We reviewed the U.S. Department of Housing and Urban Development, (HUD) Office of Community Planning and Development’s (CPD) monitoring of its Neighborhood Stabilization Program (NSP) grantees’ incurred developer fees based on a prior external audit, which indicated that CPD field offices may not have provided adequate oversight of NSP grantees to ensure that for-profit developers did not incur questionable developer fees.  Our objective was to determine whether CPD adequately monitored its NSP grantees to ensure that the developer fees paid to for-profit developers met HUD requirements.

CPD did not implement adequate program monitoring procedures and controls to ensure that NSP grantees paid developer fees in accordance with HUD requirements.  While developers are permitted to charge a developer fee, some for-profit developers improperly claimed additional project management costs that should have been paid through agreed-upon developer fees.  CPD had issued policy alerts explicitly stating that these incurred fees were considered “double-dipping” and not allowed under NSP.

We recommend that CPD revise its NSP monitoring procedures and controls to ensure that it addresses the review of developer fees and considers the potential higher level of risk associated with grantees that use developers to carry out NSP activities.  CPD should also require its CPD field offices to maintain a list of NSP grantees that, at a minimum, includes each grantee’s developers and the respective organizational structures for risk assessment purposes and added monitoring controls.