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We reviewed the hazard-damaged units that the Housing Authority of the City of Los Angeles (Authority) is rehabilitating using formula grant American Recovery and Reinvestment Act of 2009 (Recovery Act) Public Housing Capital Fund program (program) funds. We selected the Authority based upon the results of our capacity review of the Authority’s Recovery Act program (see Office of Inspector General (OIG) audit report #2011-LA-1002, issued November 4, 2010) and concerns regarding the possibility of the Authority using Recovery Act program funds for the rehabilitation of hazard-damaged units while simultaneously obtaining insurance reimbursements related to those units from its commercial property insurance carrier. Our objective was to determine whether the Authority’s use of Recovery Act program funds on hazard-damaged units subject to property insurance reimbursements was in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. We found the Authority improperly charged its Recovery Act program $75,370 and an additional pending amount of $8,018 without applying cost reductions or credits related to insurance reimbursements to its program.

We recommend that the Director of HUD’s Office of Public Housing instruct the Authority to: (1) Reimburse the Recovery Act program $75,370 for the insurance reimbursements posted to other accounts; (2) Confirm that the additional pending amount of $8,018 in insurance reimbursements is appropriately posted to the Recovery Act program; (3) Revise its policies and procedures to ensure that cost reductions are applied before disbursing Recovery Act funds and that credits are applied once reimbursements are received by the Authority. This measure will assure HUD that capital funds, including those provided under the Recovery Act, will be disbursed in accordance with applicable laws and regulations. In addition, we recommend that HUD’s Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against the Authority and/or its appropriate personnel for improperly charging its Recovery Act program.