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.
1
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.
2
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
3
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.
4
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.
6
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.
7
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.
8
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.
9
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.
10
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)