We audited the City of Paterson, NJ’s HOME Investment Partnerships Program based on a risk analysis of the City’s program that considered the amount of funding, the risk score assigned by the U.S. Department of Housing and Urban Development (HUD), our identification of potential issues, and Congress’ general interest in the HOME program. The objective of the audit was to determine whether City officials had established and implemented adequate controls to ensure that the City’s HOME program was administered in compliance with HOME program requirements and Federal regulations.
The City’s HOME program was not always administered in compliance with program requirements. Specifically, HOME funds were (1) not committed in accordance with program requirements, (2) spent on ineligible and unsupported costs, (3) reserved and disbursed to ineligible community housing development organizations (CHDO), (4) drawn down in excess of need and not reimbursed for terminated activities, and (5) used to assist ineligible and unsupported home buyers and homeowners. We attribute these deficiencies to City officials’ unfamiliarity with HOME subsidy limits, environmental requirements, and CHDO requirements; weaknesses in controls over subgrantee monitoring; and weaknesses in controls over certifying home buyers and homeowners for HOME assistance. As a result, $1.8 million was unavailable for eligible activities; $561,245 was disbursed for unsupported costs, more than $2.2 million in CHDO reserve was ineligible; the CHDO reserve was underfunded by more than $1.1 million; and HUD’s interest in over $1.37 million was not properly recorded.
We recommend that HUD recapture $844,640 in ineligible committed funds and instruct City officials to reimburse more than $948,414 spent for ineligible costs, provide documentation to support that $561,245 was spent on supported costs and activities, remove more than $2.2 million in ineligible CHDO reserve, provide documentation for more than $1.1 million in CHDO reserve, and properly record deed restrictions and affordability requirements so that HUD’s interest in over $1.37 million is protected.