We audited the State of Indiana’s (State) HOME Investment Partnerships Program (Program). The audit was part of the activities in our fiscal year 2010 annual audit plan. We selected the State based upon our analysis of risk factors relating to Program grantees in Region V’s jurisdiction. Our objectives were to determine whether the Indiana Housing and Community Development Authority (Authority), the administrator of the State’s Program, complied with the U.S. Department of Housing and Urban Development’s (HUD) requirements in its use of Program and American Dream Downpayment Initiative (Initiative) funds to provide interest-free second mortgage loans to home buyers through the State’s First Home/PLUS program and its use of recapture provisions for First Home/PLUS activities (activity).

The Authority did not comply with HUD’s requirements in its use of Program and Initiative funds to provide interest-free second mortgage loans to home buyers through the State’s First Home/PLUS program and its use of recapture provisions for activities. It (1) lacked sufficient documentation to support that homes purchased under the First Home/PLUS program met HUD’s property standards requirements, (2) did not implement appropriate recapture provisions for all of the activities reviewed, (3) did not ensure that the State’s Program was reimbursed for Program or Initiative funds used for activities in which the ownership of homes was later transferred through foreclosures, and (4) did not reimburse the State’s treasury account for Program funds used for activities that were later terminated. As a result, (1) it was unable to support its use of more than $803,000 in Program or Initiative funds, (2) its Program was not reimbursed more than $130,000 in Program or Initiative funds used for 32 activities in which the ownership of the homes was later transferred through foreclosures, and (3) its treasury account was not reimbursed more than $8,000 in Program funds used for activities that were terminated. Further, the Authority is at risk of being required to reimburse the State’s Program additional non-Federal funds if the ownership of additional homes acquired under the First Home/PLUS program is transferred through foreclosures.

We recommend that the Director of HUD’s Indianapolis Office of Community Planning and Development require the State to (1) provide sufficient supporting documentation or reimburse its Program more than $803,000 from non-Federal funds, (2) reimburse its Program more than $130,000 from non-Federal funds for activities in which ownership of the homes was transferred through foreclosures, (3) reimburse its treasury account more than $8,000 from non-Federal funds for the activities that were terminated, (4) revise its consolidated plan and action plan to include the recapture provisions the Authority uses for the First Home/PLUS program or require the Authority to revise the recapture provisions it uses for the First Home/Plus program to comply with the recapture provisions in the State’s consolidated plan and action plan, and (5) implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help to ensure that over the next year, the State appropriately recaptures Program and/or Initiative funds and/or reimburses its Program from non-Federal funds for nearly $124,000 in Program and/or Initiative funds used for homes acquired under its First Home/PLUS program in which ownership would be transferred due to foreclosures.