oversight

The State of Rhode Island Generally Administered Its Community Development Block Grant Disaster Recovery Assistance Grant in Accordance With Federal Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-03-09.

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

               The State of Rhode Island
        Community Development Block Grant Disaster
               Recovery Assistance Funds




Office of Audit, Region 1      Audit Report Number: 2016-BO-1001
Boston, MA                                         March 09, 2016
To:           Marion Mollegen McFadden
              Deputy Assistant Secretary for Grant Programs, DG


From:         Edward Jeye
              Regional Inspector General for Audit, 1AGA
Subject:      The State of Rhode Island Generally Administered Its Community Development
              Block Grant Disaster Recovery Assistance Grant in Accordance With Federal
              Regulations


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the State of Rhode Island’s Community
Development Block Grant Disaster Recovery assistance grant.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to contact John
Harrison, Acting Assistant Regional Inspector General for Audit, at 212-264-4174, or me at 617-
994-8380.
                   Audit Report Number: 2016-BO-1001
                   Date: March 09, 2016

                   The State of Rhode Island Generally Administered Its Community
                   Development Block Grant Disaster Recovery Assistance Grant in Accordance
                   With Federal Regulations



Highlights

What We Audited and Why
We audited the Community Development Block Grant Disaster Recovery (CDBG-DR)
assistance grant provided to the State of Rhode Island by the U.S. Department of Housing and
Urban Development (HUD) to assist in disaster recovery and rebuilding efforts resulting from
damages caused by Hurricane Sandy. The audit objective was to determine whether State
officials obligated and disbursed the grant funds in a timely manner in accordance with HUD
rules and regulations.

What We Found
State officials generally obligated and disbursed Sandy funds in a timely manner in accordance
with HUD rules and regulations. A review of approximately $7.5 million, representing 71
percent of the more than $10.5 million in CDBG-DR funds awarded, disclosed that the funds
were budgeted for eligible and HUD-approved activities, disbursed for eligible costs, and
properly supported. However, State officials obligated $127,750 for one project without
performing an adequate duplication of benefits analysis and cost analysis before procuring
rehabilitation services.

What We Recommend
We recommend that HUD instruct State officials to ensure that any insurance proceeds are
included in the revised duplication of benefits analysis for the questioned project for which
$127,750 was obligated, deobligate any amount found ineligible, and perform a cost analysis to
adequately justify project costs. Additionally, we recommend that HUD instruct the State to
develop and implement policies and procedures to ensure that subgrantees comply with rules and
regulations related to procurements.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The State of Rhode Island Generally Administered Its Community
         Development Block Grant Disaster Recovery Assistance Grant in Accordance With
         Federal Regulations ………………………………………………………….4

Scope and Methodology ...........................................................................................6

Internal Controls ......................................................................................................7

Appendixes ................................................................................................................8
         A. Schedule of Questioned Costs .................................................................................... 8
         B. Auditee Comments and OIG’s Evaluation ............................................................... 9
         C. Schedule of Sampled Projects .................................................................................. 12




                                                              2
Background and Objective
In response to Hurricane Sandy, Congress made available $16 billion in Community
Development Block Grant Disaster Recovery (CDBG-DR) assistance funds through the Disaster
Relief Appropriations Act of 2013 1 for necessary expenses related to disaster relief, long-term
recovery, restoration of infrastructure and housing, and economic revitalization. The funds were
to be allocated to areas most impacted by a major disaster declared under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act of 1974 in calendar years 2011, 2012, and 2013.

Before providing funds to a grantee, 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. The Act requires that all funds be
obligated by September 30, 2017, and disbursed within 2 years of obligation unless a waiver is
obtained.

On July 18, 2013, State of Rhode Island officials submitted to HUD a certification of sufficient
controls, processes, and procedures. HUD approved $19.9 million in CDBG-DR funds for the
State in three separate allocations as of February 2015. As shown in the table below, HUD had
awarded the State more than $10.5 million, and State officials had disbursed approximately $2.9
million as of September 30, 2015.

                             Grant funds         Award      Grant
                              awarded           execution    funds
                                                  date    disbursed
                                    $625,612     9/3/2013   $625,612
                                  $2,692,595    7/10/2014 $1,170,180
                                  $7,254,929    5/12/2015 $1,101,660
                                 $10,573,136              $2,897,452


Our audit objective was to determine whether State officials obligated and disbursed Sandy funds in
a timely manner in accordance with HUD rules and regulations.




1
    Public Law 113-2



                                                 3
Results of Audit

Finding 1: The State of Rhode Island Generally Administered Its
Community Development Block Grant Disaster Recovery Assistance
Grant in Accordance With Federal Regulations
For the funds audited, the State generally obligated and disbursed its CDBG-DR funds for
eligible activities in a timely manner in accordance with HUD rules and regulations. However,
one subgrantee did not ensure that a duplication of benefits was properly considered and that the
procurement complied with Federal and State requirements. This deficiency occurred because
the subgrantee lacked adequate monitoring controls over its subrecipient and the subrecipient
was unfamiliar with federal procurement requirements. As a result, HUD lacked assurance that
$127,750 in CDBG-DR funds was made available for eligible and reasonable costs.
CDBG-DR Funds Were Generally Obligated and Spent in Accordance With Federal
Regulations
A review of 20 (refer to Appendix C) of the 59 activities, for which State officials had obligated
approximately $7.5 million and spent $2.1 million in CDBG-DR funds, disclosed that the funds
were obligated spent for eligible activities in a timely manner and in accordance with applicable
regulations. However, they did not conduct an adequate duplication of benefits analysis or
ensure compliance with Federal and State procurement regulations for one activity for which
$127,750 was obligated and $9,550 was disbursed.
State officials obligated $127,750 for the rehabilitation of a nonprofit-owned four-unit residential
property damaged by Hurricane Sandy. In determining the amount of CDBG-DR assistance to
be provided, the State’s subgrantee officials did not include estimated future insurance proceeds
in the calculation of the owner’s unmet need. Section 312 of the Stafford Act prohibits the
payment of CDBG-DR funds for any loss for which financial assistance was paid under any
other program or from insurance or any other source. However, while documents in the file
indicated that there was private insurance on the property, the State’s subgrantee officials did not
document whether a claim had been filed or insurance proceeds had been received. Thus, there
was a potential for a duplication of benefits. We attributed this deficiency to the State’s
subgrantee officials’ unfamiliarity with the regulations. Upon being informed of this deficiency,
the officials filed an insurance claim; however, payment was not received during the audit
period. Subsequent documentation showed that an insurance payment was received by the
subrecipient in December 2015.
Also, these subrecipient officials awarded contracts for the rehabilitation without completing a
cost analysis and ensuring adequate competition. Regulations at 24 CFR (Code of Federal
Regulations) 85.36(d)(4)(ii) provide that if competition is determined to be inadequate after a
solicitation, a cost analysis is required to verify the proposed cost data. There was no supporting
documentation showing that a cost analysis had been performed. In addition, State of Rhode
Island Procurement Regulations, section 5.2 (37-2-2(2)(f)), provide that the chief purchasing



                                                 4
officer must ensure that all State agency procurement activities foster effective competition to
ensure that costs are economical. A competitive environment is considered to exist when certain
conditions are met, including the comparison of two or more items or offers to determine their
relative merit. However, while officials advertised for bids for a general contractor, only one
contractor responded, and the procurement documentation did not support why this contractor
was awarded the contract without an adequate number of respondents. An adequate number of
respondents is required by State regulations to ensure that a competitive environment exists. The
contractor was later released due to unsatisfactory performance and was paid $9,550 for the work
completed.

Conclusion
While State officials generally obligated and disbursed the audited CDBG-DR funds in
accordance with HUD regulations, one subgrantee lacked adequate monitoring controls over its
subrecipient and was unfamiliar with Federal procurement regulations. As a result, HUD lacked
assurance that $127,750 in CDBG-DR funds was made available for eligible and reasonable
costs.

Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs instruct State
officials to

       1A.    Ensure that any insurance proceeds received for the $127,750 project
              rehabilitation in question are included in a revised duplication of benefit analysis
              and any ineligible amount is deobligated.
       1B.    Ensure that a cost analysis is performed to adequately justify the costs of the
              project rehabilitation in question.
       1C.    Ensure that subgrantees have adequate controls to ensure that duplication of
              benefit analyses are adequately performed and procurement actions comply with
              Federal and State requirements.




                                                5
Scope and Methodology
The audit generally covered the period October 1, 2012, through May 31, 2015, and was
extended as needed. Audit fieldwork was performed in June and July 2015 at the State’s Office
of Housing and Community Development located at One Capitol Hill, Providence, RI. We used
data from HUD’s Disaster Recovery Grant Reporting system 2 and verified the data with State
documentation.

To accomplish our audit objective, we
    •   Reviewed the Disaster Relief Appropriations Act of 2013, the implementing regulations
        and HUD guidance pertaining to the use of CDBG-DR funds, and the State’s policies and
        procedures for administering the CDBG-DR grant.
    •   Obtained an understanding of the State’s financial controls over CDBG-DR funds’
        obligation and disbursement.
    •   Interviewed State employees responsible for administering the disaster grant to document
        the State’s policies and procedures for administering the CDBG-DR funds.
    •   Reviewed the State’s action plan and amendments, quarterly disaster reports, and grant
        agreements with HUD to identify the CDBG-DR grant requirements.
    •   Reviewed HUD’s monitoring report dated October 27, 2014.
    •   Reviewed the State’s financial statements ending June 30, 2013, and June 30, 2014.
    •   Reviewed a sample of 20 of the 59 activities to which State officials had obligated $7.5
        million, representing approximately 71 percent of the funds awarded. Sample selection
        was based on the budgeted dollar value, nature of the project, grantee, and funds
        disbursed. In addition, this sample represented 94 percent of the $2.1 million disbursed
        as of July 2015. We did not perform a statistical sample and therefore our results were
        not projected.
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.




2
 The Disaster Recovery Grant Reporting system was developed by HUD’s Office of Community Planning and
Development for the CDBG-DR program and other special appropriations, such as the Neighborhood Stabilization
Program. Grantees use this system to draw down funds and report program income.



                                                      6
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:

•   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that the use of funds is consistent with laws and
    regulations.
•   Program operations – Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.
•   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.
We evaluated internal controls related to our audit objective in accordance with generally
accepted government auditing standards. Our evaluation of internal controls was not designed to
provide assurance regarding the effectiveness of the internal control structure as a whole.
Accordingly, we do not express an opinion on the effectiveness of the State’s internal control as
a whole.




                                                  7
Appendixes

Appendix A


                             Schedule of Questioned Costs
                           Recommendation
                                             Unsupported 1/
                               number
                                   1A             $127,750


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                              8
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG   Auditee Comments
Evaluation




Comment 1




Comment 2


Comment 3




                                9
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 4




Comment 5




Comment 3

Comment 5




                               10
                         OIG Evaluation of Auditee Comments


Comment 1   State of Rhode Island officials believe that they have fully implemented the
            recommendations in the audit report. Verification of such will be made by HUD
            during the audit resolution process.
Comment 2   State of Rhode Island officials reported that the subrecipient received $10,700 in
            insurance proceeds in December 2015, and as a result, they revised the
            duplication of benefits analysis and reduced the obligation and contract award to
            the subgrantee. The State of Rhode Island actions appear responsive to
            recommendation 1A and will be verified by HUD.
Comment 3   State of Rhode Island officials reported that they modified the State’s duplication
            of benefits policies and procedures in accordance with HUD field office guidance.
            The State of Rhode Island actions appear responsive to recommendation 1C and
            will be verified by HUD.
Comment 4   State of Rhode Island officials reported that they have clarified its procurement
            process related to the receipt of a single bid after a competitive solicitation
            process. The State of Rhode Island actions appear responsive to recommendation
            1C and will be verified by HUD.
Comment 5   State of Rhode Island officials reported that a cost estimate was completed prior
            to the issuance of the bid documents and that the contract was awarded to the
            single bidder in accordance with federal regulations. However, since the contract
            was awarded to the single bidder, a cost analysis should have been done in
            accordance with federal regulations. Since a cost analysis was not provided during
            the course of our audit, State officials will have to provide HUD with evidence of
            compliance with federal regulations during the audit resolution process.




                                              11
Appendix C
                            Schedule of Sampled Projects

          Activity title                           Activity        Activity
                                                   budget       disbursements
      1   Camp Cronin Fishing Area                   $523,209         $523,209
      2   Camp Cronin Fishing Area P2               2,883,137        1,069,910
      3   Intrepid Drive Sewers                     1,465,000                0
      4   Westerly Old Town Beach Facility            350,463           97,926
      5   Westerly Old Town Beach Facility P2         244,033                0
      6   State Administration                         40,000           40,000
      7   State Administration                        200,000          168,466
      8   Administration                              350,000                0
      9   Green Infrastructure Job Training           500,000                0
     10   Churchwoods Phase I                         250,000                0
     11   Welcome House, Repairs to Housing            23,611           23,611
          Welcome House, Repairs to Scattered
                                                      104,139            9,442
     12   Site Housing
          Water Infra Design & GI Policy
                                                      111,500               0
     13   Analysis_NPT
          Water Infra Design & GI Policy
                                                      111,500               0
     14   Analysis_SK
     15   Senior Citizens Resiliency Project_NC       100,000           8,255
     16   Col. John Gardner Road                       62,500          61,496
          Chariho Regional Shelter
                                                       33,000            6,800
     17   Improvements
          Charlestown Debris Removal Tipping
                                                       25,565               0
     18   Fees
     19   Westerly Senior Center Improvements          75,149          75,149
     20   Middletown Police/Fire Overtime              10,864          10,864
                          Totals                   $7,463,670      $2,095,128




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