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We audited Housing Our Communities’ (subrecipient) Neighborhood Stabilization Program (NSP1) subgrant from the City of Avondale. The audit was started primarily because the U.S. Department of Housing and Urban Development, Office of Inspector General’s (HUD OIG) audit plan includes objectives to review Housing and Economic Recovery Act grantees and because a previous HUD OIG audit of the City of Mesa found indications that the subrecipient did not have appropriate procedures in place for procuring construction contractors and determining labor costs. The objective of the audit was to determine whether the subrecipient complied with HUD’s program requirements related to procurement, conflicts of interest, and cost eligibility for its NSP1 subgrant.

The subrecipient did not comply with HUD’s NSP1 requirements related to procurement, conflicts of interest, and cost eligibility. The subrecipient awarded 32 of its 44 NSP1 construction rehabilitation contracts to an affiliated for-profit entity that was operated by one of the subrecipient’s key officials. For 26 of these contracts, the subrecipient did not attempt to ensure open and free competition as required. Without proper controls in place, subrecipient officials allowed this affiliated entity to bill inflated amounts and arranged to receive a portion of the excessive costs as a return payment. The subrecipient also charged unsupported employee labor costs to its NSP1 subgrant.

As a result, we recommend that the Acting Director of the San Francisco Office of Community Planning and Development require the subrecipient to support or reimburse HUD for ineligible and unsupported costs totaling $787,004 charged to its NSP1 subgrant. We also recommend that the Associate General Counsel for Program Enforcement seek civil or administrative action or both based upon the violations cited in this report.