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We audited Chicanos Por La Causa, Inc.’s (grantee) Neighborhood Stabilization Program 2 (NSP2) grant to determine whether the grantee administered its NSP2 grant in accordance with HUD’s program requirements. We conducted the audit as part of the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) fiscal year 2011 annual audit plan and to support HUD OIG’s fiscal year 2011 strategic goal to contribute to the oversight objectives of the American Recovery and Reinvestment Act of 2009.

We found the grantee did not always administer its NSP2 grant in accordance with HUD’s program requirements. Specifically, the grantee expended NSP2 funds for improper procurements, ineligible and unsupported expenditures, and inadequately secured program income. Generally, these issues occurred because the grantee and its consortium members incorrectly applied Federal requirements in certain instances. Nevertheless, our review did not attribute these findings to significant internal control deficiencies. As a result of the improper expenditures, $754,000 in NSP2 funds was potentially unavailable for eligible activities.

We recommend that the HUD Deputy Assistant Secretary for Grant Programs require the grantee to (1) provide HUD with supporting documents for the $366,000 in NSP2 funds paid to improperly procured contractors or reimburse the unsupported costs to its NSP2 account from non-Federal funds; (2) reimburse its NSP2 account from non-Federal funds $209,947 for ineligible and unsupported expenditures; and (3) discontinue future payments on the developers’ fees to subrecipients totaling $178,451. Additionally we recommend that the HUD Assistant Secretary for Grant Programs require the grantee to update its NSP2 policies and procedures to include obtaining and reviewing all consortium member contracts.