§ 578.107 Sanctions. ( a ) *Performance reviews.* ( 1 ) HUD will review the performance of each recipient in carrying out its responsibilities under this part, with or without prior notice to the recipient. In conducting performance reviews, HUD will rely primarily on information obtained from the records and reports from the recipient and subrecipients, as well as information from on-site monitoring, audit reports, and information generated from HUD's financial and reporting systems (*e.g.,* LOCCS and e-snaps) and HMIS. Where applicable, HUD may also consider relevant information pertaining to the recipient's performance gained from other sources, including citizen comments, complaint determinations, and litigation.
( 2 ) If HUD determines preliminarily that the recipient or one of its subrecipients has not complied with a program requirement, HUD will give the recipient notice of this determination and an opportunity to demonstrate, within the time prescribed by HUD and on the basis of substantial facts and data that the recipient has complied with the requirements. HUD may change the method of payment to require the recipient to submit documentation before payment and obtain HUD's prior approval each time the recipient draws down funds. To obtain prior approval, the recipient may be required to manually submit its payment requests and supporting documentation to HUD in order to show that the funds to be drawn down will be expended on eligible activities in accordance with all program requirements.
( 3 ) If the recipient fails to demonstrate to HUD's satisfaction that the activities were carried out in compliance with program requirements, HUD may take one or more of the remedial actions or sanctions specified in paragraph (b) of this section.
( b ) *Remedial actions and sanctions.* Remedial actions and sanctions for a failure to meet a program requirement will be designed to prevent a continuation of the deficiency; to mitigate, to the extent possible, its adverse effects or consequences; and to prevent its recurrence. ( 1 ) HUD may instruct the recipient to submit and comply with proposals for action to correct, mitigate, and prevent noncompliance with program requirements, including: ( i ) Preparing and following a schedule of actions for carrying out activities and projects affected by the noncompliance, including schedules, timetables, and milestones necessary to implement the affected activities and projects;
( ii ) Establishing and following a management plan that assigns responsibilities for carrying out the remedial actions;
( iii ) Canceling or revising activities or projects likely to be affected by the noncompliance, before expending grant funds for them;
( iv ) Reprogramming grant funds that have not yet been expended from affected activities or projects to other eligible activities or projects;
( v ) Suspending disbursement of grant funds for some or all activities or projects;
( vi ) Reducing or terminating the remaining grant of a subrecipient and either reallocating those funds to other subrecipients or returning funds to HUD; and
( vii ) Making matching contributions before or as draws are made from the recipient's grant.
( 2 ) HUD may change the method of payment to a reimbursement basis.
( 3 ) HUD may suspend payments to the extent HUD determines necessary to preclude the further expenditure of funds for affected activities or projects.
( 4 ) HUD may continue the grant with a substitute recipient of HUD's choosing.
( 5 ) HUD may deny matching credit for all or part of the cost of the affected activities and require the recipient to make further matching contributions to make up for the contribution determined to be ineligible.
( 6 ) HUD may require the recipient to reimburse the recipient's line of credit in an amount equal to the funds used for the affected activities.
( 7 ) HUD may reduce or terminate the remaining grant of a recipient.
( 8 ) HUD may condition a future grant.
( 9 ) HUD may take other remedies that are legally available.
( c ) *Recipient sanctions.* If the recipient determines that a subrecipient is not complying with a program requirement or its subrecipient agreement, the recipient must take one of the actions listed in paragraphs (a) and (b) of this section.
( d ) *Deobligation.* HUD may deobligate funds for the following reasons: ( 1 ) If the timeliness standards in § 578.85 are not met;
( 2 ) If HUD determines that delays completing construction activities for a project will mean that the funds for other funded activities cannot reasonably be expected to be expended for eligible costs during the remaining term of the grant;
( 3 ) If the actual total cost of acquisition, rehabilitation, or new construction for a project is less than the total cost agreed to in the grant agreement;
( 4 ) If the actual annual leasing costs, operating costs, supportive services costs, rental assistance costs, or HMIS costs are less than the total cost agreed to in the grant agreement for a one-year period;
( 5 ) Program participants have not moved into units within 3 months of the time that the units are available for occupancy; and
( 6 ) The grant agreement may set forth in detail other circumstances under which funds may be deobligated and other sanctions may be imposed.