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HUD OIG performed the ninth of the ongoing audits of the Lower Manhattan Development Corporation’s (LMDC’s) administration of the Community Development Block Grant (Block Grant) Disaster Recovery Assistance funds provided to the State of New York following the September 11, 2001, terrorist attacks on the World Trade Center in New York City.  HUD has allocated $2.783 billion in Disaster Recovery Assistance funds to the LMDC.  OIG’s audit objectives were to determine whether the LMDC (1) disbursed Disaster Recovery Assistance funds in accordance with HUD-approved action plans, (2) expended Disaster Recovery Assistance funds for eligible planning and administrative expenses in accordance with applicable laws and regulations, and (3) maintained a financial management system in place that adequately safeguarded Disaster Recovery Assistance funds.

HUD OIG found weaknesses in the LMDC’s internal controls cause Block Grant Disaster Recovery Assistance funds to be disbursed contrary to the terms of the subrecipient agreements and charged to the wrong program.  These weaknesses could result in the disbursement of funds for other than intended purposes.

HUD OIG recommended that HUD’s general deputy assistant secretary for community planning and development require LMDC to (1) obtain reimbursement for questioned costs and (2) strengthen its controls over the Disaster Recovery Assistance funds to ensure that funds are not disbursed without proper approval or authorization.