We completed a review of the City of New York, Office of Management and Budget’s administration of the Community Development Block Grant Disaster Recovery Assistance (CDBG-DR) funds awarded to the City as a result of damages caused by Hurricane Sandy.  This review was related to the disbursement of $183 million as reimbursement to the Health and Hospitals Corporation under the City’s Public Service activity.  The objectives of the audit were to determine whether the City (1) disbursed CDBG-DR funds in accordance with the guidelines established under the U.S. Department of Housing and Urban Development (HUD)-approved action plan and HUD rules and regulations, and (2) maintained effective program and financial management controls.

Our review determined that City officials did not always disburse CDBG-DR funds in accordance with Federal regulations.  Specifically, City officials disbursed $183 million to the City’s subrecipient for unsupported salary and fringe benefits and unreasonable and unnecessary expenses, and did not adequately monitor its subrecipient and sufficiently document national objectives.  In addition, the City had weaknesses in its financial management controls, and allowed the disbursement without a proper review to support the claim.  As a result, City officials could not assure HUD that $183 million in CDBG-DR funds were disbursed for eligible, reasonable, and necessary program expenses in compliance with HUD rules and regulations.  Further, the remaining allocation of $40 million would be considered funds put to their intended use if City officials implement our recommendations to establish adequate monitoring controls.

We recommend that HUD’s Deputy Assistant Secretary for Grant Programs instruct City officials to (1) provide documentation to justify the $183 million in unsupported salary and fringe benefits and associated expenses charged to the grant, and (2) strengthen controls over disbursements to ensure that all costs charged to the program are eligible and adequately supported with source documentation in compliance with Federal regulations.