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We audited the U.S. Department of Housing and Urban Development (HUD), Office of Community Planning and Development’s (CPD) Section 108 Loan Guarantees program.  We conducted the audit as part of our annual audit plan.  Our audit objectives were to determine whether HUD had adequate oversight of Section 108 loans to ensure that funds were effectively used to meet a Community Development Block Grant national objective and fully provided the intended benefits and that borrowers complied with loan contract provisions.

HUD’s oversight of Section 108 loans was not adequate to ensure that funds were effectively used to meet program objectives and that borrowers complied with loan contract provisions.  The Section 108 loans were not routinely included in HUD’s annual reviews.  Specifically, of 14 loans reviewed, 12 totaling more than $102 million had not been monitored.  As a result, HUD had no assurance that more than $24 million in Section 108 loans fully provided the intended benefits and met program objectives and that borrowers complied with program requirements.

We recommend that HUD (1) determine the eligibility of more than $15.8 million in unsupported Section 108 fund disbursements for activities that did not meet a national objective, (2) require borrowers to use more than $8.6 million in unused commitments to meet program objectives, (3) determine the eligibility of $75,000 disbursed for an activity without HUD approval, and (4) improve its monitoring policies, procedures, and tracking systems to ensure that borrowers comply with all loan contract provisions and that required documents are submitted.