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The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, reviewed the State of Montana’s Community Development Block Grant-Recovery (CDBG-R) program, based on HUD’s concern with the State directly loaning CDBG-R funds to entities and because of our focus on the administration of American Recovery and Reinvestment Act funds. The objective of our review was to determine whether the State used its CDBG-R funds in accordance with the Recovery Act rules and regulations.

The State generally used its CDBG-R funds in compliance with Recovery Act rules and regulations. However, it incorrectly negotiated and serviced loans with the final recipients of the funds. The State decided to directly handle these high-risk loans instead of placing the risk on the nonprofits with which the counties contracted for this function. Since the State serviced the loans, the nonprofits did not have direct access to the program income generated by the CDBG-R loans.

We recommend that the Director of HUD’s Denver Office of Community Planning and Development require the State to transfer the loan servicing of the CDBG-R loans to the pertinent nonprofits.