N.Y. Comp. Codes R. & Regs. tit. 9 § 1640-3.3
Ordinarily, such adjustments for ineligible expenditures as are found necessary will result from a periodic audit of the local agency by the division's field auditors. The latter will cause to be transferred to account 1620, Ineligible Expenditures, items deemed to be ineligible, to be held in suspense pending review by the home office of the division. Upon such review, the local agency will be advised, by letter from the division, which expenditures are definitively declared ineligible. The local agency shall thereupon reimburse the appropriate funds, not later than the last day of the month in which the letter of ineligibility from the division is dated, for the expenditures declared ineligible therein. The division may, however, at any time declare an expenditure ineligible and direct that the appropriate funds be reimbursed. In this connection, local agencies are cautioned that the funds used to make the reimbursement must, of course, be other than the project revenue or funds advanced or to be advanced by the State. Financing and other problems raised by the declaration of expenditures as ineligible can be largely avoided, as previously indicated, by the local agency acting to predetermine the eligibility of expenditures, as far as possible.
N.Y. Comp. Codes R. & Regs. Tit. 9 § 1640-3.3