We audited the State of Michigan’s Neighborhood Stabilization Program under the American Recovery and Reinvestment Act of 2009 as part of the activities in our fiscal year 2013 annual audit plan.  We selected the State’s Program based upon our designation of the Program as high risk.  Further, we received an anonymous complaint regarding the State’s Program.  Our objectives were to determine whether the Michigan State Housing Development Authority, the administrator of the State’s Program, complied with Federal requirements in its use of Program funds for (1) increased construction costs for a new construction project and (2) consortium members’ acquisition of residential properties.  This is the third of three audit reports on the State’s Program.

The Authority did not ensure that Federal requirements were followed in its administration of the State’s Program.  Specifically, the Authority (1) could not provide sufficient documentation to support that increased construction costs for a new construction project were necessary and reasonable and (2) did not ensure that consortium members acquired residential properties at a 1 percent discount from the properties’ current market value.  As a result, the Authority (1) lacked sufficient documentation to support that its use of nearly $184,000 in Program funds for increased project construction costs was necessary and reasonable and (2) inappropriately used nearly $55,000 in Program funds for the acquisition of 12 properties.

We recommend that the Director of HUD’s Detroit Office of Community Planning and Development require the State to (1) provide sufficient supporting documentation or reimburse its Program nearly $184,000, (2) reimburse its Program nearly $55,000, and (3) implement adequate procedures and controls to address the findings cited in this audit report.