oversight

                                                      U.S. Department of Housing and Urban Development
                                                      Office of Inspector General for Audit,
                                                      Hurricane Recovery Audit Oversight Division
                                                      Hale Boggs Federal Building
                                                                             th
                                                      500 Poydras Street, 11 Floor
                                                      New Orleans, Louisiana 70130

                                                      Phone (504) 671-3700 Fax (504) 589-7277
                                                      Internet http://www.hud.gov/offices/oig/




                                                                          MEMORANDUM NO.
                                                                              2008-AO-1801
March 6, 2008

MEMORANDUM FOR: Nelson R. Bregon, General Deputy Assistant Secretary, D


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

SUBJECT:        The State of Mississippi’s and/or Its Contractor’s Procedures for and Controls
                over the Homeowner’s Assistance Grant Program Generally Ensured Eligibility
                and Prevented Duplication of Benefits


                                        INTRODUCTION

We audited the Homeowner’s Assistance Grant Program (Program), a component of the State of
Mississippi’s (State) administration of the $5.058 billion in Community Development Block
Grant disaster recovery funds provided to the State in the aftermath of Hurricane Katrina. The
State allocated $3 billion to help homeowners in Southern Mississippi recover from Hurricane
Katrina. The Mississippi Development Authority’s (Authority) future partial action plans will
detail the projected expenditure of the remainder of funds that are available from the $5.058
billion.

We initiated the audit as part of our examination of relief efforts provided by the federal
government in the aftermath of Hurricane Katrina. Our audit objectives were to determine
whether the State and/or its contractor (1) allowed only eligible homeowners to participate in the
Program in accordance with the eligibility criteria established under the U.S. Department of
Housing and Urban Development (HUD)-approved partial action plan for phase I of the Program
and (2) implemented adequate controls to prevent the homeowners from receiving duplication of
benefits.

An issue that needs further consideration was discovered during our review of program
eligibility and duplication of benefits. The issue is related to inconsistencies in the percentage of
damage awarded based on the level of floodwater. We will perform a separate review to
determine whether the State and/or its contractor reasonably assessed the percentage of flood
damage according to the level of floodwater that entered the homes.




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                                       BACKGROUND

One of the State’s recovery efforts is the implementation of the Program. Phase I of the Program
is designed to provide financial assistance up to $150,000 to those homeowners outside the flood
plain who had suffered damage to their primary residence as of August 29, 2005, and whose
homeowner’s insurance did not cover structural flood damage. The Authority administers the
Program, while its contractor, Reznick Group, implements the Program.

The Program is designed for residents who owned homes outside the federally designated flood
zone. The amount of each homeowner’s grant is based on several factors, including but not
limited to the insured value of the home, the amount of damage sustained, home insurance
proceeds, any proceeds the homeowner received from the Federal Emergency Management
Agency, and any loans from the Small Business Administration (SBA). To receive assistance
under the Program, homeowners must meet certain criteria and agree to attach several covenants
to their properties.

As of November 30, 2007, the State had disbursed grant assistance in excess of $845 million to
14,610 applicants for phase I of the Program.

                              SCOPE AND METHODOLOGY

Our review focused on Phase I applicants awarded grant checks as of October 18, 2006. We
reviewed the applicants’ files to ensure that only eligible homeowners participated in the
Program and no duplication of benefits existed.

We performed our audit work between March 16 and December 31, 2007. We conducted our
audit at the Authority and Reznick Group offices in Jackson, Mississippi; Harrison, Hancock,
and Jackson Counties in Mississippi; and HUD’s New Orleans, Louisiana, and Jackson,
Mississippi, field offices. To achieve our objectives, we performed the following:

   •   Selected a statistical sample of 103 applicants from the universe of 2,035 grant checks
       disbursed by the Authority as of October 18, 2006, and conducted eligibility and
       duplicate benefits testing.
   •   Reviewed and analyzed data provided by the Authority, SBA, insurance companies,
       Reznick Group, and Allied American Adjusting Company and Harrison, Hancock, and
       Jackson Counties’ landroll records and tax offices.
   •   Interviewed officials at the Authority, Reznick Group, and Allied American Adjusting
       Company and employees of Harrison, Hancock, and Jackson Counties.

In addition, we interviewed homeowner grant recipients. We performed detailed eligibility and
duplication of benefits testing of all homeowners selected for review.

                                   RESULTS OF REVIEW

In most cases, the State and its contractor, Reznick Group, had controls to ensure that only
eligible homeowners participated in the Program in accordance with the eligibility criteria. One
of the 103 applicants reviewed was not eligible for the Program because the applicant did not
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meet one or more of the five eligibility requirements. In this instance, the applicant owned but
did not occupy the property. To determine eligibility, the State and Reznick Group relied on data
provided by the applicants, the Mississippi State Tax Commission, insurance companies,
Mississippi Title and Appraisal, and Allied American Adjusting Company. While the data on
which Reznick relied were not the most current data available, it was the most efficient method
of acquiring this information for the number of applicants. Thus, the State and Reznick Group
could not have prevented these errors, and no recommendation would prevent the errors from
recurring. However, HUD should require the State to refund the Program $16,871 for the
ineligible participants.

In addition, the State and Reznick Group had adequate controls to prevent homeowners from
receiving duplicate benefits for the same damage. Out of the 103 applicants reviewed, only one
received a duplication of benefits due to a timing error between when Reznick Group received
the initial SBA loan approval amount and when the actual SBA loan amount was withdrawn.
The State and Reznick Group established internal control procedures, which involved the use of
an electronic auditing system, to ensure that applicants did not receive duplicate benefits. The
State and Reznick Group could not have prevented the timing error and had controls including
obtaining an SBA-prepared duplication of benefit analysis for those applicants who applied for
an SBA loan. Thus, no recommendation is made to prevent this type of error from recurring.
HUD should require the State to refund the Program $3,700 for the duplicate assistance
provided.

The errors discovered during this review were not the result of faulty procedures and controls but
were due to conditions beyond the State’s and Reznick Group’s authority. Therefore, we do not
recommend that the State and Reznick Group implement new procedures and controls, nor do we
recommend that they alter their current procedures and controls. We acknowledge the State and
its contractor on implementing procedures for and controls over determining program eligibility
and duplication of benefits.

The Authority generally concurred with the findings but requested additional information on one
applicant. It agreed to research the applicants further and work with HUD and SBA until the
issues are fully resolved. The Authority’s complete response can be found in appendix A. We
agree with the Authority’s proposed actions and commend it for its positive response.

                                    RECOMMENDATION

We recommend that the HUD’s General Deputy Assistant Secretary for Community Planning
and Development require the Authority to repay the Program $20,571 for ineligible costs.

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.




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                       Appendix A
AUDITEE COMMENTS




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