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We completed a review of the City of New York, Office of Management and Budget’s administration of the Interim Assistance Rapid Repairs 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 objective of the audit was to determine whether City officials had adequate controls to ensure that the use of CDBG-DR funds was consistent with the Interim Assistance Rapid Repairs Program guidelines established under the HUD-approved action plan, applicable Federal requirements, and City policy.

Our review determined that City officials lacked adequate controls to ensure that the use of CDBG-DR funds was always consistent with the action plan and applicable Federal and State regulations.  Specifically, City officials disbursed $18.2 million in CDBG-DR funds for State sales tax on repairs and maintenance services that the City was exempt from paying under New York State tax law, section 1116(a)(1).  We attributed this deficiency to City officials’ decision to rapidly implement an emergency sheltering program and including sales tax in the negotiated contractual unit prices for repairs and maintenance services.  As a result, City officials could not assure HUD that more than $18.2 million in CDBG-DR funds was disbursed for allowable, reasonable, and necessary expenses in compliance with the action plan and Federal and State requirements.

We recommend that HUD instruct City officials to (1) reimburse the Program from non-Federal funds more than $18.2 million in exempt State sales tax on repairs and maintenance services and (2) strengthen controls over disbursements to ensure that all costs charged to the Program are allowable, reasonable, and necessary in compliance with the HUD-approved action plan and Federal and State requirements.