which is
    pertinent to the capacity of the recipient to manage its IHBG
    program in an effective manner in accordance with the program
    requirements may be evaluated as part of the overall assessment of
    capacity.

    Determinations of administrative capacity are a vital management
    tool and an integral part of ONAP's oversight responsibilities and
    efforts to promote excellence in the management of the IHBG program
    in partnership with Indian Country. In addition to minimizing the
    potential for fraud, waste and mismanagement, ONAP's goal in
    evaluating administrative capacity is to establish a framework
    within which to initiate proactive technical assistance and capacity
    building efforts. These initiatives include the development of
    capacity building strategies, targeting of technical assistance
    contacts, allocation of ONAP resources, provision of technical
    assistance, partnering with other recipients to improve capacity.

    **PROCEDURES:** The assessment of administrative capacity is an
    ongoing process based on a number of remote and onsite indicators of
    capacity and performance. It will be completed at least annually in
    accordance with §1000.520. However, an assessment may be completed
    or updated at any time based on the availability of new information.
    Determinations of administrative capacity will be based on ONAP's
    cumulative knowledge of a recipient's capacity, performance, and
    compliance with the IHBG program requirements; however, an Indian
    Housing Authority's past designation as "high risk" for the 1937 Act
    programs cannot be used to determine administrative capacity of new
    recipients. Current audit reports or other information concerning
    financial management systems could provide a basis for determination
    of administrative capacity. In general, the following information
    will be evaluated in making these determinations:

-   A-133 audit reports,

-   ONAP or other agency monitoring reviews,

-   OIG audits/investigations

-   Recipient internal reviews,

-   Annual Performance Reports (APRs),

-   ONAP's risk assessments,

-   LOCCS reports and activity,

-   Indian Housing Plans (IHPs)

    In general, new recipients with which ONAP has no prior performance
    history or experience will be assumed to have administrative
    capacity. However, ONAP will utilize any available performance
    information about the recipient which is applicable to the new
    recipient's capacity to effectively manage the IHBG program. For
    example, an A-133 audit report of the recipient may indicate the
    lack of adequate financial management systems and internal controls.
    ONAP can use this information in assessing the recipient's
    administrative capacity to mange the IHBG program. In addition, any
    concerns about the capacity of a new recipient can be addressed by
    requesting information about the recipient's organizational
    structure, operating policies and systems, and experience. In
    accordance with §1000.28, new recipients which are self-governance
    tribes may certify that they have the requisite administrative
    requirements, standards, and systems of §1000.26. However, based on
    an annual review or other available information, ONAP may impose
    grant conditions or exercise other administrative remedies for
    self-governance tribes. If a determination is made that a new
    recipient lacks administrative capacity, appropriate special
    conditions or restrictions may be imposed on the award of a grant in
    accordance with §85.12 and as highlighted in this Notice (see
    "Pre-award Grant Conditions" below).

    **IMPLICATIONS -** If a determination is made that a recipient lacks
    administrative capacity to manage its IHBG program in compliance
    with the program requirements, ONAP will undertake appropriate
    actions to address the problem in coordination with the recipient.
    ONAP's ongoing oversight of a recipient's implementation of its IHBG
    programs is undertaken through a combination of remote and on-site
    monitoring, including the processing of A-133 audit reports. These
    oversight activities may identify information which adequately
    documents that a recipient lacks administrative capacity to
    undertake its IHBG program. Under these circumstances, the
    procedures and remedies set forth in 24 CFR Part 1000, Subpart F,
    Recipient Monitoring, Oversight, and Accountability, will be used to
    address the identified deficiencies. In general, these procedures
    provide for the use of progressive corrective and remedial actions
    based on the nature and magnitude of the problems encountered. Upon
    identification of a potential problem, ONAP will prepare a report in
    accordance with the procedures at §1000.528 which provide for
    recipient input into a draft report prior to issuance of a final
    document. If appropriate, the final report may also serve the
    purposes of a "letter of warning" in accordance with §1000.530(a)(1)
    by identifying at, a minimum, the :

-   performance problems identified

-   recommended corrective actions, including as appropriate

-   development of progress schedules for completion of projects or
    compliance actions,

-   suspension or discontinuation of incurring cost on affected
    activities,

-   reprogramming of funds from affected to other eligible activities,

-   reimbursement of unallowable costs to the recipient's program
    account,

-   acquisition of appropriate technical and capacity building
    assistance, etc.

-   target dates for completing the corrective actions, and

-   notification that progressively severe actions may be taken if the
    performance problems are not corrected.

    If the administrative capacity problems persist and are not being
    addressed in a timely manner, ONAP will pursue the next level of
    corrective and remedial action by providing the recipient with
    appropriate notification and administrative hearings for substantial
    noncompliance in accordance with §§1000.532(c) and 1000.540. At this
    stage, consideration can be given to the imposition of the following
    remedies, as appropriate:

-   terminate grant payments,

-   reduce grant payments,

-   limit the availability of grant payments,

-   provide a replacement TDHE.

    Based on the nature and magnitude of the performance problems
    encountered and in accordance with §1000.538(b), ONAP may
    immediately suspend grant payments following due notice and issuance
    of the opportunity for hearing, but prior to completion of the
    administrative hearings procedures. This expedited process will only
    be pursued in situations which demand swift action to prevent the
    continuation of serious instances of fraud, waste and mismanagement;
    and to maintain ONAP's appropriate public trust, oversight, and
    accountability responsibilities.

    Based on the existence of objective documentation of administrative
    deficiencies that directly impact a recipient's ability to manage
    its IHBG program, ONAP may also use the provisions of §85.12 to
    impose appropriate grant conditions or restrictions in the award of
    a grant. The provisions of §85.12 (a) indicate that one of the
    following conditions must exist in order to impose grant conditions
    or restrictions:

-   A history of unsatisfactory performance;

-   Financially unstable;

-   Management systems that do not meet the standards set forth in 24
    CFR Part 85;

-   Non-compliance with the terms and conditions of previous awards; or

-   Is otherwise not responsible.

    If documentation or objective information is available to ONAP which
    verify the existence of serious deficiencies as noted above, one or
    more of the following special conditions or restrictions may be
    imposed on the award of a grant to a recipient as set forth in
    §85.12 (b):

-   Payment of grant funds on a reimbursement basis;

-   Withhold authority to proceed to the next phase of a project or
    program pending receipt of evidence of acceptable performance;

-   Submission of additional or more detailed financial reports;

-   Additional project monitoring;

-   Require the grantee or sub-grantee to obtain technical or management
    assistance; or

-   Establish additional prior approvals.

    If any special conditions or restrictions are imposed, written
    notification must be provided to the recipient as soon as possible.
    The advance notification will provide recipients a reasonable time
    period within which to respond to the proposed special grant
    conditions

    and/or restrictions prior to their actual imposition. The written
    notification will contain the following information:

-   The nature of the special conditions or restrictions;

-   Reason(s) for imposing them;

-   The corrective actions which must be taken before the conditions or
    restrictions will be removed and the time allowed for completing the
    corrective actions, and

-   The method of requesting reconsideration of the conditions or
    restrictions imposed.

    **EMPHASIS -** The imposition of corrective actions and/or grant
    conditions based on the lack of adequate administrative capability
    is designed to be proactive and place an emphasis on the prevention
    and remedy of deficiencies by:

-   Avoiding the occurrence of performance problems,

-   Preventing the continuation of the performance problems,

-   Mitigating any adverse affects of the performance problems, and

-   Preventing a recurrence of the same or similar performance problems.

Within this context, corrective actions and/or grant conditions are not
intended to be punitive or unnecessarily restrict the ability of a
recipient to implement its program within the flexibility of NAHASDA. It
is ONAP's desire to undertake its public trust and oversight
responsibilities by focusing on both the prevention and cure of
performance problems through proactive capacity building initiatives in
partnership with Indian Country. Therefore, corrective actions and/or
grant conditions will only be imposed based on the availability of
objective documentation on a recipient's administrative capacity. In
addition, the nature of the corrective actions and/or grant conditions
will be tailored to address the specific administrative capacity problem
and designed to promote the

establishment of effective management and financial systems. However, in
situations of willful and/or persistent noncompliance, and unallowable
costs; ONAP will actively pursue the remedies available at §1000.538 and
§1000.542, as well as other available administrative and legal remedies.

/s/ Deborah Vincent for

Harold Lucas, Assistant Secretary

for Public and Indian Housing