We completed an audit of the County of Essex's (County) Community Development Block Grant (CDBG) program, which was administered by its Division of Housing and Community Development. Our audit objectives were to determine whether the County disbursed CDBG funds efficiently and effectively in accordance with its submission to HUD and applicable rules and regulations and had a financial management system in place to adequately safeguard the funds.

The County did not always follow applicable regulations and its submission to HUD while disbursing CDBG funds. Specifically, CDBG funds were disbursed for ineligible and defaulted float loans, the County and its subgrantees did not always comply with procurement requirements, grant agreements did not contain the required provisions to ensure compliance with HUD requirements, and substantial changes to program activities were not amended appropriately. In addition, there were control weaknesses in the County's financial management system used to safeguard funds.

We recommended that the Director of HUD's New Jersey Office of Community Planning and Development instruct the County to reimburse to the CDBG program from nonfederal funds more than $1.2 million for ineligible and defaulted float loans; provide supporting documentation for the two procurements totaling $517,125; reimburse more than $2.6 million in excess checking account funds to the CDBG program if the County does not immediately disburse the funds; remit $280,108 in bank interest; reimburse to the CDBG program $179,091 for the unnecessary drawdowns of funds; and establish procedures to ensure that CDBG funds will be disbursed in a timely manner and in accordance with program requirements.