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We audited the City of Sarasota because it was awarded $23 million in Neighborhood Stabilization Program 2 (NSP2) funds and it was in accordance with our audit plan to review funds provided under the American Recovery and Reinvestment Act of 2009. Our objective was to determine whether the City administered its NSP2 in accordance with applicable Federal requirements. Specifically, we wanted to determine whether (1) approved activities met a national objective, (2) program income was properly accounted for, and (3) expended funds were allowable.

We found the City met the low-, moderate-, or middle-income national objective and properly accounted for program income. However, it did not ensure that some NSP2 expenditures for the redevelopment of a public housing site were eligible. This condition occurred because the City did not (1) appropriately review expenditures, (2) have an adequate agreement with its subrecipient, (3) maintain effective coordination with all the parties involved in this activity, and (4) have continuous internal audit reviews conducted on its NSP2. This deficiency resulted in ineligible costs of $388,130 to the program.

In response to our audit, the City provided additional documentation after the exit conference to show ineligible expenditures were allowable or reclassified with other eligible expenditures. Therefore, the City was not required to reimburse the U.S. Treasury $388,130 from non-Federal funds.

We recommend that the Director of Community Planning and Development of the Jacksonville field office require the City to (1) implement its NSP2 policies and procedures; and (2) request its internal audit division to continually examine potentially risky areas of the City’s Office of Housing and Community Development program operations.