We audited the City of Bayonne, NJ's (City) Community Development Block Grant (CDBG) economic development activities in response to a complaint (HL- 09-1015) that contained four allegations. Our audit objectives were to determine whether the City (1) disbursed CDBG economic development funds efficiently and effectively in accordance with its submission to HUD and with the applicable rules and regulations, (2) used CDBG economic development funds to meet one of the three national program objectives, and (3) had a financial management system in place to adequately safeguard the funds.
The City did not adequately administer its economic development program. Specifically, it (1) did not adequately monitor its subrecipient, (2) made disbursements for ineligible items, (3) made disbursements for technical assistance and salary costs that were not reasonable, (4) did not maintain documentation to support accomplishment of the CDBG national objectives, and (5) did not reprogram unused economic development funds in a timely manner when its loan program ended. These deficiencies occurred because the City did not have adequate controls in place to ensure that its economic development activities were administered in accordance with HUD regulations. As a result, (1) $5,335 was disbursed for ineligible consulting costs; (2) $640,266 was disbursed for technical assistance, salaries, and payroll taxes that did not appear to be reasonable; (4) documentation was not maintained to support accomplishment of the CDBG national objectives; and (5) $196,292 in unused economic development funds needs to be reprogrammed.

We recommend that the Director of HUD's New Jersey Office of Community Planning and Development instruct the City's Department of Community Development to (1) strengthen procedures to monitor its subrecipients to ensure compliance with HUD rules and regulations; (2) repay from non-Federal funds the $5,335 in ineligible consultant costs and parking fees charged to the CDBG economic development program; (3) strengthen controls to ensure that costs charged to the CDBG program are eligible according to HUD regulations; (4) provide documentation to support the eligibility of $640,266 in unreasonable technical assistance costs, salaries, and payroll taxes charged to the economic development program so that HUD can make an eligibility determination; and (5) provide documentation to show that the City reprogrammed $196,292 in remaining economic development funds so that these funds can be put to better use.