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We audited the City of Philadelphia, PA’s administration of its Neighborhood Stabilization Program 2 grant that it received under the American Recovery and Reinvestment Act of 2009 as part of our fiscal year 2012 audit plan. Our objective was to determine whether the grantee administered the grant in accordance with Recovery Act and U.S. Department of Housing and Urban Development (HUD) requirements. We found that the grantee generally administered its grant in accordance with Recovery Act and HUD requirements. However, the grantee and its grant subrecipient, the Philadelphia Redevelopment Authority, did not have a HUD-approved cost allocation plan as required by Federal regulations. We recommended that HUD require the grantee and its subrecipient to develop a cost allocation plan which provides an equitable method for distributing administrative costs to the benefiting programs and obtain HUD approval for the plan.