We audited the City of Richmond’s Neighborhood Stabilization Program 1 (NSP1) in response to HUD Office of Community Planning and Development’s concerns over the City’s management of its NSP1.  Our objective was to determine whether the City administered its NSP1 in accordance with requirements related to procurement and cost eligibility.

The City did not administer its NSP1 in accordance with requirements related to procurement and cost eligibility.  Based on flawed procurement decision making, the City awarded contracts to developers that lacked the capacity and financial resources to administer the program.  In addition, it did not monitor the rehabilitation progress or the quality of work performed by three developers.  As a result, the rehabilitation of some properties suffered significant delays, while the rehabilitation of other properties had not been completed after more than 3 years.  Further, the City paid $691,005 for rehabilitation work that was not performed and other ineligible and unreasonable costs.  Lastly, the City did not ensure that NSP1 properties were sold to eligible home buyers.  These same issues likely occurred under the City’s NSP3 and will continue unless HUD closely monitors the City to ensure compliance.

We recommend that HUD require the City to (1) repay HUD the actual administrative costs charged or $223,085 for mismanaging three developers and (2) repay HUD $691,005 for ineligible or unreasonable costs and for work not performed.  We also recommend that HUD review the City’s remaining NSP1 activities and its $1.1 million NSP3 grant and require the City to reimburse the programs for any ineligible or unreasonable costs.

We recommend that HUD’s Associate General Counsel for Program Enforcement pursue civil and other administrative sanctions against the City, its developers, or both for allowing NSP1 funds to be used for ineligible costs.