We audited the Community Development Corporation of Brownsville, Inc. (Corporation), at the request of the U. S. Department of Housing and Urban Development's (HUD) San Antonio Director of Community Planning and Development. Our objective was to determine whether the Corporation correctly charged administrative costs to its various federal funding sources. We expanded our objective to also determine whether the Corporation used housing counseling grant funds to qualify mortgage applicants instead of counseling potential homebuyers.

We found that the Corporation incorrectly used part of its housing counseling grant funds for qualifying mortgage applicants. This occurred because the Corporation has a prohibited conflict of interest as it provided housing counseling, mortgage qualifying, and underwriting services. As a result, it charged $177,139 in ineligible salaries and $80,647 in unsupported fringe benefits to its grants. In addition, the Corporation did not allocate general administrative costs in proportion to the relative benefits received by the various funding sources or awards, which resulted in unsupported costs of $391,313. Further, it could not support a $472,069 increase in its building acquisition cost or the $66,000 value assigned to the land because it did not follow federal requirements and generally accepted accounting principles. As a result, it may have overcharged its federal funding sources or awards by as much as $67,210 for depreciation.

Our recommendations include requiring the Corporation to resolve its conflict of interest, repay to HUD $177,139 in ineligible salaries and support or repay $80,647 in fringe benefits; develop a cost allocation plan for HUD approval that allocates general administrative expenses relative to the benefits received by its funding sources or awards; reallocate $391,313 in general administrative expenses in accordance with the cost allocation plan; obtain an appraisal that values the building and land separately as of the date it purchased the building; and reallocate the correct depreciation.