We completed an audit of Community Development Block Grant (CDBG) program administered by the City of Paterson (City). Our audit objectives were to determine whether the City (1) disbursed CDBG funds efficiently and effectively in accordance with its submission to HUD and applicable rules and regulations and (2) had a financial management system in place to adequately safeguard the funds.

The City did not always disburse CDBG funds efficiently and effectively in accordance with its submission to HUD and with applicable rules and regulations. Specifically, procurement requirements were not followed and funds were disbursed for unsupported and an ineligible activities and planning and administration expenses. In addition, the City’s financial management system did not have adequate controls to properly safeguard funds and report program income.

We recommended that the Director of HUD’s New Jersey Office of Community Planning and Development instruct the City to (1) provide documentation to support more than $3.7 million of costs related to the procurement of demolition, housing rehabilitation, public facility, and planning and administrative activities; (2) repay more than $641,000 of ineligible disbursements and (3) develop adequate procurement, management, and financial controls and procedures to ensure that planned demolition, housing rehabilitation, and public facility activities comply with regulations and that program income, demolition liens, and interest income are properly recorded to ensure that more than $2 million in budgeted funds is put to better use.