oversight

The City of New Orleans, LA, Did Not Always Comply With Requirements When Administering Its 2013 Disaster Relief Grant

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-06-26.

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

     City of New Orleans, New Orleans,
                    LA
        Community Development Block Grant Disaster
               Recovery Assistance Funds




Office of Audit, Region 6     Audit Report Number: 2015-FW-1002
Fort Worth, TX                                      June 26, 2015
To:            Cheryl S. Breaux,
               Director, Office of Community Planning and Development, 6HD

               //signed//
From:          Gerald Kirkland,
               Regional Inspector General for Audit, 6AGA

Subject:       The City of New Orleans, LA, Did Not Always Comply With Requirements
               When Administering Its 2013 Disaster Relief Grant




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) results of our audit of the City of New Orleans, LA’s Community Development
Block Grant 2013 Disaster Relief Appropriations Act grant.
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 817-
978-9309.
                    Audit Report Number: 2015-FW-1002
                    Date: June 26, 2015

                    The City of New Orleans, LA, Did Not Always Comply With Requirements
                    When Administering Its 2013 Disaster Relief Grant




Highlights

What We Audited and Why
We audited the City of New Orleans’ Community Development Block Grant Disaster Recovery
(CDBG-DR) assistance funds awarded to the City as a result of damages caused by Hurricane
Isaac. We selected the City for review as part of the U.S. Department of Housing and Urban
Development (HUD), Office of Inspector General’s national annual audit plan. Our objective
was to determine whether the City maintained adequate procurement controls and financial
management systems and administered its CDBG-DR funds in accordance with Federal
guidelines, HUD regulations, and other requirements.

What We Found
The City did not always maintain adequate procurement controls and financial management
systems or administer its CDBG-DR funds in accordance with Federal guidelines, HUD
regulations, and other requirements. Specifically, it did not always (1) prepare independent cost
estimates or cost analyses, (2) have documentation to support expenditures, or (3) submit timely
projections to HUD or maintain a complete public Web site. These conditions occurred because
the City did not understand or disregarded Federal requirements or did not have written
documentation setting clear requirements for its CDBG-DR contracted work. As a result, it
could not show that costs were reasonable, adequately support its contract costs, or ensure that it
received the greatest overall benefit from more than $2.5 million paid to its contractors. Further,
the City could not provide reasonable assurance to HUD that it had adequate procurement and
financial controls for the proper administration and expenditure of its CDBG-DR funds; thus, its
remaining $4.5 million in CDBG-DR grant funds was at risk of mismanagement.

What We Recommend
We recommend that HUD require the City to (1) support or repay more than $2.5 million and
develop and implement a HUD-approved written plan and checklists to correct and prevent the
procurement and financial deficiencies identified, to better ensure that it spends its remaining
$4.5 million in CDBG-DR funds in accordance with requirements. We also recommend that
HUD require the City to (1) amend its contracts to clarify the type of documentation needed to
support invoices, (2) maintain complete CDBG-DR procurement and expenditure files, (3)
obtain training concerning procurement and CDBG-DR requirements, and (4) maintain a
required log of its Web site updates and submit the log to HUD periodically for review to ensure
that it completes the updates in a timely manner and in accordance with the requirements.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The City Did Not Administer Its CDBG-DR Funds in Accordance With
         Procurement and Expenditure Requirements ............................................................... 4

         Finding 2: The City Did Not Submit Timely Projections, and Its CDBG-DR Web
         Site Lacked Required Information.................................................................................. 9

Scope and Methodology .........................................................................................10

Internal Controls ....................................................................................................11

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs and Funds to Be Put To Better Use ...................... 12

         B. Auditee Comments and OIG’s Evaluation ............................................................. 13

         C. Requests for Clarification and Documentation Regarding Procurement Files...23




                                                             2
Background and Objective
Through the Disaster Relief Appropriations Act of 2013 (Act), 1 Congress made available $15.18
billion in Community Development Block Grant (CDBG) funds for necessary expenses related
to disaster relief, long-term recovery, restoration of infrastructure and housing, and economic
revitalization. In accordance with the Robert T. Stafford Disaster Relief and Emergency
Assistance Act of 1974, these funds were to be used in the most impacted and distressed areas
affected by disasters that occurred during calendar years 2011, 2012, and 2013. The U.S.
Department of Housing and Urban Development (HUD), Office of Community Planning and
Development, is responsible for the management and oversight of the CDBG Disaster Recovery
(CDBG-DR) assistance program.

The Act required HUD to certify, in advance to signing the grant agreement with the City that
the City had in place proficient procurement processes and financial controls. 2 In turn, HUD, in
its Federal Register, required the City make submissions showing evidence that it had adequate
procurement processes and financial controls. 3 The Federal Register also required the City to
submit a plan detailing its proposed use of funds to address disaster relief, long-term recovery,
restoration of infrastructure and housing, and economic revitalization in the most impacted and
distressed areas. 4 As part of the City’s action plan, dated September 3, 2013, the City
documented its need for funding, which emphasized repairing infrastructure and improving
failed or negatively impacted water and drainage areas, and provided policies and procedures
outlining its procurement processes and financial controls.

On May 29, 2013, through Federal Register Volume 78, Number 103, HUD, allocated more than
$514 million5 to assist with recovery in the most impacted and distressed areas declared with a
major disaster in 2011 or 2012. Of this amount, HUD allocated more than $15 million to the
City of New Orleans to assist with recovery from widespread damage caused by Hurricane Isaac,
which made landfall on the Louisiana coast in August 2012. On April 22, 2014, HUD executed
a grant agreement with the City for $7.1 million in CDBG-DR funds with an expenditure
deadline of 2 years. As of October 31, 2014, the City had spent more than $2.5 million to pay
administration costs and for four contractors to carry out disaster-related activities, including
grant management, demolition, and drainage cleaning services.

Our objective was to determine whether the City maintained adequate procurement control and
financial management systems and administered its CDBG-DR funds in accordance with Federal
guidelines, HUD regulations, and other requirements.


1
    Public Law 113-2, dated January 29, 2013, Title X, Chapter 9, initially authorized $16 billion. On March 1,
    2013 the President issued a sequestration order pursuant to section 251A of the Balanced Budget and
    Emergency Deficit Control Act, as amended (2 U.S.C.901a), and reduced funding to $15.18 billion.
2
    Public Law 113-2, dated January 29, 2013, Title VIII
3
    78 FR 103 (May 29, 2013), section IV
4
    78 FR 103 (May 29, 2013), section II
5
    This was the second allocation of CDBG-DR funds appropriated by the Act.




                                                         3
Results of Audit

Finding 1: The City Did Not Administer Its CDBG-DR Funds in
Accordance With Procurement and Expenditure Requirements
The City did not administer its CDBG-DR funds in accordance with requirements. Specifically,
it did not always prepare independent cost estimates before the bidding process, perform cost
analyses for contract cost increases, or prepare contract modification documents that described
the scope of work and performance requirements for contract cost increases or changes. In
addition, the City did not always have adequate documentation to support expenditures. These
conditions occurred because the City did not (1) fully understand or follow the Federal
requirements; and (2) establish clear documentation requirements for CDBG-DR work. As a
result, it could not show that costs were reasonable, adequately support its contract costs, or
ensure that it received the greatest overall benefit from more than $2.5 million paid to its
contractors. Further, the City could not provide reasonable assurance to HUD that it had
adequate procurement and financial control systems in place for the proper administration and
expenditure of its CDBG-DR funds. Finally, the remaining $4.5 million under its CDBG-DR
grant agreement with HUD was at risk of mismanagement.
The City Did Not Prepare Independent Costs Estimates, Cost Analyses, or Contract
Modifications When Required
Contrary to regulations at 24 CFR (Code of Federal Regulations) Part 85.36 6 and Federal
Register Volume 78, Number 103 (May 29, 2013), for three sampled contract files, the City did
not always prepare (1) independent cost estimates, (2) cost analyses, or (3) adequate contract
modifications for the CDBG-DR contracts (see the table below).

Material procurement deficiencies
                Contract payments                         No            No cost analysis          Inadequate
   Contract
                  (as of October                    independent          for contract              contract
     type
                       2014)                        cost estimate          increases              modification
Drainage                                                                       X                       X
                    $1,611,143
cleaning
    Demolition                  616,529                    X                     X                       X

    Grant                                                  X                     X                       X
                                328,737
    management
        Total               $2,556,409

Before Hurricane Isaac, the City had written agreements with three contractors to clean drainage
systems, perform demolition, and manage its other federally funded program grants. The City
used these same contractors under its existing contracts to carry out its CDBG-DR work. The


6
      The City, as a direct grantee, was subject to the procurement requirements of 24 CFR 85.36 (b) through (i).




                                                           4
City did not rebid for the contract work and stated that the initial procurement of the contracts
documented the work requirements and its initial cost analyses supported the cost reasonableness
of contract increases for CDBG-DR work.

The regulations required the City to (1) make independent cost estimates for its procurements
before receiving bids or proposals; (2) perform a cost analysis when negotiating a modification,
including change orders, to any type of contract if the modification changed the work authorized
under the contract and the price or total estimated cost, either upward or downward; 7 (3)
maintain records sufficient to detail the significant history of procurements, including the basis
for the contract price; 8 and (4) make submissions to HUD showing that it had adequate
procurement control systems in place. 9 An independent cost estimate is an in-house document
used to compare to bids received during procurements to ensure that the bids are valid. A cost
analysis evaluates the separate elements that make up a contractor’s total cost proposal to
determine whether they are allowable, directly related to the requirement, and reasonable.

However, for its demolition and grant management contracts, the City did not have
documentation showing that it performed independent cost estimates before the bidding process
to establish a basis for the contract prices. In addition, for its demolition contractor, the City did
not perform adequate costs analyses for 10 of 41 properties demolished. Of the 10, the City
performed cost analyses for 7 after the contractor performed the work and did not document the
estimated cost for 3. For its drainage cleaning and grants management contracts, the City did not
perform any cost analyses for contract cost increases.

Further, the City did not execute proper contract modification documents for contract cost
increases or changes for CDBG-DR work. To document the increases, the City used a change
order with minimal information, notices to proceed, and a purchase order. The change order for
the demolition contractor stated only that the cost increases were needed to pay invoices. The
notices to proceed for the drainage cleaning contractor only authorized the contractor to start
work and did not include changes to the scope of work or performance requirements to justify
the contract cost increases; even though the City waived at least one deliverable
requirement. Specifically, the City required this contractor to submit project completion reports;
however, when requested, the City stated that it did not require the reports for the CDBG-DR
work; thereby changing the work authorized under the original contract. In addition, the City did
not have written documentation showing this change.


The City was also at risk of exceeding the contract amount for its grant management contractor
since it did not properly document changes to the contract. In this case, the purchase order
issued to increase the contract costs resulted in an anticipated $590,028 in excess costs over the
contract amount. Had the contract increase undergone proper procurement procedures, this error
may have been identified and corrected.



7
    24 CFR 85.36(f)(1), and Quick Guide to Cost and Price Analysis for HUD Grantees
8
    24 CFR 85.36(b)(9)
9
    78 FR 103 (May 29, 2013), section IV




                                                      5
The City Did Not Adequately Support Expenditures
Although required by 2 CFR Part 225 and the City’s Disaster CDBG Accounting Policies and
Procedures Manual, for one of five sampled vouchers, the City did not maintain complete
supporting documentation for more than $1.6 million paid to its drainage cleaning contractor.
This payment was for removing clogs and storm-related debris from drainage systems following
Hurricane Isaac to prevent flooding in various areas in the City.

The regulations required the City to adequately document and support its costs with source
documentation. 10 However, the City’s expenditure file did not include work activity logs or other
documentation to support the paid invoices. In addition, the City could not show that it verified
that the quantities invoiced by the contractor for linear footage and areas cleaned were accurate.
Further, the City could not show that it compared the preliminary damage assessments 11 to the
invoices to ensure their accuracy and validity. City officials stated that they documented their
review and verification by marking each item and signing the invoices. However, the invoices
did not always have the markings or signatures.

The City Did Not Understand Requirements, Clearly Detail Documentation Requirements
and Did Not Follow Its Policy
The City Did Not Understand Procurement Requirements
The City did not understand requirements
regarding the documents needed to support its        The City did not understand what
procurements. Since the City believed that it        information they were required to
could rely on the cost analyses from its existing
procurements, the contract increases for the         maintain in their files.
CDBG-DR work did not always have a (1)
corresponding cost analyses showing the basis for the increases or (2) proper contract
modification documents describing the scope of work and performance requirements.

In addition, throughout the audit, despite repeated requests for procurement documentation, the
City did not provide complete procurement files. For example, the files also did not include
documentation showing (1) the rationale for the method of procurement; (2) selection of contract
type; and (3) debarment reviews. In other instances, we had to explain procurement
requirements to City officials because they did not understand what information they were
required to maintain in their files. Since the City increased the contract costs and, in some
instances, changed work authorized under the contract, it should have performed a cost analysis,
executed adequate contract modification documents, and maintained documentation supporting
the procurement history and the need for the changes. 12

Without (1) independent cost estimates to ensure cost reasonableness, (2) cost analyses showing
how it derived the contract cost increases, (3) contract modification documents establishing the

10
     2 CFR Part 225, appendix A-C(1)(j) and 24 CFR 85.20(b)(6)
11
     According to the City, the Federal Emergency Management Agency had completed preliminary damage
     assessment before the emergency work began.
12
     24 CFR 85.36(b)(9) and (f)(1)




                                                      6
terms and details for the contract increases or changes in work authorized under the contract, the
City could not show that costs were reasonable or ensure that it received the greatest overall
benefit from more than $2.5 million paid to its contractors. In addition, the City could not
provide reasonable assurance to HUD that it had adequate procurement control systems in place.

The City Did Not Clearly Detail Documentation Requirements and Did Not Follow Its Policy

In addition to not following Federal requirements and its policies and procedures when
documenting its expenditures, the City’s contract agreement with its drainage cleaning contractor
did not detail the types of source documentation needed to support its invoices. Therefore, the
City could not support more than $1.6 million 13 or provide reasonable assurance to HUD that it
had adequate financial control systems in place.

The City Had Begun To Take Action to Resolve Deficiencies Related to Inadequate
Documentation
During the audit, the City did not provide
complete file documentation for its
                                                  The City did not provide complete file
procurement and expenditure transactions,
resulting in many requests for missing            documentation, resulting in many
documents. After the audit fieldwork              requests for missing documents.
ended, the City provided more than 18,000
pages of documentation to support its procurements and expenditures. We considered the
procurement documentation when finalizing our conclusions. However, due to the large amount
of documentation provided for payments to the drainage cleaning contractor, we did not fully
assess its validity or adequacy. We performed a cursory review of the documentation to assess
whether it was sufficient to justify a reduction in the questioned costs in this report. We
compared the work activity logs, provided as support for payments to the drainage cleaning
contractor, to the contractor’s invoices. We determined that the work activity logs were not
reliable. For example, the work activity log did not show more than $5,000 that the City paid for
Chadmark Street. Therefore, we discontinued our review and based our conclusions on the
documentation reviewed during the audit. The City will need to provide the remaining
documentation to HUD for review during the audit resolution process and they will assist the
City with resolving the recommendations.




13
     These funds were also considered unsupported as part of the procurement review.




                                                         7
Conclusion
Because the City did not fully understand Federal requirements, establish clear requirements for
its contractors, or follow its own accounting policies, it did not always prepare independent cost
estimates before the bidding process, perform cost analyses for contract cost increases, prepare
contract modification documents describing the scope of work and performance requirements for
contract cost increases, adequately support expenditures, or verify the accuracy of invoices
before making payments. As a result, the City could not show that costs were reasonable,
adequately support its contract costs, or ensure that it received the greatest overall benefit from
more than $2.5 million paid to its contractors. In addition, the City could not provide reasonable
assurance to HUD that it had adequate procurement and financial control systems in place to
ensure the proper administration and expenditure of disaster funds. Further, the remaining $4.5
million under its CDBG-DR grant agreement with HUD was at risk of mismanagement.

Recommendations
We recommend that the Director of HUD’s New Orleans Office of Community Planning and
Development require the City to
   1A. Support the cost reasonableness of the drainage cleaning contract and provide adequate
       support for payment of the contractor’s invoices or repay its grant any of the
       $1,611,143 that it cannot support. Repayment should be from non-Federal funds.
   1B. Support the reasonableness of the cost increases for the demolition contract or repay
       $616,529 to its grant from non-Federal funds.
   1C. Support the reasonableness of the cost increases for the grant management contract or
       repay $328,737 to its grant from non-Federal funds.
   1D. Develop and implement a HUD-approved written plan and checklists that will correct
       and prevent the deficiencies outlined in the finding to ensure compliance with
       CDBG-DR requirements and the procurement and expenditure policies and procedures
       it previously submitted to HUD. The written plan and checklists should include
       systems that ensure that it performs independent cost estimates and cost analyses,
       maintains documentation supporting the complete history of its procurements, and
       maintains adequate supporting documentation for its expenditures. Implementing this
       recommendation should better ensure that the City spends its remaining $4.5 million in
       CDBG-DR funds in accordance with requirements.
   1E. Obtain training on Federal procurement requirements. The training should include
       instructions on preparing independent cost estimates and cost analyses as well as
       maintaining adequate cost reasonableness and contract modification documentation to
       ensure that the City maintains proficient procurement practices.

   1F. Amend its drainage cleaning contract to clarify and specify the type of documentation
       needed to support its expenditures.

   1G. Maintain complete CDBG-DR procurement and expenditures files with all
       documentation needed to support its transactions, activities, and compliance with
       Federal requirements.



                                                 8
Finding 2: The City Did Not Submit Timely Projections, and Its
CDBG-DR Web Site Lacked Required Information
The City did not always follow Federal requirements as it did not submit its projections in a
timely manner and its CDBG-DR Web site lacked required components. This condition
occurred because the City disregarded or was not always aware of the requirements. As a result,
it could not provide reasonable assurance to HUD that it had adequate controls to ensure
compliance with CDBG-DR requirements, properly implement and administer its grant, or
provide transparency and accountability to the public.
The City Did Not Submit Its Projections in a Timely Manner
Federal regulations required the City to amend its published action plan with a projection of
expenditures and outcomes to HUD within 90 days of HUD approving its action plan. 14 HUD
needed this information to track the City’s progress and evaluate expenditure timeliness in
relation to the projection schedules. HUD informed the City on several occasions that it had not
submitted its projections, which were due March 30, 2014. 15 However, the City did not submit
its projections until more than 6 months after the due date, disregarding the HUD requests and
showing an inability to meet CDBG-DR requirements. Because of the City’s inability to provide
the information in a timely matter, it could not assure HUD that it had adequate controls to
properly implement and administer its grant.

The City’s Web Site Lacked Required Information
A review of the City’s public Web site determined that the Web site did not include procurement
policies and procedures, executed CDBG-DR contracts, and the status of services or goods
procured (for example, the phase of the procurement, requirements for proposals, etc.) as
required. 16 When we notified the City that its Web site did not comply with the requirements,
City officials stated that they were not aware of all the Web site requirements. Therefore, we
provided the requirements to the City, but it did not comply. Three months later, we again
notified the City that its Web site did not comply with the requirements. The City then updated
its Web site. By not complying with the requirements, the City failed to provide full
transparency and accountability to the public.
Recommendations
We recommend that the Director of HUD’s New Orleans Office of Community Planning and
Development require the City to

     2A. Maintain a log of its required Web site updates and submit it to HUD periodically for
         review to ensure that the City completes timely updates in line with requirements.
     2B. Obtain training concerning the CDBG-DR requirements including related Federal
         Register requirements. Specifically, the training should include instructions on
         submission requirements, deadlines and website requirements.


14
     78 FR 103 (May 29, 2013), sections III and IV
15
     HUD approved the City’s action plan on December 30, 2013, and 90 days thereafter was March 30, 2014. The
     projection was submitted October 17, 2014.
16
     78 FR 43 (March 5, 2013), section VI




                                                       9
Scope and Methodology
We conducted our audit at the City’s office in New Orleans, LA, and the HUD Office of
Inspector General’s (OIG) offices in New Orleans and Baton Rouge, LA, between October 2014
and April 2015. Our audit scope covered the City’s CDBG-DR grant for the period August 1,
2012 through October 31, 2014. We expanded the scope as necessary to accomplish our audit
objective.

To accomplish our objective, we

•    Reviewed relevant laws, regulations, and program guidance.
•    Reviewed the City’s organizational structure and written policies for the program.
•    Reviewed the City’s 2013 audit report, CDBG-DR grant agreement, and action plans.
•    Reviewed HUD site visit reports and the City’s procurement and program expenditure files.
•    Interviewed City staff.
•    Assessed the City’s compliance with project eligibility, action plan, and funding obligation
     requirements.

Of five contracts in place to perform CDBG-DR work with payments totaling more than $2.56
million, we selected for review a nonstatistical sample of three contracts, totaling more than
$2.55 million,17 based upon amounts spent and high risk of noncompliance. We reviewed the
procurement files to determine whether the City maintained adequate documentation to support
that it procured its contracts in accordance with Federal requirements. We did not assess the
reliability of any computer-processed data regarding the procurement review because we did not
rely heavily on computer data to conduct this review.

Of five vouchers totaling more than $2.56 million, which included $306 for administrative costs
and the remainder for four contractors, we performed a 100 percent review. We reviewed the
expenditure files to determine whether the City made eligible and supported payments. Through
file reviews, we determined that the computer-processed data were generally reliable.

In addition to the procurement and expenditure reviews, we assessed the City’s compliance with
(1) project eligibility, (2) action plan, and (3) funding obligation requirements. We did not
assess the reliability of any computer-processed data for these assessments because we did not
rely heavily on computer data to conduct this review.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.

17
     For the other two contracts, the City had paid only $3,999 on one and $0 for the other.




                                                           10
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   Effectiveness and efficiency of operations,
•   Reliability of financial reporting, and
•   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

•   Effectiveness and efficiency of policies and procedures used to implement its CDBG-DR
    grant.
•   Reliability of data concerning CDBG-DR expenditures.
•   Compliance with applicable Federal requirements.
    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.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

•   The City did not administer its CDBG-DR funds in accordance with requirements.
    Specifically, it did not always comply with procurement requirements or always have
    documentation to support its CDBG-DR expenditures (finding 1).
•   The City did not always comply with Federal requirements as it did not (1) amend its
    published action plan to include its projection of expenditures and outcomes within 90 days
    of the action plan’s approval and (2) maintain a complete public Web site (finding 2).




                                                  11
Appendixes

Appendix A


                 Schedule of Questioned Costs and Funds to Be Put to Better Use
                                                            Funds To Be
                     Recommendation
                                         Unsupported 1/     Put to Better
                          number
                                                               Use 2/
                             1A           $1,611,143
                             1B               616,529
                             1C               328,737
                             1D                             $4,539,286
                              Totals              $2,556,409           $4,539,286


1/       Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
         or activity when we cannot determine eligibility at the time of the audit. Unsupported
         costs require a decision by HUD program officials. This decision, in addition to
         obtaining supporting documentation, might involve a legal interpretation or clarification
         of departmental policies and procedures.
2/       Recommendations that funds be put to better use are estimates of amounts that could be
         used more efficiently if an OIG recommendation is implemented. These amounts include
         reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
         implementing recommended improvements, avoidance of unnecessary expenditures
         noted in preaward reviews, and any other savings that are specifically identified. In this
         instance, requiring the City to develop and implement a HUD-approved written plan and
         checklists that will correct and prevent the deficiencies outlined in the finding, as well as
         ensuring that it remains compliant with CDBG-DR requirements and the procurement
         and expenditure policies and procedures it previously submitted to HUD, will better
         ensure that the City spends its remaining $4.5 million 18 in CDBG-DR funds in
         accordance with requirements.




18
     $7,100,000 grant amount - $2,560,714 expenditures = $4,539,286.




                                                       12
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
              Auditee Comments
Evaluation




Comment 1




                               13
Comment 2
Comment 3




Comment 4, 7


Comment 5
Comment 6


Comment 4




               14
Comment 7




Comment 8



Comment 9




            15
Comment 10




Comment 11




Comment 12




             16
Comment 12




Comment 13



Comment 14




             17
                                 OIG Evaluation of Auditee Comments
Comment 1         The City asserted that at no point during the HUD certification process, the City’s
                  submissions of its procurement processes and financial controls, or the action plan
                  was the City notified that there were compliance concerns identified by HUD.
                  We disagree. On October 20, 2013, HUD notified the City that it had to make
                  resubmissions because its financial controls and action plan did not comply with
                  HUD regulations. In addition, during HUD’s certification process, with respect to
                  financial controls and procurement processes, HUD ensured that the City had
                  necessary written procedures in place to administer the CDBG-DR grant.
                  However, HUD did not certify that the City would administer and spend grant
                  funds in accordance with these procedures and comply with HUD requirements
                  once the City received the grant funds.
Comment 2         The City asserted that HUD OIG did not understand or ask for clarification from
                  the City during its review of the documentation provided. The City did not
                  elaborate on what it believed HUD OIG misunderstood. Regarding the requests
                  for clarification, we disagree. We sent many emails and met with the City staff
                  several times, requesting documentation and clarification of documentation
                  provided. In some instances, we asked for the same documentation several times.
                  Federal regulations 19 required the City to maintain sufficient documentation in its
                  files to support its grant activities. However, the City did not maintain sufficient
                  documentation resulting in the need for further explanation or clarification. See
                  examples of requests for procurement-related documentation and clarification in
                  appendix C.
Comment 3         The City asserted that under Louisiana State Law, the City’s Home Rule Charter,
                  and Chief Administrative Office policy memorandums, including but not limited
                  to Policy Memorandum 113(R), the City will release no public work solicitation
                  without an approved requisition sufficient to cover the confirmed estimate of the
                  proposed project cost. This cost estimate is typically referenced on the first page
                  of all solicitation documents. We acknowledge the City’s explanation of these
                  requirements. However, 24 CFR 85.36(b)(9) and (f)(1) required the City to
                  perform and maintain documentation of an independent cost estimate, which must
                  be performed before the bidding process. The City did not provide this
                  documentation for its demolition and grant management contracts. In addition,
                  during the exit conference, the City stated that it often based estimates on the
                  knowledge and 20-plus years’ experience of its staff rather than documented
                  research. Further, because the purpose of the independent cost estimate is to
                  compare it to bids to ensure that the bids are valid, it should not be referenced on
                  solicitation documents. Providing potential bidders with this information defeats
                  its purpose and exposes HUD funds to fraud, waste, and abuse (for example, bid
                  rigging, underbidding, etc.). Therefore, we stand by our conclusions.



19
     24 CFR 85.20(b)(2) and (b)(6); 24 CFR 85.36(f)(1); and 2 CFR Part 225, appendix C (1)(j)




                                                        18
Comment 4   The City stated that its drainage cleaning and demolitions contracts were unit
            price contracts, meaning that it provided a rate sheet of services attached to the
            invitation to bid, each responsive bidder provided its best rates for each service
            listed on the rate sheet, and the City selected the vendor with the overall lowest
            rates. The City asserted that quantities were not relevant on the contractor’s rate
            sheet, which implied that the rate referred to a unit of one. We disagree. We did
            not base our conclusions on implications but, rather, on what the City documented
            in its files. The contract documents did not include information regarding the
            contract type and contract ceiling amount or statements that the quantities were
            not relevant. Therefore, we stand by our conclusions.

Comment 5   The City asserted that HUD OIG mistakenly reviewed the unit costs with a
            quantity of one as the total contract value and compared that against the total
            value of what was invoiced by the drainage cleaning contractor. The City
            believed that to ensure cost reasonableness, its invoices should have been
            reviewed to ensure that the billed rates were the same rates outlined in the
            contract.

            We disagree. HUD’s Quick Guide to Cost and Price Analysis for HUD Grantees
            required a cost analysis when negotiating a modification, including change
            orders, to any type of contract if the modification changed the work authorized
            under the contract and the price or total estimated cost, either upward or
            downward. The City extended the original contract, dated April 2008, annually
            through April 2013. The extensions to the contract stated that the terms and
            conditions of the agreement remained in full force and effect and did not include
            increases in contract costs or changes to the authorized contract work. However,
            as noted in the March 5 through 11, 2015, email communications (appendix C),
            the City stated that it did not require certain contract deliverables for the CDBG-
            DR work. This statement constituted a change to the work authorized under the
            contract. In addition, the contract documents reflected a contract amount of
            $10,000, and the CDBG-DR work increased the contract cost to more than $6
            million, thus exceeding the total estimated cost.

            Although the unit price did not change, by extending the dates for the contract
            work, waiving deliverables, and exceeding the total estimated cost, the City
            essentially modified the work authorized under the original contract and was
            required to perform a cost analysis. We amended the report to provide further
            clarification regarding the requirement for the cost analysis. However, we stand
            by our conclusion that the City was required to perform a cost analysis.

Comment 6   The City asserted that if the billed rates exceeded the contract rates, there would
            have been a contract increase issue; however, that did not occur. We disagree.
            The City’s assertion refers to an expenditure issue rather than the procurement
            issue discussed in the finding. We agree that the rates did not exceed the contract
            rates since we verified this through our expenditure review. Had we determined
            that the rates exceeded the contract rates, it would have been an expenditure issue



                                              19
              rather than a contract increase or procurement issue. Therefore, we stand by our
              conclusion.

Comment 7     The City asserted that the demolition contract was a unit price contract and that
              the services listed on the contract rate sheet were the same services that appeared
              on the invoices to the City and there was no need for scope changes. With its
              response, the City provided an imminent danger of collapse property listing,
              preliminary damage assessments, and notices to proceed to support costs. Based
              on our review of this additional documentation, we agree that the City conducted
              an adequate cost analysis before increasing the contract amount for 31 of 41
              properties demolished. However, for the remaining 10, the City performed cost
              analyses for 7 after the work was performed and did not document the estimated
              cost for 3. Therefore, we revised the report to reflect this conclusion. Further, as
              stated in comment 3 above, the City did not provide documentation showing that
              it performed an independent cost estimate. Thus, we stand by our conclusion
              regarding the cost reasonableness of this contract.
Comment 8     The City asserted that each of the contracts reviewed during the audit was
              properly procured in advance of Hurricane Isaac as the City uses the vendors
              outside of emergency declarations and rates billed before Isaac were the same
              rates billed during Isaac, which further demonstrates cost reasonableness. We
              disagree. As shown in finding 1 and comments 2, 3, 4, 5, 7, 9, 11, and 12, the
              City did not follow HUD procurement requirements when procuring the drainage
              cleaning, demolition, and grant management contracts.
Comment 9     The City asserted that further disputing the finding that cost estimates or cost
              analyses were not performed for the drainage cleaning contractor work scope, the
              City prepared a cost estimate on September 3, 2012, for Hurricane Isaac recovery
              work, which assessed the drainage cleaning work to be performed at $6 million.
              With its response, the City provided the cost estimate documentation. Our review
              of this documentation determined that the cost estimate was not sufficient since
              the City based the estimate on the original contract rates and did not consider the
              contract scope changes discussed in comment 4, which may have required a
              reduction in the original rates.
Comment 10 The City asserted that it provided at least five banker’s boxes of supporting
           documentation to the auditors at the end of their fieldwork phase. The City also
           asserted that more than 18,000 pages were shared with the auditors yet a very
           small sample size (Chadmark Street only) was tested. Specifically, of more than
           $1.6 million submitted, approximately $5,146 was for Chadmark Street, which
           yielded a determination that the City did not have a sufficient level of supporting
           documentation.

              We disagree. We requested this documentation in January and again in February
              2015. The City provided the documentation, consisting of more than 18,000
              pages, in April 2015 after audit fieldwork had ended. The statements referring to
              Chadmark Street were an example of deficiencies identified during a cursory
              review of the additional documentation provided and did not represent the


                                                20
                  questioned costs. We based the conclusions regarding the unsupported costs on
                  the City’s failure to provide adequate supporting documentation with its
                  expenditure files during the audit.
                  In addition, during our exit conference, we informed the City that this was a
                  cursory review, the example was not the basis for the questioned costs, and it
                  would have to work with HUD to resolve the issues. We amended the report to
                  provide more clarification regarding the cursory review of the additional
                  documentation provided by the City. The City will need to provide this
                  documentation to and work with HUD to resolve the findings and
                  recommendations during the audit resolution process.
Comment 11 As related to the City’s risk of exceeding its contract amount for its grant
           management contractor, the City asserted that the contractor provides quarterly
           task orders with estimates for work to be performed, which gives the City
           visibility of projected costs in 3-month intervals. The City also asserted that if
           any risk of exceeding contracts were to occur, the City would have ample time to
           route a contract amendment.
                  We disagree. As of August 2014, 20 the City had authorized work for this
                  contractor that exceeded the total contract amount. In addition, the City did not
                  provide documentation showing that it had identified and corrected this issue
                  during the audit or with its response. Further, the City’s CDBG-DR policy
                  required it to maintain a contract register to use as a tool to track contract
                  revisions and amendments. However, the City did not maintain a contract register
                  for its CDBG-DR contracts. Had the City maintained a contract register, it could
                  have identified this deficiency sooner since the contract register should reflect
                  contract activity.
Comment 12 Regarding the grant management contract’s being properly procured, the City
           asserted that it compared the awarded contract rates against the General Services
           Administration’s Authorized Federal Supply Service Price List: Contract:
           GS-10F-0358K and the contractor’s labor categories were either lower than or
           well within an acceptable range of the General Services Administration’s rates.
           The City provided additional documentation listing the General Services
           Administration rates. Our review of this additional documentation determined
           that the General Services Administration rates were not completely comparable to
           the rates in the executed contract. Specifically, the General Services
           Administration listing did not include certain positions that were listed in the
           contract, such as integration manager, damage assessment team lead, estimator,
           audit support, document controls, safety coordinator, skin-envelope specialist, and
           certified facility manager, among others. In addition, as discussed in comment 3,
           the City did not provide documentation showing that it performed an independent
           cost estimate.

20
     A screenshot from the City’s purchase order inquiry system showed that as of March 3, 2015, the last
     transaction date for this contractor was August 19, 2014.




                                                         21
Comment 13 The City conceded to finding 2 and asserted that it made all of the required and
           requested updates to its Web site during our fieldwork phase. We acknowledge
           the City’s efforts in correcting its deficiencies. However, the City did not make
           the necessary updates until April 20, 2015, after we again informed the City of the
           issues and our fieldwork ended.
Comment 14 The City stated that it takes the findings outlined in the report very seriously and
           asserted that the manner in which the audit was conducted led to an environment
           of confusion in which clear and concise requests for documentation or
           clarification were not received. We disagree as we communicated with the
           person(s) designated by the City and made several requests and follow-ups
           throughout the audit. The confusion and several requests for documentation
           resulted from the City’s lack of understanding and disregard of HUD and
           CDBG-DR requirements. The grant agreement with HUD held the City solely
           responsible for administering grant funds in accordance with requirements and
           maintaining documentation to support its compliance.




                                                22
  Appendix C

           Requests for Clarification and Documentation Regarding Procurement Files
Date of contact                 Contact person               Description
November 14, 17, and 19, 2014   Director of administrative   Emails requesting procurement documents for the
                                support and deputy           drainage and demolition contractors, which the City had
                                director of transactions     not provided.
January 6, 2015                 City staff                   Meeting informing the City that the drainage cleaning
                                                             and demolition procurement files did not include the
                                                             independent cost estimates and cost analyses and again
                                                             requesting those records.
January 23, 2015                Director of administrative   Email requesting all procurement documents for the
                                support, project delivery    grant management contractor. An independent cost
                                unit manager, and            estimate and cost analysis was not provided.
                                document control lead
                                manager
February 3 and 9, 2015          Project delivery unit        Emails requesting clarification of costs in notices to
                                manager and project          proceed for its drainage cleaning contractor. The City
                                manager                      stated that it based costs on best guesses following the
                                                             hurricane and did not provide documentation supporting
                                                             the statement or documented cost estimate research.
March 2 and 3, 2015             Project manager, director    Email and telephone contacts requesting clarification for
                                of administrative support,   purchase orders and documentation of cost estimates for
                                and project delivery unit    its grants management contractor. The City stated that it
                                manager                      did not perform the cost estimates.
March 5 through 11, 2015        Project delivery unit        Emails requesting a project completion report required
                                manager, director of         by the drainage cleaning contract. The City stated that it
                                administrative support,      did not require this deliverable for the CDBG-DR work
                                and project manager          and some City staff members were not aware of this
                                                             contract requirement.
March 26 and 27, 2015           Project delivery unit        Follow-up emails requesting clarification for two
                                manager, director of         purchase orders totaling $5.9 million and $590,028,
                                administrative support,      provided for the grant management contract that did not
                                and project manager          have corresponding contract amendments. The City did
                                                             not have a contract amendment for the $590,028.
April 1,8, and 14, 2015         City staff                   Email informing the City that audit fieldwork had
                                                             ended, provided the City with draft finding outlines, and
                                                             held a formal meeting regarding the draft findings. The
                                                             City provided more procurement documents that it had
                                                             not provided during the audit despite many requests.




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