Recently, it was reported by CivilBeat.com that the U.S. Department of Housing and Urban Development (HUD) forced the City of Honolulu to repay nearly $8 Million in Federal Community Development Block Grant funds that were sent to a non-profit organization that serves the elderly.
The multi-year investigation revealed
• Mismanagement of Federal funds
(Do you know the 7 signs of waste, fraud and abuse?)
• Conflicts of Interest
• Possible Kickbacks
In a scathing 15 page report, the HUD also raised questions about the monitoring and oversight provided by the grantee over the subrecipient.
9 Things to Avoid
Let’s look at nine major findings of the reports with what happened and how you can avoid getting in the same situation.
Mismanagement of Federal funds
1) Unallowable Spending Likely
The Grantee authorized the funds to be spent developing facilities including a Wellness Center and cabins, but didn’t strongly monitor how or where the monies were spent.
• The lack of monitoring increased the chances of unallowable expenditures such as duplicate and inappropriate payments.
2) Federal Funds Spent to Violate Laws
Funds were spent developing a parking lot which was considered illegal under the city’s laws.
• The cost principles state that it is improper to spend Federal funds for things which are prohibited by Federal, state or local laws.
3) Ineligible Spending is Always Unallowable
The city paid the non-profit for costs which were ineligible under the Block Grant requirements.
• As stated in the Cost Principles regulations, Federal funds can’t be used for unallowable costs.
4) Ongoing Monitoring is Not Optional
The city didn’t review the proposed budget submitted by the non-profit organization
• Award recipients must demonstrate that they have ongoing monitoring procedures in place to test the effectiveness of existing processes and procedures.
5) Allowable Costs Need Adequate Documentation
The city lost or withheld supporting documentation for many of the expenditures.
• Costs must be adequately documented to be allowable spending for the federal grant.
• Award recipients must demonstrate effective controls and accountability for all federal spending.
Conflicts of Interest
6) Overpaid for Property
The city paid eight times more than the fair-market-value for some of the property purchased by ignoring their own land use regulations which resulted in a higher valuation.
• Grantees must have procurement policies and procedures to support “free and open” competition to the “maximum extent practical.”
7) Give and Take
The city loaned federal funds to the nonprofit organization and then later “forgave” the loans. During the time of the loan forgiveness, campaign contributions were made by the nonprofit organization to city representatives who voted on the loan forgiveness.
• Grantees must be alert to conflicts of interest. This means the grantee needs to establish a procedure for identifying and communicating potential conflicts of interest in the use of Federal funds.
8) Pay to Play
A $90,000 payment was made to the non-profit by a contractor in exchange for being awarded a $3.5 million contract paid for by Federal funds.
• Anti-kickback regulations apply to all contracts paid for with Federal funds which make it illegal to accept kickbacks on Federal projects.
9) Ignore Violations-They Don’t Go Away
In addition, the city didn’t take action for over 7 years after being notified by the nonprofit organization of the possible kickback situation.
• The grantee is responsible for monitoring subrecipients to make sure they are compliant with contract provisions and must take action when they are not.
See the whole Civil Beat Article
What are you doing to make sure your grant is safe from a similar problem?
Take action to keep your grant management compliant with the Federal regulations before you have an unpleasant surprise.
Lucy Morgan CPA, MBA
CEO, Compliance Warrior
P.S. If you’d like to find out more about how to avoid these problems?
Check out Grant Management Boot Camp training that helps that helps people work through these issues.
Click the link below for your type of organization to get more information about our courses and to get signed up.