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We audited the City and County of Honolulu’s (City) Community Development Block Grant (CDBG) program.  We conducted the audit because the City was the largest Pacific island recipient of CDBG funds, the U.S. Department of Housing and Urban Development (HUD) had identified problems with the City’s CDBG program, and the Office of Inspector General had never audited the City.  Our objective was to determine whether the City administered its CDBG program in accordance with HUD requirements.

The City did not comply with HUD requirements related to cost eligibility and procurement and its own award requirements.  Specifically, it allowed the unnecessary acquisition and did not support the cost reasonableness of the Hibiscus Hill Apartments, allowed the unnecessary acquisition of the Kaneohe Elderly Apartments, allowed a subrecipient to award a contract to one of the property owner’s affiliates, restricted competitive procurement, did not follow its award requirements, and did not review program income adequately.  This noncompliance occurred because the City did not have an effective grant administration structure in place.  As a result, it incurred grant costs of $15.9 million that were unsupported.

We recommend that HUD require the City to (1) support that the Hibiscus Hill acquisition was necessary and reasonable or repay its CDBG program line of credit $10 million from non-Federal funds, (2) support that the Kaneohe Elderly Apartments acquisition was necessary or repay its CDBG program line of credit $2.9 million from non-Federal funds, (3) support that the costs for a contract awarded to one of the property owner’s affiliates was reasonable and the integrity of the procurement was not compromised by the relationship or repay  its CDBG program line of credit $1.45 million from non-Federal funds, (4) support that the noncompetitively procured fire apparatus costs were reasonable and that potential bidders were not harmed by the City’s arbitrary action or repay its CDBG line of credit $1.6 million from non-Federal funds, (5) review all current CDBG-funded projects for unreported program income and report any to HUD, and (6) implement adequate controls over its program, including consolidating the grant program into one department, and develop citywide written policies and procedures.