We audited the State of Washington’s Neighborhood Stabilization Program. The audit was part of our fiscal year 2009 annual audit plan. We selected the State because it was responsible for the distribution of funds to the entitlement areas, as well as to nonentitlement areas for the state of Washington. Our objective was to determine whether the State’s Program implementation was compliant with U.S. Department of Housing and Urban Development (HUD) requirements.

The State’s Program implementation was generally compliant with HUD requirements. However, the distribution was not entirely based on greatest need. This condition occurred because the State misinterpreted foreclosure need score data obtained from the Local Initiatives Support Corporation. As a result, some communities received excessive allocations, while others that had a greater need did not receive an allocation.

We recommended that the Seattle Office of Community Planning and Development ensure that the State awards funds to subrecipients that were not funded or were underfunded so that these funds will be used for communities that had a greater need than some of the communities that received funding and that the state fully understands external data before using it to make future allocations of funds.