oversight

The State of Florida Lacked Adequate Procedures to Prevent Possible Duplicate Disaster Recovery Benefits to Recipients

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                  Issue Date
                                                                          July 26, 2006
                                                                  Audit Report Number
                                                                          2006-AT-1014




TO:         Nelson R. Bregon, General Deputy Assistant Secretary for Community
            Planning and Development


FROM:       James D. McKay
            Regional Inspector General for Audit, 4AGA

SUBJECT: The State of Florida Lacked Adequate Procedures to Prevent Possible
         Duplicate Disaster Recovery Benefits to Recipients


                                   HIGHLIGHTS

 What We Audited and Why

             As part of the U.S. Department of Housing and Urban Development (HUD),
             Office of the Inspector General’s (OIG) audit plan, we audited the 2004
             Community Development Block Grant disaster recovery funds provided to the
             State of Florida (State). We selected this grant for review based on risk factors
             associated with fraud, waste and abuse.

             Our audit objectives were to determine whether the State (1) awarded and
             disbursed disaster recovery funds in accordance with HUD requirements and (2)
             implemented adequate procedures for monitoring the projects financed by the
             disaster recovery funds.

 What We Found
             The State awarded and disbursed the 2004 Community Development Block Grant
             disaster recovery funds in accordance with HUD requirements. However,
             program files lacked evidence that the State verified whether recipients used



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           disaster recovery funds for activities reimbursed by the Federal Emergency
           Management Agency, Small Business Administration, or other sources. This
           occurred because the State did not have adequate procedures to prevent possible
           duplicate disaster recovery payments to recipients. As a result, the opportunity
           existed for a recipient to receive funding for the same activity from several
           sources.

What We Recommend


           We recommend that HUD’s general deputy assistant secretary for community
           planning and development require the State to develop and implement procedures
           to ensure that Community Development Block Grant disaster recovery funds will
           not be used for activities reimbursed by the Federal Emergency Management
           Agency, Small Business Administration, or any other program or source and
           maintain supporting documentation in its files.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We discussed the finding with State and HUD officials during the audit. We
           provided a copy of the draft report to State officials on June 29, 2006, for their
           comments and discussed the report with the officials at the exit conference on
           July 10, 2006. The State provided its written comments to our draft report on July
           7, 2006. The State concurred with our recommendation and has begun to take
           corrective action.

           The complete text of the auditee’s response, along with our evaluation of the
           response, can be found in appendix A of this report.




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                           TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
      Finding 1: The State Lacked Adequate Procedures to Prevent Possible Duplicate 6
                 Disaster Recovery Benefits to Recipients

Scope and Methodology                                                              8

Internal Controls                                                                  9

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                        10
   B. Criteria                                                                     13




                                            3
                         BACKGROUND AND OBJECTIVES

In 2004, four hurricanes and tropical storms caused significant damage to many states including
Florida. In response, Congress provided $150 million in Community Development Block Grant
funds for disaster relief, long-term recovery, and mitigation.1 Congress appropriated the money
for communities affected by disasters that occurred between August 31, 2003 and October 1,
2004, and covered by presidential disaster declarations. The U.S. Department of Housing and
Urban Development (HUD) formally announced funding availability and statutory program
requirements in the Federal Register (Volume 69, No. 237) on December 10, 2004.2 HUD
awarded $49.1 million to eight states and Puerto Rico, and $100.9 million to the State of Florida
(State) for hurricane recovery efforts. The Florida Department of Community Affairs is
responsible for administering the 2004 HUD Community Development Block Grant disaster
recovery funds.

The Federal Register required the State to submit an action plan for disaster recovery that among
other things identified the areas of greatest needs that had not been addressed by insurance
proceeds, federal assistance, or any other funding source; described the overall plan for disaster
recovery; and described the method of distribution of funds.

On April 11, 2005, HUD and the State executed a grant agreement and action plan. The action
plan outlined the State’s framework for allocating funding and indicated the funds would be used
for repairs, long-term recovery, and mitigation related to the effects of the disasters. The action
plan identified the 15 hardest hit counties eligible to receive funding. The allocation of funds
was based on the State’s compilation of hurricane damage assessment data from authoritative
sources.

Once the action plan was approved by HUD, the State requested that all local governments
within the 15 selected counties submit an application to receive funds. All applications were
evaluated to ensure that funds would be used only for disaster relief, long-term recovery, and
mitigation and that all activities meet one of the three national objectives from the Housing and
Community Development Act. In addition, recipients were required to certify on the application
that the disaster assistance would not be used for a project or activities reimbursable by the
Federal Emergency Management Agency, available through the Small Business Administration,
or available through other sources.

In August and September 2005, the State allocated $98 million to 37 recipients. The State
retained the remaining $2.9 million for administrative costs and technical assistance. The State
allocated a maximum cap of $9 million to the seven hardest hit counties and a cap of $4.375
million for the remaining eight counties. In total, the State awarded $98 million for 125 projects
1
    The Military Construction Appropriations and Emergency Hurricane Supplemental Appropriations Act, 2005
    (Public Law 108-324 approved October 13, 2004)
2
    Federal Register Volume 69, No. 237, Waivers Granted to and Alternative Requirements for the Community
    Development Block Grant Disaster Recovery Grantees Under the Military Construction Appropriations and
    Emergency Hurricane Supplemental Appropriations Act, 2005; Notice.


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in 15 counties and 22 cities. As of March 2006, approximately $1.6 million had been disbursed
to the recipients. Of 125 projects funded, only one has been completed.

Our objectives were to determine whether the State (1) awarded and disbursed disaster recovery
funds in accordance with HUD requirements and (2) implemented adequate procedures for
monitoring the projects financed by the disaster recovery funds.




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                                               5
                             RESULTS OF AUDIT

Finding 1: The State Lacked Adequate Procedures to Prevent
           Possible Duplicate Disaster Recovery Benefits to Recipients
The State did not have adequate procedures to prevent possible duplicate disaster recovery
payments to recipients. Program files lacked evidence that the State verified whether recipients
used disaster recovery funds for activities reimbursed by the Federal Emergency Management
Agency, Small Business Administration, or other sources. As a result, the opportunity existed
for a recipient to receive funding for the same activity from several sources. By developing and
implementing additional verification procedures, the State may avoid possible duplicate
payments.



 Inadequate Procedures May
 Result in Duplicate Payments


              HUD regulations and the action plan state that elements of activities that are
              reimbursable by the Federal Emergency Management Agency or available
              through the Small Business Administration cannot be undertaken with 2004 HUD
              Community Development Block Grant disaster recovery funds. In addition,
              recipients certify in their application and contract with the State that they will not
              be reimbursed by the Federal Emergency Management Agency, Small Business
              Administration, or any other program or source for the same activities.

              The action plan indicates a substantial amount of funding will be provided to some
              of the recipients from other sources.

                                    Program or Source                               Amount
                Small Cities Community Development Block Grant program               $4,500,000
                Small Cities Community Development Block Grant program                1,400,000
                income
                Total amount                                                         $5,900,000

              The State and/or recipients also received (or expect to receive) funds from the
              following sources:

                                          Source                                     Amount
                Florida Housing Finance Corporation                                $ 5,000,000
                Federal Emergency Management Agency                                 300,000,000
                Florida Legislature                                                   3,500,000
                Total amount                                                       $308,500,000


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             This large amount of other funding increases the risk that recipients may receive
             funding or reimbursement from more than one source for the same activities.

             The Department of Community Affairs is responsible for administering the 2004
             HUD Community Development Block Grant disaster recovery funds. Our review of
             program files for nine of 37 recipients found no evidence that the State verified
             whether the Community Development Block Grant disaster recovery funds were
             used for activities that may have been reimbursed by the Federal Emergency
             Management Agency, Small Business Administration, or any other source.

             State officials concurred that they did not have adequate procedures to ensure that
             duplication of payments does not occur.


Conclusion

             Due to the many natural disasters that have occurred in Florida during the past
             several years, it is generally perceived that numerous funding sources have
             provided assistance. The $100.9 million provided by HUD for 2004 disaster
             recovery efforts is specifically earmarked to be used only for activities not
             reimbursed from other funding sources. The State did not develop a clear method
             to verify funding sources. Since the State has already disbursed about $1.6
             million to recipients, it is imperative that it quickly develop and implement
             procedures to ensure that HUD-funded projects are not reimbursed from other
             sources such as the Federal Emergency Management Agency or Small Business
             Administration.


Recommendations

             We recommend that the general deputy assistant secretary for community planning
             and development require the State to

             1A.    Develop and implement procedures to ensure that Community
                    Development Block Grant disaster recovery funds will not be used for
                    activities reimbursed by the Federal Emergency Management Agency,
                    Small Business Administration, or any other program or source and
                    maintain supporting documentation in its files.

             We also recommend that your office:

             1B.    Ensure the implemented procedures are operating as intended, and that
                    supporting documentation is maintained in State files.



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                       SCOPE AND METHODOLOGY

Our audit objectives were to determine whether the State (1) awarded and disbursed disaster
recovery funds in accordance with HUD requirements and (2) implemented adequate procedures
for monitoring the projects financed by the disaster recovery funds.

To accomplish our audit objectives, we did the following:

   •   Reviewed applicable laws, regulations, and program requirements;

   •   Interviewed HUD and Florida Department of Community Affairs staff;

   •   Reviewed the HUD-approved action plan, quarterly status reports, grant applications,
       contracts and grant agreements, program files, State audit reports; and

   •   Accessed and analyzed project information from various automated HUD and Florida
       systems.

State officials informed us that 37 recipients (counties and cities) received disaster recovery
funds. According to the action plan, there were seven counties that each received $9 million in
disaster recovery funds. Using an analysis software program, we selected three counties for
review. We also reviewed six cities within these three counties (total of nine recipients) that
separately applied for disaster recovery funding. We limited our analysis of the remaining 28
recipients to a comparison of the contracts with the State to the action plan for approved
activities and funding. In addition, we compared the funding balances among several State
automated systems to ensure accurate reporting.

We conducted our fieldwork from February to April 2006 at the Florida Department of
Community Affairs in Tallahassee, Florida, and the HUD Office of Community Planning and
Development in Jacksonville, Florida. Our audit period was from December 10, 2004, through
March 31, 2006.

We conducted the audit in accordance with generally accepted government auditing standards.




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                                                8
                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding of assets.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls
              We determined the following internal controls were relevant to our audit objectives:

                  •   Controls over program operations,
                  •   Controls over the reliability of data,
                  •   Controls over compliance with laws and regulations, and
                  •   Controls over the safeguarding of assets.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.


 Significant Weaknesses


              Based on our review, we believe the following item is a significant weakness:

              •   The State did not have adequate procedures to prevent possible duplicate
                  disaster recovery payments to recipients (see finding 1).




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                        APPENDIXES

Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation      Auditee Comments




Comment 1




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Comment 1


Comment 1




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                       OIG Evaluation of Auditee Comments


            The State concurred with our recommendation and has begun to take
Comment 1
            corrective action. However, we recommend the State develop additional
            procedures to ensure that Community Development block grant disaster
            recovery funds will not be used for activities reimbursed by other sources.




                         OIG Evaluation of Auditee Comments




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                                            12
Appendix B
                                         CRITERIA


Federal Register Volume 69, No. 237 - Waivers Granted to and Alternative Requirements
for Community Development Block Grant Disaster Recovery Grantees under the Military
Construction Appropriations and Emergency Hurricane Supplemental Appropriations
Act, 2005; Notice. December 10, 2004

HUD used this notice to provide information about ways in which the requirements for this grant
vary from regular Community Development Block Grant program rules. In addition, HUD used
this notice to note the applicability of disaster recovery-related statutory provisions. Except as
described in this notice for states, statutory and regulatory provisions governing the Community
Development Block Grant program for states, including those at 24 CFR (Code of Federal
Regulations) Part 570, Subpart I, shall apply to the use of these funds.

Applicable Rules, Statutes, Waivers, and Alternative Requirements

Paragraph 5(d) and (e)
Each grantee must submit to HUD an action plan for disaster recovery that describes a method of
distribution and monitoring standards and procedures.

Paragraph 7
In addition to meeting a Community Development Block Grant national objective, activities
funded under this notice must be related to disaster relief, long-term recovery, and mitigation in
communities affected by presidentially declared disasters occurring between August 31, 2003,
and September 30, 2004.

Paragraph 8
No entity may receive disaster recovery grant assistance with respect to any part of a disaster loss
that is reimbursable by the Federal Emergency Management Agency or eligible for Small
Business Administration assistance or for which it has received financial assistance under any
other program or from insurance or any other source.




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