We audited the Municipality of Yauco’s Community Development Block Grant (CDBG) program as part of our strategic plan. We selected this auditee because the U.S. Department of Housing and Urban Development (HUD) classified the Municipality as a high-risk grantee in its 2017 risk assessment review. Our objective was to determine whether the Municipality complied with HUD regulations, procedures, and instructions related to the administration of the CDBG program.
The Municipality did not properly identify the source and application of CDBG funds. In addition, it inappropriately transferred CDBG proceeds to its general fund account, did not disburse program funds in a timely manner, and paid ineligible bank penalties. As a result, HUD lacked assurance that more than $1 million in CDBG drawdowns was adequately accounted for, safeguarded, and used for eligible purposes.
The Municipality did not properly support the scope of its street resurfacing efforts, paid for work done before a contract was awarded, and improperly completed street resurfacing work on private properties. As a result, HUD lacked assurance that more than $469,000 in CDBG funds was used for eligible purposes and in accordance with the program requirements.
We recommend that HUD require the Municipality to (1) develop and implement a financial management system in accordance with HUD requirements, (2) submit all supporting documentation showing the eligibility and propriety of more than $1.5 million in CDBG funds, (3) return to its line of credit and put to better use $1,641 associated with unspent program funds, (4) reimburse the CDBG program $106 paid for ineligible penalties, and (5) develop and implement adequate controls and procedures to permit proper accountability for all program funds.