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We audited the City of Margate’s Neighborhood Stabilization Program (NSP) grants 1 and 3 in accordance with our audit plan to improve the U.S. Department of Housing and Urban Development’s (HUD) execution of and accountability for grant funds.  In addition, HUD requested that we review this auditee because a forensic investigation initiated by the City found issues with record keeping, misappropriation of funds, and overages regarding City, State, and Federal funds.  Our objective was to determine whether the City (1) administered its NSP1 and NSP3 funds in accordance with HUD requirements and (2) followed appropriate procurement procedures.

The City did not administer its NSP1 and NSP3 in accordance with program regulations.  Specifically, it did not ensure that (1) services were properly procured, (2) a property acquired met the national objective to benefit income eligible households, (3) rehabilitation costs were allowable and supported, and (4) program income and properties were adequately reported in HUD’s Disaster Recovery Grant Reporting (DRGR) system.  These deficiencies occurred because the City did not provide adequate oversight of the program and lacked sufficient internal controls.  In addition, the former grants manager contributed to the overall mismanagement of program funds and allowed its contractors to violate regulations.  As a result, it spent $811,571 on ineligible costs and could not support costs totaling $8,919.

We recommend that the Director of HUD’s Miami, FL Office of Community Planning and Development require the City to (1) repay $811,571 to the program from non-Federal funds, (2) provide support for the $8,919 in NSP funds spent on rehabilitation costs, (3) report program income and properties correctly in HUD’s DRGR system, and (4) update policies and procedures to ensure that HUD programs are properly administered.

We also recommend that the Director of the Departmental Enforcement Center initiate appropriate administrative actions and debarments against parties who contributed to the mismanagement of program funds.