oversight

Generally, HUD's Hurricane Disaster Recovery Program Assisted the Gulf Coast States' Recovery; However, Some Program Improvements Are Needed

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-03-28.

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

OFFICE OF AUDIT
REGION 6
FORT WORTH, TX




           HUD’s Office of Block Grant Assistance
                     Washington, DC

       State Community Development Block Grant
          Hurricane Disaster Recovery Program




2013-FW-0001                                 MARCH 28, 2013
                                                        Issue Date: March 28, 2013

                                                        Audit Report Number: 2013-FW-0001




TO:            Stanley Gimont, Director, Office of Block Grant Assistance, DGBPI

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

SUBJECT:       Generally, HUD’s Hurricane Disaster Recovery Program Assisted the Gulf Coast
               States’ Recovery; However, Some Program Improvements Are Needed


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of HUD’s Office of Community Planning
and Development’s State Community Development Block Grant (CDBG) Disaster Recovery
program for hurricanes occurring from August 2005 through September 2008.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
(817) 978-9309.
                                            March 28, 2013
                                            Generally, HUD’s Hurricane Disaster Recovery Program
                                            Assisted the Gulf Coast States’ Recovery; However, Some
                                            Program Improvements Are Needed

Highlights
Audit Report 2013-FW-0001


 What We Audited and Why                     What We Found

We audited the U.S. Department of           The Gulf Coast States had made progress in recovering
Housing and Urban Development’s             from the presidentially declared disasters as a result of
(HUD) State Community Development           several hurricanes. As of August 2012, the States had
Block Grant (CDBG) Hurricane                spent more than 87.5 percent of the available Katrina,
Disaster Recovery program for               Rita, and Wilma funds and 27.2 percent of the
hurricanes that hit the Gulf Coast States   available Gustav, Ike, and Dolly funds. Thus, States
from August 2005 through September          had received almost $24 billion and disbursed almost
2008. Our audit objective was to assess     $18.4 billion, resulting in about $5.6 billion remaining
the program overall. Specifically, we       to be spent. However, the States had budgeted only
wanted to (1) determine what had been       $22.6 billion of the $24 billion in Disaster Recovery
accomplished using the funding and the      funds. Some of the delay in budgeting funds could be
funds remaining to be spent; (2)            attributed to the States revising their programs, State
compare actual versus projected             delays encountered due to lawsuits, or HUD’s rejection
performance; and (3) identify best          of a State’s Action Plan. The States primarily used the
practices, issues, and lessons to be        funding to assist communities in repairing and
learned.                                    rebuilding housing, compensating homeowners,
                                            repairing infrastructure damage, and providing
                                            economic development. The States could improve on
 What We Recommend
                                            reporting their activities, as some of their activities had
                                            no or nominal progress reported because they did not
We recommend that the Director of the       generally report their progress until the projects were
Office and Block Grant Assistance (1)       complete. In addition, while the States generally met
require the States to report their actual   the various statutory mandates, Texas and Louisiana
achievements; (2) work with the States      had not met two mandates.
to ensure that they promptly budget all
remaining funds in a timely manner; (3)     Although the States had made progress, based on our
continue to monitor the States of           prior audits and a review of the program’s data, there
Louisiana and Texas to ensure they          have been some lessons to be learned regarding
meet statutory requirements; and (4)        deadlines, program guidance, information system
work with its stakeholders to make          technology acquisitions, procurements, and
improvements for current and future         homeowners’ insurance. If HUD makes needed
grantees in areas such as deadlines,        changes, it should improve the effectiveness and
program guidance, information system        efficiency of the program.
technology acquisitions, procurement,
and homeowners’ insurance.
                            TABLE OF CONTENTS

Background and Objective                                                                3

Results of Audit
      Finding 1:    Generally, HUD’s Hurricane Disaster Recovery Program Assisted
                    the Gulf Coast States’ Recovery; However, Some Program
                    Improvements Are Needed                                            5
      Finding 2:    HUD Could Improve the Hurricane Disaster Recovery Program
                    by Working With Its Stakeholders                                   15

Scope and Methodology                                                                  22

Internal Controls                                                                      24

Follow-up on Prior Audits                                                              25

Appendixes
A.    Auditee Comments and OIG’s Evaluation                                            27
B.    DRGR Activity Categories and Performance Measures Reported by the States         33
C.    Individual State Funding and Achievements by DRGR Activity Category and
      Performance Measures                                                             34
D.    States’ DRGR Reported Activity Categories and Types                              37
E.    State Compliance With Low- and Moderate-Income Person Requirement                38
F.    Hurricanes Katrina, Rita, and Wilma Grants Allocation and Expenditure
      Progression Graphs by State as of December 2011                                  39
G.    Hurricanes Gustav, Ike, and Dolly Grant Allocation and Expenditure Progression
      Graphs by State as of December 2011                                              42
H.    List of HUD OIG Hurricane Disaster Recovery Audit Reports                        44




                                            2
                         BACKGROUND AND OBJECTIVE

Between August 2005 and September 2008, Hurricanes Katrina, Rita, Wilma, Ike, Gustav, and
Dolly 1 severely impacted the Gulf Coast States. Federal and State agencies’ assessments of the
damage to housing, businesses, infrastructure, and natural resources ranged in the billions of dollars.
In response to the disasters, Congress authorized a total of almost $24 billion in supplemental grant
funds through the U.S. Department of Housing and Urban Development’s (HUD) State Community
Development Block Grant (CDBG) program, as shown in figure 1.

Figure 1: Total funding for hurricanes that occurred between August 2005 and September 2008

                      Hurricane disaster funding allocations
    7,000                                      (in $ millions)
                                       6,210

    6,000

                                                        5,058
    5,000
                                            4,200
                                                                                          Katrina, Rita &
    4,000                                                                                 Wilma

                                                3,000                             3,113   Katrina, Rita &
    3,000                                                                                 Wilma – 2nd
                                                                                          allocation
                                                                                          Katrina, Rita &
                                                                                          Wilma – Road Home
    2,000
                                                                                          Gustav, Ike & Dolly
                                                  1,093
    1,000
                                                            423             429
             74 21       83 100 108                               12   75
       0
            Alabama        Florida     Louisiana Mississippi           Texas




HUD’s Office of Community Planning and Development’s (CPD) State CDBG Disaster Recovery
program provided flexible grants to aid the States in their recovery. CPD was responsible for the
management of the disaster grant funds. It had two sections to maintain oversight of the funds.
CPD’s system and financial management section was responsible for evaluating and tracking the
grantees’ performance and monitoring financial policies and procedures. HUD developed the

1
     Katrina-August 2005, Rita-September 2005, Wilma-October 2005, Dolly-July 2008, Gustav and Ike-September
     2008

                                                        3
Disaster Recovery Grant Reporting (DRGR) system that CPD used to track and monitor the
program. CPD’s program management section oversaw grant and grantee management
including policy and procedure issues, which included ensuring that the grantee programs
complied with the applicable laws, regulations, and notices.

Our audit objective was to assess the program overall. Specifically, we wanted to (1) determine
what had been accomplished using the funding and the funds remaining to be spent; (2) compare
actual versus projected performance; and (3) identify best practices, issues, and lessons to be
learned. Regarding what had been accomplished, we expanded our objective to determine
whether the States met the statutory requirements that (1) at least 50 percent of the grants be used
on projects that benefited low- to moderate-income persons; (2) $1.44 billion of the funds be
used for affordable rental housing stock; (3) Louisiana budgeted at least $10.1 billion for its
Road Home Program; and (4) Louisiana expend at least 70 percent of its second allocation of
Katrina, Rita, and Wilma funding in the New Orleans-Metairie-Bogalusa Metropolitan Area.




                                                 4
                                  RESULTS OF AUDIT


Finding 1: Generally, HUD’s Hurricane Disaster Recovery Program
Assisted the Gulf Coast States’ Recovery; However, Some Program
Improvements Are Needed
In the 7 years since the first in a series of six hurricanes hit the States, they had made progress in
recovering from the presidentially declared disasters. The States primarily used the funding to
assist communities in repairing and rebuilding housing, compensating homeowners, repairing
infrastructure damage, and providing economic development. The States had spent more than
87.5 percent of the available Katrina, Rita, and Wilma funds and 27.2 percent of the available
Gustav, Ike, and Dolly funds. Thus, the States had received almost $24 billion and disbursed
almost $18.4 billion, resulting in about $5.6 billion remaining to be spent. However, the States
had budgeted only $22.6 billion of the $24 billion in Disaster Recovery funds. Some of the
delay in budgeting funds could be attributed to the States revising their programs, State delays
encountered due to lawsuits, or HUD’s rejection of a State’s Action Plan. The States could
improve on reporting their activities, as some of their activities had no or nominal progress
reported because the States did not generally report their progress until the projects were
complete. The States generally met the statutory mandates. However, Texas and Louisiana had
not met two mandates as Congress did not establish expenditure deadlines.



 State CDBG Funding Was
 Provided to, Budgeted by, and
 Disbursed by the States


               To assist the States’ recovery from the disasters, Congress provided four rounds
               of supplemental State CDBG Disaster Recovery funding. When it provided the
               funding, Congress did not establish time limits to spend the funds. Figures 2 and
               3 depict the amounts of funding allocated, budgeted, and disbursed.




                                                  5
Figure 2: Total funding for Katrina, Rita, and Wilma by State

               Hurricanes Katrina, Rita, and Wilma funding
                                       (in $ millions)
                                      $13,410
  $14,000                                           $13,290

                                                       $12,120
  $12,000

  $10,000

   $8,000                                                                                 Allocated
                                                         $5,481   $5,475
   $6,000                                                                                 Budgeted
                                                                     $4,370

   $4,000                                                                                 Disbursed

   $2,000                   $183
              $96 $96           $183 $132                              $503 $502
                      $95                                                          $500

       $0
              Alabama       Florida     Louisiana     Mississippi          Texas




        As of August 29, 2012, Alabama, Louisiana, and Texas reported having spent
        more than 90 percent of their Katrina, Rita, and Wilma funds awarded from 2006-
        2007. Mississippi had spent almost 80 percent and Florida almost 72 percent.
        Overall, for Hurricanes Katrina, Rita, and Wilma, the States received $19.67
        billion and disbursed almost $17.22 billion (87.5 percent) of the awarded funds.
        About $2.46 billion of Katrina, Rita, and Wilma funds had not been spent.




                                            6
           Figure 3: Total funding for Hurricanes Gustav, Ike, and Dolly by State

                              Hurricanes Gustav, Ike, and Dolly funding
                                                          (in $ millions)

                  $3,500
                                                                                     $3,113

                  $3,000

                  $2,500

                                                                                              $1,753
                                                                                                        Allocated
                  $2,000
                                                                                                        Budgeted
                  $1,500                                    $1,180                                      Disbursed
                                                 $1,093
                  $1,000                                                                         $763
                                                                 $380
                    $500     $108   $107                                $12 $19 $4
                                           $34
                      $0
                               Florida            Louisiana          Mississippi       Texas




                   As of August 29, 2012, the States had disbursed between about 24 (Texas) and 35
                   (Louisiana) percent of the funds awarded in 2009. Louisiana and Mississippi
                   budgeted more than Congress allocated, as these two States created programs like
                   the homeowner’s program, housing for renters, and loan programs, which resulted
                   in program income. HUD required the States to use the program income to
                   further their recovery programs. Overall, for Hurricanes Gustav, Ike, and Dolly,
                   the States had budgeted almost $3.06 billion of the almost $4.33 billion provided
                   and had disbursed about $1.18 billion (27.2 percent). About $3.15 billion in
                   Gustav, Ike, and Dolly funds had not been spent.

    The States Used the Disaster
    Funds To Rebuild Communities


                   In carrying out the Disaster Recovery program, HUD required the States to use
                   the funds “…for necessary expenses related to disaster relief, long-term recovery,
                   and restoration of infrastructure, housing, and economic revitalization in
                   communities declared disaster areas.” 2 According to information reported to
                   HUD, the States assisted homeowners and communities in rebuilding their

2
    71 FR Notice (Federal Register Notice) 7666 and 74 FR Notice7244

                                                             7
        housing and community infrastructure to better withstand future hurricanes and
        flooding. The States had reported progress in disaster recovery; however, their
        reporting on actual accomplishments by performance measure lagged behind the
        amount of funds disbursed. The table below depicts the States’ financial
        disbursements and performance for all six of the 2005-2008 hurricanes, as
        reported by the States to HUD’s DRGR system as of August 2012. See
        appendixes B and C for descriptions of the activity categories and specific
        performance measures, such as persons or families served or housing units
        provided, and the detailed results by individual States.

States’ funding and achievements by activity category and performance measures
     Activity          Budgeted       Disbursed        Percent    Performance measures
    categories       (in millions)   (in millions)    disbursed                            Percent
                                                                  Projected    Actual      achieved
 Compensation            $ 11,269        $ 11,220         99.6%     206,316    157,851        76.5%
 Infrastructure             2,651           1,637         61.8%   15,156,983          0       0.0%
 Housing - rental           2,020           1,572         77.9%      55,211      35,036      63.5%
 Public facilities          1,601             856         53.5%        4,655        338       7.3%
 Economic                   1,495             629         42.1%     123,062     124,922     101.5%
 Development
 Housing - other            1,493           1,014         67.9%      29,021      12,101      41.7%
 Administration             1,033             731         70.7%         N/A         N/A        N/A
 Acquisition or               381             325         85.4%      82,922      10,337      12.5%
 Disposition
 Miscellaneous                340             256         75.2%    5,001,500   1,101,933     22.0%
 Planning                     249             114         46.0%         N/A         N/A        N/A
 Clearance or                  60               35        58.0%    1,435,502      1,910       0.1%
 Demolition
 Buyout                        13                 7       55.1%      27,216          54       0.2%
 Totals                  $ 22,605        $ 18,396        81.4%


        The States’ projects fell into 12 activity categories and 36 activity types (see
        appendix D for details). Each State determined its own use of the funds through
        State Action Plans. Although the States had expended more than 86 percent of
        the funds, they had not reported data for the actual performance measures,
        including actual beneficiaries. For example, the States spent more than $1.6
        billion for infrastructure, or 61 percent of their project budgets, but they had not
        reported the actual number of persons served. In addition, the States had spent
        more than $325 million for acquisition and disposition, or 85 percent of their
        project budgets, but they had reported only 12 percent of actual performance
        measures.

        Further, since the States did not report their actual performance or results, HUD’s
        DRGR data could not be used to estimate the status or cost of the various projects.
        Also, as the data were not complete, comparisons could not be made among the

                                              8
                   various States’ programs. HUD should encourage the States to report their actual
                   achievements by performance measure in a timely manner.

                   In addition, the States had budgeted only $22.6 billion of the Disaster Recovery
                   funds; however, Congress allocated a total of almost $24 billion to the affected
                   States. Some of the delays in budgeting funds can be attributed to the States
                   revising their programs, State delays encountered due to lawsuits, or HUD’s
                   rejection of a State’s Action Plan. HUD should work with the States to ensure
                   that they promptly budget all of the remaining unbudgeted funds.

    The States Generally Complied
    With the Benefiting Low- and
    Moderate-Income Persons
    Mandate

                   HUD required the States to use at least 50 percent of the aggregate of the Disaster
                   Recovery funds to support activities producing benefit to low- and moderate-
                   income persons. 3 In doing so, HUD waived its standard 70 percent requirement
                   for overall benefit to low- and moderate-income persons. HUD established the 50
                   percent requirement to give the States greater flexibility in carrying out recovery
                   activities within the confines of the State CDBG program’s national objectives.
                   HUD was allowed to provide additional waivers of this requirement only if the
                   HUD Secretary specifically found a compelling need to further reduce or
                   eliminate the percentage requirement. The requirement that each activity meet
                   one of the three national objectives of the CDBG program was not waived. 4 The
                   three national objectives are (1) benefiting low- and moderate-income persons, (2)
                   preventing or eliminating slums or blight, and (3) meeting urgent needs.

                   As shown in figure 4, the States generally met the requirement and used more
                   than 50 percent of the funds on activities that benefited low- and moderate-
                   income persons (for detailed results by State see appendix E). HUD granted one
                   waiver for the low- and moderate-income requirement to Mississippi for one
                   Katrina, Rita, and Wilma grant that did not meet the required percentage. In
                   addition, Louisiana had one grant that expended only 47 percent under the low-
                   and moderate-income national objective. However as of August 2012, this grant
                   had not been fully expended, and the State had budgeted 52 percent for activities
                   that would benefit low- to moderate-income persons. HUD should continue
                   monitoring to ensure that Louisiana meets the 50 percent low- and moderate-
                   income benefit national objective.




3
     Public Law (P.L.) 109-148, P.L.110-329, 71 FR Notice 7666, and 74 FR Notice 7244
4
    71 FR Notice 7666 and 74 FR Notice 7244

                                                        9
           Figure 4: States’ percentage of funds spent for the low- and moderate-income national objective

                Percentage of funds spent on the low- and moderate-income national objective


              100%                                                     95%
                         90%                92%                                      88%
               90%                88%
                                                  82%
                                                                             76%
               80%             76%
                                                                                   68%       67%   Katrina, Rita &
               70%                                                                                 Wilma
                                                        61%
               60%                                  57%    56%
                                                                                                   Katrina, Rita, &
                                                                                                   Wilma - 2nd
               50%                                                  47%                            allocation

               40%                                                  36%                            Katrina, Rita, Wilma
                                                                                                   - Road Home
               30%

               20%                                                                                 Gustav, Ike & Dolly

               10%

                0%
                        Alabama         Florida         Louisiana    Mississippi     Texas




    Four States Met the Funding
    Mandate for Affordable Rental
    Housing Stock

                     Congress and HUD required the States to set aside and use $1.47 billion of their
                     Disaster Recovery funding for the repair, rehabilitation, and reconstruction of
                     affordable rental housing stock in hurricane-impacted areas. 5 As shown in figure
                     5, four States met or exceeded this mandate. Texas obligated funds in excess of
                     its mandate, but it had not disbursed funds equal to or exceeding the mandated
                     amount. HUD should continue monitoring and provide technical assistance to
                     Texas until it has met or exceeded the mandate. As of August 2012, overall the
                     States had obligated $2.29 billion and disbursed $1.57 billion on affordable rental
                     housing projects. Further, the States had completed more than 36,000 rental
                     housing units and assisted more than 35,000 renter households. For a summary of
                     affordable rental households, see the table on page 6, and for results by State, see
                     appendix C.


5
    P.L. 109-234, 71 FR Notice 63337 and P.L. 110-329, 74 FR Notice7244

                                                             10
        Figure 5: The States’ compliance with statutory rental housing mandates

                            Rental Housing Obligations and Expenditures by State
                                                (in millions)
            $1,400                                                $1,384


            $1,200
                                                                     $1,073

            $1,000                              $930


              $800                                                                                      Statutory
                                                                                                        amount

              $600                                                                               $550
                                                                                                        Obligated
                                                                                     $425               amount
              $400
                                                                           $277
                                                                                  $241           $207
                                                                                                        Disbursed
              $200                                                                                      amount
                                          $75                         $82
                        $4 $4 $4    $28         $47

                $0
                       Alabama       Florida          Louisiana      Mississippi         Texas




    Louisiana Had Met the Road
    Home Funding Requirement
.

                Congress and HUD required Louisiana certify that $7.35 billion6 in costs
                associated with the Road Home homeowner compensation program were assigned
                and expended 7 before HUD made available an additional $3 billion in Katrina,
                Rita, and Wilma Road Home supplemental funding. The supplemental funds are
                to be used solely for the purpose of covering costs for eligible uncompensated
                claims that were filed on or before July 31, 2007. Louisiana budgeted $2.82
                billion of the Katrina, Rita, and Wilma Road Home supplemental funding but
                only has disbursed $2.75 million. As shown in figure 6 below, as of August 2012,
                Louisiana has budgeted over $10.17 billion and disbursed almost $10.1 billion on
                homeowner compensation claims and costs associated with 136,187 households.
                Thus, Louisiana has exceeded the Road Home funding requirements of the
                Katrina, Rita, and Wilma first and second allocations. However, HUD should
6
  $7,346,852,618 = $4,017,990, 868 (P.L. 109-148 – Action Plan Amount) + $2,956,361,750 (P.L. 109-234-Action
Plan Amount) + $372,500,000 State pledge
7
  P.L. 109-148, P.L. 109-234, P.L. 110-116, 71 FR Notice 7666, 71 FR Notice 63337, and 72 FR Notice 70472

                                                         11
                   continue to monitor Louisiana to ensure that the remaining budgeted funds in the
                   Road Home grants are used on eligible claims filed on or before July 31, 2007.

          Figure 6: Louisiana’s progress in meeting Road Home funding mandate

                     Louisiana Road Home Funding Mandate by CDBG Grant
                                                         (in millions)


                                                                                             $4,020

                                                                                             $4,021

                                                                                             $4,018
                    Katrina, Rita & Wilma

                                                                                  $2,956                Disbursed
                                                                                  $2,956                amount

               Katrina, Rita & Wilma - 2nd                                        $2,956
                        Allocation

                                                                                  $2,751                Budgeted
                                                                                  $2,823                amount

              Katrina, Rita & Wilma - Road                                        $2,823
                          Home

                                                  $373                                                  Statutory
                                                                                                        requirement
                                                  $373
                                                  $373
                              State Pledge

                                             $0   $1,000        $2,000   $3,000     $4,000     $5,000




    Louisiana Met the Metropolitan
    Area Funding Mandate


                   In Louisiana, HUD estimated that more than 85 percent of the major and severe
                   damage due to the storms occurred in the New Orleans-Metairie-Bogalusa
                   Metropolitan Area. The Metro Area included the following parishes: Jefferson,
                   Orleans, Plaquemines, St. Bernard, St. Charles, St. John the Baptist, and St.
                   Tammany. As a result, Congress and HUD required Louisiana to use 70 percent
                   of its Katrina, Rita, and Wilma second allocation of $4.2 billion, or $2.94 billion,
                   in the Metro Area. 8 As shown in figure 7, Louisiana exceeded this requirement,
                   as it budgeted more than $3.37 billion and spent $3.12 billion for the Metro
                   Area’s disaster recovery needs.



8
    P.L. 109-234 and 71 FR Notice 63337

                                                           12
     Figure 7: Louisiana’s compliance with Metro Area funding mandate

                  Louisiana's budgeted and disbursed Metro Area funds
                                           (in $ millions)


       $3,500
                                                                             Road Home Program
                                                                            - Single Family
       $3,000                                                               Homeowners


                                                                            Infrastructure - Local
       $2,500                                                               Government
                            $2,495
       $2,000                                         $2,495
                                                                            Infrastructure - Long
                                                                            Term Community
                                                                            Recovery
       $1,500
                                        $34
                                                                  $12        Small Rental Program
       $1,000                            $74
                             $312                                 $13
                                                       $193
        $500
                             $460                      $406                  Piggyback Program

             $0
                     Budgeted Amount           Disbursed Amount




Conclusion



              Generally, the States had made progress in recovering from the effects of the
              hurricanes. However, the States could improve on reporting their activities, as
              some of their activities had no or nominal reported progress because they did not
              generally report their progress until the projects were complete. In addition, the
              States had spent more than 87.5 percent of the available Katrina, Rita, and Wilma
              funds and 27.2 percent of the available Gustav and Ike funds. Thus, they had
              received almost $24 billion and disbursed almost $18.4 billion, resulting in about
              $5.6 billion remaining to be spent. However, the States had budgeted only $22.6
              billion of the $24 billion in Disaster Recovery funds. Some of the delay in
              budgeting funds could be attributed to the States revising their programs, State
              delays encountered due to lawsuits, or HUD’s rejection of a State’s Action Plan.
              In addition, while the States had generally met the statutory mandates, Texas and
              Louisiana were nearing but had not met two mandates.


                                                 13
Recommendations

          We recommend that HUD’s Director of the Office of Block Grant Assistance

          1A. Require the States to report their actual achievements by performance
              measure in a timely manner.

          1B. Work with the States to ensure that they promptly budget all of the
              remaining unbudgeted funds.

          1C. Continue monitoring to ensure that Louisiana meets the 50 percent low- and
              moderate-income benefit national objective.

          1D. Continue monitoring and provide technical assistance to Texas until it has
              met or exceeded the affordable rental housing mandate.

          1E. Continue monitoring Louisiana to ensure that any remaining budgeted Road
              Home funds are used only on eligible claims filed on or before July 31,
              2007.




                                         14
Finding 2: HUD Could Improve the Hurricane Disaster Recovery
Program by Working With Its Stakeholders Based on Lessons Learned
Although the States had made progress, based on our prior audits and a review of the program
data, there are some lessons to be learned regarding deadlines, program guidance, information
system technology acquisitions, procurement, and homeowners’ insurance. HUD needs to work
with its stakeholders to make improvements in these areas. If HUD makes such changes, it
should improve the effectiveness and efficiency of the program.


 The States Encountered Delays
 in Completing Projects

              Some States suffered significant delays in rebuilding. Hurricane Katrina made
              landfall on the Louisiana coast line in August 2005. As of December 2011, the
              States continued to implement their State Action Plans. As shown in figure 8, the
              States had spent about $16.64 billion of the $19.67 billion funded for Hurricanes
              Katrina, Rita, and Wilma. As a result, the States still needed to spend $3.03
              billion, or 15.4 percent of the funds allocated. See appendix F for allocation and
              expenditure progression graphs by the individual States.
              Figure 8: Katrina, Rita, and Wilma grants allocation and expenditure progression

                          Total Amount Allocated to and Disbursed by the
                          States by Year For Hurricanes Katrina, Rita and
                                        Wilma (in millions)
              $25,000


              $20,000


              $15,000
                                                                                                 Amount
                                                                                                 allocated
              $10,000
                                                                                                 Amount
                                                                                                 disbursed
               $5,000


                   $0
                          2006       2007       2008          2009   2010       2011
                                                       Year




                                                 15
The scope of damage caused by Hurricanes Katrina, Rita, and Wilma was
staggering. The impacted States had to undertake and develop plans and
regulations, computer systems, and internal controls to prevent fraud and
duplication of benefits. Some States developed complex programs and controls,
while others became embroiled in lawsuits. Further, when Hurricane Ike struck
the States in September 2008, it caused additional damage in areas that had been
previously impacted, which further delayed the rebuilding process. As shown in
figure 9, in December 2011, the States had spent about $664 million of the almost
$4.33 billion funded for Hurricanes Gustav, Ike, and Dolly. As a result, the States
still needed to spend almost $3.66 billion, or 84.5 percent of the funding. See
appendix G for allocation and expenditure progression graphs by the individual
States.

Figure 9: Gustav, Ike, and Dolly grant allocation and expenditure progression

            Total amount allocated to and disbursed by all States by
            year for Hurricanes Gustav, Ike, and Dolly (in millions)
 $5,000

 $4,500

 $4,000

 $3,500

 $3,000

 $2,500                                                                         Amount
                                                                                allocated
 $2,000

 $1,500                                                                         Amount
                                                                                disbursed
 $1,000

   $500

     $0
                  2009                  2010                2011
                                        Year

The States’ delays did not violate statutory or program requirements. The
appropriation acts authorized the use of the State CDBG Disaster Recovery funds
until expended. Further, the States were conflicted in trying to provide immediate
assistance to the victims, ensure compliance with program rules, and prevent the
duplication of benefits. The States’ programs ranged from assisting as few as 9
types of activities to as many as 35. To attempt to ensure the appropriate use of
disaster funds, each State created new disaster program policies that took several
months. Most of the States described a lack of policy and guidance in creating
their implementing policy but indicated they were under pressure to get the funds
out. One State described not releasing funds until all program internal controls
were in place to protect the funds. This measure resulted in the State’s taking

                                   16
            more than 19 months after its first Katrina, Rita, and Wilma grant and 28 months
            after Katrina hit to rebuild its first home. In contrast, another State created a
            program to compensate the homeowners and provided compensation within 4
            months of receiving its first grant and 12 months after Katrina hit. As the delays
            in completing activities were significant, we recommend that HUD work with
            Congress and the States to explore options to spend the remaining funds
            promptly. Further, to mitigate future delays, HUD should work with Congress
            and suggest deadlines for future Disaster Recovery funds.

The States Did Not Report
Results Based on the Public
Law Categories


            The States were not reporting progress by the five general Disaster Recovery
            public law categories: disaster relief, housing, infrastructure, long-term recovery,
            and economic revitalization. This condition occurred because neither HUD nor
            Congress clearly defined the public law categories and the States were not
            familiar with or required to use the terms to report progress. Instead, the States
            reported results by the State CDBG program activity categories. When we asked
            them to provide results based on the public law categories, all five States
            indicated unfamiliarity with the terms in regard to their projects and did not know
            how some of their projects fit into the five public law categories. Therefore, it
            could not be determined how the States used the funds according to the public law
            categories. Since the States did not have the information, public law category
            comparisons and evaluations could not be made. If HUD issues public law
            category definition guidance, it would have better assurance that the funds would
            be used for their intended purpose. Appendix B shows the DRGR system State
            CDBG program activity categories that the States selected to report their quarterly
            status results.

Three States Implemented
Various Systems at Great
Expense


            Although HUD’s DRGR system was generally adequate to track and report the
            Disaster Recovery grant funds and projects, three States hired a contractor and
            created an information system at great expense. The three States’ did not clearly
            detail or describe their system costs, which varied widely, ranging from one
            State’s budget of $1.2 million to another State’s expenditures of more than $295
            million. In addition, after paying to create the systems described, two of the three
            States decided to purchase an off-the-shelf product that they determined would
            meet their current and future system needs. The States purchased a system that
            they said gave them the ability to retain an ownership license, allowed them to
            maintain all disaster programs under one system, and would produce cost savings.

                                             17
                  The States incurred these duplicative and significant system costs because HUD
                  allowed the States maximum feasible deference in the implementation of their
                  Disaster Recovery programs as allowed by the State CDBG program regulations.
                  However, HUD should consider providing training and guidance on this issue to
                  future Disaster Recovery grantees to prevent this expense from recurring.

     Some States Did Not Follow
     Federal Procurement and State
     CDBG Contracting
     Requirements

                  As allowed by State CDBG program requirements, the States followed their own
                  procurement policies rather than using Federal procurement policies. 9 They also
                  lacked familiarity with the State CDBG program procurement restrictions, as the
                  States normally do not directly administer the State CDBG grants but distribute
                  the funds to units of local government. 10 The States agreed that the Federal
                  procurement requirements were useful, and some States required that Federal
                  procurement policies be followed when procuring services. However, our audits
                  of three States found CDBG procurement violations and other contracting
                  problems, which included questioned costs and funds to be put to better use
                  totaling more than $107 million.11 For example, HUD’s State CDBG regulation
                  and Federal procurement requirements prohibit a cost plus a percentage of cost
                  method of contracting. Yet, our three audits of two States found they awarded
                  contracts where the contractor applied this disallowed type of contract to its
                  payments. In one case, the State did not cite any Federal regulatory requirements
                  in its contract, which left it without recourse in recovering funds from the
                  contractor. Further, the States had other varied significant contracting issues like
                  unsupported major contract modifications, failing to follow their own
                  procurement requirements, a lack of procurement documentation, and vague
                  contracts.

                  State CDBG requirements allowed the States to follow their own requirements,
                  but this meant that HUD had to learn each State’s procurement requirements to
                  monitor and review the States’ procurement compliance. HUD had previously
                  added the Federal cost principles 12 to the States’ grant agreements, which were
                  not included in the State CDBG program requirements. Due to the procurement
                  problems found by our audits, HUD should also consider adding the Federal
                  procurement requirements to the grant agreements, as future disaster grantees will
                  likely contract for services. HUD should also ensure the States are
                  knowledgeable of, trained in, and follow the Federal requirements.

9
      24 CFR (Code of Federal Regulations) Part 85, Administrative Requirements for Grants and Cooperative
      Agreements to State, Local, and Federally Recognized Indian Tribal Governments, section 36 - Procurement
10
      24 CFR Part 570, Subpart I, Part 480, and P.L. 109-148
11
      See appendix H, audit reports 2, 5,16, 17, and 25
12
      2 CFR Part 225, Cost Principles for State, Local, and Indian Tribal Governments (Office of Management and
      Budget Circular A-87)

                                                        18
     Some States Did Not Take
     Sufficient Steps To Protect the
     Invested Federal Funds


                    Some States did not require adequate homeowners’ insurance for the homes built
                    or rehabilitated with Disaster Recovery funds. Texas initially did not require
                    insurance. It modified its program for the Katrina, Rita, and Wilma second
                    allocation and, along with Louisiana and Florida, required insurance for 3 years.
                    Alabama adopted a deed restriction that “strongly encouraged” insurance. For the
                    Gustav, Ike, and Dolly allocation, Texas again modified its program and stated
                    insurance was required, but its policy, like Alabama’s deed restriction, stated only
                    that failure to maintain insurance “may” impact future disaster assistance.
                    However, Mississippi took an aggressive stance by requiring a transferrable
                    covenant that required insurance at all times. These variations occurred because
                    HUD allowed the States maximum feasible deference in the implementation of
                    their Disaster Recovery programs as allowed by the State CDBG program.

                    HUD needs to adopt a best practice to address the issue of insurance to ensure that
                    the Federal funds invested in the assisted homes are protected in the event of
                    future hurricanes or disasters. Since Hurricane Katrina in 2005, an additional 10
                    hurricanes and other storms have hit the States and caused damage. Further, our
                    audit of Texas 13 found that Hurricane Ike had damaged homes repaired or
                    replaced by Katrina, Rita, and Wilma grant funds, which lacked insurance. In one
                    extreme case shown in figures 10 and 11, an uninsured home suffered significant
                    structural damage, and the homeowner inquired about additional disaster
                    assistance for his recently replaced home.




                             Figure 10: Uninsured manufactured home damaged by Hurricane Ike

13
       See appendix H, audit report 13.

                                                       19
                  Figure 11: Interior view of the damaged manufactured home showing the
                                       shattered roof, joists, and rafters

             The Texas audit also found that of a sample of 59 Katrina-, Rita-, and Wilma-
             funded homes tested, 38 homes were later damaged by another hurricane or
             storm. Of the 38 homes, 23 did not have insurance. Based on a projection of the
             sample results, at least 133 of 453 reconstructed or rehabilitated homes or homes
             awaiting reconstruction lacked insurance and were damaged or are at risk of being
             damaged by another storm. The report concluded that if Texas changed and
             improved its action plan and policies, an estimated $60.2 million in program
             funds could be saved.

             For Hurricane Isaac, which struck in August 2012, initial reports estimated
             damage to 13,000 homes in Louisiana located in the same areas previously
             affected by Katrina. Since Louisiana required insurance for only 3 years, there is
             the potential that damage had occurred to Disaster Recovery-assisted homes
             completed before 2009 that may lack insurance, as the State’s required insurance
             period had expired and nothing would prevent homeowners from seeking
             additional Federal assistance.

Conclusion

             The States had made progress in recovering from the presidentially declared
             disasters by repairing and rebuilding housing and infrastructure and performing
             economic development. Although the States had made progress, there have been
             some lessons to be learned. HUD needs to work with its stakeholders to make
             improvements regarding deadlines, program guidance, information technology


                                               20
          acquisition, procurement, and homeowners’ insurance. If HUD makes such
          changes, it should improve the effectiveness and efficiency of the program.

Recommendations

          We recommend that HUD’s Director of the Office of Block Grant Assistance

          2A. Work with Congress and the States to explore options to spend the
              remaining funds promptly.

          2B. Work with Congress to implement deadlines for future Disaster Recovery
              grants.

          2C. Develop and issue guidance that defines the public law categories of disaster
              relief, housing, infrastructure, long-term recovery, and economic
              revitalization and describes how these categories fit within the State CDBG
              program categories to ensure consistency, alleviate confusion, provide better
              assurance that the funds are used for their intended purpose, and allow for
              comparisons and evaluations based on the public law categories.

          2D. Train future Disaster Recovery grantees about the potential problems of
              contracting to create an information system.

          2E. Encourage future grantees to network and coordinate with existing grantees
              concerning information systems.

          2F. Include the Federal requirements in the Administrative Requirements for
              Grants and Cooperative Agreements to State, Local, and Federally
              Recognized Indian Tribal Governments in its future Disaster Recovery grant
              terms.

          2G. Provide procurement training and technical assistance to ensure that future
              Disaster Recovery grantees are aware of and follow Federal procurement
              requirements.

          2H. Adopt a best practice to address the issue of homeowners’ insurance for
              homes assisted with disaster funds to ensure that the Federal funds invested
              in the homes are protected.




                                          21
                        SCOPE AND METHODOLOGY

Our audit scope originally covered the period from December 2005 through December 2011.
We expanded the scope to include DRGR system data through August 2012. We performed our
audit from March 2012 through January 2013 at HUD’s Office of Block Grant Assistance in
Washington, DC; the five States’ Disaster Recovery offices located in Montgomery, AL,
Tallahassee, FL, Baton Rouge, LA, Jackson, MS, and Austin, TX, and our offices located in Fort
Worth and San Antonio, TX.

To accomplish our objective, we performed the following:

    •   Obtained and reviewed the public laws related to disaster relief, housing, long-term
        recovery, restoration of infrastructure, and economic revitalization in areas affected by
        Hurricanes Katrina, Rita, Wilma, Gustav, Ike, and Dolly. We summarized funding
        information in the public laws to determine the amount of funding provided for the
        hurricanes.
    •   Obtained and reviewed HUD Federal Registers that allocated and provided common
        application, waivers, and alternative requirements for State CDBG Hurricane Disaster
        Recovery grantees.
    •   Obtained and reviewed all of the States’ Disaster Recovery grants.
    •   Obtained and reviewed criteria applicable to the State CDBG program and the Office of
        Management and Budget’s cost circular cited in the Disaster Recovery grants.
    •   Obtained and reviewed HUD manuals and guidebooks related to its assistance processes,
        monitoring, and the DRGR system.
    •   Obtained and reviewed HUD general and State-specific waivers.
    •   Obtained and reviewed 36 HUD monitoring reports issued concerning Hurricane
        Disaster Recovery activities.
    •   Obtained and reviewed 26 HUD OIG audit reports issued concerning the Hurricane
        Disaster Recovery program. We reviewed the report recommendations to determine
        their current status.
    •   Interviewed staff from HUD’s Disaster Recovery and Special Issues Division.
    •   Interviewed the States’ Hurricane Disaster Recovery Department personnel, a State
        consultant in Florida, and a State contractor in Mississippi.
    •   Obtained access to and downloaded data from HUD’s DRGR system.
    •   Conducted data validation and reliability testing of the DRGR system data by selecting a
        sample of 47 project activities, consisting of 7 in Alabama, 10 in Florida, 10 in
        Louisiana, 10 in Mississippi, and 10 in Texas out of a universe of 3,070 project
        activities. The projects were selected based on the States’ method of distribution, which
        included economic development or revitalization, housing, rental housing, infrastructure,
        public service, tourism, and waived projects. The selected projects were also chosen
        based on various risk assessments. The project activities were then reviewed to confirm
        the reliability of the States’ reported project performance measures in the DRGR system
        information by comparing and matching the sample projects to States’ reported
        electronic and hardcopy project information in the DRGR system to the States’

                                               22
        information. We relied on the computer-processed data we obtained from HUD’s
        DRGR information system. The data were validated and sufficiently tested to determine
        that the data were sufficiently reliable to be used to answer our audit objectives.
    •   Analyzed and summarized the DRGR information system data to quantify the States’
        Hurricane Disaster Recovery progress. Information was totaled as of December 2011 for
        delays in expending funds. Information was totaled as of August 2012 for spending by
        activity category and for performance measures. Steps were taken to ensure that
        beneficiaries were counted only once for each activity category in the table and
        appendixes contained in the report.
    •   Obtained additional financial and performance data from State officials to confirm
        compliance with the statutory requirements for (1) using 50 percent of the funds for
        projects that benefited low- to moderate-income persons, (2) affordable rental housing,
        (3) the Road Home program, and (4) the New Orleans-Metairie-Bogalusa Metropolitan
        Area. The information was compared to the statutory limits in the public laws to test
        whether each requirement was met.
    •   Determined and graphed delays in project completion by individual State and by all
        States by comparing allocated funding in the public laws to DRGR disbursed data.
    •   Attempted to obtain the States’ project progress by the five general Disaster Recovery
        categories in the public law. This was done because it was determined that DRGR did
        not report project progress by the public law categories.
    •   Analyzed prior OIG audit reports and working papers concerning the States’ acquisition
        of information systems. We determined the systems cost for one State by totaling what
        was in the State’s budget and for another state by totaling what the State had expended.
    •   Analyzed prior OIG audit reports concerning Hurricane Disaster Recovery procurements
        made by the States. We summarized the results of those audits and made conclusions
        concerning systemic problems.
    •   Contacted four States to obtain information on their insurance requirements. We
        obtained and reviewed current news information concerning Hurricane Isaac damage in
        Louisiana. We analyzed the States’ requirements and policies to reach conclusions
        concerning best practices.

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.




                                              23
                              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:

               •      Public laws and regulations established to ensure the States use the funds for
                      their intended purposes.
               •      HUD policies and procedures intended to ensure that disaster grant funds are
                      used appropriately for State CDBG eligible projects.
               •      HUD oversight of program operations, progress, and reporting.

               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.

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




                                                 24
                               FOLLOW-UP ON PRIOR AUDITS

 Audit Report 2008-AO-1002
 Issued January 30, 2008


State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Funded 418 Grants
Coded Ineligible or Lacking an Eligibility Determination

The following recommendations were still open at the time of this report: 1A. Require the State
to repay $743,344 disbursed for the 17 ineligible grants to its Road Home program, and 1C.
Review all the remaining 392 grants coded ineligible or lacking an eligibility determination and
either support or repay $14,697,812 disbursed for them. HUD agreed that $403,903 was
disallowed under recommendation 1A and $4,615,112 was disallowed under recommendation
1C. Both recommendations are under a repayment agreement. The agreement required the State
to process the subject files through its grant recapture/grant recovery process. It also required the
State to report and repay any funds received as a result of unsupported or ineligible costs on a
quarterly basis until the finding recommendations were closed.

 Audit Report 2008-AO-1005
 Issued August 7, 2008


State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not Ensure All
Additional Compensation Grant Applicants Were Eligible

The following recommendation was still open at the time of this report: 1C. Require the State to
review the remaining 21,672 grants disbursed between June 12, 2006, and October 13, 2007, to
ensure that grants were eligible and supported. HUD agreed that the State must repay funds
disbursed for grants determined to be ineligible.

 Audit Report 2009-AO-1001
 Issued May 5, 2009


State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not Ensure That
Road Home Employees Were Eligible to Receive Additional Compensation Grants

The following recommendations were open at the time of this report: …require the State to 1A.
Repay $228,930 disbursed for five ineligible grants to its Road Home program and 1C. Report
the recapture and/or recovery of funds for all grants deemed ineligible. HUD agreed the funds
were disallowed and that it would report or recapture the funds.



                                                 25
 Audit Report 2009-AO-1002
 Issued May 5, 2009


The State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not Ensure
That Multiple Disbursements to a Single Damaged Residence Address Were Eligible

The following recommendations were still open: …require the State to 1A. Repay $294,060
disbursed for three ineligible grants to its Road Home program; 1B. Either support or repay
$441,027 disbursed for five unsupported grants; and 1C. Review all of the 117 grants related to
multiple disbursements for 58 damaged residence addresses to determine eligibility. HUD
agreed with the recommendations and disallowed both the ineligible and unsupported costs.

 Audit Report 2011-AO-1005
 Issued April 18, 2011


The State of Mississippi, Jackson, Generally Ensured That Disbursements to Program
Participants Were Eligible and Supported

The following recommendations were open: …ensure the State 1A. Repays to its Program the
$90,000 in ineligible costs for the six participants who did not comply with the Program
requirements and/or received assistance under the Mississippi Emergency Management Agency
program; and 1B. Reallocates the $75,000 in unreimbursed funds for the five programs
participants who were later deemed ineligible, thereby ensuring that these funds are put to better
use and used for eligible activities. HUD agreed that $75,000 was ineligible and agreed with the
funds to be put to better use.

 Audit Report 2012-FW-1005
 Issued March 7, 2012


The State of Texas Did Not Follow Requirements for Its Infrastructure and Revitalization
Contracts Funded With CDBG Disaster Recovery Program Funds

The following recommendations were open: 1B. Reimburse its Disaster Recovery program
from non-Federal funds $919,576, which was improperly paid to the contractor for amounts
billed using the ineligible cost plus a percentage of cost payment method; 1C. Reimburse from
non-Federal funds or provide support for the estimated $7,599,747 in unsupported inflated labor
costs; and 1D. Reimburse from non-Federal funds or provide support for the $542,477 paid for
unnecessary and unreasonable inflated labor costs. HUD agreed with the findings and
disallowed the costs.




                                                26
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         27
Comment 3




Comment 4




Comment 5




Comment 6




            28
Comment 7




Comment 8




Comment 9




            29
Comment 10




Comment 11



Comment 12




Comment 13




             30
                          OIG Evaluation of Auditee Comments

Comment 1   CPD indicated that the States are required to report in a timely manner and that
            some categories such as infrastructure and multifamily rental housing did not
            have performance measurement accomplishments reported because States do not
            report accomplishments until the end of construction. We disagree that States are
            reporting in a timely manner. For example, one State had four infrastructure
            projects where it had spent 100 percent of the funds; however, as the audit report
            showed, no actual performance measure accomplishments have been reported for
            the Infrastructure Activity Category. CPD needs to take additional steps to ensure
            that the States are reporting their actual achievements in a timely manner.

Comment 2   CPD responded that it works on a regular basis to budget and reallocate
            unexpended funds. We acknowledge CPD’s efforts in this area, but $1.4 billion
            of the roughly $24 billion provided had not been budgeted at the time of the audit.

Comment 3   CPD responded that it will continue to review Louisiana’s compliance with the
            overall benefit requirement. We recognize CPD’s efforts in this area.

Comment 4   CPD stated it has and will continue to monitor Texas’ compliance with affordable
            rental requirements. We acknowledge CPD’s monitoring and technical assistance
            in this area.

Comment 5   Based on CPD’s comments at the exit conference, we revised the Louisiana Road
            Home mandate section of the audit report. We provided the revised audit report
            section and revised recommendation 1E to CPD on February 27, 2013. CPD’s
            response addressed the prior recommendation.

Comment 6   CPD indicated that it reviews State spending and accomplishments quarterly.
            Further, it stated it had instituted milestone requirements for expenditures in 2012.
            It also stated that it intends to press grantees on expending funds. We recognize
            these actions and believe that HUD should work with Congress and the States to
            explore options to spend the remaining funds promptly.

Comment 7   CPD indicated that the current disaster assistance appropriations, which included
            Hurricane Sandy funding, has a 2-year expenditure deadline. We acknowledge
            Congress’ and CPD’s positive action in this area. We will close this
            recommendation upon report issuance.

Comment 8   CPD stated that each activity falls within one or more of the five purposes of the
            Disaster Recovery statute, but it indicated that all activities fall under the two
            broad categories of disaster relief and long-term recovery. We disagree that this
            is an area where OIG is confused as Congress created five statutory purposes, not
            two, for the funds; and neither CPD nor the grantees are tracking the funds by
            categories in the statute.



                                             31
Comment 9        CPD indicated it would continue to hold conferences with grantees to allow them
                 to share experiences and to provide information on audits and lessons learned.
                 We recognize CPD’s action in this area.

Comment 10 CPD indicated it had held and will host conferences for grantees, but it stated
           HUD does not steer grantees to a specific system or endorse a specific product.
           We acknowledge CPD’s conference work, but we did not suggest that HUD steer
           grantees or endorse a specific product. Our recommendation was designed to
           prevent current and new disaster grantees from repeating past mistakes regarding
           information systems.

Comment 11 CPD stated that Federal administrative requirements have always been included
           by reference in grant agreements between CPD and Disaster Recovery grantees.
           We disagree with CPD’s statement. The grant agreements for Katrina and Ike
           specifically included by reference compliance with Office of Management and
           Budget Circular A-87; 14 however, no specific reference is made in the grants to
           the Administrative Requirements for Grants and Cooperative Agreements to
           State, Local and Federally Recognized Indian Tribal Governments (24 CFR Part
           85). Further, State CDBG requirements allow States to not follow the federal
           administrative procurement requirements of 24 CFR Part 85.36, because under
           State CDBG the States do not normally directly contract for services. Since
           States are directly contracting for services under the Disaster Recovery grants, we
           stand by our recommendation that the grant agreements should include
           compliance with the requirements of 24 CFR Part 85.

Comment 12 CPD indicated it would include the topic of procurement training in future
           conferences and webinars and post specific information on the CDBG Disaster
           Recovery website. We recognize CPD’s positive action in this area. We will
           close this recommendation upon report issuance.

Comment 13 CPD stated it does not believe it has the regulatory or statutory authority to
           require insurance coverage, but it stated it would provide training and technical
           assistance regarding different strategies grantees have used to improve insurance
           coverage. We disagree that providing training is sufficient. We believe that CPD
           has the responsibility to ensure that the federal funds used to rebuild disaster
           impacted areas are protected from waste and abuse, and it should adopt a best
           practice to ensure that the Federal funds invested in repaired or rebuilt homes are
           protected.




14
     The Office of Management and Budget Circular A-87 has been relocated to 2 Part 225.

                                                      32
Appendix B

      DRGR ACTIVITY CATEGORIES AND PERFORMANCE
           MEASURES REPORTED BY THE STATES

The table below includes a description of the performance measures OIG selected from the
DRGR system that were used by the States for table 1 in finding 1. Some States had more than
one performance measure for an activity category; however, OIG compiled its report table only
from the measures listed below.

 DRGR activity categories                          Performance measure used
Acquisition/Disposition        Number of households (FL and TX); persons (MS); housing units (LA)
Administration                 N/A
Buyout                         Number of housing units (FL, LA, and TX); properties (MS)
Clearance/Demolition           Number of households (AL); persons (FL, LA, MS, and TX)
Compensation                   Number of households (all States)
Economic Development           Number of permanent jobs created (all States)
Housing – Other                Number of households (all States)
Housing – Rental               Number of households (all States)
Infrastructure                 Number of persons (all States)
Miscellaneous                  Number of persons (all States)
Planning                       N/A
Public Facilities              Number of public facilities (all States)




                                                  33
Appendix C

   INDIVIDUAL STATE FUNDING AND ACHIEVEMENTS BY
     DRGR ACTIVITY CATEGORY AND PERFORMANCE
                     MEASURES


                                               Alabama
                                                                            Performance
                                                           Percentage        Measures              Percentage
   DRGR Activity
     categories           Budget         Disbursements     Disbursed    Projected    Actual       accomplished
Infrastructure            $34,921,785       $34,612,971         99.12      10,164             -           0.00
Housing - Other            32,534,520        32,534,520        100.00         378         378           100.00
Public Facilities          18,938,984        18,938,984        100.00          15          16           106.67
Housing - Rental            4,103,146         4,103,146        100.00         249         194            77.91
Administration              2,665,400         2,655,400         99.62        N/A          N/A             N/A
Clearance/Demolition        2,449,739         2,433,665         99.34      13,686             -           0.00
Totals                    $95,613,574       $95,278,686       99.65%



                                                Florida
                                                                            Performance
                                                           Percentage        Measures              Percentage
  Activity categories      Budget        Disbursements      disbursed   Projected    Actual       accomplished
Infrastructure             $81,074,598       $34,403,320        42.43     351,701             -           0.00
Housing - Other             78,116,491        55,082,443        70.51        3,664     2,088             56.99
Housing - Rental            75,260,581        47,419,439        63.01      11,062      4,875             44.07
Public Facilities           34,999,444        16,310,806        46.60        3,521         60             1.70
Administration              12,923,893         6,325,858        48.95         N/A         N/A             N/A
Acquisition/Disposition      2,596,133         2,259,011        87.01         298         188            63.09
Buyout                       2,570,678         1,869,497        72.72          62             2           3.23
Clearance/Demolition         1,306,791          921,291         70.50        3,254            -           0.00
Planning                      933,633           933,633        100.00         N/A         N/A             N/A
Totals                    $289,782,242      $165,525,298      57.12%




                                                    34
                                                  Louisiana
                                                                               Performance
                                                              Percentage        Measures             Percentage
  Activity categories        Budgeted         Disbursed       disbursed    Projected   Actual       accomplished
Compensation               $9,261,219,091    $9,212,875,291        99.48   $178,557    130,095             72.86
Housing - Rental            1,387,458,265     1,072,671,277        77.31      31,547    25,066             79.46
Public Facilities             991,616,117       443,888,639        44.76        588           14            2.38
Administration                675,438,983       473,024,596        70.03        N/A          N/A            N/A
Infrastructure                610,083,867       337,787,843        55.37   3,953,022            -           0.00
Economic Development          496,810,004       370,298,169        74.54    115,276    120,296            104.35
Acquisition/Disposition       376,196,249       321,261,985        85.40      10,663     6,092             57.13
Housing - Other               257,804,091        73,545,810        28.53       5,783     1,171             20.25
Miscellaneous                 204,516,934       122,325,156        59.81   4,257,468    37,474              0.88
Planning                      169,503,024        55,985,862        33.03        N/A          N/A            N/A
Clearance/Demolition           30,379,994        11,247,364        37.02   1,062,207            -           0.00
Buyout                          8,670,700         4,690,700        54.10      27,041            -           0.00

Totals                    $14,469,697,319   $12,499,602,692      86.38%



                                                 Mississippi
                                                                               Performance
                                                              Percentage        Measures             Percentage
  Activity categories         Budget        Disbursements     disbursed    Projected   Actual       accomplished
Compensation               $2,007,921,236    $2,007,338,210        99.97      27,759    27,756             99.99
Infrastructure              1,024,602,320       944,430,178        92.18   1,165,639            -           0.00
Economic Development         $987,837,353       253,521,206        25.66       7,627     4,626             60.65
Housing - Other               430,968,867       344,155,991        79.86       9,809     5,193             52.94
Public Facilities             405,915,426       296,457,860        73.03        184           72           39.13
Housing - Rental              277,008,094       240,924,562        86.97       5,732     3,766             65.70
Administration                238,279,926       168,256,274        70.61        N/A          N/A            N/A
Miscellaneous                 100,334,202        98,672,078        98.34    415,796          281            0.07
Planning                       18,885,808        18,034,978        95.49        N/A          N/A            N/A
Acquisition/Disposition         1,891,062         1,706,387        90.23      70,609            -           0.00
Buyout                          1,000,000            97,000         9.70         40             -           0.00
Clearance/Demolition               46,430            46,430       100.00        478             -           0.00
Totals                     $5,494,690,724    $4,373,641,154      79.60%




                                                        35
                                                  Texas
                                                                             Performance
                                                            Percentage        Measures              Percentage
  Activity categories       Budget         Disbursements    disbursed    Projected    Actual       accomplished
Infrastructure             $900,304,806      $286,092,213        31.78   9,676,457             -           0.00
Housing - Other             693,621,234       508,611,421        73.33       9,387      3,271             34.85
Housing - Rental            275,683,850       207,075,121        75.11       6,621      1,135             17.14
Public Facilities           149,152,600        80,043,681        53.67         347         176            50.72
Administration              104,088,518        80,847,680        77.67        N/A          N/A             N/A
Planning                     59,497,689        39,443,082        66.29        N/A          N/A             N/A
Miscellaneous                34,832,008        34,523,371        99.11     328,236   1,064,178           324.21
Clearance/Demolition         25,890,277        20,199,504        78.02     355,877      1,910              0.54
Economic Development         10,251,437         5,036,236        49.13         159             -           0.00
Buyout                         1,254,959         774,959         61.75          73          52            71.23
Acquisition/Disposition         134,328           84,939         63.23       1,352      4,057            300.07
Totals                    $2,254,711,706   $1,262,732,207      56.00%




                                                     36
Appendix D

       STATES’ DRGR ACTIVITY CATEGORIES AND TYPES

     DRGR activity categories and activity types                                   Budgeted           Disbursed
     Acquisition/Disposition total                                                 $ 380,817,772     $ 325,312,322
 1     Acquisition - general                                                         143,950,855       123,049,418
 2     Disposition                                                                   225,575,420       194,187,001
 3     Relocation payments and assistance                                             11,291,497         8,075,903
 4   Administration total                                                          1,033,396,720       731,109,808
     Buyout total                                                                     13,496,337         7,432,156
 5     Acquisition - buyout of nonresidential properties                               4,690,700         4,690,700
 6     Acquisition - buyout of residential properties                                  8,805,637         2,741,456
     Clearance/Demolition total                                                       60,073,232        34,848,254
 7     Clearance and Demolition                                                       39,924,970        18,601,273
 8     Debris removal                                                                 20,148,262        16,246,981
     Compensation total                                                           11,269,140,327    11,220,213,501
 9     Compensation for disaster-related losses (Louisiana and Texas)                  5,404,160         2,788,300
10     Payment for compensation and incentives (Louisiana only)                    9,255,814,931     9,210,086,991
11     Payment for homeowner compensation (Mississippi only)                       2,007,921,236     2,007,338,210
     Economic Development total                                                    1,494,898,794       628,855,611
12     Economic Development or recovery activity that creates or retains jobs      1,461,614,114       595,645,865
13     Tourism (Louisiana and Mississippi only)                                       33,284,680        33,209,746
     Housing - Other total                                                         1,493,045,203     1,013,930,186
14     Acquisition of property for replacement housing                                21,640,000         7,600,221
15     Construction of new housing                                                     7,104,386         4,180,242
16     Construction of new replacement housing                                        80,370,776        69,629,987
17     Home ownership assistance (with waiver only)                                   88,432,233        40,932,155
18     Home ownership assistance to low- and moderate-income                         168,518,953       104,798,917
19     Housing incentives to encourage resettlement                                    1,939,492         1,349,071
20     Rehabilitation or reconstruction of residential structures                  1,125,039,363       785,439,593
21   Housing - Rental total affordable rental housing (Road Home excluded)         2,019,513,935     1,572,193,545
     Infrastructure total                                                          2,650,987,376     1,637,326,526
22     Construction or reconstruction of streets                                     607,268,079       170,637,658
23     Construction or reconstruction of water lift stations                             719,736           531,537
24     Construction or reconstruction of water or sewer lines or systems           1,121,856,841       778,400,665
25     Dike, dam, or stream-riverbank repairs                                        109,633,036         7,267,921
26     Privately owned utilities                                                     560,000,000       560,000,000
27     Rehabilitation or reconstruction of a public improvement                      251,509,684       120,488,745
     Miscellaneous - total                                                           339,683,143       255,520,605
28     Code enforcement                                                               29,115,963        25,460,858
29     Public services                                                               230,567,180       150,059,747
30     Windpool mitigation (Mississippi only)                                         80,000,000        80,000,000
     Planning - total                                                                248,820,154       114,397,554
31     Capacity building for nonprofit or public entities                              5,491,625
32     Planning                                                                      243,328,529        114,397,554
     Public Facilities - total                                                     1,600,622,572        855,639,971
33     Acquisition, construction, or reconstruction of public facilities             222,712,858        135,049,329
34     Construction of buildings for the general conduct of government                33,065,512         12,433,132
35     Rehabilitation or reconstruction of other nonresidential structures            60,057,314         42,152,790
36     Rehabilitation or reconstruction of public facilities                       1,284,786,888        666,004,720
     Grand totals                                                               $ 22,604,495,565   $ 18,396,780,039


                                                         37
Appendix E

        STATE COMPLIANCE WITH LOW- AND MODERATE-
               INCOME PERSON REQUIREMENT

                                                                                                  Low &
                                                                                                               All          Low &
                              Low &           Slum or                                            moderate
State       Grants                                            Urgent need          Totals                   program        moderate
                             moderate          blight                                            program
                                                                                                             income        percent1
                                                                                                  income
        B-06-DG-01-0001       $64,527,250      $1,919,739          $4,926,055     $71,373,044         n/a            n/a       90%
AL
        B-06-DG-01-0002        16,061,825       1,129,395           4,004,305      21,195,525         n/a            n/a       76%

        B-06-DG-12-0001        54,443,842        921,291            6,268,296      61,633,429         n/a            n/a       88%

FL      B-06-DG-12-0002        58,211,750               n/a         4,798,089      63,009,839         n/a            n/a       92%

        B-08-DI-12-0001        24,031,302               n/a         5,410,770      29,442,072         n/a            n/a       82%

        B-06-DG-22-0001     3,069,128,866     139,007,096      2,160,823,131     5,368,959,093    $64,586   $2,935,860         57%

        B-06-DG-22-0002     2,298,482,977       6,567,071      1,439,995,225     3,745,045,273      2,644     517,027          61%
LA
        B-08-DG-22-0003     1,351,030,939     186,660,400       878,786,258      2,416,477,597        n/a     303,058          56%

        B-08-DI-22-0001       153,713,276       1,187,639       169,319,662       324,220,577         n/a            n/a       47%

        B-06-DG-28-0001     1,364,606,710     199,599,008      2,275,252,277     3,839,457,995      8,184      44,669          36%

MS      B-06-DG-28-0002       282,954,760               n/a        13,623,225     296,577,985         n/a            n/a       95%

        B-08-DI-28-0001         2,264,462               n/a          697,669         2,962,131        n/a            n/a       76%

        B-06-DG-48-0001        44,347,878        417,550           20,446,498      65,211,926         n/a            n/a       68%

TX      B-06-DG-48-0002       373,438,991               n/a        52,265,494     425,704,485         n/a            n/a       88%

        B-08-DI-48-0001       381,704,773        519,803        190,930,948       573,155,524       3,000       3,000          67%

            Totals         $9,538,949,601    $537,928,992     $7,227,547,902    17,304,426,495    $78,414   $3,803,614


1
     To calculate the low and moderate percentage, the following formula was used:
     (low and moderate plus low and moderate program income (if any)), divided by (totals plus all program income)




                                                              38
Appendix F

  HURRICANES KATRINA, RITA, AND WILMA GRANTS
ALLOCATION AND EXPENDITURE PROGRESSION GRAPHS
         BY STATE AS OF DECEMBER 2011


     Total amount allocated to and disbursed by the State of Alabama by year
              for Hurricanes Katrina, Rita, and Wilma (in millions)
     120

     100

      80

      60                                                               Alabama-
                                                                       allocated
      40

      20                                                               Alabama-
                                                                       disbursed
       0
              2006     2007      2008          2009    2010    2011
                                        Year




           Total amount allocated to and disbursed by the State of Florida
           by year for Hurricanes Katrina, Rita, and Wilma (in millions)
      $200
      $180
      $160
      $140
      $120
                                                                         Florida-
      $100                                                               allocated
       $80
       $60                                                               Florida -
                                                                         disbursed
       $40
       $20
        $0
                2006     2007     2008          2009    2010    2011
                                         Year

                                               39
     Total amount allocated to and disbursed by the State of Louisiana
      by year for Hurricanes Katrina, Rita, and Wilma (in millions)
$16,000

$14,000

$12,000

$10,000
                                                                   Louisiana -
 $8,000
                                                                   allocated
 $6,000
                                                                   Louisiana -
 $4,000
                                                                   disbursed
 $2,000

    $0
           2006    2007     2008          2009    2010   2011
                                   Year




   Total amount allocated to and disbursed by the State of Mississippi by
         year for Hurricanes Katrina, Rita, and Wilma (in millions)
  $6,000


  $5,000


  $4,000

                                                                    Mississippi
  $3,000                                                            - allocated

  $2,000
                                                                    Mississippi
                                                                    - disbursed
  $1,000


      $0
            2006    2007     2008          2009   2010   2011
                                    Year




                                       40
Total amount allocated to and disbursed by the State of Texas by year
       for Hurricanes Katrina, Rita, and Wilma (in millions)
 $600

 $500

 $400

                                                                Texas -
 $300                                                           allocated

 $200
                                                                Texas -
                                                                disbursed
 $100

   $0
         2006     2007    2008          2009   2010   2011
                                 Year




                                    41
Appendix G

    HURRICANES GUSTAV, IKE, AND DOLLY GRANT
ALLOCATION AND EXPENDITURE PROGRESSION GRAPHS
          BY STATE AS OF DECEMBER 2011

       Total amount allocated to and disbursed by the State of Florida by year for
                    Hurricanes Gustav, Ike, and Dolly (in millions)
    $120

    $100

     $80

     $60
                                                                            Florida -
                                                                            allocated
     $40

     $20
                                                                            Florida -
                                                                            disbursed
      $0
                 2009                2010                2011
                                     Year




     Total amount allocated to and disbursed by the State of Louisiana by year
               for Hurricanes Gustav, Ike, and Dolly (in millions)
     $1,200

     $1,000

      $800

      $600                                                                 Louisiana -
                                                                           allocated
      $400
                                                                           Louisiana -
      $200                                                                 disbursed

           $0
                    2009               2010               2011
                                       Year



                                            42
Total amount allocated to and disbursed by the State of Mississippi by year
           for Hurricanes Gustav, Ike, and Dolly (in millions)
$14


$12


$10


 $8
                                                                        Mississippi -
 $6                                                                     allocated


 $4
                                                                        Mississippi -
                                                                        disbursed
 $2


 $0
             2009                2010                2011
                                 Year




 Total amount allocated to and disbursed by the State of Texas by year for
            Hurricanes Gustav, Ike, and Dolly (in millions)

$3,500


$3,000


$2,500


$2,000
                                                                          Texas -
                                                                          allocated
$1,500


$1,000
                                                                          Texas -
                                                                          disbursed
 $500


   $0
               2009                2010                 2011
                                   Year




                                        43
Appendix H

      LIST OF HUD OIG HURRICANE DISASTER RECOVERY
                      AUDIT REPORTS

         Report
         number       Issue date   Report title
 1     2007-AO-1001     5/7/2007   The State of Mississippi's Homeowner's Assistance Grant Program Did Not
                                   Appropriately Calculate Grants and Monitor the Program
 2     2008-AO-1001   12/19/2007   State of Louisiana, Baton Rouge, Louisiana, Road Home Housing Program,
                                   ICF Did Not Always Provide Contract Deliverables As Required
 3     2008-AO-1002    1/30/2008   State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Funded
                                   418 Grants Coded Ineligible or Lacking an Eligibility Determination
 4     2008-AO-1801     3/6/2008   The State of Mississippi’s and/or Its Contractor’s Procedures for and
                                   Controls over the Homeowner’s Assistance Grant Program Generally
                                   Ensured Eligibility and Prevented Duplication of Benefits
 5     2008-AO-1003    4/25/2008   The Mississippi Development Authority, Jackson Mississippi, Homeowners
                                   Assistance Program Contract Included Ineligible Provisions
 6     2008-AO-1005     8/7/2008   State of Louisiana, Road Home Program, Did Not Ensure That All
                                   Additional Compensation Grant Applicants Were Eligible
 7     2009-FW-1004    1/14/2009   The Texas Department of Housing and Community Affairs Properly
                                   Administered Supplemental I Disaster Recovery Program Funds
 8     2009-AO-1001     5/5/2009   State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not
                                   Ensure That Road Home Employees Were Eligible to Receive Additional
                                   Compensation Grants
 9     2009-AO-1002     5/5/2009   State of Louisiana, Baton Rouge, Louisiana, Road Home Program, Did Not
                                   Ensure That Multiple Disbursements to a Single Damaged Residence
                                   Address Were Eligible
 10    2009-AO-1801    6/12/2009   A Few Possible Duplicate Payments May Have Occurred under Phase II of
                                   the State of Mississippi’s Homeowner Assistance Program
 11    2009-AO-1802    7/31/2009   The State of Mississippi Generally Ensured That Applicants Were Eligible
                                   under Phase II of Its Homeowner Assistance Program
 12    2009-AO-1003    9/23/2009   Louisiana Land Trust, As the State of Louisiana’s Subrecipient, Did Not
                                   Always Ensure That Properties Were Properly Maintained
 13    2009-FW-1016    9/30/2009   The Texas Department of Housing and Community Affair’s Disaster
                                   Recovery Action Plan Needs Improvement
 14    2010-AO-1001   12/15/2009   Mississippi Development Authority, Jackson, Mississippi, Did Not Always
                                   Ensure Compliance under Its Public Housing Program.
 15    2010-AO-1002     1/4/2010   State of Louisiana, Baton Rouge, LA, Did Not Always Ensure Compliance
                                   Under Its Recovery Workforce Training Program
 16    2010-AO-1003    4/30/2010   The State of Louisiana’s, Baton Rouge, LA, Subrecipient Generally
                                   Ensured Costs Were Supported Under Its Tourism Marketing Program
 17    2010-AO-1004    6/22/2010   The Mississippi Development Authority, Jackson, MS, Generally Ensured
                                   That Contracts Were Procured in Accordance With Its Disaster Recovery
                                   Program Policies and Procedures
 18    2010-FW-1005    7/20/2010   The Texas Department of Housing and Community Affairs Did Not Fully
                                   Follow Requirements or Best Practices in the Acquisition of Its Disaster
                                   Recovery-Funded Program Management Firm


                                                  44
     Report
     number          Issue date    Report title
19    2010-AO-1005      8/4/2010   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
20   2010-AO-1006     9/30/2010    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
21   2010-AO-1007     9/30/2010    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
22   2011-AO-1001    10/28/2010    The State of Louisiana, Baton Rouge, LA, Generally Ensured That
                                   Disbursements to Small Rental Property Program Participants Were Eligible
                                   and Supported
23   2011-AO-1002    10/29/2010    The State of Louisiana, Baton Rouge, LA, Did Not Always Ensure That
                                   Disbursements Under Its First Time Homebuyer Program Complied With
                                   Federal Regulations and Program Requirements
24   2011-FW-1006     1/26/2011    The Texas Department of Housing and Community Affairs Generally
                                   Ensured That Its Program Management Firm Complied With Requirements
25   2011-AO-1005     4/18/2011    The State of Mississippi, Jackson, Generally Ensured That Disbursements
                                   to Program Participants Were Eligible and Supported
26   2012-FW-1005      3/7/2012    The State of Texas Did Not Follow Requirements for Its Infrastructure and
                                   Revitalization Contracts Funded With CDBG Disaster Recovery Program
                                   Funds




                                                 45