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The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the New Phoenix Assistance Center's (Center) Supportive Housing Program (Program) grants. The audit was part of the activities in our fiscal year 2007 annual audit plan. We selected the Center based upon HUD's Office of Community Planning and Development being a priority audit area for our office and a request from HUD's Chicago Office of Community Planning and Development. Our audit objectives were to determine whether the Center effectively administered its Program grants, appropriately used Program funds and provided matching contributions (contributions) for its Program grants, and followed HUD's requirements.

The Center materially failed to manage its Program grants. It lacked sufficient documentation to support that it used Program funds for appropriate Program expenses, inappropriately used Program funds, and lacked adequate documentation to support that it followed HUD's requirements in providing contributions for its Program grants.

The Center did not comply with federal requirements regarding its use of Program funds. It was unable to sufficiently support its use of more than $574,000 in Program funds for appropriate lease payments and more than $72,000 in Program funds for eligible nonlease expenses and used nearly $16,000 in Program funds for improper nonlease expenses. It also lacked sufficient documentation to support whether its transfers of $25,000 in Program funds among its Program grants were allowable.

In addition, the Center lacked sufficient documentation to support that it followed HUD's requirements in providing contributions for its Program grants. As a result, HUD lacked assurance that the Center provided $333,347 in eligible contributions for its Program grants.

We recommend that the Director of HUD's Chicago Office of Community Planning and Development terminate the Center's three current authorized Program grants, reallocate the nearly $92,000 in remaining Program funds, deny the Center's three applications for nearly $838,000 in future Program funds, require the Center to provide sufficient supporting documentation or reimburse HUD from nonfederal funds for the unsupported payments and contributions, and reimburse HUD from nonfederal funds for the improper use of Program funds. We also recommend that HUD's Acting Director of the Departmental Enforcement Center pursue the appropriate administrative sanctions against the Center's officers for their failure to adequately manage the Center's Program grants.