oversight

The State of Louisiana's, Baton Rouge, LA, Subrecipient Did Not Always Meet Agreement Requirements When Administering Projects Under the Orleans Parish Long Term Community Recovery Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-08-04.

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

                                                                   Issue Date
                                                                            August 04, 2010
                                                                   
                                                                   Audit Report Number
                                                                                2010-AO-1005




TO:         Scott G. Davis, Director, Disaster Recovery and Special Issues Division, DGBD

            //signed//
FROM:       Tracey Carney
            Acting Regional Inspector General for Audit, Gulf Coast Region, GAH


SUBJECT: The State of Louisiana’s, Baton Rouge, LA, Subrecipient Did Not Always Meet
           Agreement Requirements When Administering Projects Under the Orleans
           Parish Long Term Community Recovery Program

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the State of Louisiana, Office of Community Development’s (State),
             Orleans Parish Long Term Community Recovery Program (Program),
             administered by the State’s subrecipient, the City of New Orleans (City). Our
             objective was to determine whether the City, as the State’s subrecipient, met the
             requirements of its cooperative endeavor agreement (agreement) with the State
             during its administration of the New Orleans Redevelopment Authority’s
             (Authority) projects under the Program. We initiated the audit as part of the
             Office of Inspector General (OIG) Gulf Coast Region’s audit plan and
             examination of activities related to Gulf Coast hurricane disaster relief efforts.

 What We Found


             The City, as the State’s subrecipient, did not always meet the requirements of its
             agreement with the State during its administration of the Authority’s projects.
             Specifically, the City failed to meet agreement obligations as it did not (1) execute
             agreements with the Authority in a timely manner and ensure the Authority
                                               1
           completed projects within specified timeframes, (2) ensure that the Authority met
           its performance standards, reporting, and consultation requirements or
           implemented projects in an efficient manner, (3) set progressive deadline dates for
           the Authority or appropriately develop the Authority’s initial agreement
           performance standard requirements, and (4) have monitoring controls in place to
           ensure that the Authority’s projects effectively progressed. These conditions
           occurred because the State did not always exercise adequate oversight and hold
           the City accountable, once performance issues were apparent. Specifically, the
           State did not (1) conduct an onsite monitoring review of the City to correct
           deficiencies, (2) set progressive deadline dates in its agreement with the City to
           adequately track the Program’s progress, or (3) exercise its agreement options
           when the City failed to meet its obligations in a timely and effective manner. As
           a result, Program funds were not used in a timely, efficient, or effective manner,
           thus delaying the City’s recovery from the damage caused by Hurricanes Katrina
           and Rita.

What We Recommend

           We recommend that the Director of the U.S. Department of Housing and Urban
           Development’s (HUD) Disaster Recovery and Special Issues Division require the
           State to exercise its agreement option by deobligating the $28.1 million in
           Program funds allocated to the Authority’s projects and reallocate those funds to
           other disaster programs. In addition, the State must finalize its monitoring plan
           and consider including an individual subrecipient risk assessment requirement in
           its final monitoring plan to determine the frequency of monitoring.

           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

           We provided the draft report to the State and HUD on June 24, 2010. We held an
           exit conference with the State and HUD on June 30, 2010. We asked the State to
           provide written comments to the draft report by July 8, 2010. The State requested
           an extension until July 23, 2010 and it provided written comments on July 22,
           2010. The State generally agreed with our finding, but disagreed with one of our
           recommendations.

           The complete text of the auditee’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 City, As the State’s Subrecipient, Did Not Always Meet Its   6
      Agreement Requirements

Scope and Methodology                                                             16

Internal Controls                                                                 17

Appendixes
   A. Schedule of Funds To Be Put to Better Use                                   19
   B. Auditee Comments and OIG’s Evaluation                                       20
   C. The Authority’s Amended Project Universe                                    30
   D. Criteria                                                                    31




                                             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 for its recovery efforts.
The Louisiana Recovery Authority, in conjunction with the State of Louisiana Office of
Community Development (State), develops action plans outlining the programs and methods
used to administer the $13.4 billion supplemental CDBG funds. In Louisiana, the State is
HUD’s principle grantee and the entity primarily responsible for the $13.4 billion allocated
disaster funds. Therefore, the State is responsible for administering and monitoring the CDBG
disaster-related programs generated from the HUD allocations.

Of the $13.4 billion CDBG funds allocated to Louisiana, the State budgeted $700 million toward
the Long Term Community Recovery Program (Program) under its infrastructure disaster
recovery program. The Program provided funding to local governments in the Louisiana areas
most heavily impacted by Hurricanes Katrina and Rita. The purpose of the Program is to
implement local long-term infrastructure recovery plans. In administering the Program, the local
governments must prioritize projects that drive local recovery.

HUD allowed the State to execute agreements with subrecipients to aid in administering the disaster
programs. However, HUD required both the State and its subrecipients to follow all applicable
HUD rules and regulations. The State entered into a cooperative endeavor agreement (agreement)
with the City of New Orleans (City) local government, effective September 17, 2007, and allocated
$410.7 million for the City to administer the Program in Orleans Parish. Under the agreement, the
City serves as the State’s subrecipient. In addition, the State allowed the City, in the agreement, to
execute subrecipient agreements to aid in implementing the Program. Therefore, the City entered
into an initial agreement with the New Orleans Redevelopment Authority (Authority) on October
20, 2008, to assist in implementing the Program.

Under State law and through its land banking capability, the Authority can acquire real property,
dispose of property by sale or lease, and provide security to support slum clearance and
neighborhood redevelopment. The City’s agreement with the Authority initially authorized
$35.9 million in Program funds for implementing 12 projects for the recovery of the City. Of the
12 projects, the City executed budget adjustments to cancel 3 projects and reallocated the
funding. After the budget adjustments and project cancellations, the Authority was required to
implement and complete nine projects totaling more than $33 million under its initial agreement
with the City (see appendix C). The City’s agreement with the Authority also required the
Authority to meet performance standards, reporting, and consultation requirements (as
applicable) for each project.

The City’s Project Delivery Unit is responsible for overseeing the implementation of the
Program in Orleans Parish. To implement the projects, the State required the Project Delivery
Unit and the Authority to develop a preapplication and application for each of the proposed

                                                  4
projects for review and approval. Once the State approved the preapplication and application for
each project, the Authority could commence work on those projects.

As of December 31, 2009, the City had expended $4.9 million of the $33 million in Program funds
under its agreement with the Authority. Our audit objective was to determine whether the City, as
the State’s subrecipient, met its agreement requirements when administering the Authority’s
projects under the Program.




                                                5
                                                RESULTS OF AUDIT

  Finding 1: The City, As the State’s Subrecipient, Did Not Always Meet
  Its Agreement Requirements
  The City did not always meet the requirements of its agreement with the State during its
  administration of the Authority’s projects. Specifically, the City failed to meet agreement
  obligations as it did not (1) execute agreements with the Authority in a timely manner and ensure
  the Authority completed projects within specified timeframes, (2) ensure that the Authority met
  its performance standards, reporting, and consultation requirements or implemented projects in
  an efficient manner, (3) set progressive deadline dates for the Authority or appropriately develop
  the Authority’s initial agreement performance standard requirements, and (4) have monitoring
  controls in place to ensure that the Authority’s projects effectively progressed. These conditions
  occurred because the State did not always exercise adequate oversight and hold the City
  accountable, once performance issues were apparent. Specifically, the State did not (1) conduct
  an onsite monitoring review of the City to correct deficiencies, (2) set progressive deadline dates
  in its agreement with the City to adequately track the Program’s progress, or (3) exercise its
  agreement options when the City failed to meet its obligations in a timely and effective manner.
  As a result, Program funds were not used in a timely, efficient or effective manner, thus delaying
  the City’s recovery from the damage caused by Hurricanes Katrina and Rita.



Program Requirements



                       The terms of the agreement between the State and the City under the Program
                       stated that the agreement shall not continue for a period over 36 months and thus
                       expires September 2010. The agreement further stated that the State may exercise
                       its agreement option and terminate the agreement in whole or in part if the City
                       failed to meet its agreement obligations in a timely and proper manner. Such
                       obligations include, for example, the City binding, certifying and giving assurance
                       that it will comply with all federal and state regulations, policies, and
                       requirements as they relate to the use of state and federal funds. Finally, the State
                       could terminate the agreement if the City used funds provided under the
                       agreement in an ineffective or improper manner. 1
                       Federal regulations state that HUD expects the State to expeditiously obligate and
                       expend all funds in carrying out activities in a timely manner.2 In addition, the
                       HUD-approved action plan required the State to support the most efficient and
                       effective use of its disaster funds. 3 Thus, based on the agreement terms, the City
  1
    Appendix D, pages 32-33 - Cooperative Endeavor Agreement between the State and the City of New Orleans – Effective September 17, 2007.
  2
    Appendix D, pages 31-32- Federal Registers (FR) 5051-N-04
  3
    Appendix D, page 31- Action Plan
                                                                      6
                          was obligated to carry out activities and expend Program funds in a timely, efficient,
                          and effective manner and by September 2010.

                          Federal regulations further required the State to conduct onsite reviews of
                          subrecipients to ensure compliance with regulations. In the event that a subrecipient,
                          such as the City, does not comply with the regulations, the State is required to take
                          appropriate actions to prevent continuance of the deficiency, mitigate any adverse
                          effects or consequences and prevent recurrence. 4

City’s Obligation to Carry Out
Program Activities in a Timely
Manner Was Not Met

                          As related to the City’s agreement with the Authority, the City did not fulfill its
                          obligation to carry out Program activities in a timely manner. Specifically, the
                          City did not (1) execute its agreement with the Authority in a timely manner and
                          (2) ensure that the Authority completed activities for 7 of 12 projects within the
                          specified timeframes.

                          The State authorized the City to begin administering the Program in Orleans
                          Parish in September 2007. However, although the City was aware that it would
                          need assistance from the Authority to implement projects under the Program, the
                          City did not execute its initial agreement with the Authority until October 2008,
                          more than 1 year later, thus delaying the activities and expenditure of the funds
                          for those Program projects. Under its initial agreement, the City required the
                          Authority to implement the following 12 projects:

                              Project                                               Project name
                              number
                                 1                                       Clean and Lien
                                 2                  Veterans Administration Hospital Land Acquisition and
                                                                         Redevelopment5
                                   3              Pontilly (or Gentilly Woods) Acquisition and Redevelopment
                                   4                Lake Forest Plaza Land Acquisition and Redevelopment
                                   5                 South Claiborne Land Acquisition and Redevelopment
                                   6                    Additional Land Acquisition and Redevelopment
                                   7                     Lot Next Door Incentive Program Management
                                   8                 Blight and Historic Property Rehabilitation Loan Fund
                                   9                    Rehabilitation and Construction Mitigation Study
                                  10                              Commercial Appraisal Fund
                                  11                            Methodist Hospital Planning Study
                                  12                              Property Inventory Database

  4
      Appendix D, page 31- Federal Register (FR) 5051-N-01
  5
      Also known as the Veterans Administration and Louisiana State University Hospitals Periphery Land Acquisition and Redevelopment projects
                                                                         7
                      The City cancelled 36 of 12 projects and, therefore, 9 projects remained.
                      Although the initial agreement between the City and the Authority required the
                      Authority to complete activities for the above listed projects between October
                      2008 and October 2009, the Authority only completed two7 of the remaining nine
                      projects within that timeframe. Thus, seven projects were not completed within
                      the specified timeframe. Further review determined that these seven projects
                      were still incomplete as of April 2010, more than five months after the timeframe
                      expired. Since the City allowed this to happen, it violated the regulations, which
                      required it to carry out the Program activities in a timely manner.


City’s Obligation to Carry Out
Program Activities Efficiently
Was Not Met


                      Under the City’s agreement with the Authority, the City, in some instances,
                      violated its obligation to carry out the Program activities efficiently. Specifically,
                      a file review of the remaining nine projects, that were not cancelled, determined
                      that City did not ensure that

                                      Five projects8 met its prescribed performance standards, reporting, or
                                       consultation requirements (as applicable); and

                                      Four projects were implemented in an efficient manner.

                      Performance Standards, Reporting, or Consultation Requirements for Five
                      Projects Were Not Met

                      As reflected in the chart below, the City did not ensure the Authority met the
                      performance standards, reporting, or consultation requirements for five projects
                      under its initial agreement (as applicable). Therefore, the City did not ensure the
                      Program activities, related to those projects, were carried out efficiently.




 6
   Includes the Blight and Historic Property Rehabilitation Loan Fund, Property Inventory Database, and Clean and Lien projects. The City
 reallocated the funding for these projects. See appendix C.
 7
   The two projects completed included the Pontilly Acquisition and Redevelopment and Methodist Hospital Planning study projects.
 8
   For these five projects, the Authority completed the Pontilly Acquisition and Redevelopment and Methodist Hospital Planning Study projects.
 The Lot Next Door Incentive Program Management, Rehabilitation and Construction Mitigation Study, and Commercial Appraisal Fund projects
 were ongoing.
                                                                      8
                              Project name                        Performance                   Reporting               Consultation
                                                                 standards met                requirements                meeting
                                                                    (yes/no)                       met                  requirements
                                                                                                 (yes/no)                    met
                                                                                                                           (yes/no)
                        Pontilly (Gentilly                                Yes                         No                     No
                      Woods) Acquisition and
                         Redevelopment
                       Methodist Hospital                      Work completed                         No                 Not required
                         Planning Study                        before agreement                                         for the project
                                                                   execution
                      Lot Next Door Incentive                        Yes9                             No                 Not required
                       Program Management                                                                               for the project
                         Rehabilitation and                               No                   Requirement               Not required
                      Construction Mitigation                                                 not due at time           for the project
                               Study                                                            of review10
                       Commercial Appraisal                               No                        No                   Not required
                               Fund                                                                                     for the project

                     For the performance standards, the Authority missed the required deadlines. As
                     an example, for the Rehabilitation and Construction Mitigation Study project, the
                     City required the Authority to select a contractor and execute a contract within 60
                     days after the execution of its initial agreement. Therefore, the Authority had to
                     complete this standard by December 19, 2008, since the initial agreement was
                     executed on October 20, 2008. However, the Authority did not select a contractor
                     until January 8, 2009, and did not execute a contract until March 27, 2009,
                     exceeding its deadlines by as much as 3 months. For the same project, the City
                     required the Authority to provide an investment grade analysis report within one
                     year of its initial agreement or by October 19, 2009. As of March 17, 2010, the
                     Authority had not provided the report.

                     For the reporting requirements, the City stated that the Authority had not provided
                     any of the required quarterly reports. However, the Authority provided us with
                     two reports that it stated had been submitted to the City. A review of those
                     reports determined that the reports were either not provided within the required
                     timeframe, did not include required information, or did not include information
                     related to the project.

                     For the consultation meeting requirements, the City could not provide
                     documentation showing that it fully met the requirements. According to the City,
                     it met the requirements since its (1) Strategic Planning Department met with the
                     Authority weekly or biweekly, (2) Economic Development Department met with

9
  This project had four standards. Work for one standard was completed before the agreement execution. The remaining three performance
standards were met.
10
   The requirement for this project was due upon completion of the study. However, the study had not been completed at the time of our review
and, therefore, not yet due.
                                                                      9
                     the Authority “several times,” and (3) Planning Commission Department met with
                     the Authority as needed. However, the City and the Authority only provided a
                     few agendas from its meetings with the Strategic Planning Department, which did
                     not reflect the required discussion topics or timeframes. Further, the City could
                     not provide documentation reflecting its meetings with either the Economic
                     Development or Planning Commission Departments.

                     Four Projects Were Not Implemented in an Efficient Manner
                     The City did not ensure that the Authority implemented four projects in an
                     efficient manner in order for the Program activities related to those projects to
                     progress timely.11 Specifically, there was a delay in the progress of these projects
                     because the City added an additional layer to the implementation and completion
                     of the projects. Instead of requiring the Authority to acquire and redevelop the
                     projects directly, the City planned to have the Authority provide economic
                     development loans to developers, which would then acquire and develop the
                     projects.

                     Although eligible, the State’s infrastructure section, the City, or the Authority did
                     not have the experience to administer or implement these economic development-
                     driven projects under the Program. Due to the inexperience, as of April 7, 2010,
                     the State had not approved these four projects. As a result, the implementation of
                     these projects experienced delays for more than one year and, therefore, the
                     projects’ progression was inefficient. If the City had required the Authority to
                     acquire and redevelop the projects itself, it could have prevented the unnecessary
                     delays associated with these projects.


  City’s Obligation to Carry Out
  Program Activities Effectively
  Was Not Met


                     The City did not fulfill its obligation to carry out the Program activities
                     effectively because it did not appropriately develop its initial agreement with the
                     Authority. In the Authority’s agreement, the City did not establish specific
                     progressive deadline dates related to the completion of each phase of a project to
                     ensure that the Program effectively progressed as required. In addition, the City
                     did not always appropriately develop the performance standards requirements
                     because work for those standards commenced before the City executed its
                     agreement with the Authority in October 2008 and were not effective as required.


11
   This includes the Additional Land Acquisitions, Veterans Administration Hospital Land Acquisition and Redevelopment, Lake Forest Plaza
Land Acquisition and Redevelopment, and South Claiborne Land Acquisition and Redevelopment projects. The Additional Land Acquisitions
project has three sub-projects, including the (1) OC Haley corridor, (2) Saint Claude corridor and (3) Commercial Land Acquisitions. However,
the State had only granted approval for the OC Haley corridor project. Therefore, we considered the Additional Land Acquisition project not
approved.
                                                                     10
             The initial agreement’s performance standards did not include requirements such
             as specific deadline dates for (1) submitting the project application for State
             approval, (2) beginning project implementation after State approval, or (3)
             completing the project. The initial agreement only included general language,
             such as “no later than 60 days after the State approved the project application.”
             Therefore, the City could not effectively ensure that projects progressed in a
             timely manner.

             In addition, performance standards for the Methodist Hospital Planning Study,
             Lot Next Door Incentive Program Management, and Rehabilitation and
             Construction Mitigation Study projects were not always appropriate because, in
             some instances, work commenced before the City executed its agreement with the
             Authority. For example, one performance standard for the Methodist Hospital
             Planning Study project required the Authority to issue a request for proposal and
             select a contractor after the State approved the project application and no later
             than 60 days after the City issued the notice to proceed. Although the Authority
             completed that stage of the project three months before the City executed its
             agreement with the Authority, the City included it as a performance standard
             requirement in the agreement.

             According to the City, its staff that prepared the Authority’s agreement and its
             staff that administered the Authority’s agreement were disconnected when
             developing the Authority’s initial agreement. In addition, the City authorized the
             Authority to begin the projects without the initial agreement in place. Therefore,
             the Authority performed work on its projects concurrently with the development
             of the initial agreement. However, the City did not consider the completed work
             when placing the projects’ performance standards in the agreement, thus making
             the performance standards ineffective for the City’s adequate assessment of the
             Authority’s performance.


City Lacked Monitoring
Controls


             The City lacked monitoring controls to ensure that the Authority complied with its
             initial agreement and that the Authority’s projects progressed in a timely, efficient
             and effective manner. Specifically, the City

                Did not establish a monitoring division for the Program until October 2009,
                 one year after it executed its initial agreement with the Authority and more
                 than two years after the State executed its agreement with the City. As an
                 aside, the City’s initial agreement with the Authority expired during the same
                 month.



                                              11
                Had not formally adopted written monitoring policies and procedures for its
                 monitoring division as of April 13, 2010.

                Did not monitor the Authority during its initial agreement term between
                 October 2008 and October 2009. Although the City provided one
                 premonitoring report for the Authority, dated December 2009, this was two
                 months after its initial agreement with the Authority had expired.

             Since the City did not establish its monitoring division or adopt written
             monitoring policies and procedures in a timely manner, it lacked controls to
             monitor the Authority and ensure the timely, efficient, and effective progress of
             the Authority’s projects.

City and the Authority
Working Relationship Strained


             The City and the Authority appeared to have a strained working relationship. The
             City believed that the Authority resisted monitoring and appeared confrontational,
             while the Authority did not always agree with the City’s practices. Both the City
             and the Authority stated that a troubled past existed and that the relationship was
             strained. In addition, written communication between parties reflected a
             defensive and confrontational tone. Further, a HUD official agreed that the City
             and the Authority had a strained relationship and attempted to address the matter.
             We believe that the strained relationship may have affected the timely, efficient
             and effective progress of the City’s Program administration.


State Did Not Exercise
Adequate Oversight

             Although the State had taken some measures, it did not always exercise adequate
             oversight and hold the City accountable, once performance issues were apparent,
             to ensure the City met the obligations of its agreement during the City’s
             administration of the Authority’s projects. Specifically, the State did not

                    Conduct an onsite monitoring review of the City to correct deficiencies;
                    Set progressive deadline dates in its agreement with the City to adequately
                     track the Program’s progress; or
                    Exercise its agreement options when the City failed to meet its agreement
                     obligations in a timely and effective manner.

             The State had not finalized its monitoring plan as of January 2010. In addition, as
             of December 2009, it had not conducted an onsite monitoring review of the City’s
             performance under the agreement, although performance issues were apparent. A
             review of the State’s draft monitoring plan determined that the State planned to
                                              12
                      base the frequency of monitoring on the Program’s overall medium-risk
                      assessment level and not specific subrecipients’ risk levels. Therefore, the State
                      only planned to conduct an onsite visit of the City before Program closeout. As a
                      result, the State had not conducted an onsite monitoring review and formally
                      assessed the City’s performance under the agreement for more than two years.
                      Since there was no onsite review, there was no evidence that the State assessed or
                      held the City accountable for its deficiencies.

                      The State explained that it had contracted with a consultant to ensure that the City
                      complied with HUD rules and regulations. In addition, its consultant met frequently
                      with the City concerning the Program as part of the State’s ongoing communication
                      with the City to ensure compliance. Further, the State conducted risk assessments
                      for each project under the Program. However, an onsite monitoring review of the
                      City could have (1) corrected the City’s failure to meet its agreement obligations
                      with respect to the Authority’s projects and (2) allowed the State to exercise
                      appropriate actions to prevent continuance of the deficiency, mitigate any adverse
                      effects or consequences and prevent recurrence.

                      In addition, a review of the State’s agreement with the City determined that the
                      State had not set progressive deadline dates related to the City’s administration
                      and completion of the Program. During our review, the State explained that it
                      planned to set deadline dates. However, its delay in establishing deadlines
                      contributed to the City failing to meet its agreement obligations in a timely,
                      efficient and effective manner.

                      Since the City had performance issues, the State should have taken the
                      appropriate actions. In addition, the State must finalize its monitoring plan. In
                      finalizing its monitoring plan, the State should consider including a requirement
                      to perform individual risk assessments of subrecipients and conduct onsite
                      monitoring based on the subrecipients’ risk, rather than that of the Program as a
                      whole, to determine the frequency of monitoring. In doing so, the State can
                      ensure the timely and effective use of Program funds and the completion of
                      projects.

      City’s Program Expenditures
      Reflect Significant Recovery
      Delays

                      A review of the City’s Program expenditures concerning the Authority’s projects
                      determined that as of April 2010, the City had only expended $4.9 million (15
                      percent) of the $33 million12 allocated to the Authority’s projects, as shown
                      below.



12
  The $33 million was the total for the nine remaining projects that the City did not cancel under the Authority’s agreement. See appendix C for
the listing of the projects and the calculation totaling $33 million.
                                                                      13
                                        Authority funding totalling $33,033, 800                                  Expended
                                                                                                                  $4,908,800
                                                                                                                     15%



                                  Not expended
                                   $28,125,000
                                      85%


                        This further shows the City’s failure to fulfill Program obligations with respect to
                        the Authority’s projects. The analysis also provides evidence that the Program,
                        with respect to the Authority’s projects, was delayed and funds were not
                        expended timely.13 Since the City failed to fulfill its agreement obligations to
                        administer the Authority’s projects and funds in a timely, efficient and effective
                        manner, the City’s recovery from the damage caused by Hurricanes Katrina and
                        Rita was delayed. Thus, the State must hold the City accountable and exercise its
                        agreement option by terminating this portion of the agreement for the remaining
                        $28.1 million allocated to the Authority’s projects. The State can then reallocate
                        the funding to the State’s other disaster programs that can better use the funds,
                        thereby ensuring better use of disaster funds.

     State Taking Action


                        After an update meeting, the State provided documentation showing that as of
                        April 15, 2010, it had begun to address some of the issues outlined in this finding.
                        We acknowledge the State’s efforts in resolving these issues.

     Conclusion


                        Repairing and rebuilding the damage caused by the disaster as quickly as possible
                        is important so that current residents of the City can receive essential services.
                        However, the City did not meet the State’s agreement requirements when
                        administering the Authority’s projects, as it failed to meet its agreement
                        obligations. Specifically, the City failed to meet its obligation to carry out
                        Program activities

                                  Timely because the City did not execute agreements with the Authority in
                                   a timely manner or ensure the Authority completed its projects within
                                   specified timeframes.
                                  Efficiently because the City did not ensure the Authority met the
                                   requirements of its initial agreement or implemented projects efficiently so
                                   that those projects could progress timely.
13
     October 2008 to April 2010 = 1.5 years and October 2008 to October 2009 = 1 year which was the initial agreement’s term.
                                                                       14
                   Effectively because the City did not establish specific progressive deadline
                    dates and appropriately develop some initial agreement performance
                    standard requirements.

          In addition, the City did not establish its monitoring unit in a timely manner, had
          not formally adopted monitoring policies and procedures, and did not monitor the
          Authority under its initial agreement. Further, the City had only completed two of
          the Authority’s projects and only expended 15 percent of the funding allocated to
          the Authority’s projects, delaying the repair and rebuilding of the damage caused
          by Hurricanes Katrina and Rita.

          HUD expected the State to use its funds quickly in carrying out disaster-related
          activities in a timely manner. In addition, the State’s HUD-approved action plan
          required it to support the most efficient and effective use of HUD funds. The State’s
          agreement with the City expires in September 2010, and based upon the deficiencies
          noted in the finding, it is clear that the City will not be able to (1) complete the
          remaining projects or (2) expend the remaining funding associated with the
          Authority by that time. Although HUD allowed the State to use subrecipients to
          carry out its Program, the State should have exercised adequate oversight of the
          City’s activities and held the City accountable for its deficiencies. The State could
          have then exercised appropriate actions to (1) prevent the continuance of the City’s
          deficiencies, (2) mitigate the delay in the projects, and (3) prevent recurrence of the
          City’s failure to meet its agreement obligations.


Recommendations


          We recommend that the Director of HUD’s Disaster Recovery and Special Issues
          Division require the State to

          1A.       Exercise its agreement option by deobligating the remaining $28,125,000
                    in Program funds allocated for the Authority’s projects. The State can
                    then reallocate the funding to the State’s other disaster programs that can
                    better use the funds, thereby ensuring better use of disaster funds.

          1B.       Finalize its monitoring plan and consider including a requirement to
                    perform individual subrecipient risk assessments to determine the
                    frequency of monitoring.




                                             15
                         SCOPE AND METHODOLOGY

We conducted our audit at the City’s office and the HUD Office of Inspector General (OIG)
office in New Orleans, LA. We performed our audit work between January and April 2010.

To accomplish our objective, we employed a 100 percent sampling method to the universe of 12
projects applicable to the agreement between the City and the Authority. We chose this method
because we determined that the universe was small and review of the entire universe related to
the Authority’s projects was imperative to obtain the overall picture of its agreement progress
and Program compliance.

For each of the 12 projects, we

      Reviewed hard-copy documentation from the City supporting that the Authority met its
       performance standards for the projects and implemented the projects in a timely manner.
      Reviewed monitoring reports that the Authority submitted to the City during the audit
       period to determine whether all information required in the agreement was included in
       the reports.
      Reviewed documentation from the City supporting that the Authority obtained
       consultation from the City as required in the agreement, as applicable.

In addition to file reviews, we

      Reviewed the HUD-approved action plan, HUD and State grant agreements, the State and
       City agreement, City and Authority agreements, written policies and procedures of the
       State and City, the Code of Federal Regulations, public laws, and other applicable legal
       authorities relevant to the CDBG disaster recovery grant.
      Reviewed HUD monitoring reports and financial audit reports for the City and the
       Authority.
      Reviewed additional documentation provided by the State concerning its oversight of the
       Program.
      Interviewed HUD, State, City, and Authority staff.

Our audit period covered September 1, 2007, through December 31, 2009. We expanded our
audit period as deemed necessary. 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.




                                                16
                              INTERNAL CONTROLS

Internal control is a process adapted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

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

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls 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:

                  Effectiveness and Efficiency of operations - Policies and procedures that
                   management has implemented to ensure that subrecipients efficiently and
                   effectively comply with the requirements for the Program.

                  Compliance with applicable laws and regulations - Policies and procedures
                   that management has implemented to reasonably ensure that it administers
                   disaster CDBG funds in accordance with HUD laws and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

 Significant Deficiencies

               Based on our review, we believe that the following item is a significant deficiency:



                                                 17
   The State did not always exercise adequate oversight and hold the City
    accountable, once performance issues were apparent. Specifically, the
    State did not (1) conduct an onsite monitoring review of the City to correct
    deficiencies, (2) set progressive deadline dates in its agreement with the
    City to adequately track the Program’s progress, or (3) exercise its
    agreement options when the City failed to meet its obligations in a timely
    and effective manner. (See finding)




                             18
                                     APPENDIXES

Appendix A

                           SCHEDULE OF
                   FUNDS TO BE PUT TO BETTER USE

 Recommendation      Funds to be put
        number        to better use 1/
              1A         $28,125,000



1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an OIG recommendation is implemented. These amounts include
     reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
     implementing recommended improvements, avoidance of unnecessary expenditures
     noted in preaward reviews, and any other savings that are specifically identified. In this
     instance, the amount represents the amount of disaster funds that will be better used by
     deobligating funding to which the City of New Orleans failed to meet its agreement
     obligations and thus violated its agreement with the State. The State could reallocate the
     funding to other disaster programs that can make better use of it.




                                             19
Appendix B

       AUDITEE COMMENTS AND OIG’S EVALUATION


                    Auditee Comments




Comment 1




                           20
Comment 1




Comment 2




Comment 3




            21
Comment 2




Comment 4




Comment 5




            22
Comment 5




Comment 6




Comment 7




            23
Comment 8




            24
Comment 9




            25
                         OIG Evaluation of Auditee Comments

Comment 1   The State asserted that the OIG report was critical of the lack of timeliness of
            the completion of the Authority’s project and that OIG conclusions were based on
            the timeframes of the agreement between the State and the City and the agreement
            between the City and the Authority. However, because of a misinterpretation of
            the law, the State executed all agreements with grantees for 36 months, and the
            City’s agreement with the Authority was always intended to extend beyond the
            initial 1-year term. The State also asserted that there was never an expectation or
            intention that the programs would be completed within a 36-month period and it
            expects the timeline for the Program to be from 7 to 10 years. The State further
            asserted that all agreements are in the process of being revised to reflect actual
            expectations for completion and the agreement between the City and the State
            would be extended an additional 5 years.

            Although there was a misinterpretation of the law on the State’s part and despite
            the City’s intentions regarding its agreement with the Authority, the State’s
            agreement with the City required the City to carry out its Program in a timely
            manner. In addition, we believe that the State had an expectation for the City to
            be a lot further along in its Program by, at a minimum, having all project
            applications approved and some projects started or completed under the Program
            during the past 3 years. As discussed throughout the finding, the City did not
            fulfill this obligation or expectation when administering the Authority’s projects,
            and, therefore, we stand by our original conclusion.

Comment 2   The State agreed that the City in some instances did not carry out Program
            activities efficiently in that the City did not institute performance standards,
            reporting, or consultation requirements for projects under its initial agreement
            with the Authority. The State asserted that the City executed a new agreement
            with the Authority in April 2010 and that the City asserts that the new agreement
            sets progressive deadline dates for the Authority to perform, requires monthly
            reports, and eliminated the consultation requirements.

            We reviewed the new agreement between the City and the Authority and
            determined that the performance standard requirements were more detailed than
            in the initial agreement. However, the requirements did not include specifically
            stated deadline dates. In addition, some of the performance standard deadlines
            were based upon the execution of the new agreement, but the signed copy of the
            agreement did not reflect the execution date of the agreement and was, therefore,
            still unclear with respect to performance standard deadline dates. Therefore, we
            stand by our original conclusion.

Comment 3   The State, in reference to the OIG conclusion that adding developers as an
            additional layer has made the project’s process less efficient, asserted that this
            approach is part of the Program design and has the effect of leveraging private
            funds in the accomplishment of recovery objectives. The State also asserted that
                                             26
            while this approach may take some additional time to set up initially, it would
            ultimately result in a more robust and better funded recovery process. The State
            further asserted that the delays were not a result of inexperience but, rather, of the
            State’s approach to achieving compliance by being involved in the program
            development from the beginning.

            The State is required to support the most efficient and effective use of its disaster
            funds. Although the State believes that this additional layer will ultimately result
            in a more robust and better funded recovery process, we believe that time is of the
            essence to ensure that the current residents of the City can receive essential
            services as quickly as possible. Since the Authority has the power to acquire and
            redevelop properties for the projects themselves, it should have acquired and
            redeveloped the properties for the four projects themselves, instead of adding this
            additional layer to process and delaying the recovery of the City.

            As discussed in the finding, as of April 7, 2010, the State had not approved the
            four projects. In addition, neither the State’s infrastructure section, the City, nor
            the Authority has the experience to administer or implement these economic
            development-driven projects. Because of these factors, the implementation of
            these projects has experienced delays for more than 1 year. Therefore, we stand
            by our original conclusion.

Comment 4   Both the State and the City agreed that (1) the City’s monitoring controls should
            have been stronger and more effective and (2) the City and the Authority
            appeared to have a strained working relationship. The State asserted that the City
            stated that as the City reorganizes under the new administration, the City plans to
            put into place a two-pronged system to oversee its subrecipients and contractors.
            In addition, with respect to the relationship between the City and the Authority,
            the State and the City are optimistic that under new administration, a more
            cohesive relationship would result.

            We acknowledge the State’s and City’s proposed actions regarding the City’s
            monitoring controls and working relationships.

Comment 5   The State agreed that as of December 2009, it had not conducted an onsite
            monitoring review of the City’s performance under the agreement. However, the
            State asserted that it has continually exercised its oversight responsibilities and
            has performed ongoing monitoring of the City’s activities since inception of the
            Program. The State asserted that it has (1) been involved in a number of meetings
            with both City and Authority officials to assist in resolving programmatic,
            compliance, and performance issues, (2) provided oversight as early as the
            preapplication phase for all projects to ensure CDBG compliance, and (3)
            contracted with a consultant to ensure CDBG compliance during project
            development and implementation. The State also asserted that it has now
            finalized its monitoring plans for the Program and is currently performing desktop

                                              27
            monitoring of files to ensure compliance and the timely, efficient, and effective
            delivery of programs.

            We acknowledge the State’s actions as related to its monitoring plan. In addition,
            as discussed in the finding, we agree that the State had taken some measures with
            respect to its oversight and acknowledged that the State hired a consultant to
            assist in its efforts. However, once performance issues were apparent, the State
            did not hold the City accountable by (1) conducting an onsite monitoring review
            to correct deficiencies, (2) setting progressive deadline dates in its agreement to
            adequately track the Program’s progress, or (3) exercising its agreement options
            when the City failed to meet its agreement obligations in a timely and effective
            manner. Therefore, we stand by our original conclusion.

Comment 6   The State stated that with regard to the State’s not setting progressive deadline
            dates, in April 2010, the Louisiana Recovery Authority’s executive director sent a
            letter to the City setting an October 31, 2010, deadline for the submittal of
            applications for the Program funding and set December 31, 2011, as the date by
            which all construction projects must be started. The State also stated that it would
            actively track and assess both the City’s and Authority’s progress in meeting the
            deadline dates. Further, the State asserted that if the City or the Authority does
            not substantially meet the deadline dates, the State will exercise appropriate
            actions to prevent the continuance of the deficiency up to and including
            deobligating and reallocating funding.

            We acknowledge the State’s proposed actions and efforts in resolving issues.

Comment 7   The State asserted that there is no regulatory requirement of timely distribution
            and it is in HUD’s, the State’s, and the City’s best interest to expend the funds in
            a timely manner. However, both Congress and HUD recognized that recovery
            from the disaster was going to be a long-term process that occurs in many phases.
            The State also asserted that it was premature to conclude that the “expenditures
            reflect significant recovery delays” or that a particular project or program is not
            being implemented in a timely manner without the context of specific project
            timelines and performance measures. The State further asserted that all parties
            acknowledge that these timelines and performance measures were not initially in
            place and should have been, and the State has taken and continues to take steps to
            correct this deficiency.

            The State’s agreement with the City required the City to implement its projects
            under the Program in a timely and effective manner. However, within the 1-year
            timeframe of the City’s agreement with the Authority, the City had ensured that
            (1) only 15 percent of the funding allocated to the Authority’s projects was
            expended and (2) only two of nine projects were completed. In addition, since the
            State executed its agreement with the City in September 2007, the City had only
            expended 5 percent, including the Authority’s expenditures, of the $410.7 million
            allocated to the overall Program.
                                             28
            Further, as of April 2010, the State had not approved project applications for four
            of the remaining seven Authority projects, and in the State’s April 2010 letter to
            the City, the State indicated that as of April 9, 2010, the City had not submitted
            applications for the full amount of its allocation. Therefore, the City could not
            start its projects, which further displays that the Program has experienced
            significant recovery delays and has not progressed effectively and in a timely
            manner. Therefore, we stand by our original conclusion.

Comment 8   In response to recommendation 1A, the State disagreed with deobligating the
            funding and explained that there has been forward progress made in the remaining
            seven Authority projects, all of which are in different stages of progress, which
            will be lost if funds are deobligated and reallocated. The State asserted that the
            deobligation and reallocation of the remaining $28,125,000 for the Authority’s
            projects at this time would be detrimental to the timely completion of these
            projects. The State provided alternatives to immediately deobligating and
            reallocating the $28,125,000 in Program funds allocated for the Authority’s
            projects.

            We acknowledge the State’s proposed actions and responsiveness to our
            recommendation. Although the State disagreed and asserted that the deobligation
            and reallocation of the remaining funding would be detrimental to the timely
            completion of these projects, the State informed the City that it would reallocate
            the City’s funding if the City did not submit all applications for the funding by
            October 31, 2010, in its April 2010 letter to the City. The State has also proposed,
            as an alternative, to deobligate and reallocate the funding if the City was unable to
            demonstrate by September 30, 2010, its ability to ensure the effective and timely
            completion of the projects.

            Because of (1) the number of issues identified in the finding, (2) the City’s past
            poor performance, and (3) the State’s failure to hold the City accountable once
            performance issues were apparent, we believe that the State must deobligate and
            reallocate this funding to ensure that these funds are used to address the remaining
            recovery needs without uncertainty or delay. Therefore, we stand by our original
            recommendation.

Comment 9   In response to recommendation 1B, the State agreed and indicated that it has
            finalized its monitoring plan and will consider performing individual subrecipient
            assessments to determine the frequency of monitoring.

            We acknowledge the State’s efforts and proposed actions as related to its
            monitoring plan. HUD will need to ensure that the stated actions are completed
            correctly.




                                             29
Appendix C

         THE AUTHORITY’s AMENDED PROJECT UNIVERSE

Project                           Project/study                           Original       Revised
number                                                                    funding        funding
   1                               Clean and Lien                        $5,000,000        $0
   2          Veterans Administration Hospital Land Acquisition and      3,500,000      3,500,000
                                   Redevelopment
     3      Pontilly (or Gentilly Woods) Acquisition and Redevelopment    4,300,000     6,300,000
     4        Lake Forest Plaza Land Acquisition and Redevelopment         4,500,000     8,875,000
     5         South Claiborne Land Acquisition and Redevelopment          4,500,000     2,500,000
     6            Additional Land Acquisition and Redevelopment           10,000,000    10,000,000
     7             Lot Next Door Incentive Program Management               250,000       250,000
     8        Blight and Historic Property Rehabilitation Loan Fund       2,000,000          0
     9            Rehabilitation and Construction Mitigation Study          500,000       500,000
    10                       Commercial Appraisal Fund                      500,000       500,000
    11                    Methodist Hospital Planning Study                 500,000       608,800
    12                      Property Inventory Database                     375,000          0
                                  Totals                                 $35,925,000   $33,033,800


   The City cancelled the Clean and Lien project by
     Removing $110,000 and reallocating it to the Methodist Hospital Planning Study,
     Removing $2,000,000 and reallocating it to Pontilly (or Gentilly Woods) Acquisition and
       Redevelopment project, and
     Removing the remaining $2,890,000 and reprogramming it to other disaster CDBG
       projects under the Program that were not a part of the Authority agreement.

   The City cancelled the Blight and Historic Property Rehabilitation Loan Fund by
     Removing the $2,000,000 and reallocating it to the Lake Forest Plaza Land Acquisition
       and Redevelopment project.

   The City cancelled the Property Inventory Database project by
     Removing the $375,000 and reallocating it to the Lake Forest Plaza Land Acquisition and
       Redevelopment project.

   The City also
     Removed $1,200 from the Methodist Hospital Planning Study and reprogrammed it to
       other disaster CDBG projects under the Program that were not a part of the Authority
       agreement.
     Removed $2,000,000 and reallocated it to the Lake Forest Plaza Land Acquisition and
       Redevelopment project.



                                                  30
Appendix D

                                           CRITERIA

Federal Registers (FR)

Docket No. FR–5051–N–01 published February 13, 2006
 Use of Sub-recipients

    The State CDBG program rule does not make specific provision for the treatment of the
    entities called ‘‘subrecipients’’ in the CDBG entitlement program. The waiver allowing the
    state to carry out activities directly creates a situation in which the state may use
    subrecipients to carry out activities in a manner similar to entitlement communities.
    Therefore, HUD is requiring that a state taking advantage of the waiver allowing it to carry
    out activities directly must follow the alternative requirements drawn from the CDBG
    entitlement rule and specified in this Notice when using subrecipients.

   Applicable Rules, Statutes, Waivers and Alternative Requirements

    Each State must submit an Action Plan for Disaster Recovery that describes (a) the effects of
    the covered disaster; (b) the grantee’s overall plan for disaster recovery; (c) monitoring
    standards and procedures that are sufficient to ensure program requirements; (d) description
    of the steps the State will take to avoid or mitigate occurrences of fraud, abuse and
    mismanagement; (e) the state’s method of distribution; (f) required certifications; (g)
    completed and executed Federal form SF-424.

    24 CFR 570.492 is waived and an alternative is provided. The alternative states: The State
    shall make reviews and audits including onsite reviews of any subrecipients, designated
    public agencies, and units of general local government as may be necessary or appropriate to
    meet the requirements of section 104(e)(2) of the Housing and Community Development Act
    of 1974, as amended, as modified by this Notice. In the case of noncompliance with these
    requirements, the State shall take such actions as may be appropriate to prevent a
    continuance of the deficiency, mitigate any adverse effects or consequences and prevent a
    recurrence. The State shall establish remedies for noncompliance by any designated public
    agencies or units of general local governments and for its subrecipients.

Docket No. FR–5051–N–04 published June 14, 2006
 Timely Distribution of Funds
    The state CDBG program regulation regarding timely distribution of funds is at 24 CFR
    570.494. This provision is designed to work in the context of an annual program in which
    almost all grant funds are distributed to units of general local government. Because the state
    may use disaster recovery grant funds to carry out activities directly, and because Congress
    expressly allowed this grant to be available until expended, HUD is waiving this
    requirement. However, HUD expects the State of Louisiana to expeditiously obligate and
                                                31
    expend all funds, including any recaptured funds or program income, in carrying out
    activities in a timely manner.

Action Plan

Amendment 1
 Grant Administration
    The LRA has a mandate from the Governor and Louisiana Legislature to assure the
    coordinated use of resources toward the recovery and to support the most efficient and
    effective use of such resources.

Cooperative Endeavor Agreement between the State and the City of New Orleans – Effective
September 17, 2007

Scope of Services
 CDBG Compliance
    Grantee’s rights and obligations under this Agreement are as a grant recipient as set forth in
    24 CFR 570.501. Grantee is responsible for implementing the Program in a manner
    satisfactory to the State and HUD and consistent with any applicable standards that may be
    required as a condition of the State’s providing the funds. Grantee shall comply with all
    applicable CDBG Program Administration and Compliance requirements as set forth by this
    Agreement and any Statement of Assurances executed by Grantee.

   Statement of Work
    Grantee’s obligations with respect to the CDBG funds provided to it by the State are as
    follows:

           1. Grantee shall be responsible for implementing the recovery activities in
              compliance with all state and federal laws and regulations. It shall be Grantee’s
              responsibility to require that all of its contractors, and all tiers of their
              subcontractors, adhere to all applicable state and federal laws and regulations, and
              to conduct all necessary monitoring for such compliance. As to laws and
              regulations, which apply to the use of CDBG funds, Grantee shall execute a
              Statement of Assurances reflecting compliance with those listed1aws and
              regulations, which shall be deemed to be material conditions of this Agreement.
              As to any other laws and regulations, which may apply to construction projects,
              Grantee is responsible for determining the applicable laws and regulations and
              ensuring compliance therewith.

           2. Grantee hereby binds itself, certifies, and gives its assurances that it will comply
              with all federal, state, and local regulations, policies, guidelines and requirements,
              as they relate to the application, acceptance and use of state and federal funds.
              The Parties expressly acknowledge that the matters, which are the subject of this
              contract, are under the CDBG Disaster Recovery Program administered by HUD,
                                                32
       which by its emergency nature is subject to ongoing modification and
       clarifications. The State’s obligations under this Agreement are subject to
       compliance with applicable statutes and regulations of the CDBG program, as
       modified by exceptions and waivers previously granted and which may
       hereinafter be granted by HUD. Grantee agrees that in connection with its rights
       and obligations under the Agreement, it shall cooperate with HUD and OCD
       relating to the administration and audit of the Program, including compliance with
       various operating and reporting procedures, which may hereinafter be
       promulgated by the State and/or HUD.

Term of Agreement; Termination and Suspension of Agreement
The term of this Agreement, subject to all requisite consents and approvals as provided
herein, shall begin on the Effective Date and continue in full force and effect until
Grantee has completed all requirements of this Agreement in accordance with, and
subject to, the terms and provision hereof. Notwithstanding, Grantee and the State
hereby agree that the term of this Agreement shall not continue for a period greater than
thirty six (36) months from the Effective Date. It is expressly understood between the
parties that construction projects commenced and/or completed prior to the execution of
this Agreement are eligible for grant funding under the terms of this Agreement.
   Termination/Suspension for Cause:
    The State may, after giving reasonable written notice specifying the effective date,
    terminate this Agreement in whole or in part for cause, which shall include but not be
    limited to:
1. failure, for any reason, of Grantee to fulfill in a timely and proper manner the
   obligations under this Agreement, and such statutes, Executive Orders, and federal
   directives as may become generally applicable at any time;
2. submission by Grantee of reports to the State, HUD, or either of their auditors. that
   are incorrect or incomplete in any material respect, provided Grantee is given notice
   of said failure and fails to correct the same within a reasonable amount of time; or
3. ineffective or improper use of funds as provided for under this Agreement. It through
   any cause, Grantee shall otherwise fail to fulfill in a timely and proper manner, its
   obligations under this Agreement, or if Grantee shall violate any of the covenants,
   agreements, or stipulations of this Agreement, the State shall thereupon have the right
   to terminate this Agreement by giving written notice to Grantee of such termination
   and specifying the effective date thereof, at least thirty (30) days prior to the effective
   date of said termination.




                                         33