We audited the City of Pomona’s Neighborhood Stabilization Programs (NSP1 and NSP3).  We initiated the audit because of a hotline complaint with concerns regarding the administration of program funds.  Our objective was to determine whether the City administered its NSP funds in accordance with applicable U.S. Department of Housing and Urban Development (HUD) rules and requirements.  Specifically, we wanted to determine whether the City monitored its subrecipients and ensured that NSP expenditures were adequately supported and eligible.

The City did not operate its NSP in accordance with HUD rules and requirements.  While we did not identify problems with the sampled NSP3 funding activities, we found that the City used $42,129 in NSP1 funds for duplicate profit and overhead costs, ineligible rehabilitation expenses, and ineligible developer’s fees.  In addition, the City was unable to support the eligibility of $584,148 in NSP1 expenses.  The problem occurred because the City did not follow HUD rules and requirements or its own internal agreements and policies and procedures.  As a result, the City paid $626,277 in ineligible and unsupported NSP1 funds that could have been used to further the City’s objective of providing affordable housing in target areas affected by the housing crisis.  

We recommend that HUD require the City to (1) repay $78,155 in ineligible costs, (2) support or repay $584,148 in unsupported costs, and (3) establish and implement better controls for monitoring HUD-related costs and prevent future instances of conflicts of interest.  We also recommend that HUD’s Associate Counsel for Program Enforcement pursue civil remedies, civil money penalties, or other administrative action, as appropriate, against the City, the developer, and the councilmember for their involvement in the ineligible use of NSP funds because of conflicts of interest.