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We audited the Municipality of Toa Alta’s Section 108 Loan Guarantee program.  This audit was the result of a referral from the San Juan Office of Community Planning and Development.  The objectives of the audit were to determine whether program funds were effectively used to meet a Community Development Block Grant (CDBG) program national objective and provide the intended benefits and whether the Municipality complied with loan application, contract and U.S. Department of Housing and Urban Development (HUD) requirements.

The Municipality did not ensure that it completed two Section 108 Loan Guarantee activities that showed signs of slow progress.  As a result, HUD had no assurance that more than $9.5 million disbursed for two Section 108-funded activities met a national objective of the CDBG program and fully provided the intended benefits.
The Municipality used more than $139,000 for ineligible expenditures and did not support the eligibility of $12,000 in program disbursements.  In addition, it did not comply with environmental requirements, disburse loan proceeds within the loan agreement timeframe, provide HUD the required loan collateral, establish a financial management system in accordance with HUD requirements, and ensure that deposits were fully collateralized.  As a result, HUD lacked assurance that funds were adequately accounted for, safeguarded, and used for authorized purposes and in accordance with HUD requirements.

We recommend that HUD (1) determine the eligibility of more than $9.5 million in unsupported Section 108 program costs and activities that showed signs of slow progress, (2) require the repayment of more than $139,000 in ineligible expenditures, and (3) obtain supporting documentation showing compliance with environmental requirements.