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We audited the State of Rhode Island’s Neighborhood Stabilization Program (NSP) based on a risk assessment that considered the amount of funding, the U.S. Department of Housing and Urban Development’s (HUD) risk assessment, and HUD findings related to one of the State’s subrecipients.  Our overall audit objective was to determine whether the State properly administered the NSP and ensured that costs incurred were in accordance with HUD regulations.

The State did not properly administer the NSP and ensure that costs incurred were in accordance with HUD regulations.  Specifically, State officials did not ensure that their subrecipients (1) had an adequate process in place for selecting and approving applicants for NSP funding, (2) always funded activities that were eligible and supported program costs, and (3) charged only eligible and supported administrative costs directly related to the NSP.  Additionally, we found instances of potential conflicts of interests.  These deficiencies occurred because State officials did not (1) ensure that the proper agreements were in place to define NSP responsibilities or (2) provide adequate oversight of their subrecipients to ensure that they followed NSP requirements and had adequate policies and procedures in place for the NSP.  As a result, HUD had no assurance that more than $6.3 million in NSP funds was effectively and efficiently used.

We recommend that the Director of HUD’s Boston Office of Community Planning and Development require State officials to (1) repay more than $1.4 million in ineligible costs, (2) provide adequate documentation to support or repay more than $4.5 million in NSP costs, (3) provide support for the necessity and reasonableness of $489,518 in unexpended NSP funds or reallocate the funds for other eligible NSP activities, (4) ensure that proper affordability restrictions are put in place, (5) establish an agreement between the State and Rhode Island Housing to define responsibilities, and (6) properly monitor and oversee its subrecipients.