(4) The professional organization to which membership dues will be paid is not providing funds or other support, directly or indirectly, to an organization or organizations which CSA has determined is not an appropriate recipient of membership dues derived from grant funds. (See (b) below.)

(b) Determination of acceptability. (1) CSA will make a determination as to the acceptability of organizations as recipients of membership dues where warranted. The determination may be based on the findings of audits conducted by CSA or undertaken by a third party on its behalf or other sources of information/data which will enable CSA to make the following determinations:

(i) That the activities of the organization are in furtherance of the objectives of the EOA, and

(ii) That the organization has an acceptable track record based on, where appropriate, such factors as:

(A) Administrative capability; (B) Soundness of its fiscal system; (C) Availability and acceptability of its audits;

(D) Procedures for and conduct of elections;

(E) Federal access to records; (F) Clear and concise recordkeeping, including travel expenditures.

(2) CSA intends to publish specific criteria and procedures for use by Headquarters and Regional Offices in undertaking audits.

(3) The list of unacceptable organizations will be published as a revision to this subpart and to Attachment A of Instruction 6803-6 whenever there are changes to the list.

the

(4) Attachment A contains name(s) of organizations currently found to be unacceptable. All other national, State and regional organizations are determined to be acceptable at this time if they are in conformance with the criteria outlined in § 1068.303(a). However, CSA retains the prerogative to undertake reviews of other organizations at any time and subsequently to revise and publish the list. If CSA finds an organization to be unacceptable to receive CSA funds in payment of membership dues, CSA will also consider unallowable any other expenditures of grant funds, ef

fective the date of the determination, which go to support directly or indirectly activities of this organization including travel to meetings or training seminars sponsored by such organization, payment of registration fees at such events, etc.

[42 FR 63171, Dec. 15, 1977, as amended at 45 FR 64940, Oct. 1, 1980]

ATTACHMENT A

LIST OF UNACCEPTABLE ORGANIZATIONS

National Association for Community Development (NACD)

Subpart 1068.42-Grantee Fiscal Responsibility and Auditing (CSA Instruction 6801-1 and 6801-1 Ch 1)

AUTHORITY: Sec. 602, 78 Stat. 530 (42 U.S.C. 2942); § 1068.42-8 also issued under sec. 682(e), Pub. L. 97-35, 95 Stat. 519 (42 U.S.C. 9911).

SOURCE: 44 FR 56568, Oct. 1, 1979, unless otherwise noted.

§ 1068.42-1 Applicability.

This subpart applies to all grantees financially assisted under Titles II, IV, and VII of the Economic Opportunity Act of 1964, as amended, if such assistance is administered by the Community Services Administration. This subpart is not applicable to contractors under CSA procurement contracts.

§1068.42-2 Effective date.

August 5, 1970 (CSA Instruction 6801-1). May 11, 1971 (CSA Instruction 6801-1, Change 1).

§ 1068.42-3 Definitions.

"Delegate agency" means an agency to which a grantee delegates the performance of an entire program account of a grant or a substantial part of a single program account. As used in this subpart the term also refers to "subcontractors" who contract with the grantee to perform any major portion of a CSA funded program.

"Grant-grantee" as used in this subpart, also refers to contracts of assistance and contractors under such contracts respectively.

"Responsible CSA official" means the CSA official in the Headquarters

Office, or the Regional Office of CSA, who has authority to award and administer the CSA grant in question.

§ 1068.42-4 Policy.

(a) Before funds will be released to a grantee receiving an initial Community Services Administration (CSA) grant, the grantee, must submit a statement to CSA certifying that its accounting system and that of its delegated agencies meet the standards set forth in Section 243(a) of the EOA. See Appendix A of this subpart. Within three (3) months after the effective date of an initial grant, a grantee must have its accounting system surveyed and evaluated by an auditor. On the basis of the auditor's findings and conclusions, the CSA Director or the Director's designee will determine whether the accounting system meets CSA standards and, if not, whether to suspend the grant.

(b) An audit of each grant must be made annually. On the basis of resultant findings and conclusions, the Director or the Director's designee will determine whether any of the costs or expenditures incurred shall be disallowed as charges against grant funds. In the event of disallowance, the Director may seek recovery of sums by appropriate means. The Director may also impose additional requirements to assure that the conditions that gave rise to the disallowance have been corrected and will not recur.

(c) Grantees must require of delegate agencies substantially the same audit responsibilities that CSA requires of grantees. However, grantees remain responsible to CSA for the proper expenditure of and accounting for all grant funds, whether or not delegated to other agencies.

§ 1068.42-5 Accounting system certification.

(a) General. The accounting system certification states that the grantee and its delegate agencies (or subcontractors for performance of any major portion of the assisted program) have established an adequate accounting system with appropriate internal controls to safeguard assets, check the accuracy and reliability of their accounting data, promote operating efficiency

and encourage compliance with prescribed management policies and any additional fiscal responsibilities and accounting requirements established by CSA.

(1) The certification may be furnished by an independent certified public accountant, an independent State-licensed public accountant, or, in the case of a public agency, the appropriate public financial officer who accepts responsibility for providing required financial services to the grantee. The statements in Appendices B and C of this subpart will satisfy CSA's requirements for an accounting system certification.

(b) New graniees. A grantee applying for its initial CSA grant shall submit this certification to the granting office as part of the funding request. If an applicant is unable to obtain the certification, it should forward a statement of explanation to the granting office. The granting office may process the application without the statement where it can reasonably be expected that the statement will be furnished at or before the commencement of the grant period (that is when a new organization's accounting system is still in the process of development at the time of application). In no event, however, will any CSA funds be released to the grantee until the proper statement has been submitted.

(c) On-going grantees. Although accounting system certifications are usually required only for the initial CSA grant to the grantee, there may be instances when CSA will require a new certification from an on-going grantee. For example, when there has been a significant increase in the amount of funds provided by CSA. An on-going grantee will be notified by CSA if a new certification must be submitted.

(d) Delegate agencies. A grantee may not release or commit any grant funds to a new delegate agency unless it has received from that agency an accounting system certification appropriately modeled after those shown in Appendices B and C of this subpart. If an existing delegate agency is to receive a substantial increase in funds from the grantee, a new certification must also be submitted to the grantee. These certifications are to be obtained by the

grantee from its delegate agencies for retention among the grantee's records and need not be transmitted to CSA unless CSA requests them. CSA may disallow as a charge against the grant any funds released in violation of the requirement stated in this paragraph.

§ 1068.42-6 Auditor selection and responsibilities.

or

(a) Selection of auditor. If the grantee is a private agency, the services of an independent certified public accountant, independent licensed public accountant, certified or licensed by a regulatory authority of a State or other political subdivision of the United States, shall be secured. If the grantee is a local government or public agency, or if its accounting records are maintained by a local government or public agency, the auditing official or official governmental auditing agency which customarily conducts the agency's audits may be substituted for an independent auditor provided that the provisions of paragraph (d) of § 1068.42.9 are complied with.

(1) A grantee receiving an initial CSA grant shall, within thirty (30) days of the receipt of the CSA Form 314, Statement of CAP Grant, supply the responsible CSA official and the Regional Auditor with the name of the auditor or auditing organization which it has selected. CSA will notify the grantee if its selection is not acceptable. If no notice is received from CSA within fifteen (15) calendar days of the nomination, the grantee may engage the auditor. The Regional Auditor will provide the auditor with copies of the Audit Guide.

(2) The auditor approved to conduct the preliminary audit survey may also conduct the annual audit. Once an auditor has been selected and approved, it is not necessary to renominate the auditor in subsequent years as long as he/she complies with the provisions of the Audit Guide and CSA directives. However, when a grantee changes its auditor or when CSA notifies the grantee that its present auditor is unacceptable, renomination must take place and approval must again be obtained from CSA.

(3) When Federal audits are performed in accordance with the Audit Guide, they may be acceptable in lieu of an audit by a certified or licensed public accountant. See paragraph (c) § 1068.42-9. The responsible CSA official will determine whether the scheduled completion date of such an audit will satisfy CSA's time requirement.

(4) The grantee shall furnish the auditor with copies of the approved grant proposal, official grant documents, and all applicable CSA directives, including this subpart.

(b) Auditor's responsibilities. The auditor selected by the grantee is responsible for conducting a preliminary audit survey and/or annual audit in accordance with provisions of the Audit Guide. The audit survey will be directed toward an evaluation of the adequacy of the grantee's accounting system and internal controls. The survey should determine whether sufficient internal controls have been established to safeguard assets, check the accuracy and reliability of accounting data, promote operating efficiency and encourage compliance with prescribed management policies and any additional fiscal responsibilities and accounting requirements established by CSA.

(1) The annual audit will be for the purpose of determining whether the grantee and its delegate agencies have adequately discharged their financial responsibilities and to evaluate compliance with grant conditions and with CSA directives.

(2) It is therefore essential that the independent auditors be familiar with CSA grant conditions as well as with other Federal requirements, official memoranda and publications of CSA and, particularly, the contents of this subpart. These materials will be furnished by the grantee.

(3) Independent auditors should clearly understand their responsibilities in this area. They must be aware that they are responsible for pointing out, in their report, any matters of audit importance both to the grantee and to CSA. The report should include an evaluation of the accounting system and internal controls and make recommendations for improvements.

(4) The auditor should submit five (5) copies of all reports to the Regional Auditor concurrent with his/her submission to the grantee.

§ 1068.42-7 Required preliminary audit survey.

(a) Grantee. Immediately after receipt of CSA Form 314, Statement of CAP Grant, for an initial CSA grant, the grantee shall arrange for an independent auditor to conduct, with three (3) months after the effective date of the grant, a preliminary audit survey to evaluate the adequacy of the grantee's accounting system and internal controls and ability to meet the standards set forth in Section 243(a) of the EOA as detailed in the Audit Guide.

(1) The auditor should submit, within three (3) months after the effective date of the grant, five (5) copies of the survey report to the Regional Auditor concurrent with his/ her submission to the grantee.

(2) A preliminary audit survey may also be required when a grantee's refunding grant action includes a significant increase in its funding level. When these situations occur, the grantee will be notified by CSA that a survey is required.

(3) If a survey report itself is unacceptable to CSA (that is, the report does not conform to the requirement in the Audit Guide), the grantee will receive notice of this fact from CSA. In such instances, the cost of the survey may be disallowed as a charge against grant funds.

(4) If the preliminary audit survey conducted by the grantee's auditor does not cover the accounting systems of all delegate agencies, the grantee must comply with paragraph (b) of this section.

(b) Delegate agencies. Whenever a grantee is required to secure an accounting system certification from a delegate agency, it shall also require that within three (3) months of the effective date of the delegate agency agreement, a preliminary audit survey of the delegate agency's accounting system be conducted by an independent auditor. This requirement shall be included in the delegate agency agreement. The grantee is responsible for determining, on the basis of the

survey report, whether the delegate agency's accounting system and internal controls meet the standards of Section 243(a) of the EOA. The grantee shall consult with the responsible CSA official to determine the appropriate action to be taken in those cases where the accounting system of a delegate agency is not adequate. However, the responsibility for ensuring that delegate agencies establish and maintain adequate accounting systems rests with the grantee. CSA may disallow any charges to grant funds resulting from expenditures by a delegate agency after the grantee has received notice of the inadequacy of the delegate agency's accounting system, or after the grantee has failed to require the timely submission by the delegate agency of a preliminary accounting system survey.

(c) Response to Preliminary Audit Survey Findings. On the basis of findings and conclusions resulting from the survey, the Director, or the Director's designee, will determine whether the grantee's accounting system and internal controls have been shown to meet the standards of section 243(a) of the EOA and, if not, whether to suspend the grant. The grantee will be advised in writing what further action is needed to satisfy CSA's requirements. If major deficiencies are disclosed, the Director, or the Director's designee, may suspend the grant or advise the grantee in writing that corrective action must be taken within thirty (30) calendar days.

(1) In the event of suspension, the grantee will be given a specified amount of time, which will not exceed six (6) months, within which to establish the necessary systems and controls. In the event of failure to do so within the time allowed, the grant will be terminated pursuant to CSA's published regulations.

§ 1068.42-8 Required annual audit.

(a) Grantee. Each grantee shall arrange for an annual audit to ensure that the financial statements present fairly the financial position of the grantee, that the grantee is complying with applicable CSA directives and with general and special grant condi

tions, and that appropriate financial and administrative procedures and controls have been installed and are operating effectively. In the case of community action agencies and other grantees on a program year basis, the audit shall cover the grantee's prior program year in total unless CSA has approved in writing a different audit period. In the case of grantees not on a program year basis, the audit shall cover the first full year of the grant period (or the entire grant period if less than a year) and audits conducted thereafter shall cover each succeeding year, and the final fraction of a year, if any, of the grant period. Five (5) copies of the report shall be submitted by the auditor to the Regional Auditor concurrent with his submission to the grantee within six (6) months after the end of the program year or grant period audited. CSA grant funds may not be used for more than one audit annually, except where CSA requests in writing additional audits.

(1) If an audit report itself is unacceptable to CSA (that is, the report does not conform to the requirements in the Audit Guide), the grantee will receive notice as to what further action, if any, is necessary to meet CSA's requirements. In such instances, the cost of the audit may be disallowed as a charge against grant funds.

(2) Audits for Periods Ending on or After October 1, 1981. With respect to program years or grant periods ending on or after October 1, 1981, the grantee's auditor must submit five (5) copies of the audit report to the Office of the Inspector General, CSA/OCS, at the address specified in § 1050.112(c), within 60 days after the end of the audited program year or grant period, except that audit reports for public grantees shall be submitted within 90 days after the end of the audited period. A grantee may request an extension of this deadline from the appropriate office. An extension of up to 30 days will be granted to a non-public grantee upon a showing of reasonable cause that the grantee, despite special efforts, cannot submit the audit report within 60 days. Further extensions for non-public grantees or any extensions for public grantees will be granted only in extraordinary circumstances.

(b) Delegate agencies. The grantee is responsible for either including delegate agencies' administration of grant programs within its own annual audit or of ensuring that separate independent audits are conducted for delegate agencies. Whether or not the delegation of a portion of the grant program has been approved by CSA, the grantee remains responsible for proper accounting for expenditures of grant funds. The Audit Guide contains detailed directions on the inclusion of delegate agency information in the grantee's audit report.

(c) Response to annual audit findings. Grantee shall respond in writing to observations and recommendations in annual audit reports when requested to do so by CSA. Unless an extension of time is expressly granted, the response shall be submitted to the responsible CSA official in five (5) copies, within thirty (30) calendar days from the date CSA notifies the grantee of findings and recommendations.

(1) In the response, the grantee may take exception to particular findings and recommendations. The rationale for such exceptions should be clearly set out in the response. The response should point out corrections already made and state what action is proposed and the estimated completion date of such action. Although the grantee need not send the granting office all documentation supporting corrections unless requested to do so, documentation of actions taken is very important and must be available for review during later audits.

(2) CSA will consider the grantee's response and any additional requested information in determining whether specific expenditures of project funds or contributions to the non-Federal share would be disallowed. If any are disallowed, the responsible CSA official will send the grantee written notice of the determination to disallow expenditures. Unless the grantee appeals the determination within thirty (30) calendar days after the date of the notice, the determination will become final.

(d) Grantee appeals of audit disallowances. An appeal shall be in writing and shall contain a clear statement