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We audited the State of Connecticut’s Neighborhood Stabilization Program (NSP) based on the amount of NSP1 funding received.  The State received more than $25 million in NSP1 funds in program year 2009, making it the second highest funded State in New England, and had not recently been audited by the Office of Inspector General.  Our overall audit objective was to determine whether State officials administered the State’s NSP in accordance with U.S. Department of Housing and Urban Development (HUD) program regulations. 

State officials did not always administer the State’s NSP in accordance with program regulations.  Specifically, they did not always ensure that (1) costs were eligible, reasonable, and supported; (2) national objectives were met; (3) proper affordability restrictions were in place; (4) properties were acquired at a discount; and (5) program income was properly administered.  These deficiencies occurred because State officials did not provide adequate oversight of their subrecipients to ensure that they administered NSP funds in accordance with program regulations.  As a result, the State incurred $670,778 in ineligible costs, $29,106 in unreasonable costs, more than $2 million in unsupported costs, and $212,496 in program income that was not accounted for and returned to the State by the subrecipient, which could be reallocated to other eligible NSP activities.

We recommend that the Director of HUD’s Hartford Office of Community Planning and Development require State officials to (1) repay $670,778 in ineligible costs, (2) justify or repay $29,106 in unreasonable costs, (3) provide adequate documentation to support the eligibility of or repay more than $2 million in NSP costs, (4) provide support to show that $212,496 in program funds have been remitted and reallocated to eligible NSP activities, (5) amend the affordability restrictions in place for five properties, and (6) strengthen controls over subrecipient monitoring to provide greater assurance that NSP funds will be properly administered.