The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General reviewed the State of Indiana’s (State) Neighborhood Stabilization Program (Program). The review was part of the activities in our fiscal year 2010 annual audit plan. We selected the State based upon a citizen’s complaint to our office. Our objective was to determine whether the State awarded Program funds to eligible projects. Authorized under Title III of the Housing and Economic Recovery Act of 2008 (Act), as amended, the Program provides grants to every State and certain local communities to purchase foreclosed-upon or abandoned homes and to rehabilitate, resell, or redevelop these homes to stabilize neighborhoods and stem the decline in value of neighboring homes. HUD allocated nearly $83.8 million in Program funds to the State based upon the funding formula developed by HUD pursuant to the Act. On March 23, 2009, HUD entered into a grant agreement with the State for the full amount allocated. We found that the State’s administrator awarded $4.5 million in Program funds for an inappropriate project.

We recommend that the Director of HUD’s Indianapolis Office of Community Planning and Development require the State to implement: its action plan by amending its grant agreement with the City of Mishawaka to remove the $4.5 million in Program funds for the redevelopment of the Mishawaka Furniture building and award the $4.5 million for an eligible project(s), and adequate procedures and controls to ensure that it awards Program funds for eligible projects and that its recipients use Program funds for the redevelopment of commercial buildings in accordance with HUD’s requirements.