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We audited the State of New York’s Community Development Block Grant Disaster Recovery-funded New York Rising Buyout and Acquisition program.  We initiated this audit due to concerns related to whether properties purchased were substantially damaged.  The objective of this audit was to determine whether the State ensured that properties purchased under the acquisition component of the program met applicable U.S. Department of Housing and Urban Development (HUD), Federal, and State requirements.

The State did not ensure that properties purchased under the acquisition component of its program met eligibility requirements.  Specifically, it did not ensure that properties (1) were substantially damaged and (2) complied with flood hazard requirements.  Further, it may have improperly purchased properties that did not comply with flood insurance requirements.  These deficiencies occurred because the State did not have adequate controls and relied on applicants and other entities to ensure compliance with requirements.  For example, the State relied on letters from local governments provided by its applicants to show that properties were substantially damaged, and it did not have a process to ensure that the substantial damage determination letters were accurate and supported.  As a result, the State disbursed more than $3.5 million for ineligible properties and incentives and more than $5.9 million for properties that it could not show met applicable requirements, and HUD did not have assurance that Disaster Recovery funds were used for their intended purpose.

We recommend that HUD require the State to (1) reimburse more than $3.5 million in settlement costs and incentives paid for properties that did not meet eligibility requirements or should not have received incentives; (2) provide documentation showing that 15 properties met requirements related to substantial damage, flood hazards, and flood insurance or reimburse more than $5.9 million paid to purchase the properties; and (3) conduct a review of the other properties purchased under its program to ensure that properties were eligible and reimburse the amount paid for any additional properties found to be ineligible.  Further, we recommend that HUD require the State to provide documentation showing that the acquisition component of its program has ended or improve its controls to ensure that properties purchased are eligible.