We audited the National Community Reinvestment Coalition’s (grantee) compliance with provisions in its Fair Housing Initiatives Program grant agreement with the U. S. Department of Housing and Urban Development (HUD). The audit was conducted based on a congressional request, which raised questions regarding the grantee’s compliance with conflict-of-interest provisions in its grant agreement with HUD. Our objective was to determine whether the grantee complied with the terms and provisions of the grant agreement and HUD requirements.

The grantee improperly accepted approximately $2.4 million in donations from 10 of 38 organizations (lenders) it tested under its grant within a year of the grant testing period, thereby creating conflict-of-interest situations in violation of the grant agreement. In 3 of the 10 cases, the donations were provided by the nonprofit arm (foundation) of the lender. However, we referred to these foundations as lenders because the grantee’s testing of the related lenders within 1 year of accepting donations from the foundations created apparent conflicts of interest that violate provisions in the grant agreement. The grantee generally completed administrative and program activities and tasks in accordance with its agreement; however, because it improperly accepted donations from lenders it tested, thereby creating conflict-of-interest situations, $59,800 of $230,000 in grant funds (26 percent) it spent was ineligible. Further, the grantee did not have procedures to verify the criminal records of individuals it hired to test lenders. As a result and contrary to requirements, it may potentially use testers with felony convictions or criminal records to perform program-funded activities.

We recommend that the Director of the Fair Housing Initiatives Program require the grantee to repay $59,800 in ineligible program grant funds expended and develop and implement controls to detect and avoid conflict-of-interest situations related to its administration of the program to prevent $338,483 in program funds from being used to test lenders with which it has conflicts-of-interest. The grantee should also implement procedures to verify and document that its testers are free from felony convictions and criminal records.