U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
OFFICE OF INSPECTOR GENERAL
March 29, 2013
MEMORANDUM NO:
2013-IE-0803
Memorandum
TO: Stanley Gimont
Director, Office of Block Grant Assistance Program, DGB
//signed//
FROM: Donna M. Hawkins
Acting Director, Inspections and Evaluations Division, GAH
SUBJECT: Follow-up of the Inspections and Evaluations Division on Its Inspection of the
State of Louisiana’s Road Home Elevation Incentive Program Homeowner
Compliance (IED-09-002, March 2010)
INTRODUCTION
We completed a follow-up review regarding our recommendations made to the U.S. Department
of Housing Urban and Development’s (HUD) Office of Community Planning and Development
(CPD) pertaining to our inspection of the State of Louisiana’s Road Home Elevation Incentive
program, IED-09-002, issued in March 2010. We initiated this review as part of our annual work
plan.
The objective of the review was to determine whether the State of Louisiana had implemented
the four recommendations in our March 2010 report. One recommendation was addressed and
closed at issuance of the report. During this follow-up review, we agreed to close two additional
recommendations based on the documentation provided by CPD and the State. For the
remaining recommendation regarding the recovery of $3.8 million awarded to 158 noncompliant
homeowners, documentation showed that the State had recovered only approximately $200,900
of the award funds.
As of August 31, 2012, the State’s documentation showed that a total of 24,042 homeowners
either were noncompliant, including those that had not elevated their homes; were
nonresponsive; or did not provide sufficient supporting documentation. Therefore, the State did
not have conclusive evidence that the $698.5 million in Community Development Block Grant
(CDBG) disaster recovery funds had been used to elevate homes. Consequently, this
recommendation remains open and has been revised based on our follow-up review due to the
increased noncompliance among homeowners who received elevation grants.
Office of Audit, Inspections and Evaluations Division
451 7th Street SW., Room 8170, Washington, DC 20410
Phone (202) 402-8482, Fax (202) 401-2488
Visit the Office of Inspector General Web site at www.hudoig.gov.
METHODOLOGY AND SCOPE
We performed our review at the HUD Office of Inspector General’s (OIG) New York regional
office of CPD’s and the State’s documentation from March through August 2012.
We interviewed CPD’s Office of Block Grant Assistance-Disaster Recovery and Special Issues
Division Assistant Director and staff to determine their efforts to require the State to implement
the three recommendations in our March 2010 report. We interviewed the deputy director of the
State’s Office of Community Development-Disaster Recovery Unit to determine measures taken
to implement the three recommendations. We reviewed documentation provided by HUD’s
Disaster Recovery and Special Issues Division and the State’s Disaster Recovery Unit covering
the period from the March 2010 report to August 31, 2012, pertaining to the actions taken by the
State to implement the recommendations and the current status of the home elevation program.
We relied on CPD’s and the State’s review of the documentation. Therefore, we did not test the
results identified in the documentation, nor did we conduct physical inspections.
We conducted this review in accordance with the Quality Standards for Inspection and
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency.
BACKGROUND
On December 23, 2005, Congress approved a $29 billion package of Gulf Coast hurricane relief
funds. The package included $11.5 billion for CDBG disaster recovery-funded programs, which
are administered by CPD’s Office of Block Grant Assistance-Disaster Recovery and Special
Issues Division. The package included a provision that no single State could receive more than
54 percent of each allocation within the package. HUD awarded the full 54 percent of its $11.5
billion hurricane relief allocation to Louisiana, resulting in a $6.2 billion award. In June 2006,
Congress approved an additional $4.2 billion for housing in Louisiana, fully funding the State’s
Road Home program. The Road Home program has disbursed $8.96 billion to eligible
homeowners, of which $940.5 million funded the State’s Road Home Elevation Incentive
program.
The CDBG disaster recovery funds were authorized by Congress under supplemental
appropriations laws,1 which authorized HUD’s Secretary to modify various statutes and
regulations that could impede the prompt implementation of disaster relief programs and allow
States to design and implement their own disaster relief programs. Upon request from the State
receiving disaster recovery CDBG funds, the Secretary could waive certain Federal statutes and
regulations. The Federal Register, Vol. 71, No. 114, issued June 14, 2006, states:
Compensation for disaster-related losses or housing incentives to resettle in Louisiana.
The state plans to provide compensation to certain homeowners whose homes were
damaged during the covered disasters, if the homeowners agree to meet the stipulations
of the published program design. The state may also offer disaster recovery or mitigation
housing incentives to promote housing development or resettlement in particular
1
Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico,
and Pandemic Influenza Act, 2006, P.L. 109-148, December 30, 2005
2
geographic areas. The Department is waiving the 1974 Act and associated regulations to
make these uses of grant funds eligible.
The State’s Office of Community Development and the Louisiana Recovery Authority, an
advisory board, developed the Road Home program in 2006 to assist homeowners with the costs
of repairing properties damaged by Hurricanes Katrina and Rita. Through the Road Home
Elevation Incentive award, it offered an eligible applicant a CDBG disaster recovery-funded
grant of up to $30,000 in return for a binding incentive agreement to elevate and reoccupy the
home the owner lived in at the time of the hurricanes and to use it as the owner’s primary
residence within 3 years of signing the grant agreement.
In addition to the CDBG disaster recovery funds for the Road Home Elevation Incentive
program, the State was approved to receive supplemental funding for elevation activities through
the Federal Emergency Management Agency’s (FEMA) Hazard Mitigation Grant Program. The
State provided up to $100,000 in program funds (based on actual construction costs) to eligible
homeowners to elevate their homes to comply with, at a minimum, the required FEMA elevation
height for the area. Unlike the Road Home elevation grant, elevation costs were paid on a
reimbursable basis, and inspections were required before final payments would be disbursed.
Through the Road Home Elevation Incentive agreement, the State compensated certain
homeowners whose homes were damaged during the covered disasters. By accepting a Road
Home Elevation Incentive grant, the homeowner agreed to
Comply with applicable elevation requirements,
Comply with building and manufactured housing codes, and
Maintain homeowner and flood insurance.
Further, the Elevation Incentive agreement specifically stated that if the homeowner did not
elevate his or her home within 3 years of the signed agreement, the owner must repay the full
grant amount to the State. The grant amounts awarded to the eligible homeowners were
disbursed in one lump sum directly to the homeowner upon signing the binding agreement.
RESULTS OF REVIEW
In our March 2010 report, we made four recommendations. We agreed to close three of the
recommendations cited in our March 2010 report (see appendix A for additional details). The
remaining recommendation required the State to enforce program remedies for noncompliance as
stated in the binding grant agreements, starting with recovery of the $3.8 million in grant funds
from 158 noncompliant homeowners in our sample. Specifically, the report stated that 158 of
our sample of 199 homeowners had not elevated their homes.
In response to our 2010 report, the State conducted site visits to 100 percent of the 199
homeowners included in our sample. As of December 2011, the State had determined that there
were 149 noncompliant homeowners who had not elevated their homes. Thus, at the time of the
site visits, only 50 homes had been elevated. The State conducted phone interviews with 52
noncompliant homeowners, who provided reasons, such as money and contractor issues, for not
3
elevating their homes. Despite the low compliance rate, the State reported that 187 homeowners
had returned to their homes.
As of April 27, 2012, only 18 of these noncompliant homeowners had returned grant funds,
either in full or in part, to the State. Grant recoveries from the 18 homeowners totaled
approximately $200,900.
Based on our recommendation, the State also performed a review of its Road Home elevation
grant recipients who had reached their 3-year compliance period. As of August 31, 2012, the
State’s review documented that 24,042 homeowners, who received $698.5 million in CDBG
disaster recovery funds, either were noncompliant, including those who had not elevated their
homes; were nonresponsive; or did not provide sufficient documentation. Therefore, this
recommendation remains open and has been revised based on our follow-up review due to the
increased noncompliance among homeowners who received elevation grants.
High Homeowner Noncompliance and Low Recovery of Grant Funds
We reviewed the documents provided by CPD and the State. Based on the State’s documents, as
of August 31, 2012, the State had distributed $940.5 million in elevation grant funds to 32,319
homeowners, with an average grant amount of $29,100. The 3-year compliance period had
expired for 28,188 (or 87 percent of all program participants) homeowners. These homeowners
received $817.7 million.
The State mailed a monitoring survey to all homeowners whose compliance period had expired.
Based on the surveys received as of August 31, 2012, the State determined that only 4,132
homeowners, who received $119.2 million, had complied with their grant agreements and
elevated their homes in compliance with program requirements. The State determined that
another 15,027 responding homeowners were noncompliant with one or more of the grant
agreement requirements. These noncompliant homeowners received $437.5 million in elevation
grant funds. The State received an additional 553 surveys from homeowners who responded as
complying but did not provide the necessary documentation to support that they had elevated
their homes. These 553 homeowners received $16 million in elevation grants. The remaining
8,462 homeowners did not respond to the State’s survey.2 These homeowners received $245
million in grant funds. The State informed us that it would contact the noncompliant
homeowners to determine whether their homes had been elevated by the fall of 2012.
The following chart shows the status of homeowner compliance for those who reached the
required 3-year period and the amount of funds received as of August 31, 2012.
2
There is a difference of 14 homeowners between the total number of homeowners who received the State’s
monitoring survey (28,188) and the sum of the homeowners who responded and those who did not (28,174).
According to a State official, 14 represents the number of homeowners who more recently received the survey and
were given 30 days to respond. Since the 30 days had not yet passed, the State did not consider these homeowners
as nonresponsive.
4
Status of homeowner compliance
2%
Noncompliant ($437.5 million)
15% (see footnote 3)
Nonresponsive ($245 million)
53% Compliant ($119.2 million)
30%
State working with homeowner
($16 million)
Overall, the State had attempted to collect funds from the noncompliant homeowners. The State
indicated that, as of August 31, 2012, it had collected about $2.73 million3 from 490 Road Home
program participants. All of the funds were recovered through homeowner repayments and the
State’s collections process. Of these 490 homeowners, 374 had repaid amounts identified for
recovery, while another 116 continued making payments to the State’s Office of Attorney
General. Except for the $200,900, the State was unable to identify how much of the remaining
funds was solely related to Elevation Incentive grantees.
Although the State’s outreach and education efforts had been positive, they had not resulted in
substantially greater compliance or a higher rate of grant fund recovery. The elevation
agreement signed by each homeowner requires elevation of the home to a specified level, and if
it does not meet or exceed that level within 3 years from date of the agreement, the entire amount
of the grant must be repaid to the State.
Considering the high incidence of noncompliance by homeowners, who received more than $437
million in Federal funds, CPD and the State should consider alternative payment methods and
controls for any future disbursements of disaster recovery CDBG funds, which would ensure
greater grantee compliance.
After our review, the State provided additional information concerning the Road Home Elevation
Incentive grantees who also participated in its Hazard Mitigation Grant Program. As of
September 30, 2012, there were 5,303 homeowners, whose 3-year compliance period had
expired, who received funding from both programs. Of these homeowners, 1,064, who were
once identified as noncompliant or having inadequate documentation, had elevated their homes.
Based on the $30,000 incentive grant maximum, at most, these newly elevation-compliant
3
The $2.73 million includes the approximately $200,900 recovered from the 18 noncompliant elevation
homeowners. Therefore, we adjusted the $437.5 million noncompliant amount to $437.3 million to reflect the
$200,900 recovered by the State from its Elevation Incentive grantees.
5
homeowners would have received an estimated $31.9 million in Elevation Incentive grant funds.
Although, we recognized the State’s continued efforts, we have not adjusted our
recommendations based on the information reported after August 31, 2012.
RECOMMENDATIONS
We recommend that HUD’s Office of Community Planning and Development require the State
of Louisiana to
1A Enforce program remedies for noncompliance as stated in grant agreements,
starting with the recovery of $437.3 million in elevation grant funds from the
15,027 homeowners who did not elevate their homes within 3 years of the grant
agreement date and the State had not collected any of the funds.
1B Determine whether the 8,462 homeowners who did not respond to its monitoring
survey used the $245 million in elevation grant funds to elevate their homes. If
not, the State should recover these funds from the noncompliant homeowners.
1C Obtain documentation to validate whether the 553 homeowners, who received
$16 million in grant funds, elevated their homes. If not, the State should recover
these funds from the noncompliant homeowners.
1D Enforce its grant review and recovery procedures to ensure that homeowners
comply with the terms of their elevation grant agreements.
1E Reimburse the uncollectible elevation grant funds from non-Federal funds.
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APPENDIXES
Appendix A
IMPLEMENTATION OF RECOMMENDATIONS
In our March 2010 report, we made four recommendations. Specifically, we recommended that
CPD require the State to
1. Coordinate efforts with HUD to address and reduce the incidence of noncompliance in
the Road Home Elevation Incentive program.
2. Ensure that monitoring of elevation grants provides adequate coverage to specifically
identify compliant and noncompliant recipients (the State’s present sampling method
provides the ability to determine with confidence what percentage of homeowners have
not elevated, but it will not identify them individually).
3. Identify and advise all elevation grant recipients who have yet to meet the terms of their
grant agreements of their obligation to either elevate their property or return grant funds
to the State.
4. Enforce the program remedies for noncompliance as set out in the elevation grant
agreements, starting with recovery, where warranted, of the $3.8 million in grant funds
from the 158 noncompliant homeowners in our sample.
Recommendation 1 was satisfactorily addressed and closed at the time our office issued the
March 2010 report. Based on our current review, we consider that CPD and the State took
adequate corrective actions to close recommendations 2 and 3.
We reviewed the documentation provided by the State indicating that it had established various
protocols and procedures to adequately monitor homeowners who received HUD funds to
elevate their homes and identify homeowners who had not complied with the program
requirements. The State developed a monitoring and compliance plan and is now monitoring
100 percent of the participating homeowners as opposed to using a statistical sample to project
the compliance rate as it previously did. The State also implemented steps to instruct
noncompliant homeowners of their responsibilities under the grant agreement. These steps
included onsite visits to the homeowners, mailing monitoring and compliance packets to all
homeowners who had reached the end of the 3-year compliance period, and conducting many
outreach sessions. Based upon the information that we reviewed and the corrective actions taken
by CPD and the State, we are closing recommendations 2 and 3 upon issuance of this report.
7
In response to recommendation 4, the State indicated that it was enforcing program requirements
to recover grant funds from homeowners who had violated the terms of their grant agreement
and ICF, the contractor who administered the program before April of 2009. The deputy director
of the State’s Office of Community Development-Disaster Recovery Unit also informed us that
the State was using its Office of Attorney General to collect grant funds from noncompliant
homeowners.
However, our review disclosed that 24,042 homeowners, who received approximately $698.5
million in CDBG disaster recovery funds, were noncompliant, including those that had not
elevated their homes; were nonresponsive; or did not provide sufficient documentation.
Therefore, the State did not have conclusive evidence that these homes had been elevated. As a
result, recommendation 4 remains open and has been revised based on our follow-up review due
to the increased noncompliance among homeowners who received elevation grants.
8
Appendix B
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Unsupported
Ineligible 1/
number 2/
1A $437,312,837
1B $245,010,416
1C 16,020,577
Total $437,312,837 $261,030,993
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or Federal, State, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
9
Appendix C
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
10
11
Comment 2
Comment 3
12
Comment 3
Comment 4
13
Comment 5
Comment 4
14
OIG Evaluation of Auditee Comments
Comment 1 We are encouraged by CPD’s willingness to ensure that the State of Louisiana (1)
complies with the requirements of the CDBG Program and (2) take appropriate
sanctions against recipients when non-compliance instances are found. We look
forward to reviewing CPD’s implementation of our recommendations during the
audit resolution process.
Comment 2 The State acknowledges that some of the 24,042 homeowners who reached their
three year compliance period have not elevated their homes. Since the State is
reluctant to recapture the funds, although the three year compliance period has
expired and homeowners have not elevated their homes, the State needs to
establish specific timeframe for these homeowners to comply with the
requirements of the grant agreements and adhere to this specific timeframe for
verifying compliance.
Comment 3 Since the State and CPD are still working on the unmet needs policy, it would be
premature for us to comment on State’s planned actions and to place reliability on
this course of action until CPD has approved the States’ unmet needs policy.
Therefore, these guidelines are not relevant for delaying program remedies and
recovery actions at this time.
Comment 4 We reaffirm the terminology that we used to categorize the 15,027 homeowners
were noncompliant with one or more of the grant agreement requirements, 553
homeowners complied but did not provide the necessary documentation to
support that they had elevated their homes and 8,426 homeowners did not respond
to the State’s survey. We adopted the terminology from the State’s Elevation
Compliance Monitoring Detail Report dated August 31, 2012.
In addition, we are encouraged by States’ willingness to work with CPD in
developing and implementing a corrective action plan for addressing the
recommendation cited in our report during the audit resolution process.
Comment 5 The State reported to us as of February 7, 2013 that 7,682 properties received
field reviews or Hazard Mitigation Grant Program inspections and that postal and
utility data indicated that 13,376 homeowners had “likely” rebuilt their homes.
The State is claiming that it is making progress toward homeowner compliance
and elevation; however, we do not have any evidence that will definitively
support that these homes have been elevated.
15
Follow-up of the Inspections and Evaluations Division on Its Inspection of the State of Louisiana's Road Home Elevation Incentive Program Homeowner Compliance (IED-09-002, March 2010)
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-03-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)