oversight

State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not Ensure That All Additional Compensation Grant Applicants Were Eligible

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-08-07.

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

                                                                   Issue Date
                                                                           August 7, 2008
                                                                   Audit Report Number:
                                                                            2008-AO-1005




TO:        Nelson Bregon, General Deputy Assistant Secretary, D



                                          for
FROM:      Rose Capalungan, Regional Inspector General for Audit, GAH

SUBJECT: State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not
         Ensure That All Additional Compensation Grant Applicants Were Eligible

                                     HIGHLIGHTS

 What We Audited and Why

             We audited the State of Louisiana’s (State) additional compensation grant (grant)
             component of the Road Home homeowner assistance program, managed by the
             State’s contractor, ICF Emergency Management Services, LLC (ICF). We
             initiated the audit in conjunction with the Office of Inspector General (OIG) Gulf
             Coast Region’s audit plan and examination of relief efforts provided by the
             federal government in the aftermath of Hurricanes Katrina and Rita. Our audit
             objectives were to determine whether applicants were eligible to receive the grant
             and whether the State ensured that grant income policies and procedures were in
             accordance with U.S. Department of Housing and Urban Development (HUD)
             rules and regulations and ensured that its contractor followed them.

 What We Found

             The State did implement grant income policies and procedures as required by
             HUD rules and regulations. However, those policies and procedures were not
             sufficient to ensure that all applicants were eligible to receive their grant. Of 45
             grants sampled, the State funded nine (20 percent) grants, totaling $263,959 that
             were either ineligible or unsupported. In addition, the State did not ensure that its
             contractor followed its policies and procedures for another 24 grants (53 percent),

                                               1
           but the errors did not impact the grants’ eligibility. These conditions occurred
           because the State did not ensure that its contractor’s controls were sufficient to
           catch errors and that its policies and procedures were followed when determining
           eligibility. Further, although the State’s contractor performed a review of all 45
           grants sampled, issues remained undetected. As a result, based on a statistical
           projection, our best estimate is that the State spent $70 million on ineligible
           grants, and $57.4 million on unsupported grants, disbursed between June 12,
           2006, and October 13, 2007.

What We Recommend

           We recommend that HUD’s General Deputy Assistant Secretary for Community
           Planning and Development require the State to repay amounts disbursed for
           ineligible grants to its Road Home program, either support or repay amounts
           disbursed for unsupported grants, ensure that its contractor follows the established
           policies and procedures, ensure that its contractor’s postclosing reviews detect
           and correct errors, and review the remaining 21,672 grants disbursed between
           June 12, 2006, and October 13, 2007, to ensure that grants were eligible and
           supported. By reviewing these grants, we estimate that the value of questioned
           costs will total more than $70 million for grant disbursements to ineligible
           participants and more than $57.4 million for grant disbursements to participants
           whose eligibility was not adequately supported.

           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

           During the audit, we provided the results of our review to the State’s management
           staff and HUD. We conducted an exit conference with the State on June 6, 2008.

           We asked the State to provide comments on our draft audit report by June 13,
           2008. We gave the State an extension until June 20, 2008, to respond, and it
           provided written comments, dated that day. The State generally disagreed with
           the report but did agree with some of the conclusions and recommendations.
           Based on the State’s comments, we made modifications to our statistical
           projections to be more conservative. The complete text of the written response,
           along with our evaluation of that response, can be found in appendix B of this
           report.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                        4

Results of Audit

   Finding 1: The State Did Not Ensure That All Additional Compensation Grant    5
              Applicants Were Eligible


Scope and Methodology                                                           10

Internal Controls                                                               11

Follow-up on Prior Audits                                                       13

Appendixes
   A. Schedule of Questioned Costs                                              14
   B. Auditee Comments and OIG’s Evaluation                                     15
   C. Sampling Methodology and Results                                          26




                                            3
                          BACKGROUND AND OBJECTIVES

Between December 2005 and June 2006, Congress approved a total of $16.7 billion in
supplemental Community Development Block Grant (CDBG) Disaster Recovery Assistance
funds for Gulf Coast hurricane relief. Of that amount, the U.S. Department of Housing and
Urban Development (HUD) awarded $10.4 billion to the State of Louisiana (State) for its
recovery efforts.

The Disaster Recovery Unit within the State’s Division of Administration’s Office of
Community Development administers the use of the supplemental CDBG funds. The Louisiana
Recovery Authority (Authority) plans and coordinates for the recovery and rebuilding of the
State. The Disaster Recovery Unit, in conjunction with the Authority, develops action plans
outlining the programs and methods used to administer the supplemental CDBG funds.

With approval from the Louisiana legislature, the governor, the Authority, and the Disaster
Recovery Unit created the Louisiana Road Home program. The State allocated more than $6.3
billion of the $10.4 billion to the homeowner assistance program, 1 which provides grants to
eligible homeowners. ICF Emergency Management Services, LLC (ICF), the State’s contractor,
manages the Road Home program. The State required ICF to verify applicants’ eligibility and
develop a management information system 2 meeting State specifications and internal control
requirements.

The homeowner assistance program includes four forms of available funding assistance,
dependent upon the option selected, and provides compensation to applicants who select one of
the following options:

       •   Option 1 - retain their homes;
       •   Option 2 - sell the home, occupied as of the date of the storms, but remain a homeowner
           in Louisiana; or
       •   Option 3 - sell the home, occupied as of the date of the storms, and either move from
           Louisiana or remain in Louisiana as a renter.

The four forms of available funding assistance include the (1) compensation grant, (2) elevation
grant, (3) additional compensation grant (grant), and (4) additional mitigation grant.

The grant is additional funding, up to $50,000, that applicants can receive if they meet certain
eligibility requirements, including whether the applicants’ household income is equal to or less
than 80 percent of the area median income, adjusted for household size.

Our audit objectives were to determine whether applicants were eligible to receive the grant and
whether the State ensured that grant income policies and procedures were in accordance with
HUD rules and regulations and ensured that ICF followed them.

1
    The homeowner assistance program is one of four Road Home programs.
2
    The management information system principally supports the Road Home program.

                                                       4
                                     RESULTS OF AUDIT

Finding 1: The State Did Not Ensure That All Additional Compensation
           Grant Applicants Were Eligible
The State did not ensure that all applicants were eligible to receive their grant. Of 45 grants
sampled, the State funded nine (20 percent) grants, totaling $263,959, that were either ineligible
or unsupported. In addition, the State did not ensure that its contractor followed its policies and
procedures for another 24 grants (53 percent), but the errors did not impact the grants’ eligibility.
These conditions occurred because the State did not ensure that its contractor’s controls were
sufficient to catch errors and that its policies and procedures were followed when determining
eligibility. Further, although the State’s contractor performed a review of all 45 grants sampled,
eligibility issues remained undetected. As a result, based on a statistical projection, our best
estimate is that the State spent $70 million on ineligible grants, and $57.4 million on unsupported
grants, disbursed between June 12, 2006, and October 13, 2007.



    State’s Eligibility Requirements

                 To be eligible for the grant, which cannot exceed $50,000, the State required
                 lower income applicants 3 to

                     •   Document their total current household income; 4
                     •   Choose options 1 or 2; 5 and
                     •   Have a gap between the estimated cost of damage and the calculated
                         compensation amount.

                 Further, the State’s policy defined gross household income as income before taxes
                 and deductions for all members of the household 18 years of age and older.


$263,959 Paid for Ineligible and
Unsupported Grants


                 File reviews of 45 sampled grants 6 determined that nine (20 percent) grants were
                 either ineligible or unsupported because


3
  Includes homeowners with household income less than or equal to 80 percent of the area median income adjusted
   for household size.
4
  Current income is defined as income from within the past six months.
5
  The amount of the grant is based upon the option selected.
6
  For a complete description of our sampling methodology, see appendix C.

                                                       5
                 •   Four had household income that exceeded HUD’s income limits,
                 •   One did not have a gap between the estimated cost of damage and the
                     calculated compensation amount, and
                 •   Four lacked current income documentation.

            As a result, as of October 13, 2007, the State had misspent $145,074 in federal
            funds for five ineligible grants and $118,885 for four unsupported grants. Based
            upon these results, we estimate that the value of questioned costs will total more
            than $70 million for grant disbursements to ineligible participants and more than
            $57.4 million for grant disbursements to participants whose eligibility was not
            adequately supported. The remaining 36 grants, totaling more than $1.4 million
            were eligible.

Additional Policies Needed to
Adequately Verify Applicants’
Income

            Although the State followed its existing policies and procedures, the steps it took
            to ensure that all household income was reported were inadequate. Additional
            testing was performed on seven applicants whose households contained family
            members over the age of 18, but those individuals did not report any income.
            Based upon income data obtained from the State’s wage database, three of seven
            grants (43 percent), totaling $127,581, had unreported household income, causing
            the households to exceed the established income limits, thereby making the grants
            ineligible.

            When determining eligibility, the State allowed applicants to self-certify
            household income for all persons in the household. The State did not perform
            further verifications of household income and relied upon applicant-supplied
            information when determining eligibility. Since 43 percent of the files with
            family members over the age of 18 had additional income, the State should
            implement policies to adequately verify income for all household members during
            its verification process.

State’s Policy Not Followed



            Although the remaining 36 of the 45 grants sampled, totaling more than $1.4
            million, were eligible, the State’s contractor did not follow the State’s policy for
            24 (53 percent) of the grants when determining eligibility. CDBG reporting
            forms and income verification and certification worksheets were missing,
            unsigned, and/or incomplete; the income was annualized incorrectly on the
            income verification and certification worksheet; the income range on the CDBG
            reporting form conflicted with the annualized income on the income verification

                                              6
                  and certification worksheet; and income documentation was inconsistent with the
                  State’s policy. 7 Although the eligibility for the 24 grants was not affected, the
                  State must ensure that its contractor follows the established policies and
                  procedures to avoid funding additional ineligible and/or unsupported grants.

    State’s Contractor’s Reviews
    Deficient


                  The State’s contractor did not ensure that it identified eligibility issues during its
                  reviews for some of the grants. After closing, a review team conducted reviews
                  on closed files as part of its final file review process for files being prepared for
                  closeout. Although all the files in our sample were reviewed, issues remained
                  undetected, as 15 8 (33 percent) of the 45 files contained deficiencies that needed
                  to be corrected. For one ineligible grant, the review did not identify that there
                  was no gap between the estimated cost of damage and calculated compensation
                  amount, a critical eligibility requirement. As a result, the State disbursed funds
                  for this ineligible grant. The State must ensure that its contractor adequately
                  reviews grants in its postclosing review of the grants.


    State Provided Additional
    Information


                  At the exit conference, the State provided additional information concerning the
                  four grants totaling $118,885, for which the files lacked current income
                  documentation. We reviewed the information at the State’s request and
                  determined that these four grants are now eligible and supported. As a result, we
                  will close the recommendation concerning these unsupported grants upon report
                  issuance. However, based upon our projection, additional unsupported grants
                  exist and will need to be corrected by the State. Thus, the State needs to review
                  the remaining 21,672 grants to ensure that they are eligible and supported.




7
  To determine eligibility, in addition the eligibility requirements, the policy required a signed income verification
and certification worksheet, used to calculate annualized income; acceptable documentation of income (i.e., pay
stubs) or a certification of undocumented income; and a signed and completed CDBG reporting form, which
indicates the household income range.
8
  Four of these grants were determined ineligible, as previously discussed.

                                                           7
    Conclusion


                    Of 45 grants sampled, the State made disbursements totaling more than $263,000
                    for nine (20 percent) ineligible and unsupported grants, and based upon a
                    statistical projection, the State spent more than $70 million on ineligible grants
                    and more than $57.4 million on unsupported grants disbursed between June 12,
                    2006, and October 13, 2007 (see appendix C). Three of the grants were
                    determined to be ineligible due to the applicants’ not providing complete
                    household income documentation. Although the remaining 36 grants were
                    eligible, the State’s contractor did not follow the State’s policy for 24 (53 percent)
                    of the grants when determining eligibility. The review also showed that errors
                    were not caught during reviews.

                    Since the total number of issues identified is significant (73 percent), the State
                    must review the remaining 21,672 grants disbursed between June 12, 2006, and
                    October 13, 2007, to verify eligibility status. By reviewing these grants, we
                    estimate that the value of questioned costs will total more than $70 million for
                    grant disbursements to ineligible participants and more than $57.4 million for
                    grant disbursements to participants whose eligibility was not adequately
                    supported. 9 In addition, the State must repay funds disbursed for ineligible grants
                    and support or repay funds disbursed for unsupported grants. Further, the State
                    must develop and implement a policy or procedure as part of its review process to
                    ensure that it verifies that all household members over the age of 18 have reported
                    their income, ensure that its contractor follows the policies and procedures in
                    place when determining eligibility, and ensure that postclosing reviews detect and
                    correct errors.


    Recommendations

                    We recommend that HUD’s General Deputy Assistant Secretary for Community
                    Planning and Development require the State to

                       1A. Repay $145,074 disbursed for five ineligible grants to its Road Home
                           program.

                       1B. Either support or repay $118,885 disbursed for four unsupported grants.

                       1C. Review the remaining 21,672 grants disbursed between June 12, 2006, and
                           October 13, 2007, to ensure that grants were eligible and supported. The
                           State must repay funds disbursed for grants determined ineligible.



9
    For a complete description of estimated amounts, see appendix C.

                                                          8
1D. Develop and implement a policy or procedure as part of its review process
    to ensure that it verifies that all household members over the age of 18
    have reported their income.

1E. Ensure that its contractor implements adequate controls to ensure that it
    follows the established policies and procedures when determining
    eligibility.

1F. Ensure that its contractor implements adequate controls in its postclosing
    reviews to ensure the detection and correction of errors.




                               9
                         SCOPE AND METHODOLOGY

We conducted our audit at the State’s Office of Community Development, Disaster Recovery
Unit; ICF’s offices in Baton Rouge, Louisiana; and the HUD Office of Inspector General (OIG)
office in New Orleans, Louisiana. We performed our audit work between September 2007 and
April 2008.

To accomplish our objectives, we used the electronic data received from the State’s contractor’s
management information system to select a sample of 45 grants for review. Comprised of
different databases combined into a central data warehouse, the management information system,
developed and maintained by the State’s contractor, principally supports the Road Home
homeowner assistance program. Based on the data, a total universe of 21,717 additional
compensation grants, totaling more than $842 million, were funded between June 12, 2006, and
October 13, 2007 (see appendix C for the complete sampling methodology and results). We
reviewed the scanned documentation, via the management information system, for each of the 45
grant files to determine whether the grant applicant met the eligibility requirements as
established in prevailing policies. Through our file review, we determined that the grant data
were generally reliable. However, we relied upon the total universe to determine questioned
costs.

Using data obtained from the State’s wage database, we performed additional testing for those
family members over 18 years of age in seven households, who did not report income. However,
we did not assess the reliability of the database and only used the data to assess whether those
individuals had income.

In addition to data analyses and file reviews, we

           •   Interviewed HUD and State officials, as well as key personnel of the Louisiana
               Recovery Authority and ICF, and made inquiries with U. S. Department of Labor
               staff;

           •   Reviewed the HUD-approved action plan and amendments, the Road Home
               written policies and procedures, the contract executed between the State and ICF
               and amendments, the Code of Federal Regulations, waivers, and other applicable
               legal authorities relevant to the CDBG Disaster Recovery Assistance grants; and

           •   Reviewed reports issued by the Louisiana legislative auditor’s office.

Our audit period covered June 12, 2006, through October 13, 2007. We expanded this period as
necessary. We conducted the audit in accordance with generally accepted government auditing
standards.




                                                10
                             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 resources.

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 objective:

                  •   Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that persons are eligible to participate in
                      the additional compensation grant program.

                  •   Validity and reliability of data - Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data within
                      the management information system are obtained, maintained, and fairly
                      disclosed in reports.

                  •   Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that CDBG disaster
                      fund use is consistent with HUD’s laws and regulations.

                  •   Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that CDBG disaster funds are
                      safeguarded against waste, loss, and misuse.

              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.


                                               11
Significant Weaknesses


            Based on our review, we believe the following items are significant weaknesses:

        •    The State did not ensure that its contractor had adequate controls to ensure that its
             staff followed the State’s policies and procedures when determining eligibility and
             gathering documentation for the grant (finding 1).

        •    The State’s policies and procedures did not to adequately ensure that income was
             reported for all family members over the age of 18 (finding 1).




                                               12
                      FOLLOW-UP ON PRIOR AUDITS


This audit report is the second OIG audit of the State’s additional compensation grant component
of the Road Home homeowner assistance program. Our first audit, issued on January 30, 2008,
is discussed below.

 Report Number: 2008-AO-1002

              Our audit report (2008-AO-1002) disclosed that of 22,135 grants, the State funded
              418 (2 percent) grants coded ineligible or lacking an eligibility determination,
              totaling $15.8 million. This condition occurred because the State’s contractor,
              ICF, did not have system controls in place to prevent these improper
              disbursements. File reviews of 26 (6 percent) of the 418 grants determined that,
              as of October 13, 2007, the State had misspent federal funds for 17 ineligible
              grants and two unsupported grants. The remaining seven grants were eligible or
              had input or coding errors. As a result, the State needed to review the remaining
              392 grants, which totaled more than $14.6 million, as the disbursements were
              questionable. The State had a total of $15,528,378 in questioned costs. We
              recommended that HUD’s General Deputy Assistant Secretary for Community
              Planning and Development require the State to repay amounts disbursed for
              ineligible grants to its Road Home program, either support or repay amounts
              disbursed for unsupported grants, review all of the remaining 392 grants coded
              ineligible or lacking an eligibility determination and either support or repay the
              $14.6 million disbursed for them, and implement system controls to prevent
              future improper disbursements. The recommendations are still open.




                                              13
                                   APPENDIXES
Appendix A

                SCHEDULE OF QUESTIONED COSTS

        Recommendation            Ineligible 1/   Unsupported
               number                                      2/
                      1A            $145,074

                      1B                           $118,885




1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.




                                             14
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         15
Comment 1




            16
Comment 1




Comment 1



Comment 1




Comment 2




            17
Comment 3




Comment 4




Comment 5




            18
Comment 5




Comment 6




            19
Comment 7




Comment 8




            20
Comment 8




Comment 1
Comment 2
Comment 3




            21
Comment 4


Comment 7




Comment 9




            22
Comment 7




Comment 7




            23
                       OIG Evaluation of Auditee Comments

Comment 1   The State indicated that three of five grants determined ineligible were eligible
            since the use of the State’s wage database for verification purposes is not required
            by its program policy. Although the State followed its policies, the policies were
            inadequate. Thus, we disagree with the State’s assertions and stand by original
            conclusions and recommendations. To be eligible for additional compensation
            grants, applicants were required to meet income limits. However, the State
            allowed self-certifications of income and did not have policies or procedures to
            ensure that it determined whether household members over the age of 18 reported
            all of their income, which resulted in an unacceptably high number of applicants
            in that category receiving assistance when they were not income eligible.

Comment 2   The State indicated that one of the remaining two grants determined ineligible
            was eligible, based upon updated information. However, we stand by our original
            conclusions and recommendations as the applicant was ineligible at the time of
            our review.

Comment 3   The State agreed that the one remaining grant was ineligible, and repayment from
            the applicant will be sought as appropriate in the grant recovery process. We
            acknowledge the State’s action on this grant.

Comment 4   The State indicated that all four grants determined unsupported were supported, as
            updated income documentation was obtained. Since the State took action on
            these grants to obtain the needed information, we will close this recommendation
            concerning these four grants upon report issuance. However, we are concerned
            that additional grants exist that lack supporting documentation. Therefore, our
            recommendation that all remaining grants be reviewed will remain open.

Comment 5   The State indicated that its current income verification policy is consistent with
            applicable CDBG regulations, which allow the State flexibility in how income is
            defined, documented, and verified, so long as applicants are treated consistently
            and the policies are reasonable. We disagree. Since 43 percent (three out of
            seven) of the applicants’ files for households with additional family members
            over the age of 18 indicated unreported income, the State’s current policy is
            inadequate to ensure that all income is reported for this category of applicant.
            Thus, we stand by our original conclusions and recommendations.

Comment 6   The State agreed that the required forms were not yet correctly completed for 24
            of 45 files, and ICF has obtained updated documents for all 24 files. The State
            further indicated that it is better for homeowners to receive their Road Home
            funds, including additional compensation grants, much faster than originally
            planned by completing certain documentation and compliance and review



                                             24
            activities, as needed, postclosing, not preclosing. We question whether this is a
            prudent practice.

Comment 7   The State indicated that ICF’s review team has corrected all OIG-cited
            deficiencies in accordance with current program policy and that other issues not
            concerning additional compensation grants will be detected and corrected in the
            final grant review. We acknowledge that the State has taken action on the grants
            we brought to their attention.

Comment 8   The State’s contractor indicated that the ranges associated with the projected
            overpayments are not clearly disclosed. Although our original projection was
            statistically valid, we made adjustments to our projection to be more conservative
            and address the issues raised by the State. Therefore, we validated the sampling
            projections using the difference estimation methodology. However, the point
            estimates for ineligible and unsupported grants remain at unacceptably high
            amounts of $70 million and $57.4 million, respectively.

Comment 9   The State indicated that it did not concur with the recommendation to develop and
            implement a policy or procedure as part of its review process to ensure that it
            verifies that all household members over the age 18 have reported their income.
            Further, it indicated that the program has been reviewed several times by HUD
            and this is the first mention that its policies and procedures are inadequate.
            HUD’s monitoring reviews are limited to ensuring the State followed its policies.
            The State followed its policies, but the policies were inadequate. Thus, we affirm
            our recommendation. Since we determined that 43 percent of the files with
            family members over the age of 18 had additional income, the State should review
            all files with persons over the age of 18 who did not report income to ensure that
            the families are low and moderate income in accordance with its program
            requirements. This review should be done as part of the final review process for
            all grants that have family members over the age of 18.




                                             25
Appendix C

             SAMPLING METHODOLOGY AND RESULTS


Purpose of the Sampling

One of the objectives of the audit was to determine whether eligible applicants received
additional compensation grants. In support of this objective, we developed and implemented an
unrestricted variable sampling plan that allowed us to (1) make statistical projections of the
dollar amount of additional compensation grants that were awarded to applicants who were not
qualified to receive the grants and (2) estimate the value of grants that were awarded to
participants whose eligibility was not adequately supported.

Definition of the Audit Population and Tests Performed

Using grant application and disbursement data provided by the ICF, we identified 21,717
additional compensation grants that had been awarded and disbursed as of October 13, 2007.
These grant disbursements totaled $842,911,327.

For each grant sampled, we performed a detailed review of the grant case file and supporting
documentation and analyzed the grant’s applicable income policies and procedures. Based on
the review, we assessed whether the grant applicant met the eligibility requirements as
established in prevailing policies. For those grants for which the case file showed that the
applicant’s household income exceeded established income limits or no shortfall existed between
the estimated cost of damage and the calculated compensation amount, we considered the grant
and its associated dollar amount to have failed our eligibility tests. In the same way, if
supporting income documentation was not dated within six months of the eligibility
determination date or was not available, we considered the grant amount and its associated dollar
amount as unsupported.

Sample Design

Using unrestricted variable sampling methodology, we determined that a sample size of 45
additional compensation grants was sufficient using a 90 percent confidence level and a desired
sampling precision of 10 percent. Accordingly, we randomly selected 45 grant case files for
detailed review.

Statistical Projections of the Sampled Data

Based on the results of the file reviews, we identified five cases in which the grant should not
have been awarded because the applicant did not meet eligibility requirements. Using difference
estimation methods and the results of our statistical sample, we are 90 percent confident that the


                                                26
amount of homeowner assistance grants paid to ineligible recipients was at least $9,979,809.
Statistical projection details were as follows:


                          Information on the universe and sample size
        Total value of grant awards in the universe            $842,911,327
        Total grants in the universe                                  21,717
        Mean for grant awards in the universe                        $38,813
        Standard deviation for grant awards in the universe          $15,877
        Total number of grants in the sample                              45

                      Results for the sample evaluation of ineligible grants
        Confidence level                                                   90%
        Precision for the estimated difference value of grant
        disbursements to ineligible participants                    $60,033,102
        Estimated difference value of grant disbursements to
        ineligible participants (point estimate)                    $70,012,910
        Estimated difference lower limit of grant disbursements
        to ineligible participants                                   $9,979,809
        Estimated difference upper limit of grant disbursements
        to ineligible participants                                $130,046,012


Using the same sample, we also identified four cases in which the grant participant’s eligibility
was questionable due to the lack of sufficient supporting documentation. Therefore, we are 90
percent confident that the value of the homeowner assistance grants made to recipients with
insufficient documentation to properly support their eligibility was at least $1,347,959.
Statistical projection details were as follows:


                   Results for the sample evaluation of unsupported grants
        Confidence Level                                                90%
        Precision for the estimated difference value of grant
        disbursements to participants whose eligibility was not
        adequately supported                                     $56,026,174
        Estimated difference value of grant disbursements to
        participants whose eligibility was not adequately
        supported (point estimate)                               $57,344,133
        Estimated difference lower limit of grant disbursements
        to participants whose eligibility was not adequately
        supported                                                 $1,347,959
        Estimated upper limit of grant disbursements to
        participants whose eligibility was not adequately
        supported                                               $113,400,307



                                                27