Issue Date
May 5, 2009
Audit Report Number
2009-AO- 1002
TO: Nelson Bregon, General Deputy Assistant Secretary, D
FROM: Rose Capalungan, Regional Inspector General for Audit, Gulf Coast Region,
GAH
SUBJECT: State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not
Ensure That Multiple Disbursements to a Single Damaged Residence Address
Were Eligible
HIGHLIGHTS
What We Audited and Why
Due to a citizen’s complaint, we audited the State of Louisiana’s (State) Road
Home homeowner assistance program managed by the State’s contractor, ICF
Emergency Management Services, LLC. The complaint raised a potential issue
with Road Home employees improperly obtaining grants. During our audit on
employee eligibility for additional compensation grants, we identified possible
program eligibility issues through a review of the electronic disbursement data.
To address the extent of the issues, we developed an additional audit objective to
determine eligibility for multiple disbursements made to a single damaged
residence address.
What We Found
We identified 69 property addresses that had two or more Road Home grants for a
total of 139 grants. Of the 69 property addresses, 11 received total disbursements
1
that exceeded the overall grant limit of $150,000. The 11 addresses received a
total of 22 grants. Of the 22 grants, the State funded eight (36 percent) grants,
totaling $735,087 that were either ineligible or unsupported. This condition
occurred because the State did not ensure that its contractor had system controls
to identify multiple disbursements to a single property address and that its policies
and procedures were followed when processing grants and determining eligibility
for multiple disbursements. As a result, the State must repay funds disbursed for
ineligible grants and support or repay funds disbursed for unsupported grants.
Further, although disbursements did not exceed the overall grant limit of
$150,000 for the other 58 property addresses, the State must review those 117
grants since a portion of the disbursements may be questionable.
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, support or repay amounts disbursed
for unsupported grants, and review all of the 117 grants related to multiple
disbursements for 58 property addresses to determine eligibility.
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 April 3, 2009.
We asked the State to provide comments on our draft audit report by April 1,
2009. We gave the State an extension until April 16, 2009, to respond, and it
provided written comments on that day. The State generally agreed with the
report but disagreed with some of the conclusions and recommendations. The
complete text of the State’s response, along with our evaluation of that response,
can be found in appendix B of this report.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: The State Did Not Ensure That Multiple Disbursements to a Single 6
Damaged Residence Address Were Eligible
Scope and Methodology 11
Internal Controls 12
Appendixes
A. Schedule of Questioned Costs 13
B. Auditee Comments and OIG’s Evaluation 14
3
BACKGROUND AND OBJECTIVE
Between December 2005 and December 2007, Congress approved a total of $19.7 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 $13.4 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 $9.9
billion of the $13.4 billion to the homeowner assistance program,1 which provides grants to
eligible homeowners. ICF Emergency Management Services, LLC, the State’s contractor,
manages the Road Home program. The State required its contractor to verify applicants’
eligibility and develop a management information system2 meeting State specifications and
internal control requirements. The contractor’s contract term ends on June 11, 2009, and the
homeowner assistance program is in its final stages.3
The homeowner assistance program includes four forms of available funding assistance,
dependent upon the option4 selected. The four forms of available funding assistance include the
(1) compensation grant, (2) elevation grant, (3) additional compensation grant, and (4) additional
mitigation grant. The overall grant amount cannot exceed $150,000. To be eligible for grant
assistance under the Road Home program, the State required applicants to own and occupy a
damaged property as their primary residence as of and prior to Hurricanes Katrina or Rita. The
State also required that the damaged property be
• Located in one of 37 parishes5;
• A single-unit structure, double-unit structure, town home, mobile home, or condominium;
• Registered with FEMA6 individual assistance and categorized by FEMA as having major
or severe damage7
1
The homeowner assistance program is one of four Road Home programs.
2
The management information system principally supports the Road Home program.
3
As of February 22, 2009, the State had determined that the final number for applicants eligible for assistance totaled 152,060. Of that amount,
144,187 applicants had chosen an option, and 140,083 applications had been completed, with 4,104 remaining.
4
The options available were Option 1 – Applicant retained their home; Option 2 – Applicant sold their home, occupied as of the date of the
storms, but remained a homeowner in Louisiana; and Option 3 – Applicant sold their home, occupied as of the date of the storms, and either
moved from Louisiana or remained in Louisiana as a renter.
5
Those parishes included Acadia, Allen, Ascension, Assumption, Calcasieu, Cameron, Beauregard, East Baton Rouge, East Feliciana,
Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Pointe Coupee, Plaquemines, Sabine, St.
Bernard, St. Charles, St. Helena, St. James, St. John, St. Landry, St. Mary, St. Martin, St. Tammany, Tangipahoa, Terrebonne, Vermilion,
Vernon, Washington, West Baton Rouge, and West Feliciana.
4
During our audit on employee eligibility for additional compensation grants, we identified
possible program eligibility issues through a review of the electronic disbursement data. To
address the extent of the issues, we developed an additional audit objective to determine
eligibility for multiple disbursements made to a single damaged residence address.
We identified 11 of 69 property addresses that had two or more Road Home grants, for which
total disbursements exceeded the overall grant limit of $150,000. Because it related to overall
eligibility for the Road Home program, we issued this report to address the issue. We plan to
issue the results of our audit regarding employee eligibility for additional compensation grant in
a separate report.
6
Federal Emergency Management Agency
7
If the property was not registered with FEMA and the Road Home evaluation determined that the home received at least $5,200 worth of
damage, which was caused by the one or both Hurricanes, the property met the FEMA standard.
5
RESULTS OF AUDIT
Finding 1: The State Did Not Ensure That Multiple Disbursements to a
Single Damaged Residence Address Were Eligible
The State did not ensure that multiple disbursements to a single property address were eligible
and/or supported. Testing disclosed 69 property addresses that had two or more8 Road Home
grants for a total of 139 grants. Of the 69 property addresses, 11 received total disbursements
that exceeded the overall grant limit of $150,000. The 11 addresses received a total of 22 grants.
Of the 22 grants, the State funded eight (36 percent) grants, totaling $735,087, that were either
ineligible or unsupported. This condition occurred because the State did not ensure that its
policies and procedures were followed when processing grants and determining eligibility for
multiple disbursements to a single property address and that its contractor had system controls to
identify multiple disbursements. As a result, the State must repay funds disbursed for ineligible
grants and support or repay funds disbursed for unsupported grants. Further, although
disbursements did not exceed the overall grant limit of $150,000 for the other 58 property
addresses, the State must review those 117 grants since a portion of the disbursements may be
questionable.
State’s Eligibility Requirements
To be eligible for grant assistance under the Road Home program, the State
required applicants to have owned and occupied a damaged property as their
primary residence at the time of Hurricane Katrina or Rita.9 The State also
required that the damaged property be a single-unit structure, double-unit
structure, townhome, mobile home, or condominium. Further, total assistance per
single damaged residence address could not exceed $150,000, unless the address
had
• Two different structures and two different owners who applied separately
or
• A double-unit structure with two separate tax parcels. If the double-unit
structure had one tax parcel, only one applicant could apply for and
receive assistance for both units.
8
Of the 69 addresses, one address received three grants. The remaining 68 addresses each received two
disbursements.
9
Hurricane Katrina was August 29, 2005, and Hurricane Rita was September 24, 2005.
6
$735,087 Paid for Ineligible and
Unsupported Grants
Testing disclosed 69 damaged residence addresses that had two or more Road
Home grants for a total of 139 grants. Of the 69 damaged residence addresses, 11
received disbursements that exceeded the overall grant limit of $150,000, for a
total of 22 grants. File reviews of the 22 grants determined that eight (36 percent)
grants were either ineligible or unsupported because
• Two applicants did not own or occupy the property at the time of
Hurricane Katrina and were, therefore, ineligible;
• One disbursement was ineligible because funds were disbursed to two
separate applicants for a double-unit structure with one tax parcel;
• Four were processed incorrectly and, therefore, unsupported; and
• One lacked sufficient ownership documentation, making the grant
unsupported.
As a result, as of September 18, 2008, the State had misspent $294,060 in federal
funds for three ineligible grants and $441,027 for five unsupported grants. The
remaining 14 grants, totaling more than $1.4 million, were eligible.
State’s Policy Not Followed
The State’s contractor did not follow the State’s policy when determining
eligibility for the Road Home program and processing grants for double-unit
structures. The State’s policy required applicants to have owned and occupied the
property at the time of Hurricane Katrina or Rita. However, based upon the file
reviews, two applicants received grant awards for properties that they did not own
or occupy. Further, the State’s policy allowed only one grant for double-unit
structures with one tax parcel. In one instance, there were two owners for a
double-unit structure with one tax parcel, who both separately applied for and
received grants. Although both owners were eligible to receive a grant, only one
grant should have been awarded, since the double-unit structure had one tax
parcel.
The State’s contractor also did not follow the State’s policy when processing
grants for two different structures located at a single property address. When a
property address had a single-unit structure and a mobile home on the property,
the State’s policy required the single-unit structure to be processed as a structure
with land and the mobile home as a structure on leased land. Three of the four
grants that were processed incorrectly were each associated with a property
7
address that had a single-unit structure and a mobile home on the land and were
processed as follows:
• Two of the grants were both processed as single-unit structures with land;
however, the grants should have been processed as follows: one as a
mobile home on leased land and the other as a single-unit structure with
land; and
• One grant, which was associated with a property that had a single-unit
structure and a mobile home, was processed as a single-unit structure with
land and a mobile home with land. In this case, the land should not have
been considered with the mobile home.
The remaining grant that was processed incorrectly was associated with a
property address that had two single-unit structures. When the contractor
processed the grants, it processed them as single-unit structures with land, instead
of processing one as a single-unit structure on leased land and the other as a
single-unit structure with land.
As a result, new prestorm values and estimated costs of damage, reflecting the
correct structure type and land status, are required for all four grants. Based upon
the change in prestorm values and estimated costs of damage, the grants may have
been partially or wholly ineligible.
Complete ownership documentation was also required. However, for one grant,
the legal document used to support the applicant’s ownership was not signed and
recorded as a valid legal document. The State must ensure that its contractor
follows the established policies and procedures when processing multiple grants
to a single damaged residence address to avoid funding additional ineligible
and/or unsupported grants.
System Controls Not in Place
The State’s contractor did not have system controls in place to identify multiple
disbursements for a single damaged residence address. The State’s contractor
stated that due to the complex process of identifying addresses with multiple grant
disbursements, its management information system did not have a control to
identify duplicate addresses. Those system controls might have prevented the
ineligible and/or unsupported disbursements by allowing the contractor to
compare applications for the same property address and, thereby, ensuring proper
processing of the grants.
8
Additional Duplicate
Disbursements
Although our review focused on multiple grants to single damaged residence
addresses for which the total amount disbursed was more than $150,000, we
identified another 58 addresses that had multiple grants, for which the total grant
amount disbursed was less than $150,000, for a total of 117 grants. Because the
State’s contractor did not have system controls in place to identify multiple
disbursements to a single damaged residence address and did not follow the
State’s policy when processing multiple disbursements for single damaged
residence addresses, there are potential issues associated with those 117 grants,
which total more than $3.9 million. All or a portion of those disbursements may
be questionable. Therefore, the State must review those grants to determine
eligibility.
State is Taking Action
The State agreed10 with our results for the eight grants determined ineligible
and/or unsupported and had initiated a review of the additional 117 questioned
grants to determine eligibility. In addition, the State planned to pursue recovery
of grant funds for all grants determined ineligible, including the grants discussed
above. Further, the State had developed a recapture policy and was working in
conjunction with the Louisiana Attorney General’s Office to develop recapture
procedures and processes. The State stated its intent to turn over those grants that
are determined ineligible and for which the recapture of funds is warranted to the
Louisiana Attorney General’s Office for recapture. We acknowledge the State’s
actions toward reviewing the grants and grant recovery.
Conclusion
Of 22 grants, the State funded three ineligible (14 percent) and five unsupported
(22 percent) grants. Two of the disbursements were ineligible because the
applicants did not own or occupy the property at the time of Hurricane Katrina.
Another disbursement was ineligible because there were two applicants who both
received disbursements for a double-unit structure that was a single tax parcel.
For four of the five unsupported disbursements, the applicants were not processed
correctly, and the remaining disbursement was unsupported because the applicant
did not have sufficient ownership documentation.
Since the State’s contractor did not implement system controls to identify
multiple disbursements to a single damaged residence address and follow the
10
The State agreed with our results during the February 12, 2009, update meeting.
9
State’s policy when processing multiple disbursements for single damaged
residence addresses, there are potential issues related to another 117 grants.
Therefore, the State must review the 117 grants, which total more than $3.9
million, to determine eligibility, as those disbursements are questionable. Further,
the State must repay funds disbursed for ineligible grants and support or repay
funds disbursed for unsupported grants.
Recommendations
We recommend that HUD’s General Deputy Assistant Secretary for Community
Planning and Development require the State to
1A. Repay $294,060 disbursed for three ineligible grants to its Road Home
program.
1B. Either support or repay $441,027 disbursed for five unsupported grants.
1C. Review all of the 117 grants related to multiple disbursements for
58 damaged residence addresses to determine eligibility.
10
SCOPE AND METHODOLOGY
We conducted our audit at the State’s Office of Community Development, Disaster Recovery
Unit; the State’s contractor’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 July 2008 and February 2009.
To accomplish our objectives, we used the electronic data received from the State’s contractor’s
management information system to identify potentially ineligible grants. 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 of 117,613 Road Home grants were
funded between June 12, 2006, and September 18, 2008. We sorted the data for the 117,613
grants to identify addresses that received two or more grants. Of the 117,613 grants, we
identified 401 records that indicated addresses with two or more grants. Of the 401 records, we
determined that only 139 records had grants amounts greater than zero. Through analysis, we
determined that the 139 grants were related to 69 addresses that received two or more grants.
We totaled the grant amounts disbursed to each of the 69 addresses to identify our universe of 11
addresses that received grants in excess of the $150,000 grant limit, for a total of 22 grants.
We selected all 22 grants for file review. We reviewed the documentation for each file to
determine whether the grant applicant met the State’s eligibility requirements as established in
prevailing policies and whether grant and funding information was accurate. Through our file
reviews, we determined that the grant data were generally reliable.
In addition to data analyses and file reviews, we
• Interviewed State officials as well as key personnel of the State’s contractor;
• Reviewed the grant agreements between HUD and the State, the Road Home written policies
and procedures, the contract executed between the State and its contractor 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 generally covered October 15, 2007, through September 18, 2008. However,
we expanded this period to address the issues related to multiple disbursements to single property
addresses. We conducted the audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
11
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:
• Program operations,
• Relevance and reliability of information,
• Compliance with applicable laws and regulations, and
• Safeguarding of assets and resources.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.
Relevant Internal Controls
We determined that 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 Road Home 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.
Significant Weakness
Based on our review, we did not identify any significant weaknesses.
12
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Ineligible 1/ Unsupported
number 2/
1A $294,060
1B $441,027
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 the 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.
13
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
14
Comment 1
Comment 2
15
Comment 3
Comment 4
Comment 5
16
17
OIG Evaluation of Auditee Comments
Comment 1 The State concurred that three grants are ineligible and five are not sufficiently
supported. For the three ineligible grants, two applicants did not own or occupy
the property at the time of Hurricane Katrina and were, therefore, ineligible, and
for the third ineligible grant, the funds were disbursed to two separate applicants
for a double-unit (duplex) structure with one tax parcel. The State noted that for
the two applicants who did not own or occupy the property at the time of the
storm, the contractor, in March 2008, identified these two grants for special
review and grant recovery as evidenced in JIRA, an issue-tracking system. The
State further noted that grants in which applicants are suspected of wrongdoing,
such as providing false information to the program, are identified as special
review files and are further investigated by the contractor’s Compliance and Anti-
Fraud, Waste, and Abuse Unit. As the result of the State’s special review, both of
these grants were referred to the HUD OIG Office of Investigation.
We acknowledge the action taken by the State on these grants. However, we
disagree that two grants were referred to the HUD OIG Office of Investigation.
Based upon documentation provided by the State’s contractor, only one of three
ineligible grants was referred to the Office of Investigation, as it was for one
property. In our review, we identified three ineligible grants for three different
properties.
Comment 2 The State did not concur that it did not ensure that the contractor had system
controls to identify multiple disbursements to a single property address. The State
claimed that controls and analytical procedures had been in place since the
beginning of the program to identify multiple grant applications submitted for the
same property address. Specific analytics to prevent and detect applicant fraud
were developed by a subcontractor specializing in forensic accounting. A specific
analytic referred to as Routine 1.1 was developed to identify multiple grant
applications for the same address. The results of Routine 1.1, as well as the
results of many other analytic tests, were presented to the State every two weeks.
The State further claimed that its contractor coupled its in-house Compliance and
Anti-Fraud, Waste, and Abuse Unit with the forensic accounting subcontractor to
analyze and perform follow-up research on those applications identified as
potential duplicates. Routine 1.1 identified about 2,289 outlier applications for
follow-up research and other due diligence. Two of the three grants identified by
OIG as ineligible in this audit report were detected through this process and
presented to the OIG Office of Investigation for possible criminal prosecution.
Based on documentation provided by the State’s contractor, we were unable to
confirm that the subcontractor conducted analytics specifically to identify
multiple grant applications for the same address. The task order provided by the
State’s contractor only included a general statement that antifraud procedures and
controls would be monitored and tested. In addition, there was no reference in the
provided documentation regarding testing for multiple grant applications to the
18
same address. We were also unable to confirm the results of the subcontractor’s
Routine 1.1. Additionally, based on documentation provided by the State’s
contractor, only one of three ineligible grants was identified and referred to the
HUD OIG Office of Investigation. See comment 1 for more information. Thus,
we stand by our original conclusion that the State did not ensure that the
contractor had system controls to identify multiple disbursements to a single
property address.
Comment 3 In response to recommendation 1A., the State claimed that it is premature to
require the State to repay the $294,060 at this point in the program. Two of the
three ineligible grants have been referred to the HUD OIG Office of Investigation
for possible criminal prosecution, and recovery of the funds disbursed for these
two grants may result from those proceedings. The State further noted that the
ineligible grants have not been through the State’s recapture process, which is
designed to recover overpayments to applicants. The State calculated the amount
disbursed for the three ineligible grants to be $290,590, not $294,060 as stated in
the audit report.
We were unable to confirm the State’s calculation of $290,590. Based on
documentation located in the management information system at the time of our
review, the amount disbursed for the three ineligible grants was $294,060.
Additionally, based on documentation provided by the State’s contractor, only
one of three ineligible grants was identified and referred to the HUD OIG Office
of Investigation. See comments 1 and 2 for more information. Therefore, we did
not change our recommendation that the State repay $294,060 disbursed for three
ineligible grants.
Comment 4 In response to recommendation 1B, the State contended that two of the five
unsupported grants have now been supported and determined to have closed for
the correct amount so no grant recovery is needed. For the remaining three
grants, it has been determined that a recovery totaling $149,751 is needed for two
of the grants, and the amount of recovery, if any, for the third grant has not yet
been determined. Recovery of the grant overpayments will be sought through the
recapture process.
Because the State did not provide documentation for the two grants, we were
unable to confirm the State’s assertion. We were also unable to confirm the
State’s calculation of $149,751 for three grants. Therefore, we did not change our
recommendation that the State support or repay $441,027 disbursed for five
unsupported grants.
Comment 5 In response to recommendation 1C, the State noted that it and its contractor had
begun the process of reviewing all of the 117 grants. The preliminary review
revealed that only six grants have been found to be ineligible; two are ineligible
due to duplicate address issues and the remaining four for ownership issues.
Further, documentation is needed for eight grants to determine program
19
eligibility. The remaining 103 grants were determined to be program eligible.
This review will be finalized in the near future.
We acknowledge the State’s prompt preliminary review of the remaining 117
questionable grants. However, because the review of the 117 grants has not been
finalized, we did not change our recommendation that the State review all of the
117 grants related to multiple disbursements for 58 damaged residence addresses
to determine eligibility.
20
The State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not Ensure That Multiple Disbursements to a Single Damaged Residence Address Were Eligible
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-05-05.
Below is a raw (and likely hideous) rendition of the original report. (PDF)