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The U.S. Department of Housing and Urban Development, Office of Inspector General audited the State of Michigan’s Neighborhood Stabilization Program administered by the Michigan State Housing Development Authority. The audit was part of the activities in our fiscal year 2011 annual audit plan. We selected the State based upon our designation of the Program as high risk and citizens’ complaints to our office. Our objective was to determine whether the State complied with Federal requirements in its use of Program funds under the Housing and Economic Recovery Act of 2008 regarding the citizens’ complaints to our office.

The State lacked sufficient documentation to support that it followed Federal requirements in its use of $3.3 million in Program funds for a project. As a result, the U.S. Department of Housing and Urban Development (HUD) lacked assurance that the Authority’s use of $3.3 million in Program funds for the acquisition of a building was reasonable and met Federal requirements.

We recommend that the Director of HUD’s Detroit Office of Community Planning and Development require the State to (1) provide sufficient documentation to support that the Authority’s use of $3.3 million in Program funds for the purchase of the building was reasonable or reimburse its Program from non-Federal funds as appropriate and (2) implement adequate procedures and controls to ensure that it maintains sufficient documentation to support that the Authority’s use of Program funds is for eligible project costs.