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. 1 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 2 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. 3 Appendix A AUDITEE COMMENTS 4 5
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
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-03-06.
Below is a raw (and likely hideous) rendition of the original report. (PDF)