oversight

The Texas Department of Housing and Community Affairs Properly Administered Supplemental I Disaster Recovery Program Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-01-14.

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

                                                              Issue Date
                                                                       January 14, 2009
                                                              Audit Report Number
                                                                           2009-FW-1004




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


FROM:      Gerald R. Kirkland
           Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The Texas Department of Housing and Community Affairs Properly
         Administered Supplemental I Disaster Recovery Program Funds


                                  HIGHLIGHTS

 What We Audited and Why

            We audited the U. S. Department of Housing and Urban Development’s (HUD)
            Community Development Block Grant (CDBG), Supplemental I Disaster
            Recovery program, administered by the Texas Department of Housing and
            Community Affairs (Department). We performed the audit as part of the Office
            of Inspector General’s commitment to HUD to implement oversight of the
            Disaster Recovery funds to prevent fraud, waste, and abuse and duplication of
            benefits. Our objective was to determine whether the Department administered
            Supplemental I Disaster Recovery funds (funds) in compliance with the
            supplemental appropriation’s Federal Register requirements, HUD’s policies, and
            the State of Texas’ (State) Disaster Recovery action plan.

 What We Found

            The Department administered the funds in compliance with requirements. The
            funds were accounted for and were used for eligible program applicants and
            projects that met national program objectives.


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What We Recommend


           This report does not contain any recommendations as it contains no findings.

Auditee’s Response


           We provided an initial draft report to the Department on December 17, 2008, and
           held an exit conference on December 29, 2008. Following some minor
           clarifications, we provided a revised draft on January 7, 2009. The Department
           agreed with the report and decided not to provide a written response.




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                           TABLE OF CONTENTS

Background and Objective                                                4

Results of Audit
      The Texas Department of Housing and Community Affairs Properly    5
      Administered the Supplemental I Disaster Recovery Program Funds

Scope and Methodology                                                   9

Internal Controls                                                       10




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                                BACKGROUND AND OBJECTIVE

On September 24, 2005, the Federal Emergency Management Agency (FEMA) declared 29 State
of Texas (State) counties disaster areas as a result of Hurricane Rita. The disaster declaration
allowed those counties to receive federal aid from FEMA, the Small Business Administration,
and the U. S. Army Corp of Engineers.

In addition, to assist with Hurricane Katrina, Rita and Wilma recovery efforts, Congress
appropriated $16.7 billion in Disaster Recovery funding (funds) to the U. S. Department of
Housing and Urban Development’s (HUD) Community Development Block Grant (CDBG)
program to assist impacted communities. Of that amount, Texas received $503 million to
address areas most impacted by Hurricane Rita. The funds were allocated in two supplemental
appropriations that were distributed under two disaster action plans. The State was allocated
$74.5 million under Public Law 109-148 (Supplemental I) and an additional $428.67 million
under Public Law 109-234 (Supplemental II).

To aid in fund distribution, the governor of Texas selected the Texas Department of Housing and
Community Affairs (Department) as the lead agency. Established in 1991, the Department is the
State’s primary agency to provide for the essential public service and housing needs of extremely
low- to moderate-income individuals and families in Texas. The Department and the Office of
Rural and Community Affairs (ORCA) jointly administered the funds, the primary objective of
which is to provide funding for unmet housing, infrastructure, public service, public facilities,
and business needs in areas of concentrated distress in the 29-county area directly impacted by
Hurricane Rita.

To expedite delivery of aid, the Department partitioned the funds between the State’s regional
councils of government1 (council) and ORCA, based on FEMA’s damage assessment. The
Department decided that those entities were better informed on their regions’ needs, experienced
in managing CDBG funds, and structured to coordinate with the State’s efforts for long-term
recovery. However, the Department, as the State’s representative, maintained overall
responsibility over the funds’ use. As the following table shows, since February 2006, the
Department and ORCA have funded approximately $73 million of the budgeted funds.

                                      Projects                      Budget                    Funded                    Balance
        Department                      450                     $42,378,185               $41,341,850                 $1,036,335
        ORCA                             93                      32,144,815                31,525,863                    618,952
        Totals                          543                     $74,523,000               $72,867,713                 $1,655,287

Our objective was to determine whether the Department administered Supplemental I Disaster
Recovery funds for their intended purpose as prescribed by the supplemental appropriation’s
Federal Register requirements, HUD’s policies, and the State’s Disaster Recovery action plan.


1
    The councils are voluntary associations of local governments, the purpose of which is to solve area wide problems for their respective
    region. Texas is divided into 24 regional councils, four of which were affected by Hurricane Rita.

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                                RESULTS OF AUDIT

The Texas Department of Housing and Community Affairs Properly
Administered the Supplemental I Disaster Recovery Funds
The Department and ORCA generally administered the Supplemental I Disaster Recovery funds
in compliance with the supplemental appropriation’s Federal Register requirements, HUD
policies, and the State’s action plan. They used the Disaster Recovery funds for eligible
applicants and projects that met national program objectives and ensured that the funds were
properly accounted for and used for the program.




 The State Properly Funded
 Disaster Recovery Projects

              A review of 16 projects, totaling more than $4.3 million that the State funded with
              Disaster Recovery funds, found no evidence that the recipients or the projects were
              ineligible. The 11 housing projects reviewed included the following types of
              projects:

                      Housing reconstruction,
                      Housing rehabilitation,
                      Manufactured housing units, and
                      Housing elevation – flood mitigation.

              The five infrastructure projects included the following types of projects:

                      Road repair,
                      Bridge repair,
                      Emergency power generators,
                      Debris removal,
                      Repair to emergency services, and
                      Public facilities

               The Department and ORCA provided sufficient support that the projects’ funds
               were properly accounted for and used for their intended purposes. The following
               table shows the status of the 16 projects as of August 2008.

                                     Projects        Budget            Funded      % complete
                Department                   11     $ 862,294           $ 581,944     67%
                ORCA                          5      3,450,000           2,698,962    78%
                Totals                       16     $4,312,294          $3,280,906    76%

                                                5
    The Department Properly
    Administered the Funds


                    The Department is responsible for administering the funds and ensuring that they
                    were used for their intended purpose. It partitioned the funds based on the level
                    of damage assessed by FEMA, among the three eligible councils2 responsible for
                    the 22 affected counties. Testing of the 11 housing projects disclosed that the
                    councils developed a method of distribution that assisted eligible applicants and
                    that the Department, in coordination with the councils, maintained oversight of
                    the funds to ensure that eligible applicants received housing assistance as required
                    by the Federal Register, HUD’s policies, and the State’s disaster recovery action
                    plan.

                    Fieldwork at the South East Texas Regional Planning Commission (Commission)
                    council disclosed that the reconstruction and rehabilitation projects appeared to be
                    commensurate with the cost paid (see photograph below).




                               Recipient home - Port Arthur, Texas

                    As the following picture shows, the State’s efforts to mitigate future hurricane
                    housing damage appeared effective. The pictured home, designed and
                    constructed to withstand flood and wind damage, survived Hurricane Ike in
                    October 2008.




2
     Three council regions were deemed eligible to receive individual assistance by FEMA: The Commission, Deep East Texas Council of
     Government, and Houston-Galveston Area Council.

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                Elevation project, Sabine Pass, Texas – Although the area flooded, the
                home was not damaged because it was elevated.

         For the 11 reviewed projects, the Department provided assistance to low- to
         moderate-income families by reconstructing or rehabilitating their homes or
         replacing them with manufactured housing units.

ORCA Properly Administered
the Funds

         ORCA’s objective is to assist the 27 affected counties with nonhousing recovery
         needs in the areas most impacted by Hurricane Rita. The five nonhousing
         projects tested included debris removal, road repair, bridge repair, flood
         mitigation, utility service repair, and emergency power generating units for
         medical facilities and utility companies. ORCA provided sufficient evidence to
         support the applicants’ and projects’ eligibility. In addition, its disbursements of
         more than $3.45 million for the projects were adequately controlled to ensure that
         funds were used for their intended purpose.

         For two of the five projects tested, the local government used the funds to
         purchase generators to provide emergency electrical power. ORCA’s efforts
         appear to have been effective, as the grants for emergency power generators to the
         City of Nederland and the Tyler County Hospital, pictured below, allowed
         operations to continue during Hurricane Ike.




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               Tyler County Hospital – 900-kilowatt generator allowed the hospital to remain
               open during widespread power outages.


Conclusion


             The Department administered the Supplemental I Disaster Recovery funds,
             authorized under Public Law 109-148, in accordance with Federal Register
             requirements, HUD policies, and the State’s Disaster Recovery action plan.




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                         SCOPE AND METHODOLOGY

We performed our audit at the Department and ORCA offices located in Austin, Texas, and at
the Commission office located in Beaumont, Texas. Our audit generally covered the period
February 2006 through July 2008. We expanded the review period as needed. To accomplish
our objective, we

         Gained an understanding of the CDBG program requirements by reviewing applicable
         HUD regulations, waivers, notices, and legislation.
         Reviewed the Department’s, ORCA’s, and the Commission’s policies and procedures
         to gain an understanding of the organization’s accounting controls, procurement
         practices, and monitoring policies.
         Reviewed the latest internal auditor’s report, State audit report, and internal and HUD
         monitoring reviews to identify problem areas that might require attention.
         Identified and tested relevant internal controls that the Department, ORCA, and the
         Commission had implemented regarding their management, accounting, and data
         processes.
         Identified, quantified, and assessed the level of risks for key financial transactions and
         verified that the Department and ORCA properly accounted for funds use through the
         Disaster Relief Grant Reporting information system.
         Identified the total Disaster Recovery funding invested by HUD and funding disbursed
         by the Department and ORCA, and documented the list of program activities covering
         the audit period. We selected a nonrepresentative sample for testing, focusing on the
         two entities that received the largest grants under Supplemental I.
         Tested Department and ORCA’s expenditures of program funds for eligibility and
         sufficiency of supporting documentation.
         Reviewed and tested a nonrepresentative sample of 16 project files.
         Conducted a site visit at 11 Department projects located in the following Texas cities:
         Beaumont, Port Arthur, Orange, Vidor, Fannett, and Sabine Pass.

We performed the audit from July through November 2008. 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.




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                              INTERNAL CONTROLS

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

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

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
              objectives:

                      Funding and award process,
                      Disbursement and expenditure process,
                      Monitoring process, and
                      Fraud prevention and detection policies and procedures.

              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


              We did not identify any significant weaknesses in the controls cited above.




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