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The City of New York, NY, Did Not Always Disburse Community Development Block Grant Disaster Recovery Funds in Accordance With Federal Regulations

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We completed a review of the City of New York, Office of Management and Budget’s administration of the Business Loan and Grant Program funded with Community Development Block Grant Disaster Recovery (CDBG-DR) funds provided by the U.S. Department of Housing and Urban Development (HUD) to assist in the disaster recovery and rebuilding efforts resulting from Hurricane Sandy.  The objectives of the audit were to determine whether the City (1) disbursed CDBG-DR funds for its Business Loan and Grant Program to assist eligible business owners in accordance with the guidelines established under its HUD-approved action plan, amendments, and applicable Federal requirements and (2) maintained a financial management system that adequately safeguarded funds and prevented misuse.

Our review determined that City officials did not always disburse CDBG-DR funds in accordance with guidelines or maintain a financial management system that adequately safeguarded funds and prevented misuse.  Specifically, City officials (1) disbursed CDBG-DR funds for unsupported inventory costs, (2) did not identify either the source or application of funds for voucher drawdowns, and (3) did not properly account for duplicate assistance when calculating the unmet need of one applicant.  However, they generally approved and denied applications for assistance in accordance with program requirements.  The deficiencies resulted from City officials’ lack of knowledge of Federal funding regulations and weaknesses in the City’s administrative and financial management control system.  As a result, City officials could not assure HUD that $241,000 in CDBG- DR funds was adequately safeguarded and disbursed for eligible, reasonable, and necessary expenses and that the funds assisted qualified businesses in compliance with Program requirements.

We recommend that HUD’s Deputy Assistant Secretary for Grant Programs instruct City officials to provide documentation to support $206,000 in CDBG-DR funds disbursed for inventory purchases and reimburse HUD from non-Federal funds the $35,000 in CDBG-DR funds disbursed for duplicate assistance.  Any amounts not supported should be repaid from non-Federal funds.