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November 13, 2012


DiNapoli: Dunkirk Mishandled Federal HUD Grant Funding

The City of Dunkirk spent more than $1 million from the U.S. Department of Housing and Urban Development’s (HUD) Community Development Block Grant (CDBG) program on unauthorized or questionable activities, according to an audit issued today by State Comptroller Thomas P. DiNapoli. The findings have been referred to HUD for further review.

Auditors found the city could not provide adequate documentation to support claims paid with CDBG funds or demonstrate how federal program requirements were being met. Several transactions were recorded in a manner to apparently hide the true nature of the transactions.

“These funds were spent on questionable activities such as travel and staff bonuses rather than rebuilding neighborhoods and helping low income residents as intended,” said DiNapoli. “City officials have mismanaged this program and failed to put in place effective controls to safeguard grant funds. They repeatedly neglected to show if program goals were met or that projects provided a public benefit.”

According to HUD guidelines, all activities funded with CDBG program moneys must satisfy one of the three national objectives: benefiting low and moderate income persons; preventing or eliminating slums or blight; and meeting urgent community needs.

DiNapoli’s auditors found that, from April 2008 through June 2012, the city disbursed more CDBG funds than properly authorized, spent funds on items that are not eligible under the CDBG program, and spent more than $500,000 for no legitimate CDBG purpose. In addition, nearly $400,000 in loans were made without obtaining appropriate documentation such as a signed loan document.

During the four-year grant period reviewed by the Comptroller’s office, the Dunkirk Local Development Corporation (DLDC), created by city officials to administer the revolving loan program, was provided CDBG grants to fund various economic development projects.

Auditors, however, found the DLDC operated with little oversight. For example, DLDC spent more than $500,000 for two property acquisitions – a vacant building and a former car dealership – that officials could not justify as an eligible CDBG activity. Additionally, $41,000 was spent on ineligible equipment, $15,000 on unauthorized travel expenses and conference registration fees for the DLDC chairman, and $6,600 on bonus payments to the DLDC chairman and treasurer.

There were a number of CDBG funds distributed directly by the city that were not in line with community development goals. This included $76,000 in grant funding to a hotel for various improvements and renovations. The money was used to construct an outdoor wooden pavilion, for vinyl wall coverings and restroom renovations, and for the purchase of a commercial laundry machine.

DiNapoli made a number of recommendations in the audit, including:

  • Establish formal procedures to monitor the performance and administration of the CDBG program, including production and review of periodic status reports on grant activity;
  • Authorize all transfers of CDBG funds to the DLDC only after ensuring they comply with the approved plans;
  • Require documentation sufficient to support all claims against the city’s CDBG funds to demonstrate how moneys are being used to meet the program’s objectives;
  • Recover unauthorized payments made to the DLDC Chairman and DLDC Treasurer; and
  • Select CDBG grant recipients through an open, competitive process that helps ensure all local businesses have an equal opportunity to apply and be considered for grants.

For a copy of the report visit:

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