Financial management is the systematic application of procedures, forms, rules of conduct, and standards. As a grantee or subrecipient in receipt of Federal funds, your financial management practices must comply with the cost principles established by the Office of Management and Budget (OMB). This Bulletin is intended to identify components of a sound financial management system and offer guidance on avoiding some of the common challenges grantees face when managing Federal funds.

A well-organized financial management system is key to ensuring that Federal funds are used for their intended purposes and that program goals are achieved. Sound financial management practices:

1. Increase efficiency by reducing administrative burden and allowing the organization to spend more time administering programs and fulfilling its mission;
    
2. Promote integrity, transparency, and accountability by ensuring that all financial transactions are clearly documented using methods that are easy for both grantees and HUD to understand;
    
3. Ensure that all expenditures are accounted for within the budget;
    
4. Facilitate compliance with all applicable regulations including Federal cost principles, program-specific requirements, and local rules.

This Bulletin addresses five of the seven key components of financial management: 1. budgeting; 2. accounting and records; 3. cost principles; 4. reporting; and, 5. audits. The other two components, procurement and internal controls, are the subject of previous Integrity Bulletins.

HUD recently completed a major update of the regulations related to financial management by grantees. In their turn, grantees must update their policies, procedures, contracts, and other documents to conform to the new standards. HUD has observed that even the most competent grantees may struggle to be sufficiently thorough and detailed in this update. One resource that may be useful for grant managers is the Guide for Review of Financial Management required of certain disaster recovery grantees to allow HUD to assess their financial proficiency prior to grant award. Much of this guide is generally applicable and may be helpful for grantees in guiding review and update of financial management systems.

The states, local governments and nonprofits that use Community Planning and Development (CPD) program funds are encouraged to review this Integrity Bulletin and apply lessons contained herein to current and upcoming financial management activities. We would also like to get your feedback on the usefulness of the Bulletin. If you have comments to share please direct them to Alexa Rosenberg at Alexa.E.Rosenberg@hud.gov.

For more information on financial management or other CPD program related issues we encourage you to utilize HUD’s Technical Assistance website, the HUD Exchange.

View the Integrity Bulletin: Documenting the Life Cycle of a CPD Grant.

View all Integrity Bulletins.