State of New York, Governor’s
Office of Storm Recovery
Community Development Block Grant Disaster
Recovery Assistance
New York Rising Enhanced Buyout Program
Office of Audit, Region 2 Audit Report Number: 2015-NY-1010
New York - New Jersey September 17, 2015
To: Marion Mollegan McFadden
Deputy Assistant Secretary for Grant Programs, DG
From: Kimberly Greene
Regional Inspector General for Audit, 2AGA
Subject: New York State Did Not Always Administer Its Rising Home Enhanced Buyout
Program in Accordance With Federal and State Regulations
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the New York State Governor’s Office of Storm
Recovery’s administration of its New York Rising Home Enhanced Buyout 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 212-
264-4174.
Audit Report Number: 2015-NY-1010
Date: September 17, 2015
New York State Did Not Always Administer Its Rising Home Enhanced
Buyout Program in Accordance With Federal and State Regulations
Highlights
What We Audited and Why
We audited the New York Rising Home Enhanced Buyout Program to address the requirement
that the U.S. Department of Housing and Urban Development, Office of Inspector General,
monitor the expenditure of Community Development Block Grant Disaster Recovery (CDBG-
DR) funds made available by the Disaster Relief Appropriations Act. Our audit objective was to
determine whether New York State officials established adequate controls to ensure that funds
were used for eligible activities and reasonable expenses and procurement actions complied with
Federal regulations.
What We Found
State officials did not always administer the program in accordance with program procedures and
their partial action plan, ensure that property eligibility and the purchase price were adequately
supported, maintain documentation to support that procurement actions complied with Federal
and State requirements, and post required information to a Web site. We attributed this
condition to the State’s failure to follow published State procedures, weaknesses in maintaining
file documentation, and officials’ unfamiliarity with Federal procurement regulations. As a
result, officials disbursed $6.6 million for properties that did not conform to published
requirements and $672,000 and $598,300 for ineligible incentives and purchase prices in excess
of authorized limits, respectively, and documentation was inadequate to support that $1.7 million
was disbursed for eligible purchases and that $8.7 million spent for contracts complied with
Federal or State requirements. State officials had taken some corrective actions, thus ensuring
that an additional $16.5 million would be put to its intended use.
What We Recommend
We recommend that the Deputy Assistant Secretary for Grant Programs require State officials to
(1) provide documentation to support that 19 properties, for which more than $6.6 million was
disbursed, complied with the State’s partial action plan and the intent of its board resolution
authorizing the buyout program; (2) repay ineligible incentives and purchase prices of $672,000
and $598,300, respectively; (3) provide support for more than $1.7 million in unsupported
expenditures and that $8.7 million was disbursed for contracts procured in accordance with
requirements; and (4) ensure that contracts and subrecipient agreements are executed in
accordance with Federal and State regulations.
Table of Contents
Background and Objective......................................................................................3
Results of Audit ........................................................................................................5
Finding 1: State Officials Did Not Always Administer the Enhanced Buyout
Program in Accordance With the State’s Partial Action Plan and
Published Policy ........................................................................................... 5
Finding 2: File Documentation Was Not Always Adequate To Support the
Eligibility of Disbursements ........................................................................ 9
Finding 3: Procurement Actions Did Not Always Comply With Federal and State
Requirements.............................................................................................. 14
Scope and Methodology .........................................................................................21
Internal Controls ....................................................................................................23
Appendixes ..............................................................................................................25
A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 25
B. Auditee Comments and OIG’s Evaluation ............................................................. 27
2
Background and Objective
Congress made available $16 billion in Community Development Block Grant Disaster
Recovery (CDBG-DR) funds via the Disaster Relief Appropriations Act of 20131 for necessary
expenses related to disaster relief, long-term recovery, restoration of infrastructure and housing,
and economic revitalization in areas most impacted by a major disaster declared under the Robert
T. Stafford Disaster Relief and Emergency Assistance Act of 1974 in calendar years 2011
through 2013. Before receiving funds under this appropriation, grantees had to certify to the
U.S. Department of Housing and Urban Development (HUD) that they had proficient financial
controls and procurement processes and procedures for ensuring that any duplication of benefits
was identified; funds were spent in a timely manner; Web sites were maintained to inform the
public of all disaster recovery activities; and waste, fraud, and abuse of funds were prevented and
detected. In addition, grantees were required to develop an action plan for public comment and
HUD approval, which described (1) how the proposed use of the CDBG-DR funds would
address long-term recovery needs; (2) activities for which funds could be used; (3) the citizen
participation process used to develop, implement, and access the action plan, and (4) grant
administration standards.
On April 3, 2013, New York State prepared its certification of proficient controls, processes, and
procedures to be submitted to HUD, and on April 25, 2013, HUD approved the State’s partial
action plan. On May 14, 2013, HUD executed a grant agreement with the New York State
Homes and Community Renewal under which its Office of Community Renewal and Housing
Trust Fund Corporation (HTFC)2 would administer the initial award of $1.7 billion in CDBG-DR
funds. In June 2013, the governor established the Governor’s Office of Storm Recovery under
the auspices of HTFC to administer the CDBG-DR funds. HUD has since approved eight
amendments to the partial action plan.
State officials established the Recreate NY Home Buyout Program,3 one of six housing
assistance programs approved in the initial action plan, to purchase one- and two-unit homes on a
voluntary basis, either as an enhanced buyout or a standard buyout. Enhanced buyouts, to occur
in predefined targeted areas determined in consultation with county and local governments,
provided for the purchase of properties at the pre-storm fair market value, with incentives of up
to 15 percent of the fair market value. Standard buyouts provided for the purchase of properties
that were substantially damaged and within the highest risk area along the water (referred to as
the “V” zone) on Federal Emergency Management Agency (FEMA) flood maps at their pre-
storm value and at 100 percent of the post-storm fair market value for properties inside the 500-
1
Public Law 113-2
2
HTFC is a subsidiary public benefit corporation of the New York State Housing Finance Agency.
3
Later renamed the New York Rising Buyout Program
3
year flood plain but outside the “V” zone. Properties purchased as an enhanced buyout would
have to remain forever undeveloped, while properties purchased as a standard buyout could be
redeveloped to be more resilient.
The State allocated more than $328 million to the buyout program. In February 2013, State
officials announced the first enhanced buyout area and began accepting and processing
applications from residents of Oakwood Beach, Staten Island,4 in April 2013. The first enhanced
buyouts in Oakwood Beach occurred in October 2013, and an additional 12 areas have been
identified as enhanced buyout communities. State officials had mailed invitations to participate
in the enhanced buyout program to 1,356 homeowners, of whom 697 had responded, and 320
properties had been purchased. The program had drawn more than $301 million5 as of March 31,
2015.
The audit objective was to determine whether State officials established adequate controls to
ensure that funds were used for eligible activities and reasonable expenses, procurements were
executed in accordance with Federal regulations, and required information was posted to the
State’s Web site.
4
Staten Island, a borough of New York City, had its own CDBG-DR appropriation; however, State officials opted to
fund buyouts in Staten Island with funds approved under the State’s action plan.
5
This amount provides funds for enhanced buyouts and acquisitions, as well as program administration, legal, and
demolition costs.
4
Results of Audit
Finding 1: State Officials Did Not Always Administer the Enhanced
Buyout Program in Accordance With the State’s Partial Action Plan
and Published Policy
State officials did not always administer the enhanced buyout program in accordance with
the State’s HUD-approved partial action plan, its buyout program policy and procedure
manuals, and information disseminated to the public. While these documents specified that
properties purchased should be owner-occupied at the time of Superstorm Sandy and
substantially damaged, properties were purchased that did not always meet these
requirements. We attributed this condition to the State’s failure to follow its written
program policies and procedures. As a result, $6.6 million was disbursed to purchase
properties that were either vacant or rented at the time of the storm and lacked
documentation showing that they were substantially damaged or located in the highest risk
area contrary to published information, and the public was not always fully aware of how
the program was implemented. Once State officials complete the citizen participation
process and obtain HUD approval to make program policy consistent with the program’s
implementation, they can be assured that the $13 million allocated but not disbursed as of
March 31, 2015, will be put to its intended use.
Properties Purchased Did Not Always Comply with HUD’s Approved Partial Action Plan
and the State’s Published Guidance
State officials’ implementation of the enhanced buyout program resulted in the purchase of
properties that were less restrictive than those published in the State’s HUD-approved partial
action plan, provided for in the State’s policies, and advertised to the public. Public Law 113-2
requires grantees to administer funds in accordance with all applicable laws and regulations, and
78 FR 14347 (March 5, 2013) requires grantees to certify that activities will be administered
consistent with their partial action plan. The State’s partial action plan, approved by HUD on
April 25, 2013, provided for an enhanced buyout program under which one- and two-unit
residential properties would be acquired and demolished as well as vacant or undeveloped land,
all of which would remain as a coastal buffer zone or used for other nonresidential or non-
commercial purposes. However, partial action plan amendment 6 and program guidance and
published information imposed other, more restrictive requirements for properties that were to be
purchased.
Amendment 6 to the partial action plan, which HUD approved on May 27, 2014, clarified that
damaged properties purchased under the buyout program must have been substantially damaged
and the applicants’ primary residence at the time of the qualifying disasters. Similarly, State
officials published a “Combined Notice of Finding of No Significant Impact and Notice of Intent
to Request Release of Funds” on August 2 and November 7, 2013, which provided that the New
5
York State Homes and Community Renewal, Office of Community Renewal and the HTFC were
awarded Federal grant resources to financially assist homeowners whose primary residences
were substantially damaged by Superstorm Sandy, and on August 13, 2013, the HTFC board
passed a resolution making grants available for the buyout of owner-occupied properties.
Further, the State’s Buyout and Acquisition Policy Manual, New York Rising Buyout Program,
dated January 23, 2014, provided that enhanced buyouts would include the purchase of eligible,
substantially damaged6 properties inside the highest risk area7 within the FEMA 100-year flood
plain, and program information posted on the State’s Web site provided for similar purchases
under Frequently Asked Questions, dated January 23, 2014.
A review of 100 enhanced buyout files and a site visit to a targeted enhanced buyout area in
March 2014 disclosed that, while all properties purchased were located within the 100-year flood
plain8, they were not always owner-occupied, substantially damaged, or in the highest risk area
as specified in the partial action plan and program guidance. State officials purchased 12
properties, owned by a corporation, which were vacant or rented at the time of the storm (see
photo) or lacked documentation showing that they were substantially damaged or located in the
highest risk area, and an additional 7 properties that were non-owner-occupied rental properties.
We attributed this condition to the State’s failure to follow its written policies. As a result, more
than $6.6 million was disbursed for properties that did not comply with the requirements of the
State’s partial action plan and program
guidelines and was considered unsupported.
Further, review of 156 properties purchased as
of November 2014 disclosed that 9 additional
individuals or entities received more than $8
million for the purchase of 18 properties. This
indicated that some of the 18 properties may
not have been owner-occupied.
After being informed in March 2014 of the
apparent discrepancy between the program’s
implementation and the State’s partial action
plan amendment 6 and published program
information, State officials said that the January 2013 picture of corporate-owned properties that were
intent of the program was not to limit bought out in the Oakwood Beach section of Staten Island while
either vacant or having a history of being rented.
purchases to owner-occupied homes and that
6
Substantially damaged was defined in the State’s Policy Manual as damage of 50 percent or more of a home’s pre-
storm value.
7
The highest risk area was identified by compiling data from various sources accurate enough to differentiate areas
with a likelihood of flooding, erosion, waves and storm surge and assigning extreme, high and moderate risk based
upon the areas’ vulnerability.
8
These properties would be eligible for buyout under HUD CDBG-DR regulations, which allow for the purchase of
owner-occupied and rental homes, as well as vacant property within a floodplain.
6
all properties were automatically categorized as substantially damaged as a result of their
location in a buyout-designated area. Consequently, on April 7, 2014, State officials revised the
program policy manual and Web-based information to ensure that they were consistent with the
program’s implementation. However, the partial action plan had not been revised, and the
updated policy manual, dated April 7, 2014, as well as some Web-based information still
referenced the requirement that properties be owner-occupied and substantially damaged. State
officials said in March 2014 that they would make necessary updates to amendment 6 and the
most recent policy manual to bring the language in line with actual implementation of the buyout
program. 78 FR 14338 (March 5, 2013) provides that any change in program eligibility criteria
constitutes the creation of a substantial amendment, which is subject to the citizen participation
process and HUD approval. In early January 2015, State officials began the citizen participation
process to further clarify amendment 6 that properties to be purchased need to have been owned
at the time of the storm, which HUD approved on April 13, 2015 as part of amendment 8. Once
assurance is provided that published program information is consistent with the approved partial
action plan and program implementation, State officials can be assured that the more than $12
million, allocated but not disbursed as of March 31, 2015, will be put to its intended use.
Conclusion
State officials did not consistently administer the enhanced buyout program in accordance
with the HUD-approved partial action plan, its buyout program policy and procedure
manuals, and information disseminated to the public. We attributed this condition to the
State’s failure to follow its written policies and procedures. As a result, more than $6.6
million was disbursed to purchase properties that were neither owner-occupied nor
substantially damaged as required by the State’s published policy, and the public was not
always accurately informed of how the program was implemented. In addition, an
allocated but not disbursed amount of more than $12 million as of March 31, 2015, for the
enhanced buyout program can be put to its intended use once assurance is provided that
published program information is consistent with program implementation.
Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs instruct State
officials to
1A. Provide documentation to support that the 19 properties, purchased with more
than $6,606,359 in program funds, complied with the intent of HTFC’s resolution
authorizing the buyout program and the provisions of the partial action plan. If
these properties are determined to not have complied, the funds should be
reimbursed from non-Federal funds to the State’s line of credit, and funds
disbursed for any additional properties purchased that did not comply should be
identified and reimbursed.
1B. Obtain HTFC board approval for the changes in the buyout program to provide
greater assurance that the more than $12,984,427 allocated but not disbursed as of
March 31, 2015, will be put to its intended use.
7
1C. Strengthen controls to ensure that the enhanced buyout program partial action
plan description, Program Policy Manual and publicly disseminated program
information align with resolutions affecting the program and how the program is
implemented, and that the public is adequately informed of how the program is
implemented.
8
Finding 2: File Documentation Was Not Always Adequate To
Support the Eligibility of Disbursements
Documentation in grantee files did not always adequately support that CDBG-DR funds were
disbursed in accordance with program requirements. Specifically, some incentive awards were
disbursed contrary to regulations and the State’s partial action plan, buyout awards exceeded
State-authorized limits, and documentation was not always adequate to support property
eligibility. We attributed this condition to officials’ unfamiliarity with Federal regulations and
not following prescribed award calculation limits and weaknesses in obtaining and maintaining
documentation, which lessened assurance that disbursements related to eligible property
purchases and awards were properly calculated. As a result, State officials disbursed $672,000
and $598,300 for ineligible incentives and purchases that exceeded authorized limits,
respectively, and $1.7 million that was inadequately supported.
Incentive Awards Were Disbursed Contrary to Regulations and the State’s Partial Action
Plan
A review of 100 purchased properties disclosed that enhanced buyout incentives of $672,000
were awarded to 7 owners of 19 properties who were not residents of the targeted buyout area as
required. 78 FR 14345 (March 5, 2013) provided for incentive payments to households9 that
volunteered to relocate from a floodplain or to a lower risk area and required that incentives
comply with the grantees’ approved partial action plan and published program design. The
State’s partial action plan authorized a 10 percent enhanced buyout incentive in an effort to
relocate homeowners from a high-risk area to protect as many as possible from future disasters,
and as noted in finding 1, the State’s program policies provided for incentive payments to the
owner-occupant of the property. We attributed this condition to officials’ failure to follow the
State’s written policies and unfamiliarity with Federal regulations. However, State officials said
they did not believe that occupancy of the property was required for the 10 percent incentive.
Since these incentives were paid to owners who did not occupy the properties, we considered the
$672,000 disbursed to be ineligible.
The Buyout Award Exceeded State-Authorized Limits
A review of 100 property buyouts disclosed that awards for 3 properties exceeded the 2013
Federal Housing Administration (FHA) mortgage loan limits established by the State. The
August 13, 2013, HTFC board resolution authorizing the buyout program provided that grants
to each property owner for the buyout of owner-occupied properties would be limited to a
property’s pre-storm fair market value plus any incentives agreed upon but not to exceed the
2013 FHA mortgage loan limits. However, the State’s partial action plan established the 2013
FHA mortgage loan limit as the ceiling for a property’s purchase price. Further, the State’s
procedure manual provided that duplicate benefits would be subtracted from the lower of a
9
Regulations as 24 CFR (Code of Federal Regulations) 570.3 define households as all persons occupying a housing
unit and state that the occupants may be a family, two or more families living together, or any other group of related
or unrelated persons who share living arrangements.
9
property’s pre-storm fair market value or the 2013 FHA mortgage loan limit. However, as
shown in the table below, duplicate benefits for three properties were subtracted from the
properties’ pre-storm fair market value, which was greater than the 2013 FHA loan limit.
Excess buyout award
Calculated line item Property 1 Property 2 Property 3
Pre-storm fair market value $820,000 $975,000 $925,000
Buyout incentive 82,000 97,500 92,500
Total fair market value and
incentive 902,000 1,072,500 1,017,500
Lower of fair market value
and incentive or FHA
mortgage limit 729,750 934,200 729,750
Subtract: duplication of
benefits * (13,969) (230,743) (260,731)
Add: closing costs 5,168 5,121 4,170
OIG**-calculated award 720,949 708,578 473,189
GOSR***-calculated award 893,199 846,878 760,939
Award overpayment 172,250 138,300 287,750
Total overpayment for the
three properties: $598,300
* FEMA, Small Business Administration, and other Federal or insurance payment
** OIG = Office of Inspector General
*** GOSR = Governor’s Office of Storm Recovery
State officials said that the buyout awards complied with the State’s partial action plan, which
provided that the 2013 FHA mortgage loan limits would serve as the ceiling for the purchase
price for buyout properties and that duplication of benefits should be subtracted from the pre-
storm fair market value to derive the purchase price of the property. We attributed this
condition to the State’s failure to follow its established policies. As a result, there was a
$598,300 incentive overpayment.
Documentation for Property Eligibility and Assistance Calculations Was Not Always
Adequate
The files reviewed did not always contain adequate documentation to provide assurance that
properties were not second homes and thus eligible for a buyout and that assistance was
calculated correctly. 78 FR 14345 (March 5, 2013) provides that a second home, as defined by
Internal Revenue Service Publication 936,10 is not eligible for rehabilitation assistance,
10
Internal Revenue Service Publication 936 defines a main home as a home where one ordinarily lives a majority of
the time and a second home as a home that one chooses to treat as a second home. IRS Publication 936 further
10
residential incentives, or the buyout program. While State officials ensured that documentation
supported that applicants owned properties that were bought out, there were weaknesses in
controls over documentation to ensure that properties were not an applicant’s second home and
that awards were calculated correctly.
In addition to a deed to document ownership of the property, buyout applicants were required to
provide the following when applicable:
Proof of a 2012 School Tax Relief exemption;
2012-13 Federal income tax returns showing the home address as the damaged
property address;
2012-13 State income tax returns showing the permanent home address as the
damaged property address; and
Verification in the form of bills or a letter from the provider that water, electricity,
gas, sewer services, or other utilities were provided to the owner for 6 months
immediately before the storm.
However, public records searches of 100 buyout properties disclosed that 5 applicants for whom
$1.7 million was disbursed were associated with another address at the time of the storm, which
raised a question about which address was the applicant’s residence at the time of the storm. For
instance, a file for one property bought out for $161,225 contained the reported owner’s pay
stubs showing an address that was different from those of both the purchased property and the
property that was reported as the address at the time of application, and the file did not contain
an explanation for the reported address discrepancy. In addition, the file did not contain the
reported owner’s tax return as required but, rather, that of the owner’s daughter and son-in-law.
However, a review of LexisNexis11 disclosed that the applicant had owned the property noted on
the pay stubs since 1994. Another file for a property bought out for $253,836 contained the
applicant’s driver’s license issued in 2011, which reported an address that was different from that
of the buyout property, and a review of LexisNexis disclosed that the applicant was associated
with another property since 1983 and was listed as an owner-occupant. The files lacked
documentation as to how these potential conflicts were addressed.
The State’s partial action plan limited assistance to primary residences that were damaged as a
result of one of the eligible storms and to applicants’ unmet need calculated after accounting for
any duplication of benefits as required by Section 312 of the Stafford Act, which prohibits the
payment of CDBG-DR funds for any loss for which financial assistance was paid under any
other program or from insurance or any other source. However, in 4 of 10 cases reviewed, file
defines a second home as a second home not rented out at any time during the year, regardless if it is used by the
household or not, and a home that is rented out part of the year and used by the owner more than 14 days or more
than 10 percent of the number of days during the year that the home is rented.
11
LexisNexis is a Web-based provider of legal, government, business, and high-tech information sources by
subscription only.
11
documentation was not always adequate to support that assistance of $85,309 was properly
computed as follows:
While the file documented that the applicant received a $14,000 Small Business
Administration loan, the amount of the loan was not included as a duplicate
benefit. In addition, $952 in unsupported rental assistance was not included as a
duplicate benefit. 76 FR 71062 (November 16, 2011) requires grantees to identify
and reduce an award for all assistance received from insurance, FEMA, Small
Business Administration loans, other Federal or State programs, and private or
nonprofit organizations.
While the file documented that the applicant was approved for a $25,600 Small
Business Administration loan, the amount was not included as a duplicate benefit
as required. In addition, the award received was overstated by an additional
$11,657 because other duplicate benefit amounts were deducted only from the
value of the home rather than from the combined value of the home and land. The
file also did not include the applicant’s 2012 Federal tax return as required.
While the file documented that the applicant was approved for a $24,600 Small
Business Administration loan, the amount was not included as a duplicate benefit
as required by 76 FR 71062 (November 16, 2011) that states grantees should
identify reasonably anticipated assistance, which includes assistance that has been
awarded, but has not yet been received.
One file included a work order in the amount of $5,000, which was not considered
a duplicate benefit; however, the work order did not include the name of the person
for whom the work was done, the property address, and a detailed description of
the work. In addition, the file contained a notarized letter stating that the applicant
had paid $3,500 in rent; however, additional documentation showed that the funds
were withdrawn from the applicant’s account almost 2 months later and did not
indicate the nature of the withdrawal.
Conclusion
Documentation in grantee files did not always adequately support property eligibility and that
assistance amounts were reasonable and accurately calculated. We attributed this condition to
State officials’ unfamiliarity with Federal regulations and not following the State’s prescribed
award calculation limits, and weaknesses in obtaining and maintaining documentation, which
lessened assurance that disbursements were related to eligible property purchases and properly
calculated awards. As a result, $672,000 and $598,300 were disbursed for ineligible incentives
in 19 cases and exceeding authorized limits in 3 cases, respectively, and documentation was
inadequate to support that more than $1.7 million disbursed was adequately supported.
12
Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs instruct State
officials to
2A Repay to the State’s line of credit from non-Federal funds the $672,000 in
incentives disbursed to ineligible households.
2B. Repay to the State’s line of credit from non-Federal funds the $598,300 paid in
excess of the FHA loan limits approved by the board resolution.
2C. Review the five properties with indications that they may be second homes and if
they are, reimburse the State’s line of credit from non-Federal funds for the
$1,664,658 disbursed for these purchases.
2D. Establish controls to provide greater assurance that funds are not disbursed for the
purchase of second homes, including obtaining leases to document the rental
status of properties.
2E. Provide documentation to support that the $85,309 disbursed for four applicants
was calculated correctly. If adequate support cannot be provided, the amount
should be repaid to the State’s line of credit from non-Federal funds.
2F. Strengthen controls to ensure that buyout awards are calculated in accordance
with Federal regulations.
2G. Strengthen controls to ensure that enhanced buyout incentives are paid in
accordance with the State’s partial action plan and Federal regulations.
13
Finding 3: Procurement Actions Did Not Always Comply With
Federal and State Requirements
Procurement actions did not always comply with Federal regulations and the State’s own
policies. Specifically, officials did not (1) execute subrecipient agreements with two State
agencies through which services were procured, (2) adequately support contractor selection in
two cases, and (3) always document that independent cost estimates and analyses were
performed. In addition, contracts did not always include all required Federal provisions, and
some procurement information was not posted to the State’s Web site as required. We attributed
these conditions to the fact that HTFC’s procurement procedures12 were not equivalent to 24
CFR (Code of Federal Regulations) 85.36(b) and officials were not familiar with Federal
procurement regulations. As a result, officials disbursed more than $8.7 million and may pay an
additional $2.3 million without adequate support that the services were procured in compliance
with applicable regulations. However, State officials had taken and planned to take corrective
actions to ensure that an additional $3.5 million to be disbursed would be put to its intended use.
Services Were Procured Without Executed Subrecipient Agreements
State officials procured services from two contractors, which had previously been procured by
other State agencies, without executing subrecipient agreements or some similar instrument
detailing expected services and outcomes with those agencies. Regulations at 24 CFR
85.36(b)(5) provide that to foster greater economy and efficiency, grantees and subgrantees are
encouraged to enter into State and local intergovernmental agreements for procurement or use of
common goods and services. Further, 78 FR 14339 (March 5, 2013) requires that eligible
activities be carried out, subject to State law, by the State through its employees, procurement
contracts, or assistance provided under agreements with subrecipients.
However, from April 2013 through April 2014, State officials paid $5.9 million directly to a
contractor for management consulting services, which were competitively procured by another
State agency in June 2012, before the execution of the CDBG-DR grant, without executing a
subrecipient agreement or similar instrument with that agency. After we informed officials that a
subrecipient agreement would be needed for the services for which payment had already been
made, rather than executing a subrecipient agreement, on February 10, 2015, they retroactively
amended the other agency’s contract to include HTFC as a party to the contract. While
regulations at 24 CFR 85.36(b)(5) allow the use of a State contract competed for a different State
or local government entity when the services are for the same scope of work, the regulations
encourage the use of State and local intergovernmental agreements for procurement or use of
common goods and services to foster greater economy and efficiency. The use of a subrecipient
agreement, intergovernmental agreement or similar instrument would ensure that expected
12
78 FR 14336 required that grantees either adopt procurement standards identified at 24 CFR 85.36 or standards
that were equivalent. In its certification checklist submitted before HUD executed the grant, State officials certified
that they would use HTFC procurement procedures and that these were equivalent to regulations at 24 CFR
86.36(b).
14
performance was documented thus protecting the State’s interest. State officials said that the
“intent of regulations at 24 CFR 85.36(b)(5) to encourage grantees and subgrantees to foster
greater economy and efficiency is furthered by the use of other State competed vehicles in the
same way that subrecipient agreements foster that economy and efficiency… and that nothing in
HUD’s procurement regulations require that a competitive procurement be based solely on
competition issued after the disaster occurred if the services that the procurement is based on are
included in the needed scope of work.” However, it was questionable whether these services
were comparable in scope to those in the other agency’s contract. The scope of work contracted
for by the other State agency was for advice on an as-needed basis in short-term consulting
engagements (for example, for projects with durations of a few weeks up to several months) that
would focus on the review of management and fiscal issues relating to State programs, practices,
and initiatives, whereas task orders under this contract were primarily for ongoing integrity
monitoring lasting at least 13 months. We noted that while the management consultant services
were to be received through August 2015, officials stopped paying the contractor for services
rendered as of April 2014 and sought to execute a contract directly with the same contractor.
Officials also obtained property appraisal services from a contractor procured by another State
agency without executing a subrecipient agreement or other similar instrument with the agency.
When informed of the need for a subrecipient agreement, State officials said that they would
make no payments to this agency for the work already performed until they executed an
agreement. On February 12, 2015, they executed a memorandum of understanding with the
subject State agency, effective April 12, 2013.
We attributed the conditions described above to the fact that HTFC’s regulations did not align
with Federal requirements and officials were not familiar with Federal procurement regulations.
Without a subrecipient agreement, State officials could not be assured that they would receive the
services intended and lacked the ability to establish and monitor performance goals. Therefore,
we considered the $5.9 million disbursed for management and consulting services to be an
unsupported cost and the more than $2.4 million13 not yet paid for appraisal services to be funds
put to their intended use as a result of the recently executed memorandum of understanding,
which will ensure that State officials receive the services intended and are able to establish and
monitor performance goals.
Procurement Files Lacked Adequate Documentation for Contractor Selection
Procurement files lacked documentation to support that professional services were always
procured in compliance with both Federal regulations and State procedures for two contracts.
Officials stated that they would no longer pay for management and consultant services via the
other State agency’s contract but would contract directly with the same management consultant.
Consequently, on April 1, 2014, State officials executed a $5 million contract with that
consultant. State officials said that this contract was procured in accordance with HTFC
13
An additional nearly $1.1 million had been incurred for appraisal services on Staten Island; however, this amount
was questioned as funds to be put to better use in recommendation 3E.
15
procurement regulations, article 4, subparagraph b, which allowed it to enter into contracts with
contractors that had already been engaged by a State agency through a competitive process,
provided the terms were comparable and the procurement contract officer determined that the
procurement was appropriate.
State officials further noted that the HTFC regulations were equivalent to regulations at 24 CFR
85.36(b)(5), which encourage grantees and subgrantees to enter into State and local
intergovernmental agreements for procurement or use of common goods and services to foster
greater economy and efficiency. However, while HTFC regulations permitted such a
procurement action under the conditions noted, the approval of the procurement contract officer
was not obtained until January 26, 2015, and the scope of services was more comprehensive than
in the other State agency’s contract. Further, while Federal regulations allow the use of an
intergovernmental agreement with another state agency to obtain similar services, State officials
executed a new contract for expanded services directly with the same contractor. We attributed
this condition to the fact that HTFC’s procurement procedures were not always aligned with
regulations at 24 CFR 85.36 and State officials failed to secure a proper determination of whether
the procurement was appropriate per State procurement guidelines. Therefore, the $2.7 million
paid on this contract is regarded as unsupported, and the additional $2.3 million obligated is
considered potential funds to be put to better use if the contract is supported as eligible. Ensuring
that HTFC procurement guidelines are equivalent and aligned to regulations at 24 CFR 85.36
would ensure that the State has a proficient procurement process in place.
Further, as previously noted, officials procured appraisal services based upon another agency’s
procurement. Based on a May 2009 competitive bidding process, the other agency approved the
five highest bidders as eligible to conduct appraisal services in Staten Island.14 However, State
officials selected a contractor ranked ninth and was not designated as eligible to conduct
appraisals in Staten Island. While State officials said this appraiser was selected because the five
highest ranked appraisers did not have the capacity to perform the services needed on an
emergency basis, the procurement file did not document a basis for the selection of this appraiser
or for not using more than one of the approved appraisers. Regulations at 24 CFR 85.36(b)(9)
require grantees to maintain sufficient records to document the significant history of a
procurement, including the rationale for selecting or rejecting contractors. We attributed this
condition to officials’ unfamiliarity with Federal procurement regulations. As a result, we
considered the $1.1 million to be an unsupported cost because the procurement files did not
adequately document the basis for the selection of the appraiser. Selecting contractors that are
the most advantageous for the State during the selection process will ensure that grantees receive
the best available value with regard to contract price and the quality of service.
Cost Analyses were not Always Completed
Procurement files for 10 contracts for professional and consulting services that were procured via
the sole-source or competitive proposal method lacked documentation showing that a cost
14
Other appraisers were ranked and authorized to conduct appraisals in other specific geographic areas of the State.
16
analysis, which includes completion of an independent cost estimate and profit negotiation, was
completed. Regulations at 24 CFR 85.36(f)(1) require grantees to perform a cost or price
analysis in connection with every procurement action, including contract modifications, and
require that a cost analysis15 be performed for all competitive proposal procurements requiring
professional and consulting services and all sole-source procurements. These regulations further
provide that as a starting point, grantees must make an independent cost estimate before
receiving bids and proposals and a price analysis should be used in all other instances when
comparing lump-sum prices from contractors in a competitive pricing situation. Further, HUD
regulations at 24 CFR 85.36(f)(2) provide that grantees should negotiate profit as a separate
element of the price for each contract in which a cost analysis was performed.
State officials disagreed that HUD regulations require a cost analysis for every competed
contract and believed their interpretation of the regulations was reasonable and should be
accorded maximum deference. Further, the officials said that by controlling the contracts’ scope
through closely reviewing invoices, they were able to control the contract’s total cost. In
addition, they stated that the method and degree of analysis depended on the facts surrounding
the particular procurement situation and that they chose to perform a price analysis instead of a
cost analysis since it would provide a more objective measure than an inherently subjective cost
analysis and a price analysis was the default and preferred method of analysis. However,
without documenting a costs analysis, State officials did not develop a measure for evaluating
the reasonableness of contractors’ proposed costs or prices and evaluate the separate elements
that made up the contractor’s total costs. For example, a cost analysis was not prepared to assist
in determining the projected future cost for a contract for administrative services that was
initially authorized for $13.4 million and after two amendments, had increased to $119.4 million.
The two amendments were required to authorize payment for invoiced services that had already
exceeded the contract price authorized at the time. We attributed this condition to officials’
unfamiliarity with Federal procurement regulations. Preparing independent cost estimates before
receiving bids is critical in determining the basis and reasonableness of the total contract price as
stated in 24 CFR 85.36(b)(9), and a cost analysis, which includes negotiating profit as a separate
element of the price, decreases the risk that contracts and corresponding amendment costs will be
inflated.
State Procurement Regulations and Contracts Did Not Always Include Required Provisions
After we informed State officials in April 2014 that the HTFC procurement regulations did not
incorporate all provisions required by 24 CFR 85.36, such as contract dispute procedures and
time and material contract requirements, they developed procurement procedures specific to
CDBG-DR-funded procurement actions, which were approved on July 9, 2014, by the HTFC
board. However, these procedures did not incorporate the following 24 CFR 85.36 provisions:
15
Regulations at 24 CFR 85.36(d)(4)(ii) provide that a cost analysis includes verifying the proposed cost data, the
projection of the data, and the evaluation of the specific elements of costs and profits.
17
Section 85.36(b)(5) encourages grantees and subgrantees to foster greater economy and
efficiency by entering into State and local intergovernmental agreements for the
procurement or use of common goods and services.
Section 85.36(b)(11) requires any violation of law to be referred to the local, State, or
Federal authority having property jurisdiction.
In addition, contracts did not contain provisions required by Federal regulations. Regulations at
24 CFR 570.489(g) require States to ensure that all purchase orders and contracts include any
clauses required by Federal statute, executive order, and implementing regulation. Further, 78
FR 14344 (March 5, 2013) requires that grantees incorporate performance requirements and
penalties into each procured contract or agreement. However, during its August 2013
monitoring review HUD noted that none of three contracts it reviewed contained the latter
requirement and one contract lacked the language required by 24 CFR 570.489(g). In response,
officials took action to retroactively include the required provisions in previously executed
contracts; however, one contract still did not include all required Federal language. Upon being
informed of this deficiency, State officials executed an amendment to the contract in November
2014 and a memorandum of understanding in February 2015, which included the missing
provisions.
We attributed the conditions described above to the fact that HTFC’s procurement guidelines,
although certified by HUD as being equivalent to 24 CFR 85.36(b),16 were not in all respects and
State officials were not familiar with Federal procurement regulations. As a result, State officials
lacked assurance that their procurement actions always complied with regulations at 24 CFR
85.36(b).
State officials said that they should be provided maximum deference in their interpretation of the
Federal procurement regulations, provided that their interpretation was not plainly inconsistent
with the Disaster Relief Appropriations Act and the HUD Secretary’s obligation to enforce
compliance with the intent of Congress. However, they further stated that in an effort to
accommodate our view and to be 100 percent transparent, they intended to amend their
procurement policies to include intergovernmental agreements and the referral of violations of
law to local, State, and Federal authorities having proper jurisdiction.
Required Information Was Not Posted on the State’s Web Site
State officials had not disclosed on their Web site quarterly performance reports detailing
cumulative expenditures for each of the State’s contractors as required by 78 FR 14344 (March
5, 2013), which required grantees to maintain on a public Web site information accounting for
how all grant funds were used, including details of all contracts and ongoing procurement
16
Before executing the grant agreement with HUD, State officials submitted a certification checklist, which HUD
certified in April 2013, noting that they had adopted the procurement standards at 24 CFR 85.36 and that the State’s
procurement standards were equivalent to the standards at 24 CFR 85.36.
18
processes. However, HUD waived the requirement that “grantees identify contracts above
$25,000 in HUD’s Disaster Recovery Reporting System because grantees are already reporting
this information in the Federal Subaward Reporting System through usaspending.gov” in 79 FR
40134 (July 11, 2014). Consequently, HUD has developed a template for grantees to report
procurement and contract related information, but not contractor expenditures. We attributed
this condition to officials’ unfamiliarity with Federal regulations. Disclosing required
disbursement information would allow taxpayers and policy makers to track Federal spending
more effectively.
Conclusion
Procurement actions did not always comply with regulations at 24 CFR 85.36 and the State’s
own policies. In addition, some contracts lacked required provisions, and contractor information
was not posted to the State’s Web site as required. We attributed these conditions to the fact that
HTFC’s procurement procedures were not equivalent to regulations at 24 CFR 85.36 and
officials were not familiar with Federal procurement regulations. As a result, officials disbursed
more than $8.7 million and could pay an additional $2.3 million without adequate support
showing that the services were procured in compliance with applicable regulations. However,
State officials had begun to take corrective action, thus ensuring that an additional $3.5 million
to be disbursed would be funds put to their intended use, and taxpayers and policy makers would
be able to track Federal spending more effectively.
Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs instruct State
officials to
3A. Provide documentation to support that the $5,926,104 paid for management and
consulting services was similar in scope to the services procured by the other state
agency, thus ensuring that the amount paid was procured in a manner consistent
with regulations at 24 CFR 85.36 and used for its intended purpose. If the amount
is deemed unsupported after allowing maximum feasible deference to State
contracting procedures, it should be repaid from non-Federal funds.
3B. Submit to HUD for its review for compliance with Federal regulations the
subrecipient agreement, executed at our request, that obligates $2,422,835 for
appraisal services provided in Long Island, NY, thus ensuring that these funds
will be put to better use.
3C. Strengthen controls over procurement actions to ensure that services funded with
CDBG-DR funds are procured via a direct contract, a subrecipient agreement, a
memorandum of understanding, or some similar document to provide greater
assurance that State officials receive the services intended and have the ability to
establish and monitor performance goals.
3D. Provide support that the procurement for management and consultant services, for
which $2,736,658 was disbursed, is equivalent to contract methods allowable
under regulations at 24 CFR 85.36 and was executed in accordance with State
19
procedures, thus ensuring that the $2,263,342 to be disbursed will be put to better
use. If the procurement is deemed not equivalent after allowing maximum
feasible deference to State contracting procedures or not compliant with State
procedures, the $2,736,658 should be repaid from non-Federal funds, and the
remaining $2,263,342 should be deobligated, thus putting the funds to better use.
3E. Provide documentation that the selection of the appraiser in Staten Island was
consistent with the other State agency’s contract provisions. If such
documentation cannot be provided, the $1,093,290 budgeted should be
deobligated, thus ensuring that the funds will be put to better use.
3F. Strengthen controls over maintenance of procurement files to provide greater
assurance that the files contain all information required by regulations at 24 CFR
85.36b(9) and that a cost analysis and independent cost estimate are completed in
accordance with regulations at 24 CFR 85.36.
3G. Strengthen controls over procurement actions to ensure that contracts paid with
CDBG-DR funds contain provisions required by regulations at 24 CFR 85.36(i).
3H. Request a HUD review of the State’s procurement regulations to ensure that they
are equivalent to regulations at 24 CFR 85.36(b).
3I. Seek additional guidance from HUD as to what contractor-related information
should be reported on its Web site to comply with the requirement of Public law
113-2 that grantees maintain on a public Web site information accounting for how
all grant funds are used if contractor expenditure data is not reported on
usaspending.gov as understood by HUD when it issued a reporting waiver.
20
Scope and Methodology
We performed our onsite audit work at the Governor’s Office of Storm Recovery located at 25
Beaver Street, New York, NY, from January to December 2014. Our audit generally covered the
period October 29, 2012, through December 31, 2013, and was extended as necessary. We used
computer-processed data and verified the data by reviewing hardcopy supporting documentation
or other data from a different source. We found the data to be adequate for our purposes.
To accomplish our objective, we
Reviewed the Disaster Relief Appropriations Act of 2013, implementing regulations
announced through Federal Register notices, and HUD guidance pertaining to the use of
CDBG-DR funds.
Reviewed the HUD-approved April 2013 State certification and the May 2013 grant
agreement executed between HUD and the State and HUD monitoring reports.
Analyzed the HUD-approved State partial action plan and amendments, HTFC board
minutes and resolutions relating to CDBG-DR funds, the initial and revised New York
Rising Buyout Program policy and procedure manual, flood risk assessment maps, and
information related to the New York Rising Buyout Program announced to the public and
posted on the State’s Web site.
Conducted a site visit to two neighborhoods in which buyouts were conducted.
Obtained an understanding of the State’s financial and procurement processes and
evaluated controls to identify potential weaknesses related to our audit objective.
Interviewed key personnel from the Governor’s Office of Storm Recovery and HUD’s
Office of Community Planning and Development staff.
Reviewed files in the 100-property universe as of January 2014 to test compliance
specifically related to owner occupancy, buyout incentives, FHA loan limits, and
secondary homes.
Selected a nonstatistical sample of 10 of 100 executed home buyout files located in
Oakwood Beach, NY, to assess compliance with published policy, such as type of
property, proper treatment of duplication of benefits, and calculation of purchase price
and any incentives. Our assessment of the reliability of data included in the State’s lists
was limited to the data sampled, which were reconciled to hardcopy documents.
21
Analyzed a list of 156 properties in addition to the property universe that were purchased
in the Oakwood Beach section of Staten Island as of November 2014 to determine owner
occupancy.
Reviewed 10 contracts for services paid for with CDBG-DR funds to assess compliance
with 24 CFR 85.36 and State procedures.
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.
22
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:
Program operations – Policies and procedures that management has implemented to
reasonably ensure that programs meet their objectives.
Compliance with laws and regulations – Policies and procedures that management has
implemented to reasonably ensure that the use of funds is consistent with laws and
regulations.
Safeguarding resources – Policies and procedures that management has implemented to
reasonably ensure that funds are safeguarded against waste, loss, and misuse.
Validity and reliability of data – Policies and procedures that management has implemented
to reasonably ensure that valid and reliable data are obtained, maintained, and fairly
disclosed in reports.
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.
23
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
State officials did not have adequate controls over compliance with laws and regulations
when they did not ensure that property buyouts were conducted in accordance with the
State’s published policies (see finding 1).
State officials did not have adequate controls over program operations when they could not
support homeowner eligibility and that assistance amounts were reasonable and accurately
calculated (see finding 2).
State officials did not have adequate controls over safeguarding resources to ensure that funds
were not disbursed for the purchase of second homes (see finding 2).
State officials did not have adequate controls over compliance with laws and regulations when
they did not implement procurement policies that complied with Federal regulations (see
finding 3).
24
Appendixes
Appendix A
Schedule of Questioned Costs and Funds To Be Put to Better Use
Recommendation Ineligible Unsupported Funds to be put to better use
number 1/ 2/ 3/
1A $6,606,359
1B $12,984,427
2A $672,000
2B 598,300
2C 1,664,658
2E 85,309
3A 5,926,104
3B 2,422,835
3D 2,736,658 2,263,342
3E 1,093,290
Totals $1,270,300 $17,019,088 $18,763,894
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or Federal, State, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
3/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
25
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in pre-award reviews, and any other savings
that are specifically identified. In this instance, if State officials implement our
recommendations to fully inform the public of the program’s implementation, ensure that
all eligible applicants receive the 5 percent relocation incentive, and ensure that all
contracts and subrecipient agreements fully comply with Federal and State regulations,
HUD can be assured that $18,763,894 million will be put to its intended use.
26
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 1
Comment 2
27
Ref to OIG Auditee Comments
Evaluation
Comment 3
Comment 4
28
Ref to OIG Auditee Comments
Evaluation
Comment 5
Comment 6
Comment 7
Comment 8
Comment 9
Comment 10
29
Ref to OIG Auditee Comments
Evaluation
Comment 11
Comment 12
Comment 13
30
Ref to OIG Auditee Comments
Evaluation
Comment 14
Comment 15
Comment 16
Comment 17
Comment 18
Comment 19
Comment 20
31
Ref to OIG Auditee Comments
Evaluation
Comment 21
Comment 22
Comment 23
32
Ref to OIG Auditee Comments
Evaluation
Comment 23
Comment 24
Comment 25
Comment 26
33
Ref to OIG Auditee Comments
Evaluation
Comment 27
Comment 28
Comment 29
34
Ref to OIG Auditee Comments
Evaluation
35
OIG Evaluation of Auditee Comments
Comment 1 The report reflects the status of the State’s administration of the CDBG-DR grant
during the period of the audit scope, and as such, is a snapshot in time. Any
information provided concerning corrective action taken subsequent to the
completion of the audit fieldwork that we could verify has been reflected in the
report; otherwise verification will have to occur during the audit resolution
process with HUD.
Comment 2 The report does not conclude that the enhanced buyout program was not
developed in compliance with all HUD requirements. Rather, it notes that the
implementation was not always consistent with the State’s partial action plan and
published policy. Further, it notes that the program’s policies and procedures
were continually clarified to reconcile with its implementation and some controls
need to be strengthened.
Comment 3 The initial State resolution authorizing the enhanced buyout program, as well as
the program’s policy and procedure manuals, and information publicly
disseminated during the audit period provided that properties to be purchased had
to, among other criteria, be owner-occupied. Further, GOSR officials submitted,
and HUD approved partial action plan amendment 6 to clarify the requirements
for an enhanced buyout. However, amendment 6 dated May 27, 2014 still
required that properties needed to be the owner’s primary residence at the time of
the storm. Subsequently, GOSR officials stated that the HTFC board
retroactively amended the resolution authorizing the program, the partial action
plan description, program policy manual, and publicly disseminated information
to reflect their intent for the program. However, as noted in comment 7, the
retroactive board resolution dated May 14, 2015 is in draft and citations in the
program policy and procedure manuals, as well as Web-based information still
contain inaccurate information.
Comment 4 State officials disagreed that properties purchased did not always comply with
HUD’s approved partial action plan and the State’s published guidance, and stated
that the intent of the program has always been that properties did not have to be
owner-occupied to be eligible for assistance. While GOSR officials maintain that
this was the intent of the program, the resolution authorizing the program, partial
action plan amendment 6, as well as program policy and procedure manuals and
publicly disseminated information documented that properties purchased must
have been the applicants’ primary residence at the time of the qualifying disasters.
Further, all but the resolution documented that properties purchased must be
substantially damaged (greater than 50 percent of the pre-storm fair market value
of the property).
36
Comment 5 Partial action plan amendment 6 was submitted to HUD for approval to, among
other purposes, clarify the requirements noted in the initial April 2013 partial
action plan for the enhanced buyout program eligibility. While GOSR officials
maintain that the intent was not to limit eligibility, that is in effect what
amendment 6 did, and consequently, the program’s implementation was not
consistent with amendment 6. As noted in the report, it was not until partial
action plan amendment 8, approved in April 2015, that the program’s eligibility
requirements and its implementation became consistent.
Comment 6 While it is true that HUD prohibits the buyout of second homes, the State can
impose stricter eligibility requirements for its program, which as the report
described state officials did, whether that was their intent or not. 78 FR 14347
(March 5, 2013) requires grantees to certify that activities will be administered
consistent with their partial action plan; however, as noted in comments 4 and 5,
the program was not always administered in accordance with the partial action
plan.
Comment 7 GOSR officials stated that the program policy manual was revised several times
to delete all references to owner-occupancy as being an eligibility requirement
and that similar corrections were made to Web-based information. However,
while our review of the April and July 2014 policy manuals disclosed that
revisions had been made to the program policy manual, some citations to owner
occupancy and 50 percent substantially damaged requirements still remained. In
addition, our review of the Web-based information on June 29, 2015 revealed
citations requiring applicants to be owner occupants and properties to be
substantially damaged. Consequently, verification that all published materials are
consistent with program implementation will need to be made during the audit
resolution process with HUD.
Comment 8 GOSR officials stated that the HTFC board voted on May 14, 2015 to approve an
amendment retroactive to August 13, 2013 to allow rental properties to be
purchased, and provided OIG a copy of the draft amendment. As such,
confirmation that the final resolution has passed will need to be provided to HUD
during the audit resolution process. In addition, if rental properties will be
approved for buyout, documentation of leases should be required to demonstrate
the rental status of properties. Accordingly, recommendation 2D was amended to
include the requirement that leases be obtained to document the rental status of
properties.
Comment 9 Invitation letters sent to potential Program participants informed that the buyout
program was designed to acquire the applicant’s current residential property and
assist them in relocating to an area that was more safe and secure. However, as
previously stated, information disseminated to the public via Web-based
information during the audit scope period required that properties be owner-
occupied. While it is true that no applicants were denied on the basis that their
37
property was a rental, that confirms that properties were bought out contrary to
partial action plan amendment 6, the program policy manual and publicly
disseminated information.
Comment 10 As previously stated in comments 7 and 8, evidence that all references in the
policy manuals and publicly disseminated information are consistent with a final
amended HTFC board resolution will need to be provided to HUD during the
audit resolution process. In addition, GOSR officials reported that public
comments received to partial action plan amendment 8 indicated that citizens
were concerned with sudden program changes and felt that they did not have a
sufficient understanding of specific policies governing the program. As such, we
have amended recommendation 1C to state that controls be strengthened to ensure
that the enhanced buyout program partial action plan description, program policy
manual and publicly disseminated program information align with resolutions
affecting the program and how the program is implemented, and that the public is
adequately informed of how the program is implemented.
Comment 11 GOSR officials contend that the applicants were eligible for the ten percent
relocation incentive since all the properties were either owner-occupied or rental
properties. However, 78 FR 14345 (March 5, 2013) provided that incentive
payments may be made to households that volunteered to relocate from a
floodplain or to a lower risk area. As such, the incentives were intended to
encourage displaced “households” to relocate to an area promoted by the
comprehensive recovery plan. These incentives are not meant for commercial
entities or businesses. For example, pre-disaster owners of vacant lots,
commercial and rental properties are also not eligible to receive a related
replacement housing award as they did not occupy the structure at the time of the
disaster. In short, a “housing” incentive to owners of rental non-occupied and held
for rental or sale properties would not be within the scope of 78 FR 14345.
Further, 78 FR 14345 required that incentives comply with the grantee’s approved
partial action plan and published program design, which during the audit scope
period provided that the ten percent incentive was limited to owner-occupied
properties.
Comment 12 GOSR officials stated that their method of calculating buyout awards has
consistently been that the total award may exceed the FHA mortgage loan limit
once incentives were added. However, this method did not comply with the
initial HTFC board resolution for the program nor the February 2014 procedure
manual, which was in effect during our audit scope period. While GOSR officials
said that the HTFC Board passed an amendment, dated May 14 2015, to
retroactively approve what had been done in practice, and that the April 2015
policy manual had been appropriately updated, they will need to demonstrate such
to HUD during the audit resolution process.
Comment 13 GOSR officials agree that second homes as defined by Internal Revenue Service
Publication 936 are ineligible for the buyout program, but stated that eligibility is
38
not limited to only an applicant’s primary residence and that all properties
purchased were eligible. GOSR officials further stated that there are various
checks to prevent purchasing second homes, including confirming that the
homeowner was a U.S. citizen and having the homeowner sign an Eligibility
Affidavit and performing an Association with Damaged Property Check during
which the homeowners’ self-disclosed address is compared against the associated
address history as identified through searches of a syndicated public records
database in the Social Security Number Check. However, we believe that these
checks were not always adequate and we did not see the Association with
Damaged Property Check documented in the files we reviewed. Further, to
determine whether a home is a secondary home, the owner’s main home (primary
residence) must be determined, as well as providing adequate documentation to
support whether the buyout property is a rental property. While we recommended
to GOSR officials in July 2014 that leases be documented for properties that were
classified as rental properties, they did not believe that was necessary. However,
a revision to the program policy manual, dated April 2015, requires providing
leases to document rental properties. Accordingly, during the audit resolution
process Association with Damaged Property Checks and leases should be
provided for the questioned properties to provide greater assurance that second
homes were not assisted.
Comment 14 GOSR stated that the five properties questioned in the draft report were eligible
based upon documentation previously obtained and with eligibility checks being
performed. We believe the responses provided do not ensure that the five
properties cited in the draft report were not secondary homes. Specifically, while
GOSR officials documented that two properties were the primary residences of
the owners’ children, and therefore were not secondary homes, the properties
were owned by the applicant and it was not demonstrated that the properties were
rental properties. IRS Publication 936 provides that you can only have one main
home and that is where you live most of the time, and a second home is one that
you choose to treat as such. Therefore, a property owner’s main home must be
determined before a second home can be designated. For the remaining three
properties, GOSR officials stated that the properties were not considered
secondary homes based upon the completed applications and statements from the
owners. However, the owners had a history of residing at another property. We
believe such contradictory information in the files needs to be reconciled to
ensure that assistance is not provided to second homes.
Comment 15 GOSR officials stated that loans from SBA are for repair and rehabilitation by
homeowners and are not duplicative benefits since they are not for the same
purpose as the enhanced buyout program. However, 76 FR 71062 (November 16,
2011) provides that if award amounts are related to a property’s value or
estimated cost of repair/reconstruction, then HUD will consider the award to be
for the purpose of rehabilitation or replacement housing, and therefore should be
regarded as a possible duplication of benefit. In addition, GOSR’s policy manual
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in effect during the audit period listed insurance, FEMA, and SBA as the most
common sources of duplicate assistance and private and flood insurance payments
received and not spent for repairs and rehabilitation were classified as a
duplication of benefit in the files we reviewed. As a result, we maintain that
funds approved but not expended from SBA are duplicative.
Comment 16 GOSR officials stated that drawn funds from SBA must be satisfied at closing if
an outstanding balance exists. They further stated that, if necessary, proof of a
payment plan from SBA can be provided. Therefore, such proof should be
provided during the audit resolution process with HUD.
Comment 17 GOSR officials stated that the $952 was an unmet need and not rental assistance.
We agree that rental receipts exceeding any FEMA rental assistance can be
considered an unmet need. However, $1,300 of the $3,900 in rental receipts
provided by the homeowner was inadequately supported and remains questioned.
As a result of $1,300 being unsupported, any unmet need above the $2,948 FEMA
rental assistance (which equates to $952) is unsupported.
Comment 18 GOSR officials stated that the duplicative benefits paid were for the structure, not
the land value. Therefore the pre-storm fair market value cannot be encroached on
by duplication of benefits. GOSR’s policy manual in effect for the buyouts
reviewed stated that flood insurance payments, home repair assistance, temporary
housing assistance, and other Storm-damaged benefits must be subtracted from
the total amount that an owner is eligible to receive under the program. The
manual does not distinguish between the structure value and the land value when
considering duplication of benefits. Consequently, we view this amount as
unsupported since we have not received any documentation from the State
supporting their assertion.
Comment 19 GOSR officials stated that the $5,000 supported by an invoice was for work
actually completed as part of a work order estimate of $18,250, and that a
notarized letter from the landlord attesting to proof of payment is sufficient.
However, the invoice for the $5,000, as well as the $18,250 estimate did not
include the name of the property owner, the property address for which the work
was done, or a detailed description of the work completed. Further, the notarized
letter from the landlord provided support only for rental payments received from
the buyout participant. Therefore, the $5,000 remains unsupported.
Comment 20 GOSR officials stated that a notarized letter from the landlord matched the $3,500
disbursement. However, we view the $3,500 as unsupported since the funds were
withdrawn from the applicant’s account almost two months after the notarized
letter and the nature of the withdrawal was not indicated.
Comment 21 GOSR officials stated that they reasonably interpreted “intergovernmental” to
mean an agreement of any kind and therefore, were compliant when they added
GOSR as a party to an existing contract, which they did in February 2015. GOSR
officials stated this was not plainly inconsistent with the regulation and should be
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afforded deference. We revised the report to note that federal regulations
encourage, not require, that an intergovernmental agreement be executed.
However, we maintain the position that the State’s interest would have been
protected had GOSR officials executed an intergovernmental agreement, contract
or similar instrument to ensure expected performance prior to disbursing $5.9
million over a 13 month period from April 2013 through April 2014 for
management consulting services.
Comment 22 GOSR officials stated that they had not disbursed any funds for services until they
executed a subrecipient agreement with the other state agency which had procured
the contract, and therefore they had all the contractual assurances and monitoring
rights required prior to disbursing funds. We acknowledged in the report that no
funds had been disbursed and that an agreement was executed as we had
suggested. However, appraisal services were provided for over 22 months before
such agreement was executed. We believe that allowing a contractor to perform
services without a contract or similar document being executed puts GOSR at risk
of future conflicts with the contractor if services provided were not as expected.
Comment 23 GOSR officials stated that it entered into an agreement based upon a provision in
their procurement policies that the services rendered had to be upon comparable
terms and deemed appropriate by a procurement contract officer. GOSR officials
agree that the procurement contract officer decision had not been obtained but
maintain that the scope of services were comparable in scope However, as noted
in the report, the scope of work contracted for by the other State agency was for
short-term consulting engagements (for example, for projects with durations of a
few weeks up to several months) on an as-needed basis that would focus on the
review of management and fiscal issues relating to State programs, practices, and
initiatives. On the other hand, the scope of work for the questioned contract was
for ongoing integrity monitoring lasting at least 13 months, and which is currently
on-going.
Comment 24 GOSR officials stated that the rationale for contractor selection for a second
contract was not available upon our review but that the procurement file presently
includes procurement documents and a comprehensive memorandum to support
the contractor’s selection. Accordingly, GOSR officials will have to provide
adequate documentation to HUD during the audit resolution process to support
that the contractor selected was in accordance with federal regulations.
Comment 25 GOSR officials disagreed that HUD regulations require that a cost analysis be
done for every competed contract. For this disaster grant, HUD required grantees
to either adopt the specific procurement standards identified in 24 CFR 85.36 or
have a procurement process and standards that were equivalent. In its initial
certification to HUD in April 2013, State officials indicated that the state would
both adopt 85.36 procurement standards and implement its own equivalent
procurement requirements. They further noted the procurement policies and
procedures of the Housing Trust Fund Corporation would govern the State
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CDBG-DR procurement and provided examples of those policies and procedures
which align with Part 85.36 and additionally indicated that Part 85.36
requirements were adopted for its subrecipients. For the ten contracts analyzed
during the audit, OIG maintains the position that 24 CFR 85.36(f) requires grantees
to perform an independent cost estimate before receiving bids and a cost analysis
before awarding a contract.
Comment 26 GOSR officials disagreed that independent cost estimates had to be performed
prior to receiving proposals. They rely on the contention that “HUD’s standards
do not require states to adopt CFR 85.36 in its entirety, but under the HUD OIG’s
interpretation of the law, afford states the opportunity to use their own
procurement procedures so long as those procedures are ‘equivalent’ to CFR
85.36”. They further stated that independent cost estimates are not generally
required for states to comply with Federal grant law, including HUD’s standard
regulations, to safeguard the Federal interest, and thus, should not be required to
ensure a state’s contracts are “equivalent” to the Federal standards. OIG
maintains the position that 24 CFR 85.36(f) requires grantees to perform an
independent cost estimate before receiving bids and a cost analysis before
awarding a contract.
Comment 27 GOSR officials have stated that it has always worked diligently in a variety of
ways to ensure that its proposed costs are in line with the market rates, including
taking advantage of competitively procured contracts, comparing proposed rates
to those in previous contracts that were similar in scope, and even at times relying
on state studies that demonstrate the reasonableness of a particular cost. However,
documentation was not provided for a state study to justify the total contract price
of any of the ten contracts as required by 24 CFR 85.36(f). In addition, some of
the proposed rates used in the contract comparison did not seem to be similar in
scope. HUD had a similar concern after its August 2013 monitoring review when
it noted that comparisons of vendor rates were not for similar services. Further,
OIG maintains that 24 CFR 85.36(f) requires grantees to perform an independent
cost estimate before receiving bids and a cost or price analysis before awarding a
contract to justify the reasonableness of the total contract.
Comment 28 GOSR officials stated that two procurement policy provisions were not cut and
pasted into their procurement policies, but the policies have been amended to
include nearly identical text from HUD regulations. Although the report only
notes one contract that lacked a required provision, GOSR officials stated that
they have amended the three contracts that did not include a specific provision.
These issues will need to be reviewed by HUD during the audit resolution
process.
Comment 29 GOSR officials stated HUD waived the requirement to post each quarterly
performance report (QPR) as created using the Disaster Recovery Grant
Reporting System (DRGR) detailing expenditures for each contractor as required
by 78 FR 14329, 14344 (March 5, 2013) when it issued 79 FR 40133, 40134 (July
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11, 2014). They further note that HUD removed this QPR reporting requirement
because grantees were already reporting detailed expenditures for each contractor
in the Federal Subaward Reporting System on the usaspending.gov Web site as
required by the Federal Funding Accountability and Transparency Act. However,
GOSR officials were not reporting the required information prior to HUD’s
waiver. In addition, while HUD removed the reporting requirement to eliminate
duplicative reporting because “grantees are already reporting this information in
the Federal Subaward Reporting System through usaspending.gov,”
usaspending.gov is not equipped to report this information. However, among the
information HUD required in its amended Web site reporting requirement was
“…information accounting for all grant funds are used, and
managed/administered, including details of all contracts and ongoing procurement
policies.” Therefore, we have amended recommendation 3I as follows “Seek
additional guidance from HUD as to what contractor-related information should
be reported on its Web site to comply with the requirement of Public Law 113-2
that grantees maintain on a public Web site information accounting for how all
grant funds are used if contractor expenditure data is not reported on
usaspending.gov as understood by HUD when it issued a reporting waiver.”
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New York State Did Not Always Administer Its Rising Home Enhanced Buyout Program in Accordance with Federal and State Regulations
Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-09-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)