oversight

The State of Alabama, Montgomery, AL, Generally Ensured That the City of Bayou La Batre Properly Administered Its Hurricane Katrina Comunity development Block Grant Disaster Funds Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-09-30.

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

                                                                  Issue Date
                                                                          September 30, 2010
                                                                  
                                                                  Audit Report Number
                                                                          2010-AO-1006




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


FROM:       Tracey Carney, Acting Regional Inspector General for Audit, New Orleans Region,
               11AGA

SUBJECT: The State of Alabama, Montgomery, AL, Generally Ensured That the City of
            Bayou La Batre Properly Administered Its Hurricane Katrina Community
            Development Block Grant Disaster Funds Program


                                    HIGHLIGHTS

 What We Audited and Why

             We audited the State of Alabama, Department of Economic and Community
             Affairs’ (State), Hurricane Katrina Community Development Block Grant
             Disaster Funds program (program), administered by the State’s subrecipient, the
             City of Bayou La Batre (Bayou La Batre). Our objective was to determine
             whether the State and Bayou La Batre administered the program in accordance
             with the requirements of their grant agreements. 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

             In general, the State and Bayou La Batre properly administered the program by
             adequately documenting the housing applicants’ use of financial assistance
             provided by other sources, ensuring that housing applicants did not receive a
             duplicate benefit. The State also ensured that Bayou La Batre adequately
             supported and expended program funds only for eligible costs.
What We Recommend

           Since the State ensured that Bayou La Batre properly administered its program in
           accordance with the requirements of its grant agreements, we did not recommend
           corrective action.

Auditee’s Response

           We asked the State to provide comments on our discussion draft audit report by
           September 28, 2010. The State notified us on September 27, 2010, that it would
           not be providing written comments. On September 29, 2010, the State requested
           not to have an exit conference.




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                        TABLE OF CONTENTS


Background and Objective                    4
Results of Audit                            5
Scope and Methodology                       6
Internal Controls                           7




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                       BACKGROUND AND OBJECTIVE

Between December 2005 and November 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 $95.6 million to the State of Alabama for its recovery efforts. The
State of Alabama, in conjunction with the Alabama Department of Economic and Community
Affairs (State), develops action plans outlining the programs and methods used to administer the
$95.6 million in supplemental CDBG funds. In Alabama, the State is HUD’s principle grantee
and the entity primarily responsible for the $95.6 million in allocated disaster funds. Therefore,
the State is responsible for administering and monitoring the CDBG disaster-related programs
generated from the HUD allocations.

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 two grant agreements (agreements) with the City
of Bayou La Batre (Bayou La Batre) local government, effective June 27, 2006, and August 15,
2007, and allocated $37.6 million for Bayou La Batre to administer the Hurricane Katrina
Community Development Block Grant Disaster Funds program (program). Under the agreements,
Bayou La Batre serves as the State’s subrecipient and was to comply and accept responsibility for
compliance by any public or private nonprofit entity, local development corporation, or small
business investment corporation carrying out grant activity on behalf of Bayou La Batre with the
terms and conditions of the agreement, applicable laws, regulations, and all requirements of the
State or HUD pertaining to the assistance provided.

Bayou La Batre contracted with Galbraith & Associates, LLC, to serve as the program
administrator to assist in its efforts to administer its disaster recovery fund projects. Of the $37.6
million awarded, Bayou La Batre budgeted $2.4 million for infrastructure, $2.1 million for water
improvements, $23.3 million for sewer improvements, $7.3 for housing improvements, $1.7
million for clearance and demolition, $416,509 for debris removal, and $382,117 for acquisition.
As of April 30, 2010, Bayou La Batre had spent approximately $21.6 million (65 percent) of its
program funds.

Our objective was to determine whether the State and Bayou La Batre administered the program
in accordance with the requirements of their agreements to include determining whether (1) the
State’s and Bayou La Batre’s procedures and controls prevented duplication of benefits and (2)
Bayou La Batre ensured that its payment requests were adequately supported and expended only
for eligible costs.




                                                  4
                                 RESULTS OF AUDIT


In general, the State and Bayou La Batre properly administered the program by adequately
documenting the housing applicants’ use of financial assistance provided by other sources,
ensuring that housing applicants did not receive a duplicate benefit. The State also ensured that
Bayou La Batre adequately supported and expended program funds only for eligible costs.
Therefore, the report contains no findings, and no further action is necessary.




                                                 5
                        SCOPE AND METHODOLOGY

We conducted our audit from June through September 2010 at our office in Jackson, MS; the
State’s office in Montgomery, AL; Bayou La Batre’s office in Bayou La Batre, AL; and
Galbraith & Associates’ office in Mobile, AL. Our audit period was April 1, 2006, through April
30, 2010. To accomplish our objective, we

      Obtained and reviewed HUD’s agreements with the State and the State’s agreements with
       Bayou La Batre; the State’s HUD-accepted Hurricane Katrina action plan and modification;
       and Bayou La Batre’s disaster recovery fund applications, letters of conditional
       commitments, budgets, and implementation schedules;
      Obtained and reviewed applicable laws, regulations, and other HUD program
       requirements and guidance relating to the program;
      Obtained and reviewed the State’s and Bayou La Batre’s written policies and procedures;
      Obtained and reviewed HUD’s monitoring report and risk assessment;
      Interviewed HUD, State, and Bayou La Batre officials and staff;
      Obtained and reviewed hardcopy and electronic Federal Emergency Management
       Agency proceeds and Small Business Administration loan information and hardcopy
       insurance proceeds; and
      Obtained, reviewed, and analyzed the State’s disbursement universe of $21.6 million
       disbursed to Bayou La Batre as of April 30, 2010.

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 a process adopted 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:

                  Controls to ensure that the State’s subrecipient follows applicable laws and
                   regulations with respect to maintenance of records and duplication of benefits
                   to reasonably ensure that housing applicants do not receive a duplicate benefit
                   under the program.
                  Controls to ensure that the State’s subrecipient follows applicable laws and
                   regulations with respect to maintenance of records to reasonably ensure that
                   disbursements are adequately supported and expended only for eligible costs.

               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.

 No Significant Deficiencies

               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance on the effectiveness of the internal
               control structure as a whole. Accordingly, we do not express an opinion on the
               effectiveness of the State’s and Bayou La Batre’s internal controls.




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