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We completed a review of the Village of Spring Valley, NY, a subrecipient of Rockland County, NY. We selected this auditee based on a hotline complaint that was referred from the Federal Housing Finance Agency (FHFA) OIG, Complaint Number Z-12-0445-1, received on February 14, 2012. The complaint alleged that the Village (1) used eminent domain and Federal funds to seize property, (2) transferred ownership of properties to a developer to be sold at higher prices, and (3) allowed the developer to build segregated housing on the property as part of an urban renewal project. The objectives of the review were to determine whether the complaint alleging the use of eminent domain and Federal funds to seize and develop properties in the Village had merit and whether the Village used HUD funds as part of its urban renewal project in accordance with applicable rules and regulations.

Our review determined that although the facts of some of the allegations were valid and substantiated, the Village generally used HUD funds in accordance with applicable rules and regulations for its urban renewal project. Thus, no further action is required. Specifically, the seizure of property under the auspices of eminent domain and the transfer of ownership of these properties to a developer is allowable under HUD rules and regulations. Further, the portion of the allegation regarding the selling of the seized properties at higher prices did not have merit for any of the properties acquired with HUD funds. The third allegation, regarding the developer building segregated housing, is discriminatory in nature and will be referred to HUD’s Office of Fair Housing and Equal Opportunity. Nevertheless, our review determined that the Village received $102,438 in CDBG funds from Rockland County to acquire a property for which it could not provide documentation to support that a national objective of the CDBG program was met. Lastly, the Village did not inform Rockland County of $825,000 in program income earned from the sale of property to a developer.

We recommend that the Director of HUD’s New York City Office of Community Planning and Development instruct Rockland County officials to require the Village to (1) provide documentation to justify that the $102,438 in unsupported CDBG funds used to acquire property meets one of the three CDBG national objectives. Any costs determined to be ineligible should be reimbursed from non-Federal funds. Further, we recommend that the Director of HUD’s New York City Office of Community Planning and Development instruct Rockland County officials to (2) record the unreported program income of $825,000 related to the sale of property site 3 in HUD’s Integrated Disbursement and Information System so that these funds can be used before additional CDBG funds are drawn down, and (3) strengthen controls over the recognition and reporting of program income to ensure that all program income is properly recorded in HUD’s Integrated Disbursement and Information System and used before future CDBG funds are drawn down.