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We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of the disposition of real properties assisted with Community Development Block Grant (CDBG) funds.  We conducted the audit as part of our annual audit plan.  Our audit objective was to determine whether HUD had adequate controls over the disposition of real properties assisted with CDBG funds.

We found that HUD could improve its oversight of the disposition of real properties assisted with CDBG funds.  Although HUD’s drawdown and reporting system allowed grantees to enter identifying information for assisted properties and its field offices performed risk-based monitoring of grantees, HUD’s controls were not always sufficient to ensure that grantees (1) entered addresses of assisted properties into its system, (2) provided proper notice to affected citizens before changing the use of assisted properties, (3) adequately determined the fair market value of assisted properties at the time of disposition, and (4) properly reported program income from the disposition of the properties.  Further, HUD did not fully implement guidance related to the applicability of change of use requirements after voluntary grant reductions.  We attributed these deficiencies to HUD’s lack of emphasis on verifying address information, its field office staff not being adequately trained to use data to monitor HUD’s interest in properties, and the Milwaukee field office incorrectly interpreting program requirements.  As a result, HUD could not track and monitor its interest in the properties and did not have assurance that grantees properly handled changes in use and properly reported program income.

We recommend that HUD (1) issue guidance reminding grantees of the requirements to report address information for assisted properties and calculate and report program income related to the disposition of these properties; (2) develop a process to ensure that grantees properly report address information and properly calculate and report program income; and (3) require three grantees to provide documentation showing that (a) affected citizens were notified of a change in use of the property for one activity, (b) the fair market value of properties for two activities was supported, and (c) program income for three activities was properly calculated and reported; (4) document the applicability of change of use requirements for one grantee; and (5) issue guidance to clarify the applicability of change of use requirements after voluntary grant reductions.