We audited the City of Passaic, NJ’s Community Development Block Grant (CDBG) program in support of the Office of Inspector General’s (OIG) goal of improving the U.S. Department of Housing and Urban Development’s (HUD) execution of its fiscal responsibilities. We selected the Authority based on a risk assessment of grantees administered by the HUD Newark, NJ, field office that considered grantee funding, HUD’s 2013 risk score, and prior OIG audits. The audit objective was to determine whether City officials had adequate controls to ensure that the program was administered in accordance with HUD regulations and program requirements.
City officials generally disbursed funds for eligible activities, but there were administrative control weaknesses, which lessened assurance that the program was administered in accordance with HUD regulations and funds were adequately safeguarded. Specifically, the following deficiencies were found in 5 of 15 project activities reviewed: 2 subrecipient agreements had not been executed for activities obligating $551,954 in CDBG funds, and $306,710 was obligated for 2 activities after the term of the subrecipient agreements had expired. In addition, 2 subrecipient agreements were not amended when the authorized funding was increased by $173,740, and the City could not be assured that a subrecipient delivered $60,000 in CDBG-funded services. We attribute these deficiencies to City officials’ unfamiliarity with HUD regulations and weaknesses in subrecipient monitoring. However, in response to the audit, at the exit conference City officials provided two retroactively executed memorandums of understanding1 and evidence of satisfactory performance for the $551,954 in obligated funds, and two amended subrecipient agreements whose initial term had expired, which will provide greater assurance that the $306,710 will be expended as intended.
We recommend that HUD instruct City officials to execute the necessary subrecipient agreements, provide documentation to support that assisted activities were properly administered and completed, and strengthen controls over the maintenance of CDBG-funded activity files and subrecipient monitoring.
1 The memorandums of understanding contained the necessary provisions required by a subrecipient agreement.