We audited Morris County, NJ’s Community Development Block Grant (CDBG) program based on a risk assessment, which considered the size of the program, the U.S. Department of Housing and Urban Development’s (HUD) risk analysis, and prior audit coverage. The objectives of the audit were to determine whether County officials established adequate controls to ensure that CDBG funds were expended for eligible activities and that the program was administered in accordance with HUD regulations.

County officials generally expended CDBG funds for eligible activities, but weaknesses in financial and administrative controls lessened assurance that program administration always complied with HUD regulations and HUD’s interest was protected. Specifically, (1) CDBG funds were obligated or expended for ineligible or unsupported activities, (2) the County’s action plan was not properly amended, (3) financial information was not always accurate (4) subrecipients were not always monitored in compliance with HUD regulations and the County’s policies, and (5) liens were not imposed on assisted properties. Consequently, (1) $140,705 was obligated and expended for unsupported activities, and $19,500 was expended for ineligible activities; (2) neither the public nor HUD was aware of the change in the use of more than $400,000 for previously approved activities; (3) County officials lacked assurance that the financial data submitted by the County accurately reflected its performance; (4) subrecipients were not effectively monitored to ensure that the activites had been accomplished according to program requirements; and (5) HUD’s interest in a property assisted with $71,729 in CDBG funds was not protected. These conditions existed due to County officials’ unfamiliarity with CDBG regulations and implementation of inadequate financial and administrative controls.

We recommend that the Director of HUD’s New Jersey Office of Community Planning and Development instruct County officials to (1) provide documentation to support the obligation and expenditure of $140,705 or reimburse the County’s CDBG line of credit, (2) reimburse the County’s CDBG line of credit for the $19,500 in ineligible assistance, (3) record a lien or other notice of record on the real property acquired with CDBG funds, and (4) strengthen financial and administrative controls to ensure that CDBG funds are used in accordance with applicable regulations.