oversight

The State of Alabama, Montgomery, AL, Generally Ensured Mobile Administered Its Hurricane Katrina Community Development Block Grant Disaster Funds Program in Accordance With HUD Requirements

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-1007




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 Mobile Administered
            Its Hurricane Katrina Community Development Block Grant Disaster Funds
            Program in Accordance With HUD Requirements


                                    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,
             Mobile County Commission (Mobile). Our objective was to determine whether
             the State and Mobile administered the program in accordance with the
             requirements of the State’s grant agreements (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, Mobile, as the State’s subrecipient, met the requirements of its
             agreements when it usually ensured that program disbursements (1) were
             adequately supported and expended for only eligible expenses and (2) were not
             used for the same purpose as financial assistance provided by other sources.
What We Recommend

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

Auditee’s Response

          We provided our review results and supporting schedules to the Director of
          HUD’s Disaster Recovery and Special Issues Division and the State’s director
          during the audit. We also provided our discussion draft audit report to the State’s
          director and HUD’s staff on September 16, 2010. On September 21, 2010, the
          State requested not to have an exit conference.

          We asked the State to provide comments on our discussion draft audit report by
          September 25, 2010. The State notified us on September 27, 2010, that it would
          not be providing written comments.




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                            TABLE OF CONTENTS


Background and Objective                                                           4
Results of Audit
      Mobile, as the State’s Subrecipient, Generally Administered Its Program in   6
      Accordance With HUD Requirements

Scope and Methodology                                                              8
Internal Controls                                                                  9




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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 principal 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 three grant agreements (agreements) with the
Mobile County Commission (Mobile) local government, effective June 27, 2006, April 20, 2007
and August 15, 2007, and allocated $23.7 million for Mobile to administer the Hurricane Katrina
CDBG Disaster Funds program (program). Under the agreement, Mobile 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 Mobile with the terms and conditions of the agreement, applicable
laws, regulations, and all requirements of the State or HUD pertaining to the assistance provided.

Mobile contracted with Roth, McHugh & Associates, LLC, to serve as the program administrator
to assist in its efforts to administer its disaster recovery fund projects. Of the $23.7 million
awarded, Mobile budgeted $19.6 million to housing assistance, $3.2 million to the Grand Bay
School renovation project, $870,677 to the Coastal Response Center, and $55,380 to debris
removal.

One of Mobile’s major projects was the Housing Assistance Program (HAP), which was created
for the purpose of providing financial assistance to qualified homeowners who occupied
residential units in Mobile County on August 29, 2005. The goal of HAP was to provide
adequate housing for the affected households through a variety of housing assistance elements,
which included but were not limited to housing rehabilitation, house elevation, onsite sewage
treatment and disposal, new modular home construction/placement, and new replacement
manufactured home construction/placement.

To participate in HAP, an eligible applicant was required to provide documentation to Mobile’s
program administrator to support that the home was the applicant’s primary residence on August
29, 2005, and that the home was damaged by Hurricane Katrina. Mobile’s program
administrator precertified rehabilitation contractors to participate in HAP. The housing applicant
was required to enter into a contract with a precertified contractor for the purpose of
rehabilitating the applicant’s home in accordance with the relevant activity determination of
costs as determined by Mobile’s housing rehabilitation specialist.


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As of April 30, 2010, Mobile had spent approximately $21 million (91 percent) of its program
funds. Our objective was to determine whether the State and Mobile administered the program
in accordance with the requirements of its agreements, to include determining whether (1)
Mobile ensured that its payment requests were adequately supported and expended for only
eligible expenses and (2) the State’s and Mobile’s procedures and controls prevented duplication
of benefits.




                                               5
                                 RESULTS OF AUDIT


Mobile, as the State’s Subrecipient, Generally Administered Its Program
           in Accordance with HUD Requirements

Mobile generally ensured that its program was administered in accordance with HUD
requirements. Specifically, it maintained records to support (1) the eligibility of reimbursed
costs, and (2) program participants did not receive a duplication of benefits under the program.



 Program Expenditures Were
 Eligible and Supported with
 Adequate Documentation

               As HUD’s grantee, the State is responsible for administering and monitoring its
               disaster-related programs. To aid in its efforts, the State executed agreements
               with Mobile. According to the agreements, the State required Mobile to comply
               with all applicable Federal and State laws, executive orders, and regulations in
               administering funds provided under the agreements. As part of that compliance,
               Mobile was required to

                     Administer the program in conformance with Office of Management and
                      Budget (OMB) Circular A-87 and
                     Maintain records that adequately identify the source and application of
                      funds for grant-supported activities as required in the State’s financial
                      management policies and procedures.

               Although the State had executed agreements with Mobile, HUD expected the State
               to ensure the overall compliance of the program.

               As of April 30, 2010, Mobile had submitted to the State 65 payment requests
               under its program totaling nearly $21 million. During our review, we determined
               14 of the requests included costs that were unsupported because the files were
               missing documentation to support eligibility. The State obtained new or original
               documentation for all 14 payment requests after we notified it of the missing or
               incomplete documents during the audit.




                                                6
Housing Applicants Did Not
Receive a Duplicate Benefit
under the Program

             According to the Robert T. Stafford Disaster Assistance and Emergency Relief Act,
             Title 42, Chapter 68, Section 5155, the State is responsible for ensuring that any
             program providing financial assistance to persons, business concerns, or other
             entities suffering losses as a result of a major disaster or emergency shall ensure that
             no such person, business concern, or other entity will receive such assistance with
             respect to any part of such loss for which he has received financial assistance under
             any other program or from insurance or any other source.

             On February 23, 2007, HUD provided guidance to the State that operating
             procedures should be implemented for the program to describe how to deal with
             duplication of benefits. This guidance was provided to Mobile by the State on
             February 26, 2007. In this guidance, HUD informed the State that Federal
             Emergency Management Agency (FEMA) proceeds and Small Business
             Administration (SBA) loans must count against duplication of benefits unless
             there was acceptable evidence such as receipts, physical examinations, or
             affidavits indicating that the funds were used for housing costs that were not the
             same as those for which the grants were awarded under the program. For
             example, acceptable evidence would determine whether a homeowner used the
             FEMA proceeds and/or SBA loan to

                    Purchase a generator,
                    Pay for temporary housing while the damaged home was uninhabitable,
                    Tear out moldy sheetrock, and
                    Secure the property while it waited for rehabilitation.

             Of the 284 payments disbursed to contractors for housing repairs and new
             construction on behalf of housing applicants, Mobile did not have adequate
             documentation to support that four housing applicants did not receive duplicate
             benefits. The State obtained new or original documentation for all four housing
             applicants after we notified it of the missing or incomplete documents during the
             audit.


Conclusion


             The State generally administered its program in accordance with HUD
             requirements.




                                                7
                        SCOPE AND METHODOLOGY

To accomplish our objective, we

      Obtained and reviewed HUD’s agreements with the State and the State’s agreements with
       Mobile; the State’s HUD-accepted Hurricane Katrina action plan and modification; and
       Mobile’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 Mobile’s written policies and procedures;
      Obtained and reviewed HUD’s monitoring report and risk assessment;
      Interviewed HUD, State, and Mobile officials and staff.
      Obtained, reviewed, and analyzed the State’s disbursement universe of $20.9 million as of
       April 30, 2010, for Mobile.


We conducted our audit from January through August 2010 at our office in Jackson, MS; the
State’s office in Montgomery, AL; Mobile’s office in Mobile, AL; and Roth, McHugh &
Associates’ office in Montgomery, AL. Our audit period was from April 1, 2006, through 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.




                                               8
                               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 its subrecipient follow applicable laws and regulations with
                 respect to maintenance of records to reasonably ensure that disbursements were
                 adequately supported and expended for only eligible expenses.
                Controls to ensure its subrecipient follow applicable laws and regulations with
                 respect to maintenance of records and duplication of benefits to reasonably
                 ensure that housing applicants would not receive a duplicate benefit under the
                 program.

             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 Mobile’s internal control.




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