We audited the City of Yonkers, New York's (the City) administration of its Section 108 Loan Guarantee program to determine whether the City disbursed Section 108 loan guarantee program funds for eligible costs and adequately safeguarded funds and prevented misuse. The audit disclosed that the City disbursed program funds for eligible activities in accordance with HUD rules and regulations, and maintained a financial management system that adequately safeguarded funds. However, weaknesses in controls caused the City to not (1) adequately document data on borrower compliance with job creation and retention requirements, (2) consistently monitor and report on the use of loan proceeds, (3) properly maintain its loan repayment account, and (4) notify HUD when loan collateral was changed or loans defaulted. These deficiencies occurred because City officials were unaware of program requirements. As a result, the City lacked assurance that loan job creation and retention goals were achieved, loan disbursements were used for eligible purposes, and loan repayments will be sufficient to meet the City's future loan repayment obligations. In addition, HUD was not made aware of changes to loan collateral and defaulted loans, which could have affected its financial interest.

We recommended that the director of HUD's New York Office of Community Planning and Development instruct the City to strengthen its controls to (1) monitor and verify loan recipients' compliance with job creation and retention requirements, (2) obtain and review borrower documentation for expenditure of loan proceeds to ensure loan proceeds are used for eligible purposes, (3) properly maintain loan repayment records, and (4) report changes in loan collateral and defaults to HUD.