We audited the Sacramento Housing Redevelopment Agency (Agency) as a result of a hotline complaint, which alleged violations of Neighborhood Stabilization Program (program) funds provided through the Housing and Economic Recovery Act of 2008. Our objective was to determine whether the alleged violations had merit. The complaint alleged several instances where the Agency did not follow program rules and regulations, including but not limited to, rehabilitating residential properties that were not foreclosed upon or vacant and/or abandoned. We wanted to determine whether the Agency administered its program in accordance with U.S. Department of Housing and Urban Development (HUD) rules and regulations and whether program funds were used for eligible purposes.

We determined that the Agency did not administer the program in accordance with HUD rules and regulations. Specifically, it allowed ineligible properties to be rehabilitated; did not adequately monitor projects, which resulted in ineligible costs, permitted the developer to make unnecessary upgrades and overinflate the construction budget, did not ensure that it met its reporting requirements, and lacked controls. These deficiencies resulted in over $1.1 million in ineligible costs and over $5.3 million in funds that could be put to better use. We attribute these deficiencies to the Agency's not following program requirements, compounded by a lack of policies and procedures and ineffective management controls over the program. We recommend that HUD require the Agency to repay from nonfederal funds more than $1.1 million in ineligible costs, and establish and implement effective management controls. Improvements on controls would ensure that over $5.3 million in funds could be put to better use.