oversight

Program Control Weaknesses Lessened Assurance That New York Rising Housing Recovery Program Funds Were Always Disbursed for Eligible Costs

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)

    The State of New York, Governor’s
        Office of Storm Recovery
       Community Development Block Grant, Disaster
       Recovery Assistance, New York Rising Housing
                    Recovery Program




Office of Audit, Region 2      Audit Report Number: 2015-NY-1011
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:       Program Control Weaknesses Lessened Assurance That New York Rising
               Housing Recovery Program Funds Were Always Disbursed for Eligible Costs


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 Housing Recovery Program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
212-542-7984.
                   Audit Report Number: 2015-NY-1011
                   Date: September 17, 2015

                   Program Control Weaknesses Lessened Assurance That New York Rising
                   Housing Recovery Program Funds Were Always Disbursed for Eligible Costs




Highlights

What We Audited and Why
We audited the New York State Community Development Block Grant Disaster Recovery
(CDBG-DR) assistance-funded New York Rising Housing Recovery Program to address the
Disaster Relief Appropriations Act requirement that the U.S. Department of Housing and Urban
Development (HUD), Office of Inspector General, monitor the expenditure of CDBG-DR funds.
State officials allocated more than $1 billion in CDBG-DR funds to the Housing Recovery
Program, of which $621 million had been obligated and more than $600 million had been
disbursed as of March 31, 2015. The objective of the audit was to determine whether State
officials established and maintained adequate controls to ensure that CDBG-DR funds were
disbursed for eligible activities and allowable costs and properly reported in compliance with
regulations.

What We Found
Weaknesses in program controls did not always ensure that CDBG-DR funds were disbursed for
eligible costs, ineligible awards could be recovered, procurement activity was executed or
reported as required, and disbursements were properly reported. Specifically, (1) funds were
disbursed for ineligible and unsupported costs, (2) disbursements were made before recipients
executed grant agreements, (3) procedures were not implemented to recapture funds disbursed
for ineligible costs, (4) procurement of construction management and environmental review
services did not comply with Federal and State requirements, (5) national objectives were
inadequately classified and reported, and (6) assistance payments were made without receipts.

What We Recommend
We recommend that HUD direct State officials to (1) repay the program more than $2.2 million
in CDBG-DR funds disbursed for ineligible costs, (2) provide documentation for $119,124 in
unsupported disbursements and the reasonableness of the cost figure used to disburse more than
$55.6 million for reconstruction costs, (3) strengthen controls to ensure that grant agreements
are signed before checks are disbursed to recipients, (4) implement procedures to recapture
ineligible CDBG-DR funds disbursed, (5) provide documentation showing that the $127.2
million contract for construction management and environmental review services was fair and
reasonable, (6) strengthen controls to ensure that national objectives are adequately classified
and reported and (7) require receipts for completed work to ensure that more than $241.2 million
will be put to its intended use.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: Funds Were Disbursed for Ineligible and Unsupported Costs ................. 5

         Finding 2: Weaknesses Existed in Program Administrative and Reporting
         Procedures ....................................................................................................................... 10
         Finding 3: Procurement Actions Did Not Always Comply With Federal and State
         Requirements................................................................................................................... 16

Scope and Methodology .........................................................................................20

Internal Controls ....................................................................................................22

Appendixes ..............................................................................................................24
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 24

         B. Auditee Comments and OIG’s Evaluation ............................................................. 25

         C. Summary of Case File Deficiencies ........................................................................ 50

         D. Case Summary Narratives…………………………………………………………51




                                                                     2
Background and Objective
In response to Hurricane Sandy, in October 2012, Congress made available $16 billion in
Community Development Block Grant Disaster Recovery (CDBG-DR) assistance funds through
the Disaster Relief Appropriations Act of 2013, Public Law 113-2, January 29, 2013. This
funding was 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 disaster relief funds were
intended for the most impacted and distressed areas affected by Hurricane Sandy and other
declared major disaster events that occurred during calendar years 2011, 2012, and 2013.

HUD issued Federal Register Notice 78 FR 14330 (March 5, 2013) announcing the initial
allocation of $5.4 billion in CDBG-DR funds appropriated by the Disaster Relief Appropriations
Act. Before receiving funding, the Act required the U.S. Department of Housing and Urban
Development (HUD) Secretary to certify that grantees maintained proficient financial controls
and procurement processes or procedures to identify any duplication of benefits; spent funds in a
timely manner; maintained Web sites to inform the public of all disaster recovery activities; and
prevented and detected fraud, waste, and abuse of funds. 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 submitted to HUD its certification of sufficient controls,
processes, and procedures. 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 Office of Homes
and Community Renewal’s Housing Trust Fund Corporation (HTFC)1 for 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 HTFC, to administer the CDBG-DR funds.

HUD published a supplemental allocation of $5.1 billion through 78 FR 69104 (November 18,
2013), of which almost $2.1 billion was allocated to the State. To date, the State has received
more than $3.8 billion in CDBG-DR funds and obtained HUD’s approval for eight amendments
to its partial action plan.

The New York Rising Housing Recovery Program, one of six housing assistance programs
approved in the initial partial action plan, was designed to help homeowners impacted by the
storms to rebuild and repair their homes by providing funds to reimburse approved completed
reconstruction and repairs, pay for approved reconstruction or repairs, and provide interim



1
    HTFC is a subsidiary public benefit corporation of the New York State Housing Finance Agency.



                                                          3
mortgage assistance. Assistance was to be provided for unmet reconstruction or repair needs
after accounting for all Federal, State, or local government and private sources of disaster-related
assistance. Assistance for repair or reconstruction costs was limited to $300,000, with a potential
additional amount of $50,000 each for low- or moderate-income homeowners or for home
elevation of properties substantially damaged and within the 100-year floodplain.

When a homeowner eligible to receive assistance incurred costs to reconstruct or repair a home
before applying for the program, the amount to be reimbursed was based on an assessment of the
homeowner’s property damage and inspection of the repairs that were completed. An inspector
observed the work that was accomplished, and estimated costs were then assigned using a
standardized pricing software. This estimate served as the initial award, subject to reduction by
any other funding assistance for which the homeowner would be reimbursed. Similar procedures
were used when a homeowner received approval for assistance with reconstruction or repairs that
needed to be done. Specifically, an inspector observed the damage and then developed an
estimate of the costs required to make necessary repairs. This estimate was made using a
standardized pricing software or a $160-per-square-foot figure for reconstruction. Procedures
provided for the homeowner to be given half of the award amount at the time a grant agreement
was executed, with the remainder paid by State officials upon final inspection and approval of
the work.

As of March 31, 2015, from more than $1 billion in CDBG-DR grant funds provided to New
York Rising, State officials had obligated $621 million and disbursed more than $600 million to
provide assistance to 12,634 homeowners.

The audit objective was to determine whether State officials established and maintained adequate
controls to ensure that CDBG-DR funds were disbursed for eligible activities and allowable costs
and properly reported in compliance with regulations.




                                                 4
Results of Audit

Finding 1: Funds Were Disbursed for Ineligible and Unsupported
Costs
State officials disbursed CDBG-DR funds for ineligible and inadequately supported costs.
Specifically, more than $2.2 million was disbursed for ineligible costs, and $119,124 was
disbursed for unsupported costs. In addition, documentation was inadequate to support the use of
a statewide per-square-foot cost to calculate home reconstruction costs. We attributed these
conditions to weaknesses in controls over award calculation, maintenance of file documentation,
and the methodology used to develop the square-foot cost figure. As a result, State officials did
not have assurance that CDBG-DR funds were always disbursed for eligible costs.

CDBG-DR Funds Disbursed for Ineligible Assistance
State officials approved grants of more than $3.1 million, from which ineligible costs of more
than $2.2 million were disbursed to 24 of the 53 assisted homeowners reviewed. The Stafford
Act,2 and 76 FR 71061 (November 16, 2011), requires grantees to ensure that assistance is
provided to a person having the need for disaster recovery assistance only to the extent to which
this need was not fully met by other assistance. This requirement prevents duplication of disaster
recovery benefits. Further, 76 FR 71062 (November 16, 2011) states that other assistance will
include all available benefits, via insurance, the Federal Emergency Management Agency
(FEMA); the Small Business Administration (SBA); other local, State, or Federal programs; and
private or nonprofit charity organizations.

To derive a homeowner’s unmet need, Federal regulations and the State’s implementing policy
require that the amount of CDBG-DR funding issued to a homeowner be determined by
deducting other assistance received through documented eligible repair or reconstruction costs.
However, as shown in appendixes C and D, the unmet need was not correctly calculated for 20
homeowners who received assistance in excess of their unmet need. We attributed this condition
to State officials’ not properly recognizing other disaster assistance and inadequately maintaining
file documentation to support award calculations. Overall, this error resulted in the award of
more than $2.7 million, of which more than $1.8 million was disbursed for ineligible costs, with
a remaining undisbursed amount of $884,542.

             Recipient                           Overpaid amount                       Over-awarded amount
                 1                                   $40,471                                 $89,171
                 2                                   184,293




2
 Section 312 of the Stafford Act prohibits receiving assistance for any part of a loss for which financial assistance
has been received under any other program or from insurance or any other source.



                                                           5
               Recipient                         Overpaid amount             Over-awarded amount
                   3                                 64,718
                   4                                 224,787
                   5                                                                9,921
                   6                                                               96,904
                   7                                   271,823                     47,564
                   8                                   68,046
                   9                                   198,042
                  10                                   215,000                     185,000
                  11                                   87,597                       87,598
                  12                                   47,449                       22,448
                  13                                   20,533                      135,000
                  14                                   22,984
                  15                                   29,864                      59,530
                  16                                   92,390                      92,390
                  17                                                               59,016
                  18                                    47,846
                  19                                   250,000
                  20                                    12,000
                Totals                                $1,877,843                  $884,542

In addition, contrary to the State’s partial action plan and program policy, four homeowners
received assistance for properties that were not their primary residence. State officials agreed
that these recipients were not eligible for the assistance received. As a result, they stated that
they would take action to ensure that one homeowner repays the ineligible assistance and three
homeowners are transferred to the rental program3 since they have eligible rental property. We
attributed these conditions to internal control weaknesses as there were insufficient controls in
place to ensure that assistance was provided only to owners of properties that were their primary
residence during the storm. These weaknesses resulted in the awarding of $378,511 and
disbursement of $351,391 for ineligible costs, with $27,120 not disbursed.

CDBG-DR Funds Disbursed for Inadequately Supported Costs
State officials disbursed $119,124 in CDBG-DR funds in 3 of 53 case files reviewed without
adequate support that the assistance was for an eligible cost or properly calculated. Specifically,

          Two recipients received $114,287 in flood insurance for damage caused by Hurricane
           Irene and claimed that their properties were damaged by both Irene and Sandy when they
           applied for CDBG-DR assistance. However, in determining duplication of benefits, State
           officials excluded flood insurance proceeds, and all damage observed by the inspectors
           was attributed to Sandy, thus potentially overstating the unmet need. Section 312 of the
           Stafford Act requires any program providing financial assistance to a person suffering
           loss resulting from a major disaster or emergency to ensure that financial assistance was



3
    Rental properties will be assisted under multifamily housing programs.



                                                           6
         not provided under any other program, source, or insurance benefit. This condition
         occurred because State officials did not implement procedures to identify which storm
         caused damages and assumed that damages were caused by the most recent storm.
         Therefore, when calculating the unmet need, they considered benefits received for only
         the most recent storm as a duplication of benefits. As a result, CDBG-DR funds may
         have been used to fund costs that were assisted with flood insurance proceeds.

        One recipient was awarded $4,837 and received $2,418 in CDBG-DR funds to upgrade
         electrical service; however, the upgrade was not accomplished, and the recipient returned
         the funds disbursed. The State later disbursed an additional $4,837 to the same recipient
         without documentation showing need. The Stafford Act, 76 FR 71061 (November 16,
         2011) requires grantees to ensure that each program provides assistance to a person only
         to the extent the person has an unmet disaster recovery need.

We attributed these deficiencies to a lack of adequate controls to ensure that documents are
maintained to support CDBG-DR funds disbursed and State officials’ desire to quickly assist
homeowners. As a result, the State could not ensure that CDBG-DR funds were always disbursed
for eligible costs.

Inadequate Documentation To Support the Cost Rate Used for Reconstruction
As of May 1, 2015, more than $87.5 million in disaster funds had been awarded for
reconstruction. State officials determined that reconstruction costs would be awarded based
upon a statewide average construction cost of $160 per square foot. However, there was no
documentation showing the method of calculation used to determine this square-foot
construction cost. In accordance with 2 CFR (Code of Federal Regulations) Part 225, appendix
A, there must be adequate supporting documentation for any disbursement of funds for these
costs. In an interview with State officials in September 2014, they claimed that the statewide cost
of $160 per square foot was based on estimates obtained and consolidated from several
construction companies. However, they could not provide supporting documentation. Several
months later, they provided this documentation, but the study was conducted by an out-of-State
consulting firm with a current date of November 17, 2014. Additionally, this study contained
inconsistencies, and the square-foot cost for each property in the study’s sample did not reconcile
with the detailed breakdown of the elements comprising the cost.

On January 20, 2015, State officials provided an additional study, dated December 19, 2014. It
was conducted by the same consulting firm and used a different methodology. Specifically, it
assumed a higher markup rate,4 resulting in an average statewide cost of $155, and unlike the
prior study, it concluded that the cost of reconstruction on Long Island was higher than in other
parts of the State. When questioned about the differences between the two studies, State officials
concluded that both studies were flawed and produced two additional studies completed by other




4
  The original consulting firm study applied a rate of 25.4 percent for general contractor overhead and profit. The
rate was increased to 36.89 percent in the revised study.



                                                          7
consulting firms, dated January 16 and January 20, 2015. Both studies were questionable
regarding their adequacy to support a statewide figure. For example, one study reported a
statewide cost of $164 based upon a reported sample of 70 properties in New York; however,
most of these properties were located in New Jersey. The second study concluded that the
average reconstruction costs in Suffolk, Nassau, and upstate counties were $165, $168, and $139
per square foot, respectively. Also, use of a statewide $160-per-square-foot cost remained
unsupported. We attributed this deficiency to a lack of monitoring of the contractors that
prepared the cost studies and State officials’ desire to quickly disburse funds to homeowners. As
a result, the State could not ensure that more than $55.6 million disbursed from the more than
$87.5 million in disaster funds was for necessary and reasonable reconstruction costs or that the
remaining undisbursed amount of more than $31.8 million would be put to its intended use.

Conclusion
State officials did not establish adequate controls to ensure that CDBG-DR funds were awarded
and disbursed for eligible costs. We attributed this condition to insufficient controls over award
calculations, a lack of documentation supporting the methodology used to calculate square-foot
costs, and the desire to quickly disburse funds to homeowners. As a result, more than $2.2
million in CDBG-DR funds was disbursed for ineligible costs and $119,124 for unsupported
costs. Additionally, the use of a statewide cost figure, by which more than $87.5 million was
awarded, was unsupported.

Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs direct State officials
to
       1A.     Reimburse the line of credit for $2,229,234, which was disbursed to program
               recipients for ineligible costs.

       1B.     Deobligate the undisbursed amount of $911,662 to ensure that the funds will be
               put to their intended use.

       1C.     Strengthen controls over determining the eligibility of award recipients and
               substantiate award calculations to ensure that costs charged to the CDBG-DR
               program are eligible.

       1D.     Provide adequate documentation to support $119,124 in CDBG-DR funds that
               was disbursed to three recipients. If any amount cannot be adequately supported,
               it should be repaid to the State’s line of credit.

       1E.     Strengthen controls over the maintenance of documentation to provide greater
               assurance that disbursed funds are adequately supported.

       1F.     Provide adequate documentation for the reasonableness of the cost figure used to
               disburse $55,672,982 for reconstruction costs. Any amount not adequately
               supported should be repaid to the State’s line of credit.



                                                 8
1G.   Provide adequate documentation for the reasonableness of the cost figure used for
      reconstruction costs, thus ensuring that the undisbursed award balance of
      $31,831,316 is put to its intended use.

1H.   Document the amount paid for the flawed studies used to support the $160-per-
      square-foot cost figure and take action to recoup the amount paid, thus ensuring
      that this amount will be available for other eligible costs.




                                       9
Finding 2: Weaknesses Existed in Program Administrative and
Reporting Procedures
Administrative and reporting procedures could be improved. State officials did not always (1)
execute grant agreements before disbursing funds, (2) implement adequate procedures to recapture
funds disbursed for ineligible costs, (3) classify and report national objective(s), (4) ensure that
second homes would not be assisted, (5) require recipients to provide receipts for the amount spent,
and (6) ensure that contracts were adequately reported on their public Web site. We attributed these
conditions to officials’ desire to quickly assist homeowners, not ensuring that grant agreements
were signed before disbursing funds, failure to implement recapture procedures, and lack of
familiarity with Federal reporting requirements. As a result, State officials did not adequately
ensure that funds were disbursed for allowable costs, ineligible costs could be recaptured, and HUD
and the public were provided accurate information on grant accomplishments.

Disbursements Made Before Grant Agreements Were Executed
The State’s Intelligrants System5 showed that State officials disbursed more than $2.4 million in
CDBG-DR funds in 16 of 32 recipient case files reviewed. These funds were disbursed before
grant agreements were executed with the recipients. Section 3.16 of the State’s Homeowner
Policy Manual requires that homeowners sign a grant agreement before depositing funding
received from the program. Section 3.19 requires that projects be completed within 12 months
of signing the grant agreement. State officials initially said that the check disbursement date was
recorded in the check disbursed date field of the Intelligrants System. However, they later stated
that the check disbursed date field was the date on which a grant agreement was emailed to
applicants. They changed the dates recorded in the check disbursed date field to reflect that
CDBG-DR funds were disbursed after grant agreements were signed. However, as shown in the
table below, a review of the Intelligrants System communication log and revised check disbursed
date field showed that $805,243 in CDBG-DR funds was disbursed and cleared to four recipients
before a grant agreement was signed and in place and $272,236 was disbursed and cleared to two
recipients who had not executed a grant agreement. Further, in all six cases, the checks had
cleared the bank before a grant agreement was signed.

                                                                                         Date grant
               Recipient        Date check disbursed         Date check cleared       agreement signed
                   1                 04/08/2014                 05/06/2014               08/30/2014
                                     04/18/2014                 04/22/2014               07/13/2014
                    2                04/25/2014                 04/29/2014               07/13/2014
                    3                01/13/2014                 01/31/2014               03/04/2014
                    4                12/23/2013                 01/08/2014               01/20/2014
                    5                12/28/2013                 01/06/2014               Not signed
                    6                03/26/2014                 03/27/2014               Not signed




5
    Intelligrants System is the record-keeping system used by the State for New York Rising.



                                                           10
We attributed this deficiency to State officials’ desire to quickly assist homeowners. As a result,
State officials could not ensure that they could enforce grant requirements, work would be
completed within 12 months, and they could recover funds that may have been disbursed for
ineligible activities or costs.

Inadequate Procedures To Recapture Funds
State officials had not implemented adequate procedures to recapture funds disbursed for
ineligible costs. Regulations at 24 CFR 85.20(b) (5) require that Federal funds be used for
allowable costs in accordance with agency program regulations. Further, 78 FR 14329 (March 5,
2013) provides that CDBG-DR funds should be used to meet unmet housing and economic
revitalization needs. In addition, the State’s Homeowner Procedure Manual (August 6, 2014)
provides procedures for recovering funds disbursed to homeowners for ineligible costs.
However, State officials did not implement these recapture procedures. As a result, adequate
actions were not taken to recapture funds disbursed for ineligible costs in six of the cases we
identified. For example, while $224,787 was disbursed to a recipient in December 2013 for
ineligible costs, officials had not notified the recipient to repay these funds. In another case, a
recipient contacted the State in April 2014 to return unused funds; however, the recipient was
told not to do so as recapture procedures were not in place.

In September 2014, after State officials were informed of these cases, they responded that they
were drafting procedures and had started a recapture pilot program to be completed by January
2015. However, we later noted that the only action taken under the recapture pilot program was
to send notices to those homeowners who had already received funds that they needed to sign
grant agreements. State officials had not taken action to recapture these ineligible disbursed
funds. As of March 25, 2015, State officials said that they were drafting recapture procedures.
We attributed this condition to officials’ failure to develop procedures to implement the State’s
policy for recapturing funds. As a result, $616,6506 disbursed to six ineligible recipients was not
available for other eligible purposes.

National Objectives Inaccurately Classified and Reported
Requirements of 78 FR 14336 (March 5, 2013) provide that at least 50 percent of each CDBG-
DR grant must be used for activities that benefit low- and moderate-income persons, which is
one of the CDBG national objectives. However, State officials did not always adequately
classify and report assistance provided to ensure that it met the national objective. A review of
two recipient case files lacked evidence to verify that recipients were qualified as low and
moderate income. We attributed this condition to a lack of adequate controls to ensure that
national objectives were classified and reported correctly. As a result, State officials could not
assure HUD of the reliability of the beneficiary data reported to determine if 50 percent of the
CDBG-DR funds would benefit low- and moderate-income persons.




6
    This amount is reported as an ineligible disbursement in finding 1.



                                                             11
Existence of Second Homes Not Always Adequately Verified
State officials had not established adequate controls to ensure that disaster assistance was not
provided for second homes. 78 FR 14345 (March 5, 2013) provides that a second home, as
defined by Internal Revenue Service Publication 936,7 is not eligible for rehabilitation assistance,
residential incentives, or the buyout program, and State officials included this prohibition in
their policy. Section 3.3.5 of the State’s Homeowner Policy Manual cites use of several
documents to assist in determining whether a property is a homeowner’s primary residence,
which include a FEMA or insurance letter, a school tax relief exemption, a Federal or State
income tax return, government-issued identification (including a driver’s license), a vehicle
registration or certificate of title issued for a vehicle, utility bills, and other qualified documents.
However, in 2 of 32 cases reviewed, documentation was insufficient for determining whether
disaster assistance was provided only to primary residences and not second homes. For example,
a husband and wife received $317,7708 for a property they claimed as their primary residence;
however, their driver’s licenses and tax returns reported a different address as their primary
residence. Their file did not contain documentation to support which address was determined to
be the primary residence. When informed of the discrepancy, State officials verified and
obtained additional documentation to adequately conclude that the property was the
homeowner’s primary residence. In another instance, the tax return for a recipient awarded
$350,0009 showed that the property was not the primary residence of the recipient during the
storm. State officials agreed that the property was a non-owner-occupied rental property and
agreed to recapture the $322,880 disbursed to the homeowner. We attributed these conditions to
internal control weaknesses in ensuring that assistance was not provided to properties that were
second homes or other than primary residences at the time of the storm.

Assistance Payments Made Without Receipts for Amounts Spent
Homeowners provided CDBG-DR assistance were not required to provide receipts for work
completed or invoices, contracts, or receipts for costs incurred for work authorized. Also, the
inspector did not verify amounts paid. The Disaster Relief Appropriations Act of 2013 requires
that CDBG-DR funds be used only for specific disaster-related purposes. Guidance contained in
2 CFR Part 225, Appendix A, Cost Principles for State, Local and Indian Tribal Governments,
section (C)(1)(a), requires that costs charged to Federal programs be necessary and reasonable.
Further, Office of Community Planning and Development (CPD) Notice CPD-14-017,10 section



7
  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
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.
8
  In finding 1, $250,000 is reported as an ineligible disbursement. The State provided CDBG-DR assistance to the
homeowner for repair costs due to Hurricane Irene when costs were already assisted by the National Flood Insurance
Program.
9
  In finding 1, $322,880 is reported as an ineligible disbursement. The remaining $27,120 is funds put to better use.
10
   Notice CPD-14-017 is entitled Guidance for Charging Pre-Award Costs of Homeowners, Businesses, and Other
Qualifying Entities to CDBG Disaster Recovery Grants.



                                                          12
B, requires that costs be adequately documented, and 24 CFR 85.20(b)(6) requires that
accounting records be supported by source documents, such as canceled checks, paid bills,
payroll and attendance records, contracts, and subgrant award documents. However, State
officials awarded homeowners assistance based upon an inspection, during which they estimated
costs that had been incurred or funds that were needed to complete reconstruction or when
rehabilitation or repairs had been made. We attributed this condition to State officials’ desire to
quickly assist homeowners and dismissing the administrative burden of requiring receipts.

When a homeowner incurred costs before applying for the program, the amount reimbursed was
determined by an inspector, who observed the work that was accomplished. The inspector later
assigned estimated costs to the work by using either a standardized pricing software for repair
cost or the $160-per-square-foot figure for reconstruction cost. For reconstruction awards,
recipients were also provided a demolition amount of $5,000 and an extraordinary site
condition11 award of $25,000. Section 3.4 of the State’s Homeowner Policy Manual states that to
retain the $25,000 for extraordinary site conditions, applicants must complete and submit an
extraordinary site condition form. However, receipts were not required for the work performed.
The total estimate served as the initial award, subject to reduction by other assistance, for which
the homeowner was reimbursed.

Similar procedures were used when assistance was approved for a homeowner for reconstruction
or repairs that needed to be done. Specifically, an inspector would observe the damage and
develop an estimate of the costs of necessary repairs using a standardized pricing software.
Upon completion of the work, the work was inspected to ensure that it was consistent with the
approved work. Homeowners did not need to provide receipts.

As of May 1, 2015, State officials had awarded more than $630 million for completed work and
work authorized. They could not ensure that CDBG-DR funds were always used for their
intended purpose. While the estimating process used by the State may represent an acceptable
method of determining fair and reasonable costs when source documentation of actual costs is
not available, it was not acceptable when invoices, receipts, and contracts could be available to
verify costs. FEMA12 requires documentation of costs incurred to receive disaster assistance, and
the State of New Jersey13 requires source documents for costs reimbursed by its CDBG-DR




11
   An extraordinary site condition award was provided for conditions such as land that had a slope of more than a 7
percent grade, soil that required a non-typical foundation, excavation required, limited access to the site, and
sprinklers or construction protections required.
12
   FEMA’s Applicant’s Guide to the Individuals and Household Program requires recipients to maintain receipts or
bills for 3 years to demonstrate how funds received were used in meeting disaster-related need.
13
   New Jersey’s Reconstruction, Rehabilitation, Elevation, and Mitigation program requires that before a
homeowner’s request for additional grant funds can be awarded, proof of work completed is required. This proof
may include bills, invoices, and pictures of construction progress.



                                                          13
grant. Requiring homeowners to provide documentation for costs incurred would help ensure
that more than $240 million14 in program funding would be used for eligible costs.

Contracts Not Properly Reported on the Public Web Site
For inspection management and environmental services, the State’s CDBG-DR Web site did not
include contractors and contract amounts awarded by its subrecipient. According to 79 FR
40134 (July 11, 2014), the State is required to post a summary of all procured contracts to its
Web site, to include those by the grantee, recipients, or subrecipients. After being informed of
this deficiency, State officials posted the required summary report of contracts to the State’s Web
site during March 2015, but the information contained errors. For example, while the contract
price awarded to one contractor was more than $8.9 million, it was reported as more than $6.9
million; and work auhorizations were awarded to another contractor for more than $8.4 million
but was reported as $7 million. Officials stated that they were not familiar with applicable
guidance and thought they needed to report only contracts procured directly. As a result, the
public and HUD were not fully aware of the amount of CDBG-DR funds spent.

Conclusion
Weaknesses in State administrative and reporting procedures lessened assurance that funds were
always properly disbursed and reported. Specifically, these weaknesses caused (1) disbursements
to be made before grant agreements were executed, (2) procedures to recapture ineligible disbursed
CDBG-DR funds not to be implemented, (3) national objectives to not always be accurately
classified and reported, (4) the existence of second homes to not always be adequately verified, (5)
assistance payments to be made without receipts for the amount spent, and (6) contracts to not be
properly reported on the State’s public Web site. This condition occurred due to officials’ desire to
quickly assist impacted homeowners, not ensuring that grant agreements were signed before
disbursing funds, failure to implement recapture procedures, and lack of familiarity with Federal
regulations.

Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs direct the State to
        2A.     Strengthen controls to ensure that grant agreements are signed before checks are
                disbursed to homeowner recipients, thus providing greater assurance that State
                officials can enforce grant provisions.

        2B.     Establish and implement procedures to recapture ineligible disbursements to
                provide greater assurance that funds disbursed for ineligible activities and costs
                are promptly recovered.




14
  The homeowners were awarded more than $273.1 million, of which more than $31.8 million was for
reconstruction purposes and reported as funds to be put to better use in finding 1.



                                                      14
2C.   Properly document the low- and moderate-income status of the two homeowners
      whose status was improperly reported.

2D.   Strengthen controls over classifying assisted homeowners as low and moderate
      income to ensure that CDBG-DR national objectives are accurately reported.

2E.   Strengthen controls over the verification of recipient eligibility to ensure that
      CDBG-DR funds are not used to assist second homes.

2F.   Require recipients to provide receipts that support completed reconstruction and
      repair work to provide greater assurance that assistance is for eligible, reasonable,
      and necessary costs, thus ensuring that $241,292,921, which has not been
      disbursed, will be put to its intended use.

2G.   Strengthen controls to ensure that all required contracts and amounts are
      accurately reported on its Web site.




                                         15
Finding 3: Procurement Actions Did Not Always Comply With
Federal and State Requirements
State officials did not always comply with Federal and State procurement requirements when
obtaining inspection-related construction management and environmental review services.
Specifically, they selected contractors without considering price and ensuring adequate
competition, and work authorizations inadequately documented the scope of work and cost basis.
We attributed these deficiencies to State officials’ lack of familiarity with Federal procurement
regulations, the fact that the State’s procurement policies did not comply with Federal
regulations, and inadequate internal controls to ensure compliance with the subrecipient
agreement. As a result, State officials lacked assurance that they received the most competitive
value for construction management and environmental review services.

Price and Adequate Competition Not Considered When Procuring Contractors
State officials procured inspection-related construction management and environmental review
services without considering price and ensuring adequate competition as required by Federal and
State procurement regulations. Before the CDBG-DR grant was executed, in August of 2012, the
Dormitory Authority of the State of New York (DASNY), another State agency, selected 7
contractors from among 33 firms in accordance with its own procurement standards. These
standards were based upon qualification factors with subsequent negotiation of hourly labor costs
for various positions and overhead and profit multipliers. However, regulations at 24 CFR
85.36(d)(3) and section 302(1)(f) of HTFC’s procurement policy provide that only architectural
or engineering professional service contractors may be selected on the basis of qualification
without regard to price. In addition, HUD CDBG procurement guidelines in Basically CDBG,
dated July 2012, require that the full request for proposal method15 be used if an architectural or
engineering firm is hired to provide nonarchitectural or nonengineering services. Further, it
specifically provides that construction and grant management services are not considered
architectural or engineering services. Therefore, since the scope of work in DASNY’s term
contracts and task orders paid with CDBG-DR funds did not include architectural or engineering
services, using the qualification-only procurement, without considering cost, did not comply with
Federal and State regulations.

These contractors were to provide full construction management services16 on an on-call basis for
statewide projects having either a construction value of less than $10 million or technical support
services17 that included inspection management services for various projects regardless of
construction value. In August 2013, HTFC officials executed a subrecipient agreement with



15
   Under the request for proposal method, both qualifications and price factors should be considered when evaluating
proposing firms.
16
   Full construction management services include cost estimating, scheduling and coordination, progress updating
and reporting, administering, reviewing, testing and inspection, quality controls, and general administration during
the design and construction phase of a project.
17
   Technical support services included scheduling, inspection, office support, and other supportive services listed in
work authorizations.



                                                          16
DASNY to provide, either directly or through that agency’s subrecipients or subcontractors,
inspection-related construction management services for a total amount not to exceed $10
million. The subreceipient agreement was amended six times, and the total budget had increased
from $10 million to $127.2 million as of October, 2014. However, neither HTFC nor DASNY
conducted a cost analysis or independent cost estimate for the inspection-related construction
management and environmental review services. Regulations at 24 CFR 85.36(f)(1) require that
grantees and subgrantees perform a cost or price analysis for all procurement actions, to include
any contract modifications. Independent estimates are to be made by grantees and subgrantees
before solicitiation or before receiving bids or proposals. We attributed these conditions to State
officials’ lack of familiarity and HTFC’s and DASNY’s procurement policies not complying
with regulations at 24 CFR 85.36.18 As a result, officials could not ensure that the $82 million
obligated as of May 2015 for construction management and environmental review services and
the estimated costs in work authorizations were fair and reasonable.

Additionally, while the subrecipient agreement specified that procurement of all materials,
property, or services be “in accordance with the requirements in 24 CFR 85.36 and FR 5696-01
(March 5, 2013),” contrary to Federal and State procurement regulations, price factors were not
considered when selecting the contractors to provide inspection-related construction
management services. The subrecipient agreement further stated that the scope and terms of
work should be documented through task orders. On September 23, 2013, and in accordance
with the subrecipient agreement, a work authorization was issued to one of the seven contractors
to conduct inspection management services. Later, nine more work authorizations were issued to
the same contractor, three work authorizations were issued to a second contractor, and one work
authorization was issued to a third contractor for inspection management services. The
combined cost of the 14 work authorizations was more than $69 million.

In February 2014, State officials applied the same methodology to procure environmental review
services. During October 2010, the other State agency completed a solicitation of environmental
review services in which it selected 9 contractors solely based on qualification from 21 firms that
responded, and subsequently negotiated hourly labor costs for various positions and overhead
and profit multipliers. The selection was later narrowed to two of the nine contractors for Sandy
work, to which the agency awarded four work authorizations for more than $12.6 million. Its
choice of the two contractors was again based on the qualification-only method, with later re-
negotiations over hourly labor costs and overhead and profit multipliers. Federal regulations and
State guidance require that each proposal price be factored into the selection process for
environmental review services. However, according to their own procurement standards,
DASNY officials said that they could select the nine contractors based solely on quality
characteristics and award the work to any of these nine contractors. Therefore, their choice of
the two contractors was based on their having performed inspection-related construction
management services, although they were not the most qualified and ranked fourth and ninth




18
  Federal Register Notice 78 FR 14336 (March 5, 2013) required the State to either adopt procurement standards in
24 CFR 85.36 or have equivalent procurement processes and standards.



                                                        17
among the contractors. This selection process may have limited the competition by favoring
firms that already worked for the agency, rather than considering price and qualification factors.

Scope of Work and Cost Basis Not Adequately Documented in Work Authorizations
Work authorizations for the inspection-related construction management and environmental
review services did not always specify the service to be delivered, such as the number of
inspections and reviews to be conducted, and how total estimated costs were calculated.
DASNY’s contracts for construction management and environmental review services listed
hourly rates to be charged for specific job positions. However, there were no estimates for the
number of labor hours expected or a maximum contract price. State officials explained that a
contract price was not specified since DASNY had many clients that each required various work
tasks to be performed. Also, since selection was based solely on qualifications, the contractors
chosen were not required to submit competing cost proposals. Accordingly, the subrecipient
agreement between the State and DASNY stated that work authorizations would be used to
procure services. These work authorizations were to specify the number of inspections to be
completed and hourly rate for specific job positions and be calculated on a time and material
basis.

However, as shown in the table below, 17 of 18 work authorizations executed as of May 2015
did not show the estimated time, material, or per unit cost. Further, 11 of the 17 work
authorizations also lacked the quantity of services to be delivered. We attributed this condition
to State officials’ lack of familiarity with Federal procurement regulations and weaknesses in
monitoring the execution of the subrecipient agreement. As a result, HUD and the State could
not ensure that nearly $82 million proposed in the 18 work authorizations, of which $69 million
had been disbursed, was necessary and reasonable.

    Date of work        Cost                Tasks             Number of      Estimated time &
   authorizations                                             deliverables    material cost or
                                                                missing      per unit cost not
                                                                                 specified
                      Inspection-related construction management services
     09/23/2013      $5,027,614 1,650 inspections                                    X
     10/28/2013       5,170,924 1,950 inspections                                    X
     12/24/2013       4,556,462 Inspection management          X                     X
     02/03/2014         421,169 Job training-staff support     X                     X
     02/07/2014      17,445,375 Inspection management          X                     X
     05/09/2014       2,066,601 Inspection management          X                     X
     05/12/2014         750,000 Job training-staff support     X                     X
     07/03/2014      11,879,277 Inspection management          X                     X
     08/12/2014       3,600,000 Inspection management          X                     X
     08/12/2014         742,320 Job training-staff support     X                     X
     10/04/2013       4,660,147 1,800 inspections                                    X
     10/28/2013       3,482,735 2,608 inspections                                    X
     02/18/2014         260,000 Information technology         X                     X
                                 services
     10/21/2013       8,970,444 1,700 inspections                                    X



                                                 18
    Date of work       Cost                Tasks            Number of      Estimated time &
   authorizations                                           deliverables    material cost or
                                                              missing      per unit cost not
                                                                               specified
                                  Environmental review services
     02/21/2014       3,000,000   Environmental review            X               X
     05/16/2014       5,285,300   6,164 reviews                                   X
     08/29/2014       3,780,000   Environmental review            X               X
     02/21/2014         553,000   1,520 reviews
       Totals       $81,651,368                                   11              17


Conclusion
State officials lacked assurance that they received the most competitive value for the $127.2
million budgeted for construction management and environmental review services, of which $69
million had been disbursed to contractors. This condition occurred because State officials were
not familiar with Federal procurement regulations, HTFC’s and DASNY’s procurement policies
did not comply with regulations at 24 CFR 85.36, and controls were inadequate to ensure
compliance with a subrecipient agreement.

Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs direct State officials
to
       3A.    Provide documentation showing that the $127.2 million budgeted for inspection-
              related construction management and environmental review services is fair and
              reasonable in accordance with a cost or price analysis as required by regulations
              at 24 CFR 85.36.
       3B.    Strengthen controls over work authorization documentation to ensure that
              information on deliverables and unit cost is provided.




                                                19
Scope and Methodology
The audit focused on whether State officials established and maintained adequate controls to
ensure that CDBG-DR funds were disbursed for eligible activities and allowable costs and
properly reported in compliance with regulations. We performed audit fieldwork from June
2014 to March 2015 at the State’s office at 25 Beaver Street, New York, NY.

To accomplish our objective, we

        Reviewed relevant CDBG-DR program requirements and applicable Federal regulations
         to gain an understanding of CDBG-DR requirements.

        Interviewed State officials to gain an understanding of New York Rising.

        Obtained an understanding of the State’s management controls and processes through
         analysis of its responses to a management control questionnaire.

        Obtained an understanding of the control environment and operations through review of
         the State’s organizational chart for administration of its CDBG-DR grant and its CDBG-
         DR program policies, Homeowner Procedure Manual, Homeowner Policy Manual, and
         procurement policy.

        Reviewed HUD’s monitoring reports related to New York Rising for the period August
         2013 to August 2014 to identify deficiencies requiring corrective action.

        Reviewed quarterly performance reports related to New York Rising for the period April
         2013 to June 2014 to document the amount spent and activity accomplished.

        Reviewed reports from the Disaster Recovery Grant Reporting19 system to obtain CDBG-
         DR expenditure information for the period April to June 2014. Assessment of the
         reliability of the data in the State’s systems was limited to the data sampled, which were
         reconciled to the auditee records.

        Reviewed the State’s Web site to determine compliance with regulations relating to
         reporting contract information.




19
  The Disaster Recovery Grant Reporting system is used for the CDBG-DR program and other special
appropriations. It is used by grantees to draw down funds, report program income, and submit their action plans.




                                                         20
      Reviewed quality assurance reports related to New York Rising for the period August
       2013 through May 2014 to gather information on program execution.

      Reviewed the State’s audited financial statements for the period ending March 31, 2014,
       to identify potential irregularities.

      Reviewed the State’s board minutes and resolutions relating to New York Rising for the
       period April 2013 to July 2014.

      Selected and reviewed a sample of 20 recipient case files during the period October 2012
       to June 2014, in which more than $4.7 million was disbursed, representing 2 percent of
       total disbursements. The sample consisted of the largest disbursement in each of the five
       assistance categories: repair (five cases), reconstruction (five cases), reimbursement and
       repair (four cases), reimbursement and reconstruction (three cases), and reimbursement
       (three cases).

      Analyzed the universe of assisted homeowners as of July 11, 2014, to identify potential
       duplicates and reviewed the 21 cases identified as potential duplicate awards.

      Selected and reviewed a sample of five recipient closed cases and seven cases that were
       transferred to the New York Rising Buyout and Acquisition program to test whether
       closeout procedures were conducted properly and duplicate benefit amounts were
       properly calculated when recipients received assistance from multiple programs.

The audit generally covered the period October 29, 2012, through June 30, 2014, and was
extended as necessary to meet the objective of the 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.




                                                21
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 a program meets its objectives.

   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.

   Compliance with laws and regulations - Policies and procedures that management has
    implemented to reasonably ensure that resource use is consistent with laws and regulations.

   Safeguarding resources - Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.

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:




                                                  22
   State officials did not implement adequate internal controls to always ensure that the program
    met its objectives as awards were made in excess of unmet needs (see finding 1).

   State officials did not implement adequate internal controls to always ensure that resources
    were used consistent with laws and regulations as (1) disbursements were made before grant
    agreements were executed, (2) the State lacked adequate procedures to recapture ineligible
    disbursed CDBG-DR funds, (3) national objectives were inadequately classified and reported,
    (4) the eligibility of recipients was not always adequately verified, (5) the State made assistance
    payments without requiring receipts for the amount spent, and (6) contracts were inadequately
    reported on the State’s public Web site. In addition, State officials did not implement adequate
    internal controls to ensure that procurements always complied with Federal and State
    regulations and the cost of procured services was fair and reasonable (see findings 2 and 3).

   State officials did not implement adequate internal controls to ensure the validity and
    reliability of data as national objectives were not adequately classified and reported and
    contracts were inadequately reported on the State’s Web site (see finding 2).

   State officials did not implement adequate internal controls to ensure that resources were
    always safeguarded against fraud, waste, and abuse. The State used CDBG-DR funds for
    ineligible and unsupported costs and did not recapture ineligible CDBG-DR funds disbursed
    (see findings 1 and 2).




                                                   23
Appendixes

Appendix A


          Schedule of Questioned Costs and Funds To Be Put to Better Use
       Recommendation                                       Funds to be put
                          Ineligible 1/  Unsupported 2/     to better use 3/
           number
              1A            $2,229,234
              1B                                                         $911,662
              1D                                     $119,124
              1F                                   55,672,982
              1G                                                      31,831,316
              2F                                                     241,292,921
              3A                                127,200,000
             Totals          $2,229,234       $ 182,992,106         $274,035,899


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,
     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. To ensure that the $911,662 obligated, more than $31.8
     million awarded but not disbursed, and nearly $241.3 million not disbursed will be put to
     their intended use, HUD should implement the recommendations to (1) deobligate the
     $911,662 not disbursed,(2) provide adequate documentation for the reasonableness of the
     cost figure used to award reconstruction costs and ensure that the remaining award of
     more than $31 million is put to its intended use, and (3) require receipts to support the
     amount spent.




                                              24
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               25
Comment 2




Comment 3




            26
Comment 4




Comment 5
Comment 6


Comment 7




            27
Comment 7


Comment 7


Comment 8




Comment 7




Comment 7




            28
Comment 9


Comment 7




Comment 7




Comment 7


Comment 7




            29
Comment 7
Comment 7
Comment 10


Comment 8


Comment 11


Comment 12




             30
Comment 7




Comment 5
Comment 13


Comment 14


Comment 7
Comment 5
Comment 13




             31
Comment 15




Comment 16




Comment 17




             32
Comment 17




Comment 17


Comment 17




Comment 7


Comment 7




             33
Comment 13




Comment 18




             34
Comment 19




Comment 7
Comment 20
Comment 13




Comment 21




             35
Comment 7




Comment 22




             36
Comment 22




Comment 23




             37
Comment 24


Comment 25




             38
Comment 26




Comment 26
Comment 27




             39
Comment 28




             40
Comment 29




             41
                         OIG Evaluation of Auditee Comments


Comment 1   The report represents a snapshot in time based upon the results of sampled
            disbursements and assisted homeowners and does not project results across the
            program. The review of the sampled items disclosed weaknesses in various
            controls, which lessened assurance that CDBG-DR funds were always spent in
            accordance with Federal regulations.

Comment 2   State officials maintained that OIG did not give sufficient credence to
            fundamental processes and controls regularly employed by the State to evaluate
            duplication of benefits and eligibility. They acknowledged that in an effort to
            disburse funding to homeowners, human and procedural errors can occur, and
            they had anticipated such mistakes and designed a program that would account for
            that possibility. The report notes and State officials acknowledged that ineligible
            and unsupported assistance was provided, which OIG attributes to the State’s
            failure to properly account for other disaster assistance in calculating awards and
            weaknesses in maintaining file documentation. Further, as noted later in the
            report, procedures to recapture assistance mistakenly provided had not been
            implemented.

Comment 3   State officials explained that the OIG “snapshot” assessment ignores the fact that
            award calculations are not performed once but, instead, are adjusted over the life
            of the application as additional and more reliable information on disbursed,
            duplicative benefits is collected through various public and private sources. The
            report acknowledges that the State’s procedures provide for determining and
            deducting other disaster assistance received before calculating an unmet need as
            required by the Stafford Act. However, the report notes that based upon the
            sampled cases, the unmet need was not always correctly calculated based upon
            information available at the time of award disbursement or was unsupported.

Comment 4   State officials stated that until they can verify that a potential duplication of
            benefits was provided to the homeowners for a duplicative purpose, it is not a
            verified duplication of benefits that must be deducted from CDBG-DR funding
            provided by the State. However, review of the sampled cases disclosed that there
            was duplication of benefits that should have been deducted at the time of the
            award calculation. Further, any doubt about whether insurance claim
            reimbursements were a duplication of benefit should be resolved with the
            homeowner before assistance is disbursed rather than ignoring any of the
            reimbursement as a duplication of benefit.

            While State officials noted that if the verified duplication of benefit exceeds the
            remaining unmet need, the State will pursue all rights available to it through
            subrogation. However, prevention controls are always more effective than
            detection controls, and the State had not established a recapture program to



                                              42
            implement its subrogation policy. In a recent monitoring report, HUD expressed
            concern that the State was overly reliant on a policy and process that provide a
            full duplication of benefit check at grant closeout rather than a more robust check
            before funds are disbursed.

Comment 5   State officials stated that OIG ignores other controls and processes that will result
            in proper reconciliation of the grant before closeout. However, as noted in
            comment 4, preventive controls are preferable to detection controls, and HUD has
            expressed concern about the State’s reliance on a full check upon grant closeout.
Comment 6   State officials explained that 10 of the applicants identified by OIG are not
            overpayment cases because the award calculation for each conforms to current
            policies and procedures. However, the State’s policy during the time of the
            review, as prescribed in the homeowner policy before May 2015, stated that a
            homeowner who has a reconstruction award and builds a home smaller than the
            home at the time of the damage will receive an award based on the final square
            footage of the reconstructed home. Therefore, award should be calculated based
            on the square footage of the reconstructed home if a homeowner builds a new
            home that is smaller than the damaged home. Further, the State’s action plan
            amendments 6 and 8 provide that the reconstruction award was to pay for the
            eligible cost of reconstruction. If State officials have amended the policy to
            calculate an award based upon the square footage of a larger prestorm home, they
            will need to discuss with HUD the effect of this change upon previously awarded
            amounts and whether such policy would comply with regulations at 76 FR 71062
            (November 16, 2011), which provide that a grantee should first determine the
            applicant’s total postdisaster need in the absence of duplicative benefits or
            program caps.
Comment 7   State officials’ planned actions are responsive to OIG’s recommendation.

Comment 8   State officials supported the policy that an applicant’s award is based on the
            square footage of the home that existed at the time of the storm, an applicant’s
            duplication of benefit is verified through the life of the application, and any
            necessary reconciliation is conducted before final payment. OIG disagrees
            because the policy in effect during the audit, as prescribed in the State’s
            homeowner policy before May 2015, stated that a homeowner who has a
            reconstruction award and builds a home smaller than the home at the time of the
            damage will receive an award based on the final square footage of the
            reconstructed home. As noted in comment 6, if State officials now use a policy
            manual updated in May 2015, the effect upon previously awarded assistance will
            need to be considered to ensure consistent treatment of homeowners, as well as
            whether the current policy complies with regulations at 76 FR 71062 (November
            16, 2011). In addition, at the time of the award calculation, duplication of benefit
            information was available but was not deducted in determining unmet need.




                                              43
Comment 9     State officials believed that the applicant was eligible for an award cap increase
              because of substantial damage to the property and low- and middle-income status.
              OIG disagrees because the calculated unmet need was $275,761, which is lower
              than the $300,000 cap; thus, an award in excess of the unmet need would not
              comply with regulations at 76 FR 71061 (November 16, 2011) that prohibit
              assistance in excess of the unmet need. In addition, based upon information in the
              file, this applicant did not qualify as low and middle income and, thus, would not
              be eligible for the low- and middle-income allowance.
Comment 10 State officials concluded that the current square footage does not result in an
           overpayment. OIG disagrees because calculation of the award based upon a
           3,000-square-foot property was not supported. After many requests, State
           officials were not able to provide supporting documentation and confirmed that
           this property was not listed in the CoreLogic database that was used to support
           square footage. In addition, we obtained a county record showing that the
           property was 1,944 square feet, and State officials had agreed that this number
           should have been used for the award calculation. Although State officials now
           say that the applicant submitted documentation from the municipality supporting
           the larger square footage, this document was not provided during the audit.
           Therefore, State officials will have to provide this documentation to HUD during
           the audit resolution process.

Comment 11 State officials concluded that no action is warranted because the program’s
           current policy establishes scope of repairs at the time of the post-Sandy damage
           inspection, the program did not exist during the aftermath of Hurricane Irene, and
           damage assessments could only be performed starting in 2013. OIG disagrees
           because 76 FR 71061 (November 16, 2011) requires grantees to ensure that
           assistance is provided to a person having the need for disaster recovery assistance
           only to the extent to which this need was not fully met by other assistance.
           Contrary to this requirement, the State’s policy ignores any monetary assistance
           homeowners received for damage caused by the storms before the most recent
           one. Documentation for this case clearly indicated that elevation work needed as
           a result of Hurricane Irene had been paid for by National Flood Insurance
           Program proceeds after Hurricane Irene and no additional elevation work was
           incurred after Hurricane Sandy. Further, while State officials said that an
           inspection was conducted for damages the applicant claimed were incurred as a
           result of Hurricane Sandy, documentation in the file noted that the applicant
           certified that the damages were caused by both Irene and Sandy. However, State
           officials intend to follow their current policy and award CDBG-DR funds for the
           same elevation cost assisted by the National Flood Insurance Program.
Comment 12 State officials claimed that the overpaid Interim Mortgage Assistance payments
           had been appropriately recovered by withholding later Interim Mortgage
           Assistance payments. However, despite many requests for documentation to
           support that the funds had been recovered, State officials did not provide



                                               44
              documentation. Therefore, they will have to provide such documentation to HUD
              during the audit resolution process.
Comment 13 State officials said that they have updated their policies, procedures, and controls
           since the disbursements reviewed by OIG took place. Since OIG has not had the
           opportunity to assess whether these changes would have prevented the
           deficiencies noted in the report, HUD will have to make this assessment during
           the audit resolution process and in some cases, as noted in comment 6, determine
           whether the changes comply with applicable regulations.
Comment 14 As noted in comment 11, State officials maintained that the program did not exist
           during the aftermath of Hurricane Irene and damage assessments could only be
           performed starting in 2013 and, therefore, could take into account only the most
           recent storm. OIG disagrees because 76 FR 71061 (November 16, 2011) requires
           grantees to ensure that assistance is provided to a person having the need for
           disaster recovery assistance only to the extent to which this need was not fully
           met by other assistance. Contrary to this requirement, the State’s policy ignores
           any monetary assistance homeowners received for damage caused by the storms
           before the most recent one.
Comment 15 State officials believed that the studies adequately supported the reasonableness of
           using the rate of $160 per square foot to calculate the reconstruction cost for the
           properties in the State and state that OIG questions the validity of the multiple
           surveys without naming specifically what makes them unreliable. OIG disagrees
           because, as stated in the report, State officials were not initially able to provide
           documentation to support a survey that developed $160 per square foot as the
           single rate for the reconstruction cost of all properties across the State. After
           repeated inquiries, State officials provided four studies conducted by consulting
           firms to support the figure. However, OIG informed State officials that the first
           two studies contained inconsistent information, and they agreed that these studies
           were flawed and later provided an additional two studies conducted by two other
           consulting firms. However, OIG informed State officials that it questioned the
           reliability of the third study because it used properties located in New Jersey
           instead of New York State; however, State officials did not respond. OIG noted
           that the fourth study concluded that the average reconstruction costs in Suffolk,
           Nassau, and upstate counties were $165, $168, and $139 per square foot.
           Therefore, OIG maintains the position that the first three studies used to derive the
           square foot figure were unreliable and that the fourth study supports OIG’s
           position that it was not adequate to apply a single rate to calculate the
           reconstruction cost for all of the properties throughout the State.

Comment 16 State officials said that they have implemented new and adequate controls to
           ensure that grant agreements are signed before award disbursement. Since these
           policies, procedures, and controls were not provided to or reviewed by OIG, they
           will have to be provided to HUD for verification during the audit resolution
           process. In addition, some of the cases sampled in which disbursement was made


                                               45
              before a grant agreement was signed occurred after the new controls were
              reported to have been implemented.

Comment 17 State officials said that grant agreements have been executed for the questioned
           cases; however, since these were not made available at the time of the audit, they
           should be provided to HUD during the audit resolution process.
Comment 18 State officials said that they have been drafting the recapture procedures since the
           summer of 2014, are in discussions with HUD about them, and anticipate that the
           internal process will be operational within 6 months. Accordingly, this issue will
           have to be addressed with HUD during the audit resolution process.
Comment 19 State officials said that they relied upon self-reported data at the time of payment
           to two applicants and will update the data upon verification of the correct national
           objective classification. However, one applicant was reported as not being low
           and moderate income but was mistakenly classified as such by State officials. As
           a result, OIG maintains that controls over classifying assisted homeowners should
           be strengthened, especially since low- and moderate-income applicants are
           eligible for an additional $50,000 in CDBG-DR assistance, which if mistakenly
           provided, may result in a lengthy recapture. In addition, OIG recommends that
           State officials obtain and verify recipient income information in a timely manner
           instead of deferring the process to when final payment is made.
Comment 20 The report noted that one of the homeowners later provided additional
           documentation to support that the assisted home was not a second home. State
           officials agreed during the audit that this homeowner was ineligible for assistance
           and notified the homeowner. However, they said that the homeowner is appealing
           and may be determined to be eligible. State officials will need to provide HUD
           any additional documentation that resolves this homeowner’s eligibility during
           audit resolution process.
Comment 21 State officials explained that they discussed this issue with HUD since it was a
           finding from a HUD monitoring visit and that the finding had been closed (in July
           2015) by HUD. However, HUD had informed State officials that it would likely
           monitor implementation of the State’s methodology going forward and will issue
           clarifying guidance on the use of cost estimation in the near future. OIG
           maintains that State officials should require homeowners to provide
           documentation for costs incurred when readily available, especially when costs
           were incurred before the homeowner’s determination of eligibility for assistance.
           Guidance in 2 CFR Part 225, Appendix A, Cost Principles for State, Local, and
           Indian Tribal Governments, paragraph (C)(1)(a), requires that costs charged to
           Federal programs be necessary and reasonable. Further, Office of Community
           Planning and Development (CPD) Notice CPD-14-017, section B, requires that
           costs be adequately documented, and 24 CFR 85.20(b)(6) requires that accounting
           records be supported by source documents, such as canceled checks, paid bills,
           payroll and attendance records, contracts, and subgrant award documents. In



                                               46
                 addition, FEMA requires documentation of costs incurred to receive disaster
                 assistance, and the State of New Jersey requires source documents for costs
                 reimbursed by its CDBG-DR grant.
Comment 22 State officials believed that their procurement of inspection-related construction
           management services and environmental review services complied with Federal
           and State requirements because the procurements were advertised, proposals
           received from responding firms were evaluated, the cost proposals of the firms
           were evaluated, and the costs were further negotiated to ensure reasonable
           pricing. OIG maintains that these procurements did not comply with the
           subrecipient agreement between DASNY and HTFC because that agreement
           required DASNY to use HTFC’s procurement policies (which were stricter than
           DASNY’s policies). However, as State officials noted, the three contractors20
           were procured in accordance with DASNY’s procurement policy, which allowed
           the use of the qualification-only methodology to acquire architectural-
           engineering, construction management, and surveying services, while HTFC’s
           policy provided that only architectural-engineering or legal services could be
           selected on the basis of qualification and performance data. OIG also maintains
           that these procurements did not comply with Federal regulations because
           regulations at 24 CFR 85.36 (d)(3)(v) provide that the method in which price is
           not used as a selection factor and final award is subject to later negotiation of fair
           and reasonable compensation may be used only in the procurement of
           architecture-engineering services, and these services did not qualify as
           architecture-engineering services.
Comment 23 State officials said that OIG mistakenly concluded that DASNY further narrowed
           the panel to two firms from the original nine firms for the environmental review
           service procurement. The report correctly stated that before its subrecipient
           agreement for Hurricane Sandy work, DASNY selected 9 of 21 firms that had
           submitted proposals for referral to a panel and negotiation of hourly rates.
           DASNY later selected two of the nine firms and renegotiated hourly rates to
           conduct CDBG-DR-funded environmental review work.
Comment 24 State officials maintained that DASNY considered price in determining which
           firms would be considered for further price negotiations. However, regulations at
           24 CFR 85.36(d)(3)(iv) provide that awards will be made to the responsible firm
           with the proposal that is most advantageous to the program, with price and other
           factors considered, and regulations at 24 CFR 85.36 (d)(3)(v) provide that the
           method in which price is not used as a selection factor and final award is subject



20
   DASNY initially selected 7 firms from the 33 that submitted proposals for construction management services and
later selected 3 of the 7 to conduct inspection-related construction management services. Additionally, DASNY
selected 9 firms from the 21 that submitted proposals for environmental review services and awarded Sandy work to
2 of them. State officials said that these two firms were awarded environmental review services because they were
also among the three firms performing inspection-related construction management services.



                                                        47
              to further negotiation of fair and reasonable compensation may be used only in
              the procurement of architecture-engineering services, and these services did not
              qualify as architecture-engineering services.
Comment 25 OIG acknowledges that regulations at 24 CFR 85.36(b)(5) encourage grantees to
           enter into State and local intergovernmental agreements for procurement or use of
           common goods and services for the purpose of fostering greater economy and
           efficiency. However, as noted in comment 22, OIG maintains that these
           procurements did not comply with State or Federal requirements as they were not
           procured under HTFC regulations or in compliance with regulations at 24 CFR
           85.36(d)(3)(iv).
Comment 26 State officials claimed that they had conducted a price analysis because DASNY
           went through great effort to obtain cost proposals and set not-to-exceed amounts
           for each work order. However, regulations at 24 CFR 85.36(f)(1) provide that
           grantees must make independent estimates before receiving bids or proposals.
           OIG does not consider the use of cost proposals submitted by the proposing firms
           to be an independent analysis conducted before receiving bids or proposals. In
           addition, DASNY officials said that the firms were not required to submit
           competing cost proposals to secure work and the cost proposals submitted by the
           firms were generally composed of staff rates, fringes, and overhead fees. State
           officials stated that the firms submitted cost proposals that included estimated
           hours and number of inspections, but they were not included as part of work
           authorizations. Since State officials did not provide this supporting
           documentation, they will need to provide such documentation to HUD during the
           audit resolution process.
Comment 27     The terms work “orders” and work “authorizations” were used interchangeably
               in the subrecipient agreement between HTFC and DASNY, as it stated that
               HTFC would authorize DASNY and its procured subcontractors or subrecipients
               to perform work through a system of task orders that explain the number of
               inspections to be completed at the HTFC-approved rates, calculated on a time
               and material basis. State officials now distinguish the two terms -- “work
               orders” between HTFC and DASNY and “work authorizations” between
               DASNY and its subrecipients. To avoid confusion, OIG revised the report to
               rename the 18 task orders between DASNY and the 3 contractors as work
               authorizations.
Comment 28 State officials explained that due to the complexity of the program, they were not
           able to measure the cost on a unit-cost basis; therefore, the work authorizations
           were developed on a not-to-exceed actual expense basis. OIG acknowledges the
           complexity of the program. However, instead of leaving scope of service
           unspecified, State officials should have explained how the not-to-exceed ceiling
           amount in the work authorization was derived (for example, estimated number of
           inspections or reviews to be delivered, estimated time or staff hours), and the
           State can amend the original work authorizations when the situation changes. As



                                               48
              discussed in comment 26, State officials said that the firm’s cost proposals
              included estimated hours and the number of inspections to be conducted, although
              these were not included as part of the work authorizations. However,
              documentation to support this explanation was not provided during the audit and
              will need to be provided to HUD during the audit resolution process.
Comment 29 State officials stated that they awarded a significant amount of competitively
           procured unit cost based inspection work because in large part, they had gained
           experience during the initial phase of the work. However, as the audit report
           indicated, the work authorizations issued in the earlier phases of the services
           provided had more specific information on the scope of the work than those
           issued later.




                                              49
Appendix C
                               Summary of Case File Deficiencies

                    Incorrect                    Inaccurate   Ineligible   Ineligible
                    calculation    Incorrect     square       interim      low and
                    of duplicate   calculation   footage      mortgage     moderate
    Application     benefit        of award      used         assistance   allowance
     number
059-HA-11332-13          X
103-HA-50645-2013        X
059-HA-48172-2013        X                           X
059-HA-45363-2013        X
103-HA-41956-2013        X
103-HA-7618-13           X                                                      X
103-HA-11555-13          X
095-HA-43737-2013        X
059-HA-46756-2013        X
059-HA-45389-2013                      X
103-HA-9147-13                         X
059-HA-1073-13                         X
103-HA-7064-13                         X
059-HA-109-13                          X
103-HA-40609-2013                      X
103-HA-10964-13                        X
095-HA-40979-2013                                    X
095-HA-43274-2013                                    X
059-HA-47176-2013        X
059-HA-43147-2013                                                 X
      Totals             10             7            3            1              1




                                                   50
Appendix D
                              Case Summary Narratives

Application number: 059-HA-11332-13
Questioned amount: $40,471 overpaid, $89,171 over-awarded
Deficiency: Incorrect calculation of duplicate benefit

The homeowner received $129,642 from the National Flood Insurance Program (NFIP) for
damages caused by Hurricane Sandy. However, while State officials deducted this amount as a
duplicate benefit in calculating the homeowner’s unmet need for the initial award on October 12,
2013, it was not deducted in calculating a revised unmet need for which $296,042 was awarded
on February 10, 2014. Section 312 of the Stafford Act prohibits 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. After deducting the $129,642, the unmet need becomes $166,400. Since
$206,871 was disbursed to the homeowner, $40,471 was an overpayment, and the remaining
$89,171 was obligated but not disbursed.

Application number: 103-HA-50645-2013
Questioned amount: $184,293 overpaid
Deficiency: Incorrect calculation of duplicate benefits

Information available to State officials showed that the homeowner received $232,000 from the
NFIP and $117,300 as an SBA loan. Section 312 of the Stafford Act prohibits 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, the applicant was awarded $184,293 without
the $232,000 and $117,300 being deducted as duplicate benefits as required. As a result, the
homeowner was overpaid $184,293.

Application number: 059-HA-48172-2013
Questioned amount: $64,718 overpaid
Deficiency: Incorrect calculation of duplicate benefits and inaccurate square footage used

Information available to the State on December 10, 2013, showed that the homeowner received a
$26,000 SBA loan. Section 312 of the Stafford Act prohibits 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, on February 12, 2014, State officials awarded the homeowner
$350,000 without deducting the SBA loan proceeds before calculating the unmet need. In
addition, while the homeowner’s reconstructed home consisted of 2,299 square feet and the
allowable activities report noted that the reconstructed home was smaller than the previous
home, the award calculation was based on 2,770 square feet. Section 3.12.2 of the State’s
Homeowner Policy Manual states that the award should be calculated based on the square
footage of the reconstructed home if a homeowner builds a new home that is smaller than the
damaged home. Therefore, the allowance based upon square footage should have been $367,840
($160 x 2,299), plus $25,000 and $5,000 for an extraordinary site conditions award and



                                                51
demolition award, respectively, less $26,000 for an SBA loan, resulting in an unmet need of
$285,282. However, the homeowner received $350,000, resulting in the homeowner’s being
awarded $64,718 too much.

Application number: 059-HA-45363-2013
Questioned amount: $224,787 overpaid
Deficiency: Incorrect calculation of duplicate benefit

While the homeowner received a $203,300 SBA loan and $190,833 from the NFIP, State
officials did not deduct these amounts when calculating the unmet need and awarded the
homeowner $224,787. Section 312 of the Stafford Act requires that no person may receive
assistance for any part of a loss for which he or she has received financial assistance under any
other program or from insurance or any other source. After deducting these benefits, the
homeowner was ineligible to receive assistance from the CDBG-DR program.

Application number: 103-HA-41956-2013
Questioned amount: $9,921 over-awarded
Deficiency: Incorrect calculation of duplicate benefits

State officials calculated an unmet need of $422,718 after deducting other benefits of $20,847
and awarded the homeowner $350,000 (the State’s policy capped the award for low- and
moderate-income recipients at $350,000). However, State officials later learned that the
homeowner received $172,811 from insurance proceeds and, thus, revised the award amount to
$238,981. However, the award amount should have been $229,060 (unmet need of $422,718
minus other benefits of $193,658). Therefore, the homeowner’s award was overfunded by
$9,921.

Application number: 103-HA-7618-13
Questioned amount: $96,904 over-awarded
Deficiency: Incorrect calculation of duplicate benefit and ineligible low and moderate income

When calculating the unmet need to repair the primary residence, the State mistakenly deducted
insurance proceeds of $24,347, which the homeowner received for a rental property, rather than
the $121,251 in insurance proceeds received for the primary residence. As a result, the
homeowner was over-awarded $96,904. In addition, State officials incorrectly provided the
homeowner a $50,000 allowance, which is made available to households classified as low and
moderate income. Section 3.11 of the State’s Homeowner Policy Manual provides that the award
cap for home repair and reconstruction is $300,000, with an increase to $350,000 for a
homeowner who qualifies as low and moderate income. The homeowner’s annual income was
$79,431, which exceeded the State’s area low- and moderate-income threshold of $75,700 for a
three-person household. The case was correctly reported as addressing the urgent need national
objective. As a result, the homeowner was over-awarded $22,665, which is included in the
$96,904.

Application number: 103-HA-11555-13



                                                 52
Questioned amount: $271,823 overpaid, $47,564 over-awarded
Deficiency: Incorrect calculation of duplicate benefits

State officials mistakenly recorded $300,000 charitable assistance as a negative amount when
calculating the unmet need, thereby inappropriately awarding the homeowner $338,774, of
which $271,823 had been disbursed. Section 312 of the Stafford Act prohibits 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. In addition, 76 FR 71061 (November 16, 2011) states that
to comply with the Stafford Act, grantees should ensure that each program provides assistance to
a person only to the extent to which the person has a disaster recovery need not fully met. State
officials agreed that this was an error and confirmed that the correct award should have been
$38,774. The $271,823 disbursed to the homeowner was an overpayment, of which $47,564 was
obligated but not disbursed.

Application number: 095-HA-43737-2013
Questioned amount: $68,046 overpaid
Deficiency: Incorrect calculation of duplicate benefit
The homeowner received a $200,000 SBA loan on October 21, 2011, for damages caused by
Hurricane Irene. The homeowner later applied for CDBG-DR assistance for the same damage
and explained that the SBA loan was not a benefit but a loan, which had to be repaid. State
officials awarded the homeowner $300,000 in CDBG-DR funds for the unmet need of $431,954
without deducting the $200,000 SBA loan. Therefore, this should be considered a duplication of
benefit. Section 312 of the Stafford Act prohibits 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. After deducting the $200,000 SBA loan, the applicant should have been eligible for only
$231,954; thus, the homeowner was overpaid $68,046.

Applicant number: 059-HA-46756-2013
Questioned amount: $198,042 overpaid
Deficiency: Incorrect calculation of duplicate benefits

In an initial award on February 3, 2013, State officials deducted property insurance proceeds of
$154,840 from the homeowner’s allowed damages of $216,446. In calculating the homeowner’s
unmet need, the State awarded and disbursed $61,606. However, the records showed that the
actual property insurance payment was $198,042, resulting in an over-award of $43,202. In a
revision to the award on April 4, 2014, State officials again awarded the homeowner $216,446
and disbursed $154,840 but excluded the property insurance proceeds from the award
calculation. Section 312 of the Stafford Act prohibits 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. The unmet need should have been $216,446 less $198,042. As a result, $198,042 was
an overpayment.

Application number: 059-HA-45389-2013
Questioned amount: $215,000 overpaid, $185,000 over-awarded
Deficiency: Incorrect calculation of award



                                                53
State officials awarded the homeowner $400,000 from New York Rising, of which $215,000 was
disbursed at the time the homeowner applied for the New York Rising Buyout and Acquisition
program. Section 3.3.3 of the State’s Homeowner Policy Manual states that reimbursement and
repair payments are treated as duplication of benefits and deducted from any amount paid from
the New York Rising Buyout and Acquisition program. However, the $215,000 was not
deducted from the amount paid from the program. Therefore, the homeowner was overpaid
$215,000, and the over-awarded $185,000 was obligated but not disbursed.

Application number: 103-HA-9147-13
Questioned amount: $87,597 overpaid, $87,598 over-awarded
Deficiency: Incorrect calculation of award

State officials awarded the homeowner $175,195 from New York Rising, of which $87,597 was
disbursed at the time the homeowner applied for the New York Rising Buyout and Acquisition
program. Section 3.3.3 of the State’s Homeowner Policy Manual states that reimbursement and
repair payments are treated as duplication of benefits and deducted from any amount paid from
the New York Rising Buyout and Acquisition program. However, the $87,597 was not deducted
from the amount paid from the program. Therefore, the homeowner was overpaid $87,597, and
$87,598 was over-awarded but not disbursed.

Application number: 059-HA-1073-13
Questioned amount: $47,449 overpaid, $22,448 over-awarded
Deficiency: Incorrect calculation of award

State officials awarded the homeowner $69,897 from New York Rising, of which $47,449 was
disbursed at the time the homeowner applied for the New York Rising Buyout and Acquisition
program. Section 3.3.3 of the State’s Homeowner Policy Manual states that reimbursement and
repair payments are treated as duplication of benefits and deducted from any amount paid from
the New York Rising Buyout and Acquisition program. However, the $47,449 was not deducted
from the amount paid from the program. Therefore, the homeowner was overpaid $47,449, and
$22,448 was over-awarded but not disbursed.

Application number: 103-HA-7064-13
Questioned amount: $20,533 overpaid, $135,000 over-awarded
Deficiency: Incorrect calculation of award

State officials awarded the homeowner $300,000 from New York Rising, of which $165,000 was
disbursed at the time the homeowner applied for the New York Rising Buyout and Acquisition
program. Section 3.3.3 of the State’s Homeowner Policy Manual states that reimbursement and
repair payments are treated as duplication of benefits and deducted from any amount paid from
the New York Rising Buyout and Acquisition program. However, the $20,533 was not deducted
from the amount paid from the program. Therefore, the homeowner was overpaid $20,533, and
$135,000 was over-awarded but not disbursed.




                                              54
Application number: 059-HA-109-13
Questioned amount: $22,984 overpaid
Deficiency: Incorrect calculation of award

State officials awarded the homeowner $22,984 from New York Rising, of which $22,984 was
disbursed at the time the homeowner applied for the New York Rising Buyout and Acquisition
program. Section 3.3.3 of the State’s Homeowner Policy Manual states that reimbursement and
repair payments are treated as duplication of benefits and deducted from any amount paid from
the New York Rising Buyout and Acquisition program. However, the $22,984 was not deducted
from the amount paid from the program. Therefore, the homeowner was overpaid $22,984.

Application number: 103-HA-40609-2013
Questioned amount: $29,864 overpaid, $59, 530 over-awarded
Deficiency: Incorrect calculation of award

State officials awarded the homeowner $119,059 from New York Rising, of which $59,530 was
disbursed. The homeowner had spent $29,666 of the $59, 530 to repair the property when
applying for the New York Rising Buyout and Acquisition program. Section 3.3.3 of the State’s
Homeowner Policy Manual states that reimbursement and repair payments are treated as
duplication of benefits and deducted from any amount paid from the New York Rising Buyout
and Acquisition program. However, $29,864 of the remaining balance of disbursement was not
deducted from the amount paid from the program. Therefore, the homeowner was overpaid
$29,864, and $59,530 was over-awarded but not disbursed.

Application number: 103-HA-10964-13
Questioned amount: $92,390 overpaid, $92,390 over-awarded
Deficiency: Incorrect calculation of award

State officials awarded the homeowner $184,780 for estimated repair costs, of which $92,390
was disbursed. However, when the homeowner transferred from New York Rising to the New
York Rising Buyout and Acquisition program, the $92,390 was deducted as a duplication of
benefits when calculating the amount for the property buyout. Section 3.12 of the State’s Buyout
and Acquisition Policy Manual states that the property purchase price should be reduced by other
assistance unless the homeowner demonstrates through receipts that the funds received were
spent on eligible costs. However, the file did not document receipts for the expenditure of the
$92,390. As a result, the homeowner was overpaid $92,390. The remaining $92,390 needs to be
deobligated from New York Rising.

Application number: 095-HA-40979-2013
Questioned amount: $59,016 over-awarded
Deficiency: Inaccurate square footage used in grant calculation
An inaccurate square footage was used to calculate the estimated cost of reconstruction. While
the county’s property records reported that the home contained 1,944 square feet, State officials
used 3,000 square feet in the inspection report to calculate an award. Section 3.12.2 of the State’s
Homeowner Policy Manual states that the reconstruction cost is computed on the taxable square



                                                 55
footage. However, the State mistakenly used 3,000 square feet and awarded the homeowner
$400,000, while the unmet need should have been $340,984 based upon 1,944 square feet. As a
result, the unmet need was overstated, and the homeowner was overfunded $59,016 ($400,000 -
$340,984).

Application number: 095-HA-43274-2013
Questioned amount: $47,846 overpaid
Deficiency: Inaccurate square footage used in grant calculation

An inaccurate square footage was used to calculate the estimated cost of reconstruction. While
the damaged home contained 2,240 square feet, the reconstructed home contained 1,568 square
feet as the County’s property records showed. Section 3.12.2 of the State’s Homeowner Policy
Manual states that the reconstruction cost should be computed based on the taxable square
footage. However, the State mistakenly used 2,240 square feet and awarded the homeowner
$300,000, while the unmet need should have been $252,154 based upon 1,568 square feet. As a
result, the homeowner was overpaid $47,846 ($300,000 - $252,154).

Application number: 059-HA-47176-2013
Questioned amount: $250,000 overpaid
Deficiency: Assistance provided for damages assisted by another source

The homeowner’s property was damaged by both Hurricanes Irene and Sandy, and the
homeowner had received $250,000 from the NFIP to elevate the home and repair the damages
caused by Hurricane Irene. Section 312 of the Stafford Act requires that no person may receive
assistance for any part of a loss for which he or she has received financial assistance under any
other program or from insurance or any other source. However, the State’s policy assumed that
all damages were caused by the most recent storm. Therefore, State officials did not deduct any
of the $250,000 when calculating the unmet need and awarded the homeowner $317,770.
Receipts provided by the homeowner showed that the elevation work was started in February
2012, which was after Irene and before Sandy, and State officials confirmed that additional
elevation work was not undertaken as a result of Sandy. Thus, the elevation cost incurred was
due to Irene. So it is not reasonable that the repair cost of $317,770, which included the
$207,847 for elevation, was due to Sandy. Thus, the $250,000 in NFIP proceeds should have
been considered as a duplicate benefit. As a result, the repair cost was overfunded under the
CDBG-DR program when part of the cost was funded under the NFIP. Since $294,434 from the
$317,770 award had been disbursed, $250,000 should be recaptured from the homeowner.

Application number: 059-HA-43147-2013
Questioned amount: $12,000 overpaid
Deficiency: Ineligible interim mortgage assistance provided

The homeowner received $12,000 in interim mortgage assistance for 4 months (October 2013 to
January 2014), during which the homeowner also received rental assistance from private
insurance. Section 6 of the State’s Homeowner Policy Manual provides that a homeowner is not
eligible for interim mortgage assistance for any month in which other temporary housing



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assistance was received from another source. Instead of recapturing the overpayment or
deducting the overpaid amount from the interim mortgage assistance payments, State officials
removed the payment history for the 4 months from their record system and concluded that the
recipient was not overpaid. After discussing the matter with HUD OIG auditors, State officials
acknowledged the overpayment and said that the $12,000 had been recovered through
withholding later payments from the homeowner. However, State officials did not provide
documentation to support that the $12,000 had been recovered.




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