We audited the City of Elizabeth, NJ’s Community Development Block Grant (CDBG) program in support of the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) goal to contribute to improving HUD’s execution of and accountability for its fiscal responsibilities. We selected the City after completing a risk analysis of CDBG grantees administered by the HUD Newark, NJ, field office. This assessment considered funds received, HUD’s risk assessment score, and program information reported in HUD’s Integrated Disbursement and Information System. The objective of the audit was to determine whether City officials established and implemented adequate controls to ensure that the City’s CDBG program was administered in accordance with Federal regulations and CDBG program requirements.

City officials did not always administer the City’s CDBG program in accordance with Federal regualtions and CDBG program requirements. Specifically, CDBG funds were expended for ineligible and unsupported costs, program income was not properly recognized and used, liens were not imposed on assisted properties, and subrecipient monitoring and compliance with other program requirements were not adequate. These conidtions existed because of weaknesses in the City’s financial and administrative controls and officials’ unfamiliarity with program regulations. Consequently, (1) $399,093 was expended on ineligible costs, (2) $193,774 was expended on unsupported costs, (3) program income of $263,938 may not have been realized, (4) program income of $606,460 was not reported and made avaliable for eligible CDBG eligible activities, (5) HUD’s interest in two assited properties totaling more than $4.2 million was not protected, and (6) officials did not adequately monitor subrecipients and comply with program administrative requirements.

We recommend that the Director of HUD’s New Jersey Office of Community Planning and Development instruct City officials to (1) reimburse the City’s CDBG line of credit from non-Federal funds for ineligible expenses of $399,093, (2) provide documentation to support expenditure of $193,774, and if such documentation cannot be provided, reimburse the City’s CDBG line of credit from non-Federal funds, (3) provide documentation to enable HUD to determine whether the City was entitled to program income of $263,938, (4) reimburse the CDBG line of credit for unreported program income of $606,460, (5) impose liens or other appropriate notices of record on two real properties assisted with more than $4.2 million in Federal Funds to ensure that the HUD’s and the City’s interest is adequately protected, and (6) strengthen internal controls to ensure that the City’s CDBG program is administered in accordance with Federal regulations and program requirements.