We audited the City of Santa Ana’s Neighborhood Stabilization Program 2 (NSP2).  We initiated the audit as part of the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) fiscal year 2012-2013 annual audit plan.  Our objective was to determine whether the City administered its program funds in accordance with applicable HUD rules and requirements.  Specifically, our focus was to determine whether the City administered its program to ensure that funds were used for eligible activities.

The City did not administer its program funds to meet the objective of ensuring that funds were used for eligible activities and returning single-family homes to productive use as required under HUD rules and requirements.  The City incurred more than $1 million in costs that were either ineligible or could have been better used to maximize its program.  Specifically, the City reimbursed its developer more than $669,000 in NSP2 funds for ineligible costs, and at least $375,000 for unnecessary bank charges.

We recommend that the Director of HUD’s Los Angeles Office of Community Planning and Development require the City to (1) repay $669,632 in ineligible costs; (2) establish and implement more effective policies, procedures, and controls for its program; and (3) ensure that all City personnel who review and monitor program activities are trained to identify questioned costs.