oversight

HUD Did Not Always Provide Accurate and Supported Certifications of State Disaster Grantee Procurement Processes

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-29.

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

     Office of Community Planning and
      Development, Washington, DC
    Certifications of State Disaster Grantee Procurement
                           Processes




Office of Audit, Region 3       Audit Report Number: 2016-PH-0005
Philadelphia, PA                                September 29, 2016
To:            Stan A. Gimont, Acting Deputy Assistant Secretary for Grant Programs, DGB
               //signed//
From:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA
Subject:       HUD Did Not Always Provide Accurate and Supported Certifications of State
               Disaster Grantee Procurement Processes




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s certifications of State disaster grantee
procurement processes.
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
215-430-6734.
                    Audit Report Number: 2016-PH-0005
                    Date: September 29, 2016

                    HUD Did Not Always Provide Accurate and Supported Certifications of State
                    Disaster Grantee Procurement Processes




Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) controls over its
certifications of State disaster recovery grantee procurement processes. We initiated the audit
after prior audits identified issues with the procurement certification completed for the State of
New Jersey. Our objective was to determine whether HUD certifications of State disaster
grantee procurement processes were accurate and supported.

What We Found
HUD did not always provide accurate and supported certifications of State disaster grantee
procurement processes. Specifically, it (1) allowed conflicting information on its certification
checklists, (2) did not ensure that required supporting documentation was included with the
certification checklists, and (3) did not adequately evaluate the supporting documentation
submitted by the grantees. These conditions occurred because HUD did not have adequate
controls over the certification process. Due to the weaknesses identified, HUD did not have
assurance that State grantees had proficient procurement processes in place and the Secretary’s
certifications did not meet the intent of the Disaster Relief Appropriations Act of 2013.

What We Recommend
We recommend that HUD perform a detailed review of the procurement procedures for each of
the State grantees that received funds under the Act. If the State did not demonstrate that its
procedures met requirements, HUD should (1) require the grantee to update its procedures and
provide an updated certification; (2) review the updated grantee certification to confirm that the
State meets requirements and has a proficient procurement process in place, thereby putting up to
$4.9 billion not yet disbursed or awarded to better use; and (3) review procurement files for
contracts that were paid with funds provided under the Act and if the procurement did not
comply with Federal procurement requirements, require the grantees to repay HUD from non-
Federal funds for any amounts that they cannot support or were not fair and reasonable. We also
recommend that HUD continue to improve the guidance that it provides to grantees to ensure
that future grantee certifications are accurate and supported, continue to improve its controls to
ensure that its staff adequately reviews future grantee certifications to ensure that they are
accurate and supported before certifying that grantees have a proficient procurement process, and
increase monitoring of State grantees that certified that they had a procurement process that was
equivalent to Federal procurement standards.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: HUD Did Not Always Provide Accurate and Supported Certifications of
         State Disaster Grantee Procurement Processes ............................................................. 5

Scope and Methodology .........................................................................................11

Internal Controls ....................................................................................................13

Appendixes ..............................................................................................................14
         A. Schedule of Funds To Be Put to Better Use ............................................................ 14

         B. Auditee Comments .................................................................................................... 15

         C. List of State Grantees ............................................................................................... 16




                                                                 2
Background and Objective
Through the Disaster Relief Appropriations Act of 2013 (Disaster Relief Act), 1 Congress made
available to the U.S. Department of Housing and Urban Development (HUD) $16 billion in
Community Development Block Grant funds for necessary expenses related to disaster relief,
long-term recovery, restoration of infrastructure and housing, and economic revitalization. In
accordance with the Robert T. Stafford Disaster Relief and Emergency Assistance Act, these
disaster relief funds were to be used in 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. As of November 2015, HUD had allocated more than $14.1 billion in
funds under the Disaster Relief Act to 34 grantees, including $9.4 billion for 17 State grantees. 2

As a condition of making any grant under the Disaster Relief Act, the HUD Secretary was
required to certify in advance that grantees had in place proficient financial controls and
procurement processes. The Secretary was also required to provide grantees with technical
assistance on contracting and procurement processes. On March 5, 2013, HUD issued a Federal
Register notice, 3 which stated that grantees had a proficient procurement process in place if the
grantee had either adopted the specific procurement standards identified in 24 CFR (Code of
Federal Regulations) 85.36 or had a procurement process that was equivalent to the procurement
standards at 24 CFR 85.36. HUD’s definition of a proficient procurement process was in line
with a prior Office of Inspector General (OIG) audit report, 4 in which we recommended that
HUD include the procurement standards at 24 CFR 85.36 in its future Block Grant Disaster
Recovery grant terms and provide procurement training and technical assistance to ensure that
future Block Grant Disaster Recovery grantees are aware of and follow Federal procurement
standards. HUD agreed to specifically reference these standards in future grant agreements,
include this topic in future conferences and webinars, and post information on specific topics on
the Block Grant Disaster Recovery Web site.

To establish a basis for the Secretary to make the certifications required by the Disaster Relief
Act, HUD created a certification checklist, which required grantees and HUD staff to indicate
whether the grantee had adopted the specific procurement standards identified in 24 CFR 85.36
or had a procurement process that was equivalent to the procurement standards at 24 CFR 85.36.
As discussed in the Federal Register notice, 5 grantees that elected to adopt the specific
procurement standards identified in 24 CFR 85.36 were required to attach a copy of their
procurement standards and indicate the sections of the standards that incorporated the specific




1
    Public Law 113-2, dated January 29, 2013
2
    The list of State grantees is located in appendix C.
3
    78 FR 14336 (March 5, 2013)
4
    2013-FW-0001, dated March 28, 2013
5
    78 FR 14336 (March 5, 2013)



                                                           3
procurement standards identified in 24 CFR 85.36. Further, States 6 that had a procurement
process that was equivalent to the procurement standards at 24 CFR 85.36 were required to
provide a crosswalk by attaching their procurement standards and indicating which sections of
the standards aligned with each procurement provision of 24 CFR 85.36. After grantees
submitted their certification checklists, HUD staff would complete the HUD side of the
checklist, and then the Deputy Assistant Secretary for Grant Programs would sign a
memorandum certifying on behalf of the Secretary 7 that the grantee had proficient financial
control and procurement processes.

During a prior audit related to New Jersey’s Sandy Integrated Recovery Operations and
Management System, 8 we identified issues related to the certification checklist. The State and
HUD both certified that the State’s process was equivalent to the procurement standards at 24
CFR 85.36. However, while the State accurately portrayed its policies and procedures on the
certification, the issues identified during our audit showed that the State’s process was not
equivalent to Federal procurement standards. For example, the State’s policy did not require it to
prepare an independent cost estimate and analysis before awarding the system contract to the
only responsive bidder. Therefore, we concluded that both the State’s certification and HUD’s
certification were inaccurate and unsupported.

Our objective was to determine whether HUD certifications of State disaster grantee
procurement processes were accurate and supported.




6
    Notice 78 FR 14336 (March 5, 2013) allowed only State grantees to elect the equivalency option, which was in
    line with the requirement in 24 CFR 85.36 that non-State grantees adopt the specific procurement standards laid
    out in 24 CFR 85.36(b) through (i).
7
    Notice 77 FR 31972 (May 30, 2012) delegated authority from the Secretary to the Assistant Secretary for
    Community Planning and Development. Notice 77 FR 38854 (June 29, 2012) further delegated authority from
    the Assistant Secretary for Community Planning and Development to the Deputy Assistant Secretary for Grant
    Programs.
8
    2015-PH-1003, dated June 4, 2015



                                                          4
Results of Audit

Finding: HUD Did Not Always Provide Accurate and Supported
Certifications of State Disaster Grantee Procurement Processes
HUD did not always provide accurate and supported certifications of State disaster grantee
procurement processes. Specifically, it (1) allowed conflicting information on its certification
checklists, (2) did not ensure that required supporting documentation was included with the
certification checklists, and (3) did not adequately evaluate the supporting documentation
submitted by the grantees. These conditions occurred because HUD did not have adequate
controls over the certification process. Due to the weaknesses identified, HUD did not have
assurance that State grantees had proficient procurement processes in place and the Secretary’s
certifications did not meet the intent of the Disaster Relief Act.

HUD Allowed Conflicting Information on Its Certification Checklists
HUD did not ensure that State grantees and HUD staff followed directions when selecting
between the two procurement certification options that were available. For 6 of the 17 State
certification checklists reviewed (Illinois, Maryland, Missouri, New York, Oklahoma, and
Tennessee), the State grantee certified that it had adopted the specific procurement standards at
24 CFR 85.36 and had a process that was equivalent to the procurement standards at 24 CFR
85.36. For five of these six States (Illinois, Maryland, New York, Oklahoma, and Tennessee),
HUD also certified that the State had adopted the specific procurement standards at 24 CFR
85.36 and had a process that was equivalent to the procurement standards at 24 CFR 85.36. For
example, the excerpt below shows that both the State of Illinois and HUD selected both options
when completing the certification checklist.




                                                 5
The Federal Register notice 9 and the certification checklist form indicated that State grantees
could select from two options – either adopt the specific procurement standards identified in 24
CFR 85.36 or have a procurement process that was equivalent to the procurement standards at 24
CFR 85.36. Because the grantees did not follow directions when selecting between the two
procurement certification options, HUD did not have assurance that they understood the
difference between the two options available to them and had selected the proper option.
Further, HUD did not have assurance that its staff understood the difference between the two
options available to State grantees and could adequately review the certification and supporting
documentation to certify that the grantees had met the requirements of question 1 or 2.

HUD Did Not Ensure That Required Supporting Documentation Was Included With the
Certification Checklists
HUD did not ensure that State grantees attached required supporting documentation to the
certification checklists. As discussed in the Federal Register notice 10 and instructed on the
certification checklist, States that elected to adopt the specific procurement standards identified
in 24 CFR 85.36 were required to attach a copy of their procurement standards and indicate the
sections of the standards that incorporated the specific procurement standards identified in 24
CFR 85.36. Further, States that elected the equivalency option were required to provide a
crosswalk by attaching their procurement standards and indicating which sections of the
standards aligned with each procurement provision of 24 CFR 85.36. Five States did not fully
comply with these requirements.

     •   Connecticut elected only the equivalency option and provided a copy of its procurement
         standards. However, it did not provide a crosswalk indicating which sections of its
         standards aligned with each procurement provision of 24 CFR 85.36.

     •   Alabama elected only to adopt 24 CFR 85.36, noted on the certification checklist that it
         had adopted 24 CFR 85.36 in full, and provided a copy of its procurement standards.
         However, it did not indicate which sections of its standards incorporated the specific
         procurement standards identified in 24 CFR 85.36.

     •   Missouri and Tennessee elected both to adopt 24 CFR 85.36 and the equivalency option
         and provided a copy of their procurement standards. However, they did not indicate
         which sections of their standards incorporated the specific procurement standards
         identified in 24 CFR 85.36 and did not provide a crosswalk indicating which sections of
         their standards aligned with each procurement provision of 24 CFR 85.36.

     •   Oklahoma elected both to adopt 24 CFR 85.36 and the equivalency option and provided a
         copy of its procurement standards. While its standards included four references to parts
         of sections (b) through (d) of 24 CFR 85.36, the State did not indicate which sections of
         its standards incorporated all of the specific procurement standards identified in sections
         (b) through (i) of 24 CFR 85.36 and did not provide a crosswalk indicating which

9
     78 FR 14336 (March 5, 2013)
10
     78 FR 14336 (March 5, 2013)



                                                  6
          sections of its standards aligned with each procurement provision of 24 CFR 85.36.

Because the States did not attach the documentation required to support their answers, HUD
should not have certified that the States had met the requirements of question 1 or 2 on the
certification checklists.

HUD Did Not Adequately Evaluate the Supporting Documentation Submitted by State
Grantees
HUD did not ensure that the supporting documentation submitted with the certification checklists
by State grantees that had selected the equivalency option was adequate to show that their
procedures were equivalent to the procurement standards at 24 CFR 85.36. As discussed in the
Federal Register notice 11 and instructed on the certification checklist, States that selected the
equivalency option were required to provide a crosswalk by attaching their procurement
standards and indicating which sections of their standards aligned with each procurement
provision of 24 CFR 85.36.

In some cases, the crosswalks showed that the grantee had disregarded the requirement to show
how its process was equivalent to the specific procurement provisions included in 24 CFR
85.36(b) through (i). For example, the crosswalk for

     •    Rhode Island omitted references for several portions of 24 CFR 85.36, such as sections
          (b)(3) through (b)(11), (c)(2) through (c)(4), and (i).

     •    Texas did not show how its process was equivalent to the requirements for a cost estimate
          and cost analysis contained in 24 CFR 85.36(f)(1) 12 and indicated that its process allowed
          for the cost plus method of contracting when the requirements at 24 CFR 85.36(f)(4)
          prohibit the use of this method.




In other cases, the crosswalks contained vague references that would have required HUD to
search large portions of the State’s policies and procedures to determine whether its process was


11
     78 FR 14336 (March 5, 2013)
12
     While the crosswalk provided by Texas summarized the requirements of 24 CFR 85.36(f)(1) as needing to
     perform a cost or price analysis in connection with every procurement action, it omitted the portion of 24 CFR
     85.36(f)(1) that discussed the need for an independent cost estimate.



                                                           7
equivalent to the specific procurement provisions in 24 CFR 85.36(b) through (i). For example,
the crosswalk for

   •   Massachusetts referenced its entire Uniform Procurement Act next to 24 CFR 85.36(f).
       This policy was 170 pages long and did not contain procedures that were equivalent to
       the requirements for an independent cost estimate and cost analysis discussed in 24 CFR
       85.36(f)(1).

   •   Illinois referenced a 50-page section of its policy next to 24 CFR 85.36(f). However, this
       section of its policy referred to source selection and contract formation. Neither the
       selected portion nor the rest of the policy contained procedures that were equivalent to
       the requirements for an independent cost estimate and cost analysis discussed in 24 CFR
       85.36(f)(1).

   •   New Jersey referenced a 32-page section of its administrative code 16 times in its
       crosswalk without detailing which subsection it was referring to or how the relevant
       procedures met the intent of the specific procurement provision. For example, next to 24
       CFR 85.36(f)(1), which discusses the requirements for an independent cost estimate and
       cost analysis, the State provided three references to the General Services
       Administration’s Disaster Recovery Purchasing Program, a large portion of the State’s
       statutes, and the 32-page section of its administrative code. However, these references
       did not require it to prepare an independent cost estimate and analysis before awarding
       contracts.

Even when States provided more detailed references, the procedures were not always equivalent
to the procurement provisions of 24 CFR 85.36(b) through (i). For example, on the crosswalk
provided by Louisiana, it indicated that a section of its procedures that was just over one page
long was equivalent to 24 CFR 85.36(f). This section of its procedures discussed requests for
proposals. It did not discuss procedures that would be equivalent to the requirements in 24 CFR
85.36(f)(1) through (f)(4), which discuss independent cost estimates and cost analyses,
negotiating profit as a separate element of the price for certain contracts, circumstances when
using estimated costs is allowable, and the prohibition of cost plus a percentage of cost and
percentage of construction cost methods of procurement.

Because the supporting documentation provided by the States that selected the equivalency
option did not always demonstrate that the State’s procedures were equivalent to the
procurement provisions at 24 CFR 85.36(b) through (i), HUD should not have certified that the
States had met the requirements of question 2 on the certification checklists.

HUD Did Not Have Adequate Controls Over the Certification Process
The issues described above occurred because HUD did not have adequate controls over the
certification process. For example, beyond the basic instructions on the certification checklists,
HUD did not have a formal policy and standardized procedures for its staff to use when
reviewing grantee certification checklists and preparing HUD’s certification checklists. It also
did not have guidance indicating which categories of employees were authorized to complete the


                                                 8
HUD certification checklist. Further, while HUD indicated that it had provided its staff several
e-mails with informal guidance, it did not demonstrate that its staff was instructed to compare
State procedures to each procurement provision of 24 CFR 85.36 in cases in which States
certified to equivalency. Based on communication with some of the HUD staff members who
completed the certification checklists discussed above, they did not always understand the
difference between the two procurement certification options provided to State grantees.

HUD Began To Take Steps To Improve Its Certification Process
In June 2016, HUD issued a Federal Register notice 13 allocating the final $1 billion in funds
available through the Disaster Relief Act to 13 grantees based on the results of its National
Disaster Resilience Competition. 14 Of the $1 billion, HUD allocated more than $242 million to
five grantees discussed in the finding above. 15 HUD updated its certification checklist for this
round of funds. The updated checklist provided more guidance for grantees and HUD staff,
clearly stated that only one procurement option should be selected, and indicated the HUD field
office staff that should review and complete the checklist. HUD indicated that it also provided
training to grantees and HUD field office staff through a webinar and by working one-on-one
with them. HUD also noted that its Disaster Recovery and Special Issues Division would
perform a second-level review of the checklists completed by grantees and HUD staff for funds
allocated by the National Disaster Resilience Competition.

Conclusion
Due to the weaknesses identified, HUD did not have assurance that State grantees had proficient
procurement processes in place as required by the Disaster Relief Act and defined in its March
2013 Federal Register notice 16 and the Secretary’s certifications 17 did not meet the intent of the
Disaster Relief Act. Further, because HUD staff signed State certification checklists that were
not completed properly and did not include adequate supporting documentation, States could
believe that their procurement processes were proficient when they did not comply with
requirements. As of November 2015, HUD had allocated $9.4 billion to the 17 State grantees.
As of August 2016, the States had executed grant agreements with HUD to award approximately
$5.7 billion of that funding and had received $4.6 billion. 18 Because HUD did not have
assurance that these grantees had a proficient procurement process in place, the $4.6 billion
disbursed was questionable. Further, the remaining $1.1 billion 19 not yet disbursed under current
grant agreements and more than $3.7 billion 20 that had not yet been awarded to 13 grantees 21

13
     81 FR 36557 (June 7, 2016)
14
     This competition was developed in response to requests from State, local, and tribal leaders seeking to build
     resilience and better prepare their communities for the impacts of climate change.
15
     Connecticut, Louisiana, New Jersey, New York, and Tennessee
16
     78 FR 14336 (March 5, 2013)
17
     The Deputy Assistant Secretary for Grant Programs completed the certification memorandums on behalf of the
     Secretary.
18
     Appendix C shows the amount allocated to each State as well as the amounts awarded and disbursed.
19
     $5.7 billion awarded to date - $4.6 billion disbursed = $1.1 billion still available under current grant agreements
20
     $9.4 billion allocated - $5.7 billion awarded to date = $3.7 billion of allocated funds not yet awarded
21
     Of the 17 State grantees that received funds under the Disaster Relief Act, 4 had executed grant agreements with
     HUD for 100 percent of their allocated funds. The remaining 13 grantees had executed grant agreements with
     HUD for only a portion of their allocated funds.



                                                            9
could be at risk unless HUD implements our recommendations.

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

          1A.     Perform a detailed review of the procurement procedures for each of the State
                  grantees that received funds under the Disaster Relief Act. If the State did not
                  demonstrate that its procedures incorporated the specific procurement standards
                  included in 24 CFR 85.36(b) through (i) or that its procedures were equivalent to
                  each individual procurement provision of 24 CFR 85.36(b) through (i), HUD
                  should (1) require the grantee to update its procedures and provide an updated
                  certification and (2) review the updated grantee certification to confirm that the
                  State meets requirements and has a proficient procurement process in place,
                  thereby putting up to $4,872,056,594 22 to better use. 23 In cases in which HUD has
                  not yet awarded all of the allocated funds to the State, HUD should complete
                  these steps before it executes any additional grant agreements with the State.

          1B.     For each State grantee that did not meet the stated requirements to demonstrate
                  that its procurement process was proficient, review procurement files for contracts
                  that were paid with funds provided under the Disaster Relief Act and if the
                  procurement did not comply with Federal procurement requirements, require the
                  grantees to repay HUD from non-Federal funds for any amounts that (1) they
                  cannot support or (2) were not fair and reasonable.

          1C.     Continue to improve the guidance that it provides to grantees to ensure that future
                  grantee certifications are accurate and supported.

          1D.     Continue to improve its controls to ensure that its staff adequately understands
                  and reviews future grantee certifications to ensure that they are accurate and
                  supported before certifying that grantees have a proficient procurement process.

          1E.     Increase monitoring of State grantees that selected the equivalency option.




22
     $4,872,056,594 = $3,753,687,461 allocated funds not yet awarded through a grant agreement + $1,118,369,133
     awarded funds that have not yet been disbursed
23
     We recognize that up to $4.9 billion not yet disbursed or awarded will be used for many activities including
     some that will not involve a procurement action. However, HUD could not provide a reasonable, supported
     method to estimate the portion of these funds that will involve a procurement action.



                                                         10
Scope and Methodology
We conducted the audit from November 2015 through August 2016 at our office in Philadelphia,
PA. The audit covered the period January 2013 through October 2015, but was expanded when
necessary to include grant agreements and updated disbursement information for the allocations
HUD made during our audit period.

To accomplish our objective, we reviewed

•    Relevant background information;
•    Applicable regulations and HUD notices;
•    The Disaster Relief Appropriations Act, Public Law 113-2;
•    The certification checklist form created by HUD and guidance provided to its staff related to
     completion of the checklists;
•    The certification checklists completed by the State grantees and HUD staff, including all
     supporting documentation submitted by the grantees and notes maintained by HUD staff; and
•    The certification memorandums completed by the Deputy Assistant Secretary for Grant
     Programs.

We held discussions with staff from HUD’s Disaster Recovery and Special Issues Division and
communicated with HUD staff located in various field offices as needed.

To achieve our audit objective, we relied in part on computer-processed data contained in HUD’s
Disaster Recovery Grant Reporting system. 24 We used the data to determine the amount of funds
that were allocated, awarded, and disbursed to the State grantees. Although we did not perform a
detailed assessment of the reliability of the data, we performed a minimal level of testing and
found the data to be adequate for our purpose.

As shown in appendix C, HUD had allocated $9.4 billion to 17 State grantees as of November 1,
2015. For each of the 17 State grantees, we reviewed the certification checklists completed by
the grantees and HUD to determine whether they had followed directions when selecting
between the two procurement certification options. We reviewed the supporting documentation
provided by the grantees to determine whether they had complied with the requirements to attach
certain documentation depending on the procurement certification option selected. For grantees
that provided crosswalks, we then reviewed the face of the crosswalks to identify any
inconsistencies or obvious omissions. Further, because prior audits had identified instances in
which New Jersey’s procedures did not require it to perform an independent cost estimate and

24
     The Disaster Recovery Grant Reporting system was developed by HUD’s Office of Community Planning and
     Development for the Block Grant Disaster Recovery funds and other special appropriations. Grantees use the
     system to submit action plans, draw down funds, report program income, and submit quarterly performance
     reports. Data from the system are used by HUD staff to review activities funded under these programs and for
     required quarterly reports to Congress.



                                                          11
cost analysis, we reviewed the State procedures referenced by the grantees for 24 CFR
85.36(f)(1). 25

At the end of the audit, we obtained updated data for the $9.4 billion in allocations from HUD’s
system as of August 1, 2016. This showed that HUD had executed grant agreements with the
States to award approximately $5.7 billion of the $9.4 billion. HUD had not yet executed grant
agreements with the States to award the remaining $3.7 billion. Of the $5.7 billion in allocated
funds that had been awarded, $4.6 billion had been disbursed. See appendix C for more details.

While this audit focused on HUD’s certifications for the 17 State grantees, we found that HUD
had also allocated funds to 17 non-State grantees. We reviewed the certification checklists
completed by the non-State grantees and HUD to confirm that the grantees had elected to adopt
the specific procurement standards included in 24 CFR 85.36. Because non-State grantees were
required to follow the specific procurement provisions at 24 CFR 85.36(b) through (i) under the
normal Block Grant program, we did not request or review the supporting documentation the
grantees provided to HUD with their checklists.

We provided HUD a copy of the draft report for review. We had an exit conference with HUD’s
Acting Deputy Assistant Secretary for Grant Programs and the Director of the Disaster Recovery
and Special Issues Division and discussed the audit’s results and recommendations. However,
HUD did not provide a formal written response. HUD stated that it would respond as part of the
management decision process once the final audit report is issued. We look forward to working
with HUD in arriving at management decisions to resolve and correct the issues identified in the
audit.

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.




25
     In cases in which the State crosswalks referenced 24 CFR 85.36(f) as a whole, we compared and reviewed the
     State procedures referenced by the grantees to 24 CFR 85.36(f)(1).



                                                         12
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 control was relevant to our audit objective:

•   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that the use of resources is consistent with laws and
    regulations.
We assessed the relevant control 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 Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   HUD did not have adequate controls over the certification process to ensure that State
    grantees had proficient procurement processes in place as required by the Disaster Relief Act.




                                                  13
Appendixes

Appendix A
                       Schedule of Funds To Be Put to Better Use

                         Recommendation        Funds to be put to
                             number              better use 1/
                                 1A                $4,872,056,594


1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an OIG recommendation is implemented. These amounts include
     reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
     implementing recommended improvements, avoidance of unnecessary expenditures
     noted in preaward reviews, and any other savings that are specifically identified. In this
     instance, if HUD implements our recommendation, it will have assurance that State
     grantees have proficient procurement processes in place, thereby putting up to
     $4,872,056,594 in funds not yet disbursed or awarded to better use.




                                              14
Appendix B
                                       Auditee Comments

HUD chose not to provide written comments for this audit report. See the Scope and Methodology
section for additional information.




                                                  15
Appendix C
                                           List of State Grantees

                                                              Amount awarded
                                        Amount                                      Amount
                   State                                          through
                                       allocated 26                                disbursed 28
                                                             grant agreements 27
       1       New York               $4,416,882,000              $2,243,000,000   $2,185,917,717
       2       New Jersey              4,174,429,000               2,901,736,000    2,093,593,066
       3        Colorado                 320,346,000                 165,633,038       84,771,759
       4       Connecticut               159,279,000                 100,000,000       51,174,131
       5        Oklahoma                  93,700,000                  83,935,650       31,586,570
       6        Louisiana                 64,379,084                  29,921,948       13,139,424
       7        Alabama                   49,157,000                  41,875,379       38,680,433
       8      Pennsylvania                29,986,000                   8,925,000           49,667
       9        Maryland                  28,640,000                  23,440,000       12,902,920
      10      Rhode Island                19,911,000                  14,311,081        6,077,840
      11         Vermont                  17,932,000                  17,932,000       12,530,672
      12        Tennessee                 13,810,000                   9,200,000        5,119,713
      13         Missouri                 11,844,000                   6,788,680        3,925,920
      14          Illinois                10,400,000                  10,400,000        4,246,658
      15      Massachusetts                7,210,000                   7,118,847        3,288,732
      16      North Dakota                 6,576,000                   6,576,000        5,446,891
      17           Texas                   5,061,000                   5,061,000        5,033,377
               Totals                 $9,429,542,084             $5,675,854,623    $4,557,485,490




26
     The amount allocated was as of November 1, 2015.
27
     The amount awarded through grant agreements was as of August 1, 2016.
28
     The amount disbursed was as of August 1, 2016.



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