oversight

The State of Mississippi Did Not Ensure That Its Subrecipient and Appraisers Complied With Requirements, and It Did Not Fully Implement Adequate Procedures For Its Disaster Infrastructure Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-12-30.

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

 OFFICE OF AUDIT
 REGION 4
 ATLANTA, GA




                   The State of Mississippi

           Community Development Block Grant
           Hurricane Disaster Recovery Program




2014-AT-1004                                  DECEMBER 30, 2013
                                                        Issue Date: December 30, 2013

                                                        Audit Report Number: 2014-AT-1004




TO:            Yolanda Chavez, Deputy Assistant Secretary, Grant Programs, DG

               //signed//
FROM:          Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT:       The State of Mississippi Did Not Ensure That Its Subrecipient and Appraisers
               Complied With Requirements, and It Did Not Fully Implement Adequate
               Procedures For Its Disaster Infrastructure Program

    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), final results of our review of the Mississippi’s Community
Development Block Grant Disaster Recovery program.

    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 8M, 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
404-331-3369.
                                           Date of Issuance: December 30, 2013
                                           The State of Mississippi Did Not Ensure That Its
                                           Subrecipient and Appraisers Complied With
                                           Requirements, and It Did Not Fully Implement Adequate
                                           Procedures for Its Disaster Infrastructure Program


Highlights
Audit Report 2014-AT-1004


 What We Audited and Why                    What We Found

We audited the State of Mississippi’s      The State did not ensure that its subrecipient, Harrison
Community Development Block Grant          County Utility Authority, and its appraisers complied
Hurricane Disaster Recovery Program.       with the terms of appraisal agreements for the
The Gulf Coast Regional Infrastructure     appraisal of property acquired under the State’s Gulf
Program was selected for audit based       Coast Regional Infrastructure Program. The State
upon a congressional request, and it was   could not support $7,200 paid for appraisals that did
also included in the U.S. Department of    not meet standards. In addition, it lacked assurance
Housing and Urban Development,             that land purchased for more than $2.1 million was
Office of Inspector General’s (HUD         appraised at a reasonable price.
OIG) annual audit plan. Our main
objectives were to determine whether       The State did not fully implement adequate controls
the State ensured that (1) appraisers      and procedures to ensure (1) that the need for and
complied with the terms of appraisal       capacity of water and wastewater treatment facilities
agreements and Federal requirements        constructed addressed needs created by Hurricane
and (2) projects and growth projections    Katrina or supported economic development and (2)
were reasonable and adequately             the proper designation and completion of emergency
supported.                                 activities. As a result, disaster funding of more than
                                           $653 million was approved to construct 67 facilities
                                           that may include some plants, the capacity of which
 What We Recommend
                                           was either too small or excessive, and others plants
                                           that may not have been needed. More than $9.6
We recommend that HUD’s Deputy             million of disaster funds were approved for a facility
Assistant Secretary for Grant Programs     based on an emergency requirement when the facility
require the State to support $7,200 in     did not meet the definition of an emergency
appraisal fees; more than $2.1 million     requirement.
for property acquisition of three
projects; and fully implement
procedures and controls to address the
findings cited in this audit report.
                            TABLE OF CONTENTS

Background and Objectives                                                        3

Results of Audit
      Finding 1: The State Did Not Ensure That Its Subrecipient and Appraisers
                 Complied With Agreements and Federal Requirements               5
      Finding 2: The State Did Not Fully Implement Adequate Controls and
                 Procedures for Its Disaster Infrastructure Program              11

Scope and Methodology                                                            18

Internal Controls                                                                20

Appendixes
A.    Schedule of Questioned Costs                                               22
B.    Auditee Comments and OIG’s Evaluation                                      23
C.    Appraiser Review Results                                                   40
D.    Review Appraiser Review Results                                            43
E.    Plan Versus Initial Projections                                            44
F.    PEER Usage Estimates                                                       45
G.    Emergency Criteria and Projects                                            46




                                             2
                      BACKGROUND AND OBJECTIVES
The Community Development Block Grant (CDBG) program is funded by the U.S. Department
of Housing and Urban Development (HUD). It provides annual grants on a formula basis to
entitled cities, urban counties, and States to develop viable urban communities by providing
decent housing and a suitable living environment and by expanding economic opportunities,
principally for low- and moderate-income persons.

On August 29, 2005, Hurricane Katrina made landfall in southeast Louisiana and Mississippi
with the worst property damage occurring in the coastal areas, such as Mississippi beachfront
towns, which were more than 90 percent flooded in hours, as boats and casino barges rammed
buildings, pushing cars and houses inland, with waters reaching 6 to 12 miles from the beach.

Soon after Hurricane Katrina, the U.S. Congress and the President appropriated more than $5.4
billion to assist with the State of Mississippi’s storm recovery efforts. The State created the
Hancock, Harrison, George, Jackson, Pearl River, and Stone County Utility Authorities with the
passage of Senate Bill 2943 - Mississippi Gulf Coast Region Utility Act, signed on April 18,
2006. Of the $5.4 billion, the State allocated more than $653 million to the Gulf Coast Regional
Infrastructure Grant Program for the purpose of developing and implementing infrastructure in
the six coastal counties. In the spirit of the report of the Governor’s Commission on Recovery,
Rebuilding, and Renewal, the State found that there was a need for consolidation of water,
wastewater, and storm water services to reduce costs; promote resilience in the event of a
disaster; improve the quality of the natural environment; and improve the planning and delivery
of quality water, wastewater, and storm water services within these counties.

The Mississippi Development Authority is the State’s designated agency responsible for
administering CDBG funds. With regard to the Program, the Development Authority managed
the accountability of the funds, while the Mississippi Department of Environmental Quality
provided technical oversight and project management. The Department of Environmental
Quality, established in 1989, is responsible for protecting the State’s air, land, and water. Its
mission is to safeguard the health, safety, and welfare of present and future generations of
Mississippians by conserving and improving the environment and fostering wise economic
growth through focused research and responsible regulation.

As the State’s Program administrator, the Department of Environmental Quality, was responsible
for developing the Gulf Region Water and Wastewater Plan. The Department of Environmental
Quality engaged the Mississippi Engineering Group to assist in the development of the Plan,
which included but was not limited to the projection of demographic changes to determine future
service needs. The Mississippi Engineering Group entered into a subconsultant agreement with
Angelou Economics to assist in preparing the population projections detailed in the Plan.

The Plan, finalized on January 9, 2007, identified the most critical infrastructure needs to
accommodate the 64 percent projected population growth that the Mississippi Engineering
Group expected to occur in the six counties over the next 20 years. The Plan prioritized those




                                                 3
projects, using more than $653 million for 67 infrastructure projects located in the six 1 coastal
Mississippi counties. On August 24, 2007, the State received from HUD a waiver of the
requirement that at least 50 percent of the supplemental CDBG grant funds provided primarily
benefit persons of low and moderate income. As of June 30, 2013, the State had expended
$597.5 million (91 percent) of its Program funding.

The Gulf Coast Regional Infrastructure Program was selected for audit based upon a
congressional request, and it was also included in the Office of Inspector General’s (OIG) annual
audit plan. Our audit objectives were to determine whether the State ensured that (1) appraisers
fully complied with the terms of appraisal agreements and Federal requirements and (2) the
Plan’s projects and growth projections were reasonable and adequately supported.




1
 Although George County’s population is documented in the Plan, the county did not receive funding from the
State.

                                                       4
                                               RESULTS OF AUDIT


Finding 1: The State Did Not Ensure That Its Subrecipient and
           Appraisers Complied With Agreements and Federal
           Requirements
The Harrison County Utility Authority 2 (subrecipient) and its appraisers did not comply with the
terms of the appraisal agreements for the appraisal of property acquired under the State’s Gulf
Coast Regional Infrastructure Program. This deficiency occurred because (1) the subrecipient
did not provide to the appraiser all of the required documents listed in the agreement, (2) the
appraiser did not read the agreement, and (3) the review appraiser was not aware of the
appraiser’s scope of services (agreement) requirements and failed to determine whether the
documentation demonstrated the soundness of the appraiser’s opinion of value. As a result, the
State could not support $7,200 paid for appraisals that did not meet standards and lacked
assurance that $2.1 million was a reasonable price for the land purchased.


    The Subrecipient Did Not
    Comply With Appraisal
    Agreements and Federal
    Requirements

                     The subrecipient contracted with Ladner Appraisal Group, Inc. (appraiser), on
                     February 21, 2008, agreeing to provide appraisal services for certain real property
                     that it planned to acquire for the 25 subrecipient projects funded under the
                     Program. The purpose of the agreement was that the appraisals were to be used
                     by the subrecipient for guidance in making a fair and impartial determination of
                     the fair market value and just compensation to be offered to each property owner
                     under eminent domain. The agreement further stated, “…the appraisal reports
                     will be reviewed carefully by the Harrison County Utility Authority
                     [subrecipient].”

                     On August 1, 2008, the subrecipient executed a contract with Doug Singletary &
                     Associates, Inc. (review appraiser), to review the appraisals completed by the
                     appraiser under this Program to determine whether the appraisal report under
                     review complied with the requirements of the Uniform Act, 3 Uniform Standards
                     of Professional Appraisal Practice (USPAP), and HUD Handbook 1378.




2
  The State of Mississippi created the Harrison County Utility Authority with the passage of Senate Bill 2943 – Mississippi Gulf Coast Region
Utility Act, signed on April 18, 2006.
3
  49 CFR (Code of Federal Regulations) Part 24, Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended
(42 U.S.C. (United States Code) 4601 et seq.) (Uniform Act)

                                                                     5
                        We reviewed four appraisal reports with an aggregate acquisition price of more
                        than $2.4 million and associated appraisal fees of $7,200 for the subject
                        properties.

          Table 1: Summary of project appraisers’ fees, values, and acquisition price
                                                               Review            Total appraiser-   Appraiser’s
                                            Appraiser         appraiser          review appraiser   value of the   Acquisition
                     Project                   fee               fee                   fees         acquisition      price
               Biloxi Broadwater
                 Water System
             Improvements (W19)               $1,200              $600                  $1,800       $681,900       $340,950
               Biloxi Broadwater
                  Wastewater
             Transmission System
              Improvements (S21)              $1,200              $600                  $1,800        $96,800       $437,750
            D’Iberville Wastewater
             Treatment Facility and
             Transmission System
                      (S20)                   $1,200              $600                  $1,800       $1,380,000     $1,380,000
            Gulfport VA Area Water
             Supply Improvements
                     (W16)                    $1,200              $600                  $1,800       $300,400       $300,400
                      Totals                  $4,800            $2,400                  $7,200      $2,459,100     $2,459,100 4

                        Information Was Not Provided

                        Article 5 of the agreement, dated February 21, 2008, stated that the subrecipient
                        would provide certain documents to the appraiser. Title information (title
                        opinion) was one of the items to be supplied to the appraiser according to the
                        agreement, and the appraiser should not have started the appraisal process without
                        this information. Title information was also required by regulations at 49 CFR
                        (Code of Federal Regulations) 24.103(a)(2)(i) to be included in the appraisal
                        report. None of the appraisals reviewed contained this information. According to
                        the appraiser, a title opinion was not received, and, in essence, the appraiser
                        operated in the dark related to title issues and encumbrances regarding the
                        property appraised. According to the appraiser, the only information provided at
                        the time of the engagement was

                              •    Tax parcel number of the property to be appraised,
                              •    Name of the property owner,
                              •    Survey (engineers plat) (in some instances the wrong engineers’ plats),
                                   and
                              •    Notifications that a return receipt (green card) was received by the
                                   property owner so he could begin the appraisal process.




4
    The Biloxi Broadwater acquisition price for both projects was paid to the same payee.

                                                                          6
                       In one appraisal, W19, a title opinion showing existing easements could have
                       alerted the appraiser that part of the property being appraised was subject to
                       existing power line easements as shown in picture 1.




                                          Picture 1: Power lines on project W19

                       It was only after the subrecipient had purchased a tract of land for $340,950 that it
                       was realized that the property was subject to a Mississippi Power line easement.
                       If the subrecipient and the appraiser had requested and insisted that title
                       information be provided, additional costs estimated to be more than $70,000 to
                       move the power lines, purchase existing easements from Mississippi Power, or
                       purchase new property could have been prevented. Regulations at 49 CFR
                       24.103(a)(2) state that the agency has the responsibility to ensure that the
                       appraisals it obtains are relevant to its program needs, reflect established and
                       commonly accepted Federal and federally assisted program appraisal practices,
                       and at a minimum, comply with the definition of an appraisal in 49 CFR
                       24.2(a)(3).

                       The Appraiser Did Not Read the Agreement

                       According to the agreement, the appraiser agreed to follow nationally recognized
                       appraisal standards and techniques to the extent that such principles were
                       consistent with the eminent domain law of the State. While not addressed by
                       name or reference, this agreement would include but not be limited to USPAP
                       requirements. During an initial interview with the appraiser, he stated that he had
                       not read the agreement and did not know what was required in relation to the
                       appraisal reports.

                       We performed field appraisal reviews 5 of the original appraisal and review
                       appraisal reports and identified various deficiencies. After disclosing the findings
                       to the State, we agreed to allow the appraiser and review appraiser an opportunity
                       to provide supplemental information in an effort to correct the deficiencies noted.
                       Our review of the supplemental information was to determine whether the
                       information provided corrected the deficiencies previously noted and whether the
                       additional information provided support for the appraiser’s value of acquisition in
                       the original report. We determined that the supplemental information was

5
    Projects W19, S21, S20, and W16

                                                          7
                      equivalent to a new assignment. Our review of the new appraisals indicated these
                      also did not fully comply with USPAP despite the appraiser’s effort to materially
                      comply with the requirements of the agreement. The desk review of the current
                      appraisals indicated the appraiser failed to

                           •     Collect, verify, and analyze all information necessary for credible
                                 assignment results and identify characteristics of the property that were
                                 relevant to the type and definition of value and intended use of the
                                 appraisal;
                           •     Provide appraisals that were well documented; and
                           •     Provide appropriate allowances for differences in market conditions and
                                 physical differences between the subject and sales.

                      The appraiser also used a ranking method 6 in the sales comparison approach
                      without making market-driven adjustments for dissimilarities between the subject
                      and comparable sales for the properties purchased for projects W19 and S21.
                      While the ranking method is an acceptable method, it (1) is not the preferred
                      method to use in the sales comparison approach, which is subject to eminent
                      domain proceedings, and (2) failed to comply with the scope of services
                      requirements contained in the agreement. The agreement states that as part of the
                      purpose, the appraiser is to provide a full explanation of the reasoning and
                      analysis of the evidence of value. The agreement further states that the
                      appraiser’s analysis must reflect appropriate allowances for the difference in the
                      time of the sale of the comparable properties and the date of the appraisal and the
                      differences in the utility, desirability, and productivity of the properties that are
                      pertinent to their relative value. The appraisals for projects W19 and S21 failed to
                      provide evidence related to market condition, location, and physical adjustments
                      between the subject and sales. A highly used and respected appraisal book, “Real
                      Estate Valuation in Litigation” by Eaton, refers to the fact that “…nothing less
                      than a self-contained report is acceptable for eminent domain cases; and anything
                      less than a self-contained report fails to meet the need of the user of the report.”

                      The appraisals for the properties, purchased for projects W19, S21, and S20 as
                      presented, failed to support the appraiser’s final value conclusion of the
                      acquisition of more than $2.1 million. In addition, the properties purchased for
                      projects W19 and S21 failed to comply with USPAP Standards Rules 1-2(f) and (g)
                      and 2-2(b)(x) when the appraiser used hypothetical conditions and assumptions in
                      the report that were confusing and misleading without proper disclosure and
                      failed to notify the users that the use of the hypothetical conditions and
                      extraordinary assumptions would affect the results.

                      Regarding the property purchased for project W16, the value conclusion of the
                      acquisition appeared to have been reasonable based on supplemental information
                      submitted by the appraiser; however, the appraiser failed to comply with the

6
 A qualitative technique for analyzing comparable sales - a variant of relative comparison analysis in which comparable sales are ranked in
descending and ascending order of desirability and each is analyzed to determine its position relative to the subject.

                                                                       8
reporting requirements of USPAP (see appendix C for the specific deficiencies in
the appraisal reports).

The Review Appraiser Was Not Aware of the Appraiser’s Scope of Services
(Agreement) Requirements and Failed To Request the Appraiser’s Work File

As part of the review process, the review appraiser was to review the appraisal to
determine that the report under review complied with requirements of the
Uniform Act, USPAP, and HUD Handbook 1378. Of the reports reviewed, the
review appraiser failed to perform the job as the review appraiser and appeared to
have approved the reports as written without performing an adequate review.

Regulations at 49 CFR 24.104(c) state that the review appraiser is to review the
appraiser’s presentation and analysis of market information and that they are to be
reviewed against 49 CFR 24.103 and other applicable requirements. The
appraiser stated in the appraisals that the report was a summary report that
complied with the reporting requirements of USPAP Standards Rule 2-2(b). The
appraiser stated as item number 1 of the special limiting condition and item
number 12 of the contingent and limiting conditions that the report did not include
a full discussion of the data, reasoning, and analyses that were used in the
appraisal process to develop the appraiser’s opinion of value. He further stated
that supporting documentation concerning the data, reasoning, and analyses were
retained in the appraiser’s file. Several statements similar to this one were noted
throughout the report. However, the review appraiser did not request the
appraiser’s work file to determine whether the documentation, including valuation
data and analysis of those data, demonstrated the soundness of the appraiser’s
opinion of value as required at 49 CFR 24.104(c). In essence, the appraiser put
the user(s) and the review appraiser on notice that they would not be able to fully
understand the report without the work file. The review appraiser disregarded the
appraiser’s statements and proceeded with the review and approval of the
appraisal.

The appraiser further stated in the sale comparison approach that there were
dissimilarities between the subject property and comparable sales but did not
disclose or discuss what the dissimilarities were and provided no comparative
analysis, reasoning, or support for the value conclusion. Based on the content of
the appraisal, the review appraiser would have been unable to conclude that the
report contained adequate documentation and analysis to support the sales
comparison approach and determine whether the value conclusion was supported.
The level of documentation, analysis, and support for the appraiser’s value
conclusion of the acquisition contained within the report was insufficient to
comply with the requirements of USPAP Standards Rules 1 and 2, HUD
Handbook 1378, and 49 CFR Part 103 and did not meet the needs of the client.

After our review of the supplemental information, it was determined that the
review appraiser failed to adequately review the appraisals for proper

                                 9
             documentation and approved appraisals that failed to adequately comply with the
             terms of the agreement and requirements of the Uniform Act (see appendix D for
             the specific deficiencies in the review appraisal reports).

Conclusion

             The State did not ensure that its subrecipient, Harrison County Utility Authority,
             and its appraisers complied with the terms of the appraisal agreements for the
             appraisal of property acquired under the State’s Gulf Coast Regional
             Infrastructure Program. This deficiency occurred because (1) the subrecipient did
             not provide all of the required documents listed in the agreement to the appraiser;
             (2) the appraiser did not read the agreement; and (3) the review appraiser was not
             aware of the appraiser’s agreement and failed to determine whether the appraisal
             documentation demonstrated the soundness of the appraiser’s opinion of value.
             Thus, the State could not support $7,200 paid for appraisals that did not meet
             standards. In addition, it lacked assurance that land purchased for more than $2.1
             million was appraised at a reasonable price.

Recommendations

             We recommend that HUD’s Deputy Assistant Secretary for Grant Programs

             1A.    Require the State to provide supporting documentation for the $7,200 in
                    appraisal fees or reimburse the Program from non-Federal funds.

             1B.    Require the State to provide supporting documentation for the $2,158,715
                    acquisition of property for projects W19, S21, and S20 or reimburse the
                    program from non-Federal funds.




                                             10
Finding 2: The State Did Not Fully Implement Adequate Controls and
           Procedures for Its Disaster Infrastructure Program
The State did not fully implement adequate controls and procedures to ensure (1) that the need
and sizes of water and wastewater treatment facilities constructed addressed the requirements
created by Hurricane Katrina or supported economic development and (2) the proper designation
and completion of emergency activities. These conditions occurred because State officials
accepted inadequately supported changes to population growth levels and disregarded data that
would have adversely affected its emergency designation for one project. As a result, more than
$653 million in disaster funds was approved to construct 67 water and wastewater treatment
facilities, which may include some plants, the capacity of which were either too small or
excessive, and other plants that may not have been needed. In addition, more than $9.6 million
in disaster funds was approved for a facility based upon an emergency justification when the
facility did not meet the definition of an emergency requirement.


    Support for the Need and Size
    of Approved Water and
    Wastewater Projects Was
    Inadequate

                        Before the State could expend any CDBG Disaster Recovery Community
                        Development Block Grant funds for the State’s Gulf Coast Regional
                        Infrastructure Program, HUD was required to approve the State’s action plan for
                        the intended use of the funds. On August 31, 2006, HUD approved the State’s
                        action plan to provide infrastructure needs that would support areas to
                        accommodate future growth whether driven by population shifts or economic
                        development. In its contract with the Mississippi Engineering Group, Inc., the
                        State required its contractor to project demographic population changes to
                        determine future service needs for six Mississippi counties. 7 To meet this
                        requirement, Mississippi Engineering Group entered into a subconsultant
                        agreement with Angelou Economics. The population projections from the Gulf
                        Region Water and Wastewater Plan were used to determine future water and
                        wastewater flows for the water and wastewater facilities.

                        The State allowed unsupported changes to the population projections, which
                        resulted in increases to population growth levels in amounts that were
                        significantly higher than those supported by other population sources 8. As a
                        result of the unsupported changes, we could not determine whether the State
                        ensured that the need for and sizes of water and wastewater facilities constructed
                        addressed the needs created by Hurricane Katrina or would support economic
                        development.

7
    The six counties included George, Hancock, Harrison, Jackson, Pearl River, and Stone.
8
    2005 - Mississippi Institutions of Higher Learning, and U.S. Census Bureau


                                                                       11
                      We reviewed the files related to the methodology for the development of the
                      population projections and determined that the files lacked adequate support for
                      why the population projections changed over time and explanations as to the basis
                      for the population projection conclusions. During our August 14, 2013, meeting,
                      the subconsultant stated that in any population projection, the outcome is driven
                      by professional judgment when modifying the existing data. However, the
                      subconsultant provided a study9 noting that if a projection is not based on valid
                      data, techniques, and assumptions, the projections are not likely to provide
                      plausible results.

                      During our review, we determined that the projections changed significantly in a
                      relatively short period. For example, on July 5, 2006, the subconsultant provided
                      the contractor with an initial population projection of 25 percent 10 growth for the
                      six coastal Mississippi counties for the entire 20-year planning period. The
                      subconsultant preferred to be conservative with his projections for the following
                      reasons:

                            •     The region had been historically growing at half the rate of the national
                                  average.

                            •     He was concerned about inferring a high build-out rate for new
                                  subdivisions to drive overall population growth.

                            •     Rising construction costs and higher insurance rates would limit the ability
                                  of individuals to rebuild and deter reconstruction.

                            •     People in temporary situations would increasingly consider moving out of
                                  State if housing did not return and if the job market slowed.

                            •     Preliminary estimates showed the local job base to be steadily declining,
                                  which may indicate that long-term trends in primary industries were
                                  declining.

                            •     The national condominium market was oversold and could limit new
                                  construction in the Mississippi Gulf Coast region.

                      On August 2, 2006, after substantial revisions at the request of the contractor, the
                      Plan projected an increased population growth of 64 percent 11 for the planning
                      period (see appendix E for the Plan versus the initial projections). The contractor
                      did not believe the initial numbers were accurate and insisted that the
                      subconsultant revise the projections. The contractor justified its request for

9
   State and Local Population Projections Methodology and Analysis, p. 285, Smith, Tayman, and Swanson, 2001
10
    576,712 (projected 2025) - 461-107 (2005 census data) = 115,605 / 461,107 = 25 percent (see contractor initial population projections table in
appendix E)
11
   749,029 (projected 2025) - 457,575 (census 2005 data) = 291,454 / 457,575 = 64 percent (see Mississippi Gulf Region water and wastewater
plan population projections table in appendix E)

                                                                       12
                      increases, stating that the infrastructure needed to be in place for the population to
                      increase and it would be difficult to justify enhanced infrastructure if the
                      projections were low. On January 9, 2007, the State published the Gulf Region
                      Water and Wastewater Plan for the six Mississippi counties’ population
                      projections for the 20-year planning period, which projected an increased
                      population growth of 64 percent as shown in table 2. The Plan prioritized those
                      projects using more than $653 million for 67 infrastructure projects.

     Table 2: Population projections - Mississippi Gulf Region Water and Wastewater Plan




                      We compared the mean absolute percent error (MAPE) 12 for the Plan’s 2010
                      projections to the subconsultant’s initial projections and two other 2010
                      projections shown in table 3. The MAPE is a statistical tool used to determine
                      accuracy in projections, estimates, and forecasting. The lower the MAPE, the
                      more accurate the numbers. The Plan’s MAPE was the highest (21.93 percent),
                      based on the midrange published numbers at the county level. The State’s
                      projections at the +15 percent value 13 indicated an error rate of 40 and 28 percent
                      with and without transients, 14 respectively. The other two independent
                      projections’ error rates were less than 3 percent, and the subconsultant’s original
                      error rate was 9 percent, which demonstrated that the Plan’s projections were less
                      accurate when compared to other projections.




12
   It is calculated using [(actuals – forecast)/actuals] x 100.
13
   During the August meeting with the State, the contractor stated that a standard value of ± 15 percent was included in all of the county level
totals in the Plan to “appease” the stakeholders instead of what may have been a more realistic requirement for water and wastewater facilities.
14
   The Plan’s population projections included transient population (for example, temporary residents living in condominiums and visitors staying
in hotel rooms), but the U.S. Census data do not; therefore, we compared the Plan’s projections with and without transients.

                                                                      13
Table 3: MAPE comparisons
                                                    Census                             MAPE
                                                     2010       2010                  (absolute
 Population projections data sources                actual    forecast   Difference    values)
 U.S. Census Bureau - 2005                          466,878    465,137        1,741     0.37
 Mississippi Institutions of Higher Learning
 (IHL) - 2005                                       466,878    479,962      -13,084     2.80
 Angelou Economics - original projections - 2006    466,878    422,828       44,050     9.44
 Mississippi Gulf Region Water and Wastewater
 Plan - without transients                          466,878    520,188      -53,310    11.42
 Mississippi Gulf Region Water and Wastewater
 Plan - with transients                             466,878    569,247     -102,369    21.93
 Mississippi Gulf Region Water and Wastewater
 Plan - without transients +15                      466,878    598,216     -131,338    28.13
 Mississippi Gulf Region Water and Wastewater
 Plan - with transients +15                         466,878    654,634     -187,756    40.22


Conceptual design reports were prepared by the contractor that showed the
population projections used to determine future water and wastewater flow needs
for the water and wastewater facilities. During the August 14, 2013 meeting, the
contractor stated that a standard value of + 15 percent were only included in the
county totals to appease the stakeholders instead of what may have been a more
realistic requirement for water and wastewater facilities.

To determine to what extent the facilities would be used once completed,
Mississippi’s legislative oversight agency, the Joint Legislative Committee on
Performance Evaluation and Expenditure Review, requested estimates of usage
versus capacity for each project that included a water or wastewater facility. It
determined that although usage estimates for newly constructed water and
wastewater facilities built through the Program varied by county (ranging from
less than 1 to 70 percent of capacity for water facilities and less than 1 to 87
percent of capacity for wastewater facilities), some, particularly in Harrison
County, would have a relatively low utilization rate after projects were complete.
For example, the water project located in North Harrison County was estimated to
have less than1percent usage after the 2011 completion date. Also, the
wastewater projects located in the city of Saucier and East Central Harrison
County were estimated to have zero to 6 percent and less than 1 percent usage,
respectively, after the 2011 completion dates (see appendix F for usage by
county).

Because State officials accepted inadequately supported changes to population
growth levels, the plan HUD approved to use more than $653 in disaster funds to
construct 67 facilities may have included some plants that were too small or large
and others plants that may not have been needed.




                                               14
  The Designation and
  Implementation of an Emergency
  Project Were Inadequate

                     On August 31, 2006, HUD approved the State’s action plan for $25 million in
                     emergency funding to address critical needs in communities impacted by
                     Hurricane Katrina while the Plan was being completed. The State recommended
                     five 15 critical projects to receive funding for $21.6 million (see appendix G).

                     Designation Was Inadequate

                     The River Hills Wastewater Treatment Facility (S10E project) in Harrison County
                     received funding of more than $9.6 million that was set aside out of the overall
                     Program allocation to facilitate its accelerated implementation. The State
                     identified this project as critical, stating that without the accelerated grant
                     application and funding for the wastewater treatment facility, the expected rapid
                     development in the area would result in more overloading of the inadequate
                     lagoons. This condition was expected to cause more pollution in the receiving
                     streams and more health risks to the residents in this area because the onsite
                     wastewater treatment system had a historically high failure rate. However, on
                     September 5, 2007, the Harrison County Utility Authority requested that the
                     project be changed from two 200,000-gallons-per-day interim wastewater
                     treatment facilities to a permanent one with a capacity of up to 500,000 gallons
                     per day. The State reviewed and approved its request, knowing that the request
                     would delay the construction of the facility, although it was designated as an
                     emergency. One of the emergency funding criteria 16 stated that construction of
                     the project could not reasonably be delayed until the Plan was completed. Yet the
                     construction of the facility did not begin until after April 20, 2009, which was
                     more than 2 years after the implementation of the Plan and approval of emergency
                     funding.

                     Implementation Was Inadequate

                     According to the State, the existing permitted facilities within the area were not
                     expected to have adequate capacity to address the projected growth in the area,
                     and the State was not expected to replace existing facilities with new facility
                     capacity until after expiration of the existing 5-year pollution permits, if at all.
                     Therefore, the State approved this project with full knowledge that the facilities
                     would be idle until the expiration of the permits and might not serve any
                     customers after the permits expired; therefore, the project did not meet the
                     emergency criteria. As of September 30, 2013, more than 7 years after the
                     emergency project was approved by HUD, the Riverhills service area was still

15
   (1) Popularville Area, (2) Eastern Hancock County Regional Water Supply (Kiln), (3) Saucier wastewater treatment facility and Riverbend-
Robinwood Forest Transmission System (River Hills Wastewater Treatment Facility), (4) South Woolmarket wastewater treatment facility and
transmission mains, and (5) North Jackson County decentralized wastewater treatment facility.
16
   See appendix G.

                                                                     15
             being serviced by private wastewater treatment lagoons and covered under
             various water pollution control permits. The State had not confirmed how the
             emergency need was being met (see pictures 2 through 5).




             Picture 2: S10E project sign                 Picture 3: Aeration




             Picture 4: Oxidation Ditch                  Picture 5: Oxidation Ditch



Conclusion

              The State had not fully implemented adequate controls and procedures to ensure
              (1) that the need for and the sizes of water and sewer facilities constructed
              addressed requirements created by Hurricane Katrina or supported economic
              development and (2) the proper designation and completion of emergency
              activities. Specifically, the State approved conceptual designs for water and
              wastewater treatment facilities for which the facilities’ sizes and capacities were
              not supported by objective population growth estimates. The State also
              constructed a wastewater treatment facility, which it designated as an emergency
              project, although it had not met the requirements for an emergency need. These
              conditions occurred because State officials allowed increases to the population
              growth levels that were significantly higher than population estimates supported
              by other sources and disregarded data that would have adversely affected its
              emergency designation for one project. As a result, more than $653 million in
              disaster funds was approved to construct 67 water and wastewater facilities,
              which may include some plants, the capacity of which was either too small or
              excessive, and others plants that may not have been needed. In addition, more



                                              16
          than $9.6 million for an emergency facility was approved when the facility did
          not meet the emergency requirement.



Recommendations

          We recommend that HUD’s Deputy Assistant Secretary for Grant Programs
          require the State to

          2A.     Fully implement controls and procedures to ensure that in the future the
                  need and size of projects are determined and supported by objective and
                  relevant population data that accurately support the size and capacity of
                  the facilities approved for development.

          2B.     Fully implement controls and procedures to ensure that in the future
                  projects are properly identified as emergency projects and when
                  designations are made, the projects are constructed and implemented
                  pursuant to the intent of that designation.




                                           17
                          SCOPE AND METHODOLOGY

The objectives of the audit were to determine whether the State ensured that the appraisers fully
complied with the terms of appraisal agreements and growth projections were reasonable and
adequately supported.

Our audit scope generally covered April 1, 2006, through December 31, 2012, and was extended
as needed to accomplish our objectives. We conducted our fieldwork from October 20, 2011,
through October 18, 2012, at the Harrison County Utility Authority in Gulfport, MS, and the
State’s and HUD OIG’s offices in Jackson, MS. To accomplish our objectives, we

   •     Reviewed applicable HUD laws, regulations, and other HUD program requirements
         relevant to CDBG Disaster Recovery funding;
   •     Obtained and reviewed the appraiser and the review appraiser agreements;
   •     Interviewed HUD officials, State officials and contractors, and County Utility Authority
         officials;
   •     Reviewed the State’s audited financial statements and reconciled the State’s quarterly
         system reports to Disaster Recovery Grant Reporting system reports;
   •     Obtained and reviewed HUD’s monitoring reports and the State’s monitoring
         documentation;
   •     Obtained and reviewed the State’s action plans and its amendments for the Gulf Coast
         Regional Infrastructure Program;
   •     Obtained, analyzed, and reviewed the State’s Gulf Region Water and Wastewater Plan,
         dated January 9, 2007;
   •     Obtained and reviewed other population projection reports: (1) the Harrison County
         2030 Comprehensive Plan, (2) the Gulf Regional Planning Commission, Mississippi Gulf
         Coast Area Transportation Study 2030 Long-Range Transportation Plan, and (3) the
         State’s 2010 and 2011 Joint Legislative Committee on Performance Evaluation and
         Expenditure Reviews;
   •     Conducted site visits of projects located in Harrison, Hancock, Jackson, Pearl River, and
         Stone Counties; and
   •     Obtained and reviewed the agreements between the State and its contractor.

We conducted four appraisal reviews and four corresponding review appraisal reviews to
determine whether the appraiser and review appraiser complied with the terms of their appraisal
agreements. These appraisals were selected for review based on the five largest land purchases
for the projects associated with the Program, which totaled more than $8.8 million (68 percent)
of the more than $13.1 million paid by the Harrison County Utility Authority for land
acquisitions. The five largest land purchases were

    A.   $4.7 million (S11 and W18 projects),
    B.   $1.6 million (S19 and S19E projects),
    C.   $1.3 million (S20 project),
    D.   $778,700 (W19 and S21 projects), and

                                                 18
    E. $307,900 (S18 and W16 projects).

The four appraisal and corresponding review appraisal reviews were for the W19 and S21
(appraised separately), S20, and W16 projects. The two largest land purchases of more than $4.7
million (S11 and W18) and $1.6 million (S19 and S19E) were removed from our review since
the former was an acquisition of personal property, which is not subject to an appraisal, and the
latter was in litigation; thus, its acquisition cost may change based on the court ruling. Given our
methodology, the results of our disbursements for the appraisal fees and land acquisition price
selected for review cannot be projected to the universe of the disbursements made during the
period.

To determine whether the growth projections for the 67 projects were reasonable and adequately
supported, we obtained, reviewed, and analyzed the State’s documents provided to support
Angelou Economics’ population projections methodology. We selected all 67 projects for
review. The documents reviewed and analyzed included but were not limited to graphs, charts,
spreadsheets, emails, and independent data sources. To assist us in accomplishing this task, we
procured Oneida Total Integrated Enterprises, an independent engineering firm that specializes in
demographic projections, to assess the reasonableness and accuracy of the growth projections
detailed in the Mississippi Gulf Region Water and Wastewater Plan. We reviewed, analyzed,
and documented Oneida’s findings for use in our report; we take full responsibility for the work
conducted. Oneida reviewed the methodology employed to develop the population projections
published in the Plan and compared the methods to normal good practice in the field. To
accomplish this review, Oneida completed the following steps:

   1. To assess the accuracy of the Plan, comparisons were made at the county, tract, and block
      group level between the published Plan’s 2005 and 2010 projections and the published
      U.S. Census Bureau estimates (2005) and U.S. Census Bureau counts (2010).
   2. To assess the reasonableness of the demographic projections in the Plan, comparisons
      were made between the Plan’s projections and other available projections.

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
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                19
                              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
               objectives:

               •   Program operations - Policies and procedures that management has
                   implemented to provide reasonable assurance that a program meets its
                   objectives, while considering cost effectiveness and efficiency.

               •   Relevance and reliability of information - Policies and procedures that
                   management has implemented to reasonably ensure that operational and
                   financial information used for decision making and reporting externally is
                   relevant, reliable, and fairly disclosed in reports.

               •   Compliance with laws and regulations - Policies and procedures that
                   management has implemented to reasonably ensure that program
                   implementation is consistent with laws and regulations.

               We assessed the relevant controls identified above.

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




                                                 20
Significant Deficiency

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

            •   The State’s subrecipient and its appraisers did not comply with the terms of
                appraisal agreements and Federal requirements for the appraisal of property
                acquired under the State’s Gulf Coast Regional Infrastructure Program (see
                finding 1).




                                             21
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                          Recommendation
                              number                Unsupported 1/
                                1A                         $7,200
                                1B                     $2,158,715
                               Total                   $2,165,915




1/   Unsupported costs are those 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.




                                             22
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         23
24
25
Comment 1



Comment 2




Comment 3



Comment 4




            26
27
Comment 5




            28
29
Comment 6




            30
Comment 7




Comment 8




            31
Comment 9




            32
Comment 10




             33
Comment 11




Comment 12




             34
Comment 13




             35
                         OIG Evaluation of Auditee Comments

Comment 1   The State suggested that we revise our heading because it was misleading.
            However, the report clearly identified the specific agreements and Federal
            requirements for which the State did not comply and the heading will not be
            revised.

Comment 2   We acknowledged that the amounts should be changed and we have revised Table
            1 to reflect the change in Parcel W19 appraiser's value to $681,900, changed the
            acquisition price of Parcel S20 to $1,380,000, and removed the footnote reference
            to these projects. However, we will keep our footnote which stated that the Biloxi
            Broadwater acquisition price for both projects was paid to the same payee.

Comment 3   See responses to comments 4-6 below.

Comment 4   We commend the State in obtaining a consultant knowledgeable on appraisals in
            an attempt to rectify the issues noted in the initial appraisal reviews. Based on
            these reviews, the State was given the opportunity to submit supplemental
            information as agreed to by us with the full understanding that the information
            submitted would be their best and final opportunity and that we would review all
            information submitted and its relationship to the original appraisal reports. Since
            this was the State's best and final opportunity, there was no need to go back and
            forth with the State to obtain clarifications on issues related to the reports. Upon
            receipt of the supplemental information, we performed an appraisal review taking
            into consideration all requirements of the assignment against the original
            appraisals and supplemental information submitted that was linked to the original
            appraisal. Our assignment did not include a value conclusion.

Comment 5   The State’s assertion that we reviewed the supplemental information as a stand-
            alone appraisal is false. We were well aware that the appraiser had supplemented
            the original reports. Acceptance was measured in terms of material compliance
            with the requirements of (1) Harrison County Utility Authority (Agreement of
            Appraisal Services dated February 21, 2008); (2) Uniform Relocation Assistance
            Real Property Act commonly referred to as the Uniform Act; (3) HUD Handbook
            1378 and applicable Appendices; (4) Uniform Standards of Professional
            Appraisal Practice (USPAP); and (5) to determine if the value of the taking in the
            appraisal under review was a credible opinion of value based on data presented
            and appropriateness of the analysis of the data relative to the final conclusions.

                                             36
            Our conclusion that the supplemental information actually constituted a new
            assignment was based on differences and changes made between the original
            reports and supplemental information submitted. As a result, there were
            differences in the deficiencies originally provided because the deficiencies were
            also based on the new supplemental information provided by the State.

            We were well aware of Advisory Opinion 3 and Frequently Asked Questions,
            Number 155. The supplemental information submitted to support the original
            value conclusion went far and beyond simply providing additional analysis and
            information to support the original reports. The original appraisals contained no
            hypothetical conditions or extraordinary assumptions. However the supplemental
            information incorporated hypothetical conditions for varying conditions which in
            some instances were not warranted and an extraordinary assumption in the project
            W19 report. It should be noted that without the extraordinary assumption used in
            project W19, the highest and best use in the original report as stated by the
            appraiser would have been unachievable. In one report project W19 had a change
            in the identified property appraised between the original report and supplemental
            report (new property stated as being appraised the second time after we pointed
            out that the original report contained leasehold property appraised as fee simple).
            In two of the reports (W19 and S21) the appraiser changed the larger parcel from
            a single larger parcel in the original report to four larger parcels in the
            supplement. These changes coupled with the overall content contained in the
            supplements lead to the conclusion that the supplemental information constituted
            a new assignment.

Comment 6   The State is correct in stating that we did not provide a value conclusion. We
            performed a standard 3 appraisal review to determine if the appraisals and
            supplements complied with applicable regulations, USPAP, the agreement
            executed by the appraiser with the Harrison County Utility Authority
            (subrecipient), and if the appraised value conclusion was supported. Our position
            was that the appraisals (W19, S20, S21) even after submission of supplemental
            information, failed to support the final value conclusions by market evidence and
            analysis as of the effective dates of the appraisals.

Comment 7   The State suggested that we revise our heading to present a more accurate picture
            of the conclusions of this finding. However, the report clearly designated which
            sections of the program were not fully implemented and the heading will not be
            revised.

Comment 8   We do not have a misunderstanding of the goal of the program as the State
            asserted. The statement regarding the size and location of the facilities is based
            on the Mean Absolute Percent Error (MAPE) statistical tool provided by the
            State's expert and the Performance Evaluation and Expenditure Review (PEER)
            report published by the State's legislative oversight agency. Our MAPE
            comparisons showed that the Plan's projections were less accurate when



                                             37
              compared to other independent projections and low utilization rates were expected
              after some of the projects were completed as noted in the PEER report.

Comment 9     We reviewed the files related to the methodology for the development of the
              population projections and determined that the files lacked adequate support for
              why the population projections changed over time and explanations as to the basis
              for the population projection conclusions. Although the State coordinated with
              the Gulf Regional Planning Commission (GRPC) when developing its
              projections, GRPC only provided the State with population projections for 2005
              and 2030 for three of the six counties included in the State's published Gulf
              Region Water and Wastewater Plan (Plan) which the State confirmed during the
              course of our audit. GRPC published population projections for Hancock,
              Harrison, and Jackson counties but not for George, Pearl River or Stone. Also,
              the State stated that GRPC's projections were higher than the final projections
              prepared by the State's expert. However, the final projections prepared by the
              State's expert were through 2025 and GRPC only published 2005 and 2030
              projections, which is a 5 year difference. Although we acknowledge that GRPC's
              2030 projections were higher than the 2025 final projections prepared by the
              State's expert, there were no projections provided by GRPC for 2010 - 2025.
              Futhermore, the documentation did not show that the reason that the contractor
              insisted that the subconsultant revise the initial projections were based on the
              State’s coordination with GRPC’s data.

Comment 10 We did not fail to include other relevant data that would prove that the projections
           were more accurate than certain other projections, including GRPC projections as
           the State asserted. GRPC did not provide any projections for 2010 - 2025 as
           noted in our response to comment 9 above. Also, GRPC only provided
           projections for 3 counties and Table 3 compared the projections for all 6 counties
           detailed in the State's Plan which was used to determine future water and
           wastewater flows for the water and wastewater facilities. The only data generated
           before Katrina were the 2010 forecast estimates for the Census and the
           Mississippi Institutions of Higher Learning that were published in 2005.
           However, both of these estimates were in line with the actual 2010 Census which
           was after Katrina as shown in Table 3. Further, the projections in the State's Plan
           included transients and there were no tables shown or discussed in the Plan to
           show the projections without transients. Per the State's response, transient
           residents must be considered when evaluating future water and sewer
           infrastructure needs to support the projected utility demands as these types of
           residents typically create much higher peak day demands on local water and
           sewer infrastructure. Thus, we do not plan to modify our tables.

Comment 11 The State acknowledged that it provided us with the statement and have not
           provided us with any documentation regarding the present need for additional
           capacity for this project. The State identified the S10E project as an emergency,
           stating that without the accelerated grant application and funding for the
           wastewater treatment facility, the expected rapid development in the area would

                                              38
             result in more overloading of the inadequate lagoons. Per the emergency funding
             criteria, the S10E project could not be reasonably delayed until the Plan was
             completed. However, the construction of this facility did not begin until after
             April 20, 2009, which was more than 2 years after the implementation of the Plan
             and approval of emergency. Further, the ongoing litigation did not begin until
             June 8, 2011, and the Court lifted the injunction on May 17, 2012. The State has
             not proven how the emergency need was being met for this project and has not
             provided any documentation regarding the current service agreement negotiations.

Comment 12 See responses to comments 1-6 above.

Comment 13 See responses to comments 7-11 above.




                                            39
Appendix C

                                    APPRAISER REVIEW RESULTS

    Project                                 Summary of appraiser deficiencies – appraiser failed to
                          Adequately consider the “needs of the client” and “intended use of the assignment results” as well as
Biloxi                    requirements of the Uniform Act and agreement in the development and communicating of the
Broadwater                assignment results. The intended use of assignment results was for eminent domain proceedings
Water System              and possible litigation; therefore, the report should have been a well-supported and -documented
Improvements              report that met the needs of the intended user. USPAP Standards 1 and 2, scope of work within the
(W19)                A    agreement for appraisal services, the appraisal agreement, and the Uniform Act
                          Clearly and conspicuously state all extraordinary assumptions 17 and hypothetical conditions 18
                          related to the appraisal and fully disclose that these would affect the assignment results. USPAP
                     B    Standards Rules 1-2(f), 1-2(g), and 2-2(b)(x)
                          Recognize that the addendum and analysis submitted was a new assignment and that the new
                          assignment was not an extension of the original appraisal. USPAP permits the appraiser to
                          incorporate by reference specified information or analysis from a prior report but states that certain
                          items from the prior report must be specifically identified in the new report to avoid being
                          misleading. The appraiser failed to identify these items and disclosure that the report being
                     C    incorporated was an extraordinary assumption. USPAP Advisory Opinion 3
                          Disclose that the value opinion was a “retrospective value opinion” 19 according to USPAP Statement
                     D    3
                          Properly identify the characteristics of the property being appraised (included leasehold property in
                     E    the first appraisal report and failed to disclose). USPAP Standards Rule 1-2(e)
                          Limit the intended user of the report and intended use as required by USPAP Standards Rule 2-
                     F    2(a)(i) and (a)(ii) and USPAP Statement 9.
                          Comply with USPAP Standards Rules 1 and 2 and the appraisal agreement in the development and
                     G    reporting of the value conclusion.
                          Comply with the certification requirements of the 2012-2113 USPAP as they relate to disclosure of
                     H    prior assignments according to USPAP Standards Rule 2-3.
                          Produce credible assignment results by using unsupported assumptions on the development of the
                          property under appraisal and premises about market trends in the development of the highest and
                     I    best use according to USPAP Standards Rule 1-3.
                          Refrain from using hypothetical conditions related to the larger parcel that affected value and failed
                          to state and use the “jurisdictional exception rule” 20 applicable to the Uniform Act in development
                          and reporting. USPAP Standards Rules 1-2(g) and 2-2(a)(x), (b)(x), or (c)(x) and 49 CFR 24.103(b)
                     J    of the Uniform Act
                          Provide adequate and correct information related to the notification of inspection to the principals in
                          the W19 project according to 49 CFR 24.102(c) of the Uniform Act and article 3(a) scope of services
                     K    of appraiser’s services in the agreement for appraisal services.
                          Provide an adequate inspection related to parcel B and failed to question easements across or on the
                          proposed fee take. The appraiser also failed to note possible hazardous waste on the property.
                     L    Article 4(a)7(i) contents of appraisal reports in the agreement for appraisal services.
                          Correctly calculate the value of the fee taking on parcel B (tank site), although the appraiser was well
                          aware of the easements when supplementing the original appraisal. The appraiser stated only that
                          the .451-acre take was encumbered with an existing easement and that it was reduced by 70 percent
                          of its fee value but ignored this fact when calculating just compensation. Article 2(a) purpose and
                     M    significance of appraisals in the agreement for appraisal services
    Project                                 Summary of appraiser deficiencies – appraiser failed to
                       Fully discuss and provide support for the percent diminution in value 21 for damages to the property
                       due to the wastewater line and water lines crossing on parcel D. Article 4(h) contents of appraisal
                     N reports in the agreement for appraisal services
                     O Contain a description of the appraiser’s reasoning process used in reaching the value conclusion and


17
   Is directly related to a specific assignment and presumes uncertain information to be factual. If found to be false, this assumption could alter
the appraiser’s opinions or conclusions.
18
   That which is contrary to what exists but is asserted by the appraiser for the purpose of analysis
19
   Estimated value of property in the past
20
   An assignment condition that voids the force of a part or parts of USPAP when compliance with part or parts of USPAP is contrary to law or
public policy applicable to the assignment
21
   A measure of the loss of use of property that has not been physically injured but that is less marketable because of the presence in it of a known
defect

                                                                        40
                   adequate data with analysis to explain and support the valuation in the appraiser’s appraisal reports
                   and work files. Article 4(h) contents of appraisal reports in the agreement for appraisal services, 49
                   CFR 24.103(a) of the Uniform Act, and USPAP Standards Rule 1-4
Biloxi
Broadwater         Adequately consider the “needs of the client” and “intended use of the assignment results” as well as
Wastewater         requirements of the Uniform Act and agreement in the development and communicating of the
Transmission       assignment results. The intended use of assignment results was for eminent domain proceedings
System             and possible litigation; therefore, the report should have been a well-supported and -documented
Improvements       report that met the needs of the intended user. USPAP Standards 1 and 2, scope of work within the
(S21)          A   agreement for appraisal services, the appraisal agreement, and the Uniform Act
                   Clearly and conspicuously state all extraordinary assumptions and hypothetical conditions related to
                   the appraisal and fully disclose that these would affect the assignment results. USPAP Standards
               B   Rules 1-2(f), 1-2(g), and 2-2(b)(x)
                   Recognize that the addendum and analysis submitted were a new assignment and that the new
                   assignment was not an extension of the original appraisal. USPAP permits the appraiser to
                   incorporate by reference specified information or analysis from a prior report but states that certain
                   items from the prior report must be specifically identified in the new report to avoid being
                   misleading. The appraiser failed to identify these items and disclosure that the report being
               C   incorporated was an extraordinary assumption. USPAP Advisory Opinion 3
               D   Disclose that the value opinion was a “retrospective value opinion” according to USPAP Statement 3.
                   Limit the intended user of the report and intended use as required by USPAP Standards Rule 2-
               E   2(a)(i) and (a)(ii) and USPAP Statement 9.
                   Produce credible assignment results by using unsupported assumptions on the development of the
                   property under appraisal and premises about market trends in the development of the highest and
               F   best use according to USPAP Standards Rule 1-3.
                   Comply with the certification requirements of the 2012-2113 USPAP as it relates to disclosure of
               G   prior assignments. Standard Rule 2-3
                   Invoke, state, and use the “jurisdictional exception rule” applicable to the Uniform Act in the
                   development and reporting of improvements on parcels C and D. 49 CFR 24.103(b) of the Uniform
               H   Act
                   Provide adequate and correct information related to the notification of inspection to the principals in
                   the S21 project according to 49 CFR 24.102(c) of the Uniform Act and article 3(a) scope of services of
               I   appraiser’s services in the agreement for appraisal services.
                   Fully discuss and provide support for the percent diminution in value for the proposed wastewater
                   line that parallels this parcel. The appraiser confuses the user of the report by stating in one place in
                   the report that a diminution in value is 80 percent but in another, states the diminution to be 70
               J   percent. Article 2(a) purpose and significance of appraisals in the agreement for appraisal services
                   Contain a description of the appraiser’s reasoning process used in reaching the value conclusion and
                   adequate data with analysis to explain and support the valuation in the appraiser’s appraisal reports
                   and work files. Article 4(h) contents of appraisal reports in the agreement for appraisal services, 49
               K   CFR 24.103(a) of the Uniform Act, and USPAP Standards Rule 1-4
D’Iberville        Adequately consider the “needs of the client” and “intended use of the assignment results” as well as
Wastewater         requirements of the Uniform Act and agreement in the development and communicating of the
Treatment          assignment results. The intended use of assignment results was for eminent domain proceedings
Facility and       and possible litigation; therefore, the report should have been a well-supported and -documented
Transmission       report that met the needs of the intended user. USPAP Standards 1 and 2, scope of work within the
System (S20)   A   agreement for appraisal services, the appraisal agreement, and the Uniform Act
                   Clearly and conspicuously state all extraordinary assumptions and hypothetical conditions related to
                   the appraisal and fully disclose that these would affect the assignment results. The appraiser should
                   have refrained from using hypothetical conditions that were not applicable or necessary to produce
                   creditable assignment results, such as assuming that roads were in place when no secondary roads
               B   were in place at the time of the appraisal. USPAP Standards Rules 1-2(f), 1-2(g), and 2-2(b)(x)
               C   Disclose that the value opinion was a “retrospective value opinion” according to USPAP Statement 3.
                   Comply with the certification requirements of the 2012-2113 USPAP as they relate to disclosure of
               D   prior assignments according to USPAP Standards Rule 2-3.

   Project                          Summary of appraiser deficiencies – appraiser failed to
                   Limit the intended user of the report and intended use as required by USPAP Standards Rule 2-
               E   2(a)(i) and (a)(ii) and USPAP Statement 9.
               F   Select comparable sales comparable to the subject property. USPAP Standards Rule 1-4
                   Consider the characteristics of the property under appraisal related to the comparable sales. USPAP
               G   Standards Rules 1-4 and 2-2 (a)(viii), (b)(viii), or (c)(viii)
                 Produce credible assignment results by using unsupported assumptions on the development of the
                 property under appraisal and premises about market trends in the development of the highest and
               H best use according to USPAP Standards Rule 1-3.
                 Contain a description of the appraiser’s reasoning process used in reaching the value conclusion and
               I adequate data with analysis to explain and support the valuation in the appraiser’s appraisal reports

                                                               41
                       and work files. Article 4(h) contents of appraisal reports in the agreement for appraisal services, 49
                       CFR 24.103(a) of the Uniform Act, and USPAP Standards Rule 1-4
Gulfport VA
Area Water
Supply
Improvements           Recognize that the addendum presented constituted a new assignment and failed to properly
(W16)              A   address key elements related to the new assignment according to USPAP Advisory Opinion 3.
                   B   Disclose that the value opinion was a “retrospective value opinion” according to USPAP Statement 3.

Items noted above are a partial listing of deficiencies noted in the report.




                                                                  42
Appendix D
                    REVIEW APPRAISER REVIEW RESULTS

         Project                           Summary of appraiser deficiencies – review appraiser failed to
Biloxi Broadwater Water
System Improvements             Perform an adequate inspection of the Broadwater property according to article 1(a) scope of
(W19)                       A   services in the agreement for review appraisal services.
                                Determine whether the Broadwater property owners were adequately notified according to 49
                            B   CFR 24.102(c) of the Uniform Act.
                                Perform an adequate appraisal review, in accordance with Standard 3 of USPAP and article 1(b)
                                scope of services in the agreement for review appraisal services, on the Broadwater appraisal to
                                determine whether the results of the appraisal assignment met applicable appraisal requirements
                            C   and standards before acceptance.
                            D   Comply with USPAP Standards Rule 3-2 in reporting the appraisal review.
Biloxi Broadwater
Wastewater Transmission         Determine whether the Broadwater property owners were adequately notified according to 49
System Improvements (S21)   A   CFR 24.102(c) of the Uniform Act.
                                Perform an adequate appraisal review, in accordance with Standard 3 of USPAP and article 1(b)
                                scope of services in the agreement for review appraisal services, on the Broadwater appraisal to
                                determine whether the results of the appraisal assignment met applicable appraisal requirements
                            B   and standards before acceptance.
                            C   Comply with USPAP Standards Rule 3-2 in reporting the appraisal review.
D’Iberville Wastewater
Treatment Facility and
Transmission System (S20)   A   Comply with Standard 3 of USPAP as well as requirements of the Uniform Act.
                                Perform an adequate review of the appraisal and comply with Standard 3 of USPAP in conducting
                            B   and reporting.
Gulfport VA Area Water
Supply Improvements (W16)   A   Comply with Standard 3 of USPAP as well as requirements of the Uniform Act.
                                Perform an adequate review of the appraisal and comply with Standard 3 of USPAP in conducting
                            B   and reporting.




                                                           43
Appendix E

             PLAN VERSUS INITIAL PROJECTIONS


                              Contractors’ initial population projections
                           2005 census    Projected        Projected   Projected   Projected
              County           data          2010             2015        2020        2025
              George          21,369        23,516           24,405      25,901      26,933
              Hancock         46,503        37,831           43,477      51,325      54,038
              Harrison       191,433       147,609          187,814     213,784     237,895
              Jackson        134,788       136,718          144,299     152,908     159,901
             Pearl River      52,398        61,598           69,648      74,248      77,814
               Stone          14,616        15,556           17,435      18,948      20,131
               Total         461,107       422,828          487,078     537,114     576,712



              Mississippi Gulf Region water and wastewater plan population projections
                           2005 census    Projected        Projected   Projected   Projected
              County           data          2010             2015        2020        2025
              George          21,011        26,426           28,329      30,368      32,554
              Hancock         46,002        52,610           59,544      65,712      69,391
              Harrison       189,444       254,206          286,609     311,454     332,788
              Jackson        134,950       148,963          167,143     182,976     193,612
             Pearl River      51,809        67,624           76,511      83,649      91,454
               Stone          14,359        19,418           23,062      26,736      29,230
               Total         457,575       569,247          641,198     700,895     749,029


             Mississippi Gulf Region water and wastewater plan versus contractors’ initial
                                             projections
                           2005 census    Projected        Projected   Projected   Projected
              County          data           2010             2015        2020        2025
              George          (358)          2,910            3,924       4,467       5,621
              Hancock         (501)         14,779           16,067      14,387      15,353
              Harrison       (1,989)       106,597           98,795      97,670      94,893
              Jackson          162          12,245           22,844      30,068      33,711
             Pearl River      (589)          6,026            6,863       9,401      13,640
               Stone          (257)          3,862            5,627       7,788       9,099
               Total         (3,532)       146,419          154,120     163,781     172,317




                                                      44
Appendix F

                                      PEER 22 USAGE ESTIMATES

                 Usage estimates for new water tanks and wells after completion as of July 31, 2011
                                                               Year of water        Usage
                                                                   project      estimate for
                    County                                       completion     water project
                     utility                                      (actual or        after
                   authority      Location of water project      estimated)      completion
                                   Eastern Hancock County           2012             33 - 50%
                                              Kiln                  2011             20 - 22%
                   Hancock               Pearlington                2012                  29%
                                    North Harrison County           2011                  <1%
                                  Western Harrison County           2013                  31%
                                    North Gulfport-Lyman            2012                  30%
                   Harrison        Eastern Harrison County          2011                  29%
                                   Western Jackson County           2011             60 - 70%
                    Jackson        Eastern Jackson County           2011             50 - 60%
                                          Poplarville               2011                  61%
                                           Picayune                 2011                  35%
                  Pearl River              Hillsdale                2011                   5%
                     Stone         Southern Stone County            2011                  57%

        Usage estimates for new wastewater treatment facilities after completion as of July 31, 2011
                                                                 Year of
                                                              wastewater          Usage
                                                                 project       estimate for
                  County                                       completion      wastewater
                   utility      Location of wastewater          (actual or     project after
                 authority               project               estimated)      completion
                 Hancock                   Kiln                   2012                   27%
                                      Pearlington                 2012                   25%
                 Harrison                Saucier                  2011                0 - 6%
                              East Central Harrison County        2011                   <1%
                                   DeLisle-Long Beach             2013             12 - 15%
                                   South Woolmarket               2012               4 - 11%
                                       D’Iberville                2012                   87%
                  Jackson       Western Jackson County            2011                   57%
                              North Jackson Decentralized         2011                   37%
                Pearl River            Poplarville                2011                   32%
                                        Picayune                  2011             63 - 70%
                   Stone                 Wiggins                  2011                   48%
                                Southern Stone County             2011                   13%




22
   The Mississippi Legislature Joint Legislative Committee on Performance Evaluation and Expenditure Review (PEER), A Review of the
Mississippi Gulf Coast Regional Infrastructure Program, #556, November 15, 2011

                                                                   45
Appendix G

                         EMERGENCY CRITERIA AND PROJECTS


                          Criteria for determining awards under the emergency fund included that 23

        A     The project was not eligible for Federal Emergency Management Agency funding, and
              The project was necessitated by a direct or indirect result of conditions caused by Hurricane
        B     Katrina, and
        C     Construction of the project could not reasonably be delayed until the Plan was completed, and
        D     The project was necessary to prevent or reduce the threat of loss of life, or
        E     The project was necessary to correct an imminent public health threat, or
              The project was necessary to correct damage to the environment that has resulted in public contact
        F     with or consumption of polluted or contaminated drinking or surface waters.




                                                            Emergency projects
                                                              Amount        Amount             Amount        Percentage
                                                  Project   budgeted per budgeted as of     expended as of expended as of Estimated
     County            Project name               number        plan      12/31/2012         12/31/2012     12/31/2012 completion date
             Eastern Hancock County
             Regional Water Supply -
  Hancock Emergency                                W5E       $5,700,000     $6,455,395        $6,380,907          99%           8/30/2011
             Saucier WWTF (Wastewater
             Treatment Facility) and
             Riverbend/Robinwood Forest
             Transmission System -
  Harrison Emergency                               S10E      $4,000,000     $9,656,188        $9,518,786          99%           2/15/2011
             South Woolmarket WWTF and
             Transmission System -
  Harrison Emergency                               S19E      $6,000,000     $4,404,707        $4,109,658          93%           11/15/2011
             North Jackson County
             Decentralized WWTFs -
  Jackson Emergency                                S26E      $3,900,000     $4,415,627        $4,094,803          93%           10/31/2011
             Poplarville Regional Water
 Pearl River Supply System - Emergency             W1E       $2,000,000     $2,384,142        $2,384,142         100% 24        7/20/2009


      Total                                                 $21,600,000 $27,316,059          $26,488,296




23
     Mississippi Development Authority, Gulf Coast Regional Infrastructure Program, Recovery Action Plan, amendment 2, page 4
24
     Project W1E is the only project for which 100 percent of the funds had been expended as of September 30, 2011.

                                                                      46