The special inspector general for the financial bailout will examine how 10 states were selected for a $2.1 billion Obama administration plan to aid areas hit by the housing bust.
Bailout watchdog Neil Barofsky is performing the audit in response to a request by Rep. Darrell Issa, R-Calif., according to a letter released Tuesday by Issa's office.
The Treasury Department has been running the government's "Hardest-Hit" fund, which is stocked with financial rescue money.
Barofsky also plans to examine whether state-designed programs that are receiving assistance differ from existing government efforts, the letter indicates. He also plans to examine whether Treasury has established ways to prevent waste and fraud and whether the government has established goals and measurements for the programs.
In response, a Treasury spokesman said in an e-mail that, "We look forward to discussing the progress in the administration's efforts to assist those areas hardest hit by home price declines and concentrated foreclosures."