We audited the City of Huntsville’s Community Development Department, which administers the Community Development Block Grant (CDBG) and HOME Investment Partnerships Program, at the request of the U.S. Department of Housing and Urban Development’s (HUD) Alabama Office of Community Planning and Development.  Our objectives were to determine whether the Department’s commitment to use CDBG and HOME funds for the acquisition and rehabilitation of the Mirabeau Apartments was an eligible activity and whether the Department had adequate controls and procedures to ensure appropriate accountability for and administration of the project.

The Department did not have adequate controls and procedures to ensure (1) appropriate accountability for and administration of the Mirabeau project and (2) that it used its HOME and CDBG funds for eligible activities.  Specifically, the Department (1) inappropriately loaned more than $932,000 in HOME funds, and more than $250,000 in community housing development organization (CHDO) funds to a developer; (2) did not fully document the use of more than $1 million in CDBG funds for five loans; (3) did not use $772,000 in HOME funds as intended; and (4) did not recover collateral of more than $323,000 in CDBG funds from its bank and $100,000 in HOME funds from its CHDO.  In addition, the Department did not (1) realize potential income because 60 units were offline, (2) include all of the elements required by HUD regulations in its participation agreement with the developer of the Mirabeau Apartments, and (3) prepare a cost allocation plan to allocate the unit costs or identify the number of HOME-assisted units to support the HOME-assisted units in the project.

We recommend that HUD require the City to (1) reimburse nearly $2.4 million in ineligible costs and support more than $1 million or reimburse unsupported amounts to the Department’s CDBG and HOME program accounts from non-Federal funds, (2) inspect the project and correct all deficiencies, (3) review all participation agreements, and (4) prepare a cost allocation plan for HUD’s review.