oversight

The Texas General Land Office, Austin, TX, Should Strengthen Its Capacity To Administer Its Hurricane Harvey Disaster Grants

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-05-07.

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

             Texas General Land Office,
                    Austin, TX
           Community Planning and Development
        Community Development Block Grant Disaster
                       Recovery




Office of Audit, Region 6     Audit Report Number: 2018-FW-1003
Fort Worth, TX                                       May 7, 2018
To:            Jessie Handforth Kome, Acting Director, Office of Block Grant Assistance, DGB

               //signed//
From:          Kilah S. White, Regional Inspector General for Audit, 6AGA
Subject:       The Texas General Land Office, Austin, TX, Should Strengthen Its Capacity To
               Administer Its Hurricane Harvey Disaster Grants


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 Texas General Land Office.
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 website. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at 817-
978-9309.
                    Audit Report Number: 2018-FW-1003
                    Date: May 7, 2018

                    The Texas General Land Office, Austin, TX, Should Strengthen Its Capacity
                    To Administer Its Hurricane Harvey Disaster Grants



Highlights

What We Audited and Why
We reviewed the Texas General Land Office in accordance with the U.S. Department of Housing
and Urban Development, Office of Inspector General’s (HUD OIG) goal to review disaster
funding and based on a congressional request for HUD OIG to conduct capacity reviews for
Hurricanes Harvey, Irma, and Maria grantees. Our audit objectives were to determine whether
the State of Texas had the capacity to follow Federal procurement regulations when procuring
contracts with Community Development Block Grant Disaster Recovery (CDBG-DR) funds and
to spend its CDBG-DR funds in accordance with applicable requirements.

What We Found
The Texas General Land Office should strengthen its capacity to follow Federal procurement
regulations when procuring contracts with CDBG-DR funds and to spend those funds in
accordance with applicable requirements. Specifically, it could strengthen its capacity by (1)
reviewing and updating its procurement and expenditure policies and procedures to ensure that
they are implemented and working as designed, (2) increasing staffing to ensure that appropriate
resources are available to administer the disaster funds, and (3) improving its processes for
preventing duplication of benefits. It should also ensure that false statement and false claim
warnings are included in all of its contract-related forms. These challenges exist because the
agency will have responsibility for administering significantly more disaster grant funding than it
has managed in the past. Further, the agency could benefit from a standard set of basic disaster
recovery guidelines, established by HUD, to assist it in providing needed relief to affected
communities. Strengthening its capacity to administer disaster funds would help ensure that the
agency properly spends more than $5 billion in CDBG-DR funding in accordance with
applicable requirements.

What We Recommend
We recommend that HUD’s Acting Director for the Office of Block Grant Assistance require the
Texas General Land Office to (1) ensure that its procurement and expenditure policies and
procedures are implemented and working as designed, (2) fill vacancies to ensure that staffing
levels remain adequate and its staff is properly trained to administer disaster funds, (3) take steps
to mitigate potential duplication of benefit risks, and (4) ensure that false statement and false
claim warnings are included in all of its contract-related forms.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................5
         Finding: The Texas General Land Office Should Strengthen Its Capacity To
         Administer Its Hurricane Harvey Disaster Grants ....................................................... 5

Scope and Methodology .........................................................................................13

Internal Controls ....................................................................................................15

Appendixes ..............................................................................................................16
         A. Auditee Comments and OIG’s Evaluation ............................................................. 16




                                                            2
Background and Objectives
On August 25, 2017, Hurricane Harvey made landfall as a Category 4 hurricane in southeast
Texas, with sustained winds of more than 130 miles per hour. The hurricane stalled over
southern Texas for days, causing catastrophic flooding and damage. It was the Nation’s first
major hurricane landfall since 2005 and broke all-time U.S. tropical rain records. In response,
Congress passed Public Law 115-56 on September 8, 2017, which appropriated $7.4 billion to
the U.S. Department of Housing and Urban Development’s (HUD) Community Planning and
Development fund for necessary expenses for activities related to disaster relief, long-term
recovery, restoration of infrastructure, and economic revitalization in the most impacted and
distressed areas resulting from a major disaster declared in 2017. 1
On November 17, 2017, HUD issued a press release announcing that it had awarded $5.024
billion to help hard-hit areas in Texas recover from Hurricane Harvey. 2 The funds were provided
through HUD’s Community Development Block Grant Disaster Recovery (CDBG-DR) program,
and grantees were required to address unmet housing recovery needs. The Texas General Land
Office is the agency responsible for the administration of disaster recovery funds in Texas. 3 The
agency’s Community Development and Revitalization division manages its disaster programs.
In December 2017, HUD allocated $57.8 million from its 2015 disaster appropriations 4 to the
State of Texas in response to Hurricane Harvey. Congress appropriated $28 billion in additional
disaster funding in February 2018. 5 On April 10, 2018, HUD announced a $4.7 billion allocation
to the State of Texas from the $28 billion appropriation to address unmet needs from Hurricane
Harvey and to support mitigation activities. As of April 26, 2018, the Texas General Land
Office had received no CDBG-DR funds related to Hurricane Harvey recovery.
Because of the devastating damage caused by Hurricane Harvey, the Texas General Land Office
will be responsible for administering substantially more funding than it has previously
administered. 6 As shown in the table below, from 2011 until the Hurricane Harvey event, HUD
had allocated nearly $350 million7 to the Texas General Land Office in four CDBG-DR grants.
As of February 21, 2018, for the 2015 and 2016 flood disaster grants, none of the funds had been




1
    Forty-one counties in Texas were designated as disaster counties.
2
    The $5.024 billion award was from the $7.4 billion appropriated under Public Law 115-56. On February 9,
    2018, HUD issued implementing guidance for the appropriated funds through Federal Register Docket No. FR-
    6066-N-01.
3
    On July 1, 2011, the governor of Texas reassigned responsibility for the administration of disaster recovery
    funds to the Texas General Land Office.
4
    This allocation was the remaining amount from $400 million appropriated under Public Law 115-31.
5
    The President signed Public Law 115-23 on February 9, 2018.
6
    These funds will remain unspent until the award process is completed and HUD releases the funds.
7
    The Texas General Land Office took over administration of the in-progress $3 billion 2008 Hurricane Ike
    disaster grant when it assumed responsibility for Texas disaster grants in 2011.



                                                        3
drawn down except for administrative and planning costs, and the 2011 wildfire grant had an
unspent balance of $10 million.
Texas General Land Office CDBG-DR funding status as of February 21, 2018
                                                           Disbursed      Balance
               Disaster event             Grant amount
                                                            amount       remaining
 2011 multiple disasters
                                             $31,319,686   $21,253,169    $10,066,517
 (Bastrop wildfires)
 2011-2013 Hurricane Sandy & other
                                               5,033,377     5,033,377              0
 events (Bastrop II wildfires)
         Total 2011-2013 wildfire events      36,353,063    26,286,546     10,066,517
 2015 Hurricanes Joaquin & Patricia &
                                              74,568,000       589,816     73,978,184
 other events
 2016 floods and other events                238,895,000             0    238,895,000
         Total 2015-2016 events              313,463,000       589,816    312,873,184
 Texas General Land Office disaster
                                             349,816,063    26,876,362    322,939,701
 grants before Hurricane Harvey
 2015 grant - Hurricane Harvey allocation     57,800,000             0     57,800,000
 2017 Hurricane Harvey                     5,024,215,000             0 5,024,215,000
  Hurricane Harvey grants                  5,082,015,000 8
                                                                     0 5,082,015,000
         Total disaster grant funding      5,431,831,063    26,876,362 5,404,954,701

On October 10, 2017, the U.S. Senate’s Committee on Homeland Security and Governmental
Affairs sent a letter to the Acting Inspector General of HUD, requesting immediate and intensive
oversight by HUD’s Office of Inspector General (OIG) to protect taxpayer interests and to ensure
that hurricane relief funds reached victims of Hurricanes Harvey, Irma, and Maria. The
Committee wanted to ensure that appropriate oversight mechanisms were in place and
encouraged HUD OIG to conduct capacity audits to evaluate grantees’ and subgrantees’ ability
to properly manage CDBG funding and to follow Federal procurement regulations.
Additionally, the Committee asked HUD OIG to report evidence of wasteful spending, fraud, or
poor contract management as it occurred so that Congress could intervene as needed. This
capacity audit is an initial step in our commitment to oversee the Texas General Land Office’s
efforts to administer its Hurricane Harvey CDBG-DR funds in an effective and efficient manner.
The fieldwork for this assignment was completed before HUD's $28 billion disaster allocations
on April 10, 2018; therefore, this report focused only on the agency's capacity to administer $5
billion in Hurricane Harvey disaster funding. Nearly doubling the State's Hurricane Harvey
disaster funding magnifies the concerns identified in this capacity audit report.
Our audit objectives were to determine whether the State of Texas had the capacity to follow
Federal procurement regulations when procuring contracts with CDBG-DR funds and to spend
its CDBG-DR funds in accordance with applicable requirements.


8
    HUD's April 10, 2018 allocation of $4,726,631,000 to the State of Texas will make the agency responsible for
    more than $10 billion in disaster funding.



                                                         4
Results of Audit

Finding: The Texas General Land Office Should Strengthen Its
Capacity To Administer Its Hurricane Harvey Disaster Grants
The Texas General Land Office should strengthen its capacity to follow Federal procurement
regulations when procuring contracts with CDBG-DR funds and to spend those funds in
accordance with applicable requirements. Specifically, to address potential challenges, it could
strengthen its capacity by (1) reviewing and updating its procurement and expenditure policies
and procedures to ensure that they are implemented and working as designed, (2) increasing
staffing to ensure that appropriate resources are available to administer the disaster funds, and (3)
improving its processes for preventing duplication of benefits. It should also ensure that false
statement and false claim warnings are included in all of its contract-related forms. These
challenges exist because the agency will have responsibility for administering significantly more
disaster grant funding than it has managed in the past. Further, the agency could benefit from a
standard set of basic disaster recovery guidelines, established by HUD, to assist it in providing
needed relief to affected communities. Strengthening its capacity to administer disaster funds
would help ensure that the agency properly spends more than $5 billion in CDBG-DR funding in
accordance with applicable requirements.

The Texas General Land Office Must Remain Diligent To Ensure That Its Disaster
Procurement Policies and Procedures Are Implemented as Designed
The Texas General Land Office’s policies and procedures included internal controls that were
adequate for meeting Federal requirements for procuring contracts with CDBG-DR funds.
However, since the Texas General Land Office had spent only administrative costs for its 2015
or later grants, we were unable to test the effectiveness of those internal controls. While the
agency appeared prepared to manage its Hurricane Harvey procurements effectively, it needs to
remain aware of the potential challenges it could face in responding to such a catastrophic event.
As part of the certification process for its 2015 disaster grant, the Texas General Land Office
self-certified to HUD that its procurement policies and procedures were equivalent to 2 CFR
(Code of Federal Regulations) 200.318 through 200.326. 9 However, the agency referenced
entire chapters of the State code 10 as support but did not identify which sections of the State code
aligned with 2 CFR 200.318 through 200.326. The Federal Register 11 notice that governs the
agency’s use of $5.024 billion in Hurricane Harvey funds allows the Texas General Land Office
to choose among three options to show that it has proficient procurement procedures. Public
Law 115-56 states that before making any grant, HUD must certify in advance that the grantee
has in place proficient procurement processes. As of February 13, 2018, that certification

9
     While the applicable Federal Register notice (FR-5938-N-01) required grantees to show only that proficient
     procurement processes were in place, HUD’s Risk Analysis Documentation Checklist required the agency to
     certify whether its procurement policies and procedures were equivalent to Federal standards.
10
     Texas Government Code 2155 and 2156
11
     Federal Register Docket No. FR-6066-N-01, issued February 9, 2018



                                                          5
process had not been completed. Before it submits its procurement process certifications to
HUD for approval, the Texas General Land Office needs to ensure that its processes fully
comply with requirements and that it can support the compliance. Further, the agency must
consider whether the option it chooses to show proficient procurement procedures complies with
requirements for its other Federal disaster grants. 12
The Texas General Land Office Had Prior Procurement Issues
The Texas General Land Office had prior audit findings regarding its procurements. For its
Bastrop II wildfires grant, HUD OIG reported 13 that the Texas General Land Office did not show
how its procurement process was equivalent to the Federal requirements for a cost estimate and
cost analysis in connection with every procurement action. The report also showed that the
agency’s process allowed for the cost plus percentage of cost method of contracting when
Federal regulations prohibited its use. Additionally, another HUD OIG report 14 found that the
State of Texas' contracts and contract amendments included prohibited cost plus provisions and
other procurement deficiencies. As the reassigned agency responsible for managing the State's
disaster grant, the Texas General Land Office took corrective actions to address the findings in
that report.
The agency’s independent auditor also reported a lack of documentation of bids or quotes from
additional vendors. 15 Since the agency was still in the planning phase for managing its CDBG-
DR Hurricane Harvey disaster funds, it could use insights gained from previous procurement
reviews of its program, such as those described above, to strengthen its capacity for responding
to the disaster. Paying attention to potential risks could help the agency avoid future
procurement issues and prevent repeat audit findings.
The Texas General Land Office Needs To Keep Abreast of Changes
The Texas General Land Office needs to keep abreast of changes and updates that could affect its
disaster program. For example, the Federal Register notice, 16 issued on February 9, 2018,
requires grantees to provide a legal opinion stating that they have proficient procurement policies
and procedures. Another Federal Register notice that governs Hurricane Harvey activities,
issued on December 27, 2017, 17 did not contain that requirement. If the agency receives
additional Hurricane Harvey disaster funding, the Federal requirements for that grant could also
include different provisions about procurements or other aspects of the grant. Accounting for the
differences in requirements for multiple grants that regulate the same disaster event and
effectively responding to them could be a difficult challenge to navigate. Agency staff discussed
the challenges associated with understanding and keeping informed of guidance with rules that
varied, and dealing with different requirements for each disaster. These examples show how a


12
     The Texas General Land Office’s agreement with the Federal Emergency Management Agency (FEMA)
     requires compliance with 2 CFR 200.317 through 200.326.
13
     HUD OIG audit report 2016-PH-0005, issued September 29, 2016, reported on the agency’s 2011 wildfire grant.
14
     HUD OIG audit report 2012-FW-1005, issued March 7, 2012
15
     Independent Auditor’s Report – Federal Portion of Statewide Single Audit Report for the Year Ended August 31,
     2015
16
     See footnote 10.
17
     Federal Register Docket No. FR-6074-N-01, issued December 27, 2017



                                                         6
standard set of disaster requirements, established by HUD, could benefit the agency because it
could concentrate on administering the program instead of reconciling competing requirements.

These potential risks and examples show why the Texas General Land Office must remain
diligent and review and update its internal controls throughout the grant cycle to ensure that the
procurement policies and procedures are implemented and working as designed, including the
Federal prohibition of cost plus percentage of cost contracts. The agency will also need to
provide its subrecipients with timely, accurate and complete procurement guidance and
adequately monitor them to ensure that the disaster funds are used for their intended purposes.
The Texas General Land Office Needs More Staff Resources To Administer More Than $5
Billion in Hurricane Harvey Funding
The Texas General Land Office’s staffing resources were inadequate to administer $5 billion in
Hurricane Harvey funding. The agency created new positions in its Community Development
and Revitalization division in anticipation
of responding to upcoming disaster
projects. According to its February 2018          Inadequate staff resources could
organization chart, the agency had 34             adversely affect disaster recovery.
vacancies out of 92 full-time positions (37
percent), including 5 in leadership. These
vacancies, if not filled, could adversely affect the agency’s ability to provide proper oversight of
its disaster grants. An agency manager stated that the positions would be filled as funding
became available. As of February 21, 2018, the Texas General Land Office had four open HUD
disaster grants, including the three that were granted after the agency took over responsibility for
disaster recovery in Texas. In addition, the U.S. Department of Homeland Security’s (DHS)
OIG reported 18 the Texas General Land Office’s concerns over its hiring, training, and
contracting for additional staff to administer Federal Emergency Management Agency (FEMA) 19
disaster grants. Staff members assigned to HUD grants worked primarily on grants related to
Hurricane Ike, which hit Texas in September 2008, and indicated that they were overwhelmed.
Adding a $5 billion grant to a department that is overwhelmed by its current workload will
present challenges that the agency will need to address to operate an effective and efficient
disaster program. To manage its disaster program successfully, the agency must ensure that it
fills its vacant positions as it prepares to manage the more than $5 billion Hurricane Harvey
grant.

Further, the Procurement division at the Texas General Land Office consisted of five employees,
who performed procurements for all divisions of the agency. Procurements for the Community
Development and Revitalization division are expected to significantly increase with more than
$5 billion in Hurricane Harvey funding. The resulting workload may be overwhelming for a
procurement division of five.




18
     DHS OIG report, OIG-17-121-MA, issued September 29, 2017
19
     FEMA is part of DHS.



                                                     7
The Texas General Land Office Had Subrecipient Monitoring Issues
A review of the Texas General Land Office’s monitoring reports identified an agency weakness.
Specifically, a monitoring report from 2017 20 showed that the Texas General Land Office did not
use due diligence when following up with a subrecipient on findings related to procurement. It
verified corrective actions for five of six contracts that did not include required contract
provisions. The agency did not follow up on the sixth contract because it concluded that
retaining the amendment in the subrecipient’s local files and relying on the subrecipient’s
statement of intent provided reasonable evidence to close the finding. If the agency hired
additional staff members, there could be additional resources available to allow it to adequately
follow up on monitoring findings and concerns.

Further, the 2015 and 2016 independent auditor’s reports 21 stated that the Texas General Land
Office’s monitoring of subrecipients was insufficient to address the risk of potential issues at the
subrecipient level. The agency’s Community Development and Revitalization division had 14
positions in the Monitoring and Quality Assurance department; however, 6 of those positions
were vacant. 22 A significant funding increase in this environment raises concerns that
monitoring will continue to be insufficient or possibly become unmanageable. Effective
management of the agency’s Hurricane Harvey grants will require diligent oversight of its
subrecipients to ensure that the disaster funds will be used for their intended purposes. Filling
these critical vacancies will also require attention to the training needs of new hires or reassigned
staff.

The Texas General Land Office Needs To Improve Its Processes for Preventing Duplication
of Benefits
A duplication of benefits occurs when an agency provides assistance, which was the primary
responsibility of another agency, and the agency with primary responsibility later provides
assistance. 23 The Federal duplication of benefits prohibition ensures that Federal assistance
serves only to supplement insurance and other forms of disaster assistance. 24 Under the generally
accepted hierarchy of delivery, 25 FEMA and Small Business Administration (SBA) assistance is
provided to individuals before CDBG-DR assistance can be delivered. The Texas General Land
Office’s processes for preventing duplication of benefits needs to be improved by updating
agreements with applicable agencies and ensuring that warnings regarding false statements and
false claims are included on all contract-related forms.
The Texas General Land Office had data-sharing agreements with FEMA and SBA. According
to Texas General Land Office staff, the agency had no issues accessing required data from the
two Federal agencies when ensuring the prevention of duplication of benefits. On January 5,
2017, the Texas General Land Office executed a data-sharing agreement with SBA for the 2015


20
     League City Monitoring Report, issued April 6, 2017
21
     See footnote 14 and Independent Auditor’s Report – Comprehensive Annual Financial Report 2016 for the State
     of Texas for the Fiscal Year Ended August 31, 2016
22
     These 6 vacancies were included in the overall 34 vacancies.
23
     44 CFR 206.191(d)
24
     Federal Register Docket No. FR-5582-N-01, issued November 16, 2011
25
     44 CFR 206.191(d)(2)



                                                        8
floods. The term of the agreement was effective for only 18 months, meaning that it should
expire on July 5, 2018. However, as of February 21, 2018, the Texas General Land Office had
drawn down no program funds. In this case, it appeared that the agreement would expire before
it could provide useful information to prevent duplicate benefits. The Texas General Land
Office should negotiate with SBA to extend its data-sharing agreements, including the agreement
it negotiates for its Hurricane Harvey grants, for the term of the expenditure requirements set
forth in public laws or the Federal Register.

The Texas General Land Office stated that it was unable to obtain data from the Texas
Department of Insurance regarding private insurance payments to potential grant recipients.
However, the agency was unable to provide documentation to support either a request or denial
to share information. The lack of data sharing increases the risk of duplication of benefits
because the Texas General Land Office must rely on applicant self-certifications. It also
increases the risk of the agency’s violating Federal law. The agency should initiate negotiations
with the Texas Department of Insurance to establish data-sharing agreements for the Hurricane
Harvey disaster, any open CDBG-DR grants, and future disasters to prevent duplication of
benefits.

The Texas General Land Office Should Mitigate Risks of Fraud, Waste, and Abuse
Incorporating warnings in information provided to potential applicants could mitigate instances
of fraud, waste, and abuse in the agency’s disaster programs, including duplication of benefits.
A form in the Texas General Land Office’s application packet did not contain a false statement
and false claim warning. 26 Further, one of the sample contracts provided by the agency did not
include a false statement and false claim warning. Without false statement and false claim
warnings on all of its contract forms, applicants could defraud the agency or abuse its program,
and the Texas General Land Office and HUD could be unable to hold the responsible party
accountable for civil or criminal penalties. The Texas General Land Office should ensure that
false statement and false claim warnings are included in all of its contract-related forms to help
ensure that only eligible applicants benefit from the agency’s limited resources.

The Texas General Land Office Faces Challenges Due To a Substantial Increase in Disaster
Funding
Because of the catastrophic scale of the disaster, 27 the Texas General Land Office will have
responsibility for administering significantly more disaster recovery grant funding than it has
managed in the past. Before Hurricane Harvey, HUD allocated $350 million to the Texas
General Land Office for disaster activities. It will receive more than $5 billion to respond to
Hurricane Harvey, which will substantially affect the agency’s operations. The agency faces
significant pressure to get recovery funds into the affected communities. Its successful response
is dependent on quick action, which includes establishing a solid foundation that will support the
agency’s efforts over the long term. However, the agency must go through an extensive and
complex process to deliver funding to the communities, which affects how long it takes for relief

26
     18 U.S.C. (United States Code) 1001 provides for false statement criminal penalties. 31 U.S.C. 3729 provides
     for false claim civil penalties.
27
     The Texas General Land Office estimated the Hurricane Harvey damages at $160 billion, making it the costliest
     disaster event in U.S. history.



                                                          9
to get to people in need. The figure below shows the program life cycle of a typical CDBG-DR
grant. 28 The agency cannot begin disbursing funds until it gets to the operations phase, which
can be well after the disaster event occurred.
Figure: CDBG-DR program life cycle




The Texas General Land Office must also coordinate with other agencies to prioritize needs
which are far greater than available funds. These coordination efforts, along with other
considerations outside the agency’s control, such as having to wait until it receives
implementation guidance and approvals from HUD to get through segments of the CDBG-DR
life cycle, impacts how quickly funds can be distributed to impacted individuals and
communities. According to HUD, disaster recovery activities are largely completed after
approximately 6 years. Because the agency will be receiving substantially more disaster funds
than it has administered in the past, this process could take significantly longer.
The Texas General Land Office Could Benefit From a Standard Set of Disaster Recovery
Requirements
The Texas General Land Office had improved its processes for providing funding to affected
communities by being prepared to act once HUD provided guidance. For example, before HUD
issued Harvey-related Federal Register notices, 29 the Texas General Land Office had draft plans
in progress. 30 Just over 3 weeks after HUD issued the December 27, 2017, Federal Register
notice, 31 the Texas General Land Office posted its Action Plan on its website. The agency
expressed interest in the ability to have a general framework, established by HUD, which could
be changed easily with specific funding requirements. Management stated that with multiple


28
     This figure was included in the CBDG-DR toolkit that HUD made available to its grantees.
29
     Federal Register Docket No. FR-6066-N-01, issued February 9, 2018, and Federal Register Docket No. FR-
     6074-N-01, issued December 27, 2017
30
     The Texas General Land Office’s draft Action Plan was based on Federal Register notices for previous disasters.
31
     This notice allocated $57.8 million to Texas in response to Hurricane Harvey.



                                                          10
Federal Register notices being issued for disaster events, it would be ideal for repetitive grantees
to have one place to get standard requirements and that a standard set of requirements would
make the Action Plan process easier. The agency also stated that a standard set of requirements
would be beneficial to speed up the disaster recovery process. With a standard set of disaster
requirements, the Texas General Land Office could expedite assistance to affected communities
and provide for unmet recovery needs in the most impacted and distressed areas affected by the
disaster without unnecessary delay.

The Texas General Land Office Had Plans To Receive Hurricane Harvey Funds
A review of the Texas General Land Office’s policies and procedures showed that it had
extensive and detailed plans for managing its Hurricane Harvey grant funds. The agency’s
policies and procedures covered many aspects of its program, including procurement, financial
management, 32 subrecipient monitoring, duplication of benefits, reporting systems and
requirements, contract management, action plans, and website processes. These policies and
procedures, if followed, could assist the agency in administering its disaster grant funds in an
effective and efficient manner.

In addition, the Texas General Land Office had a comprehensive website regarding its disaster
recovery activities. The website detailed the agency’s disaster recovery plans and had multiple
web pages with information concerning housing, infrastructure, and other disaster topics. The
agency published all of its Action Plans, quarterly reports, and amendments on its website, which
allowed affected communities to stay informed of the Texas General Land Office’s Hurricane
Harvey plans and activities.

Conclusion
The Texas General Land Office had extensive and detailed plans to manage more than $5 billion
in Hurricane Harvey grant funds. However, it should strengthen its capacity to manage its
CDBG-DR funds by implementing proactive measures to address potential risks, including those
identified in this report. Disaster recovery is still relatively new to the Texas General Land
Office as it has been fully responsible for nearly $350 million only since the governor assigned
this responsibility to the agency in 2011. Administering more than $5 billion could present
significantly more challenges than the Texas General Land Office is accustomed to managing. If
the agency proactively addresses potential vulnerabilities, its capacity to follow Federal
procurement requirements and spend its CDBG-DR funds in accordance with rules and
regulations could be improved. Further, diligent oversight by the Texas General Land Office
could mitigate the risks of waste, fraud, and abuse in its Hurricane Harvey programs and provide
greater assurance that its disaster funds are used for their intended purposes.

Recommendations
We recommend that HUD’s Acting Director for the Office of Block Grant Assistance require the
Texas General Land Office to




32
     The agency’s expenditure policies and procedures were included in its financial management standard operating
     procedures.



                                                          11
1A.   Review and update its internal controls throughout the grant cycle to ensure that
      the procurement and expenditure policies and procedures are implemented and
      working as designed, including the Federal prohibition of cost plus percentage of
      cost contracts.
1B.   Fill vacancies, ensuring that staffing levels remain adequate to administer
      Hurricane Harvey disaster grant funds.
1C.   Negotiate with SBA to extend its data-sharing agreements for the term of the
      expenditure requirements set forth in public laws or the Federal Register.
1D.   Initiate negotiations with the Texas Department of Insurance to establish data-
      sharing agreements for the Hurricane Harvey disaster, any open disaster recovery
      grants, and future disasters.
1E.   Ensure that false statement and false claim warnings are included in all of its
      contract-related forms.




                                        12
Scope and Methodology
We performed our fieldwork at the Texas General Land Office’s offices located at 1700 North
Congress Street, Austin, TX, and 3429 Executive Center Drive, Austin, TX, and our offices in
San Antonio, TX, New Orleans, LA, and Fort Worth, TX, from December 2017 through March
2018. This report focused on the agency's capacity to administer the $5 billion in disaster
funding announced on November 17, 2017. Our audit generally covered the period August
through December 2017 but included a review of prior disaster activities as applicable to our
audit objectives. On April 10, 2018, after our fieldwork was completed, HUD announced an
additional $4.7 billion in Hurricane Harvey funding to the State of Texas.

To accomplish our audit objectives, we

    •   Reviewed relevant criteria, including Appropriations Acts that affected Hurricane
        Harvey funding, Federal Register notices, and State of Texas procurement requirements.
    •   Interviewed program staff at HUD and the Texas General Land Office.
    •   Met with representatives from DHS OIG.
    •   Communicated with a representative from SBA.
    •   Reviewed the grant agreement between HUD and the Texas General Land Office for the
        2015 floods as this was the most recent executed grant agreement available.
    •   Reviewed the most recent HUD OIG audit report on the Texas General Land Office.
    •   Reviewed two relevant HUD OIG internal audit reports that addressed procurement
        issues.
    •   Reviewed the two most recent independent auditor’s reports.
    •   Reviewed three relevant DHS OIG reports that involved the Texas General Land Office,
        Texas disaster recovery efforts, and overall procurement and contracting activities.
    •   Reviewed Texas General Land Office policies and procedures, organization charts,
        checklists, and published Action Plans.
    •   Reviewed HUD monitoring reports and checklists.
    •   Reviewed the Texas General Land Office’s preaward checklists for the 2015 floods that
        were submitted to HUD.
    •   Reviewed data-sharing agreements among the Texas General Land Office, DHS, and
        SBA.
    •   Reviewed self-certifications required of subgrantees by the Texas General Land Office.
    •   Tested a representative sample of two Texas General Land Office monitoring reports on
        its subgrantees, issued in fiscal year 2017, to determine whether the Texas General Land
        Office conducted adequate monitoring reviews and followed up on findings. Although
        our sampling approach did not allow us to project the results to the population of 16
        monitoring reports, it was sufficient to meet the audit objectives.
    •   Tested a representative sample of 27 employee timesheets during the review period to
        determine whether employees who charged time to CDBG-DR activities worked on
        these activities or on other activities. Although our sampling approach did not allow us


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        to project the results to the population of 315 timesheets, it was sufficient to meet the
        audit objectives.
    •   Observed operations and work space at the Texas General Land Office.
    •   Discussed our preliminary findings with the Texas General Land Office.

Computer-processed data generated by the Texas General Land Office were not used to
materially support our audit finding. We used information that HUD provided regarding the
agency's CDBG-DR funding status for background purposes only. Thus, we did not assess the
reliability of the data.

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
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                  14
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 objectives:

•   Compliance with Federal procurement and expenditure requirements.
•   Subrecipient monitoring.
•   Preventing duplication of benefits.
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 Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   The Texas General Land Office should strengthen its capacity to administer its Hurricane
    Harvey disaster grants.




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Appendix

Appendix A
              Auditee Comments and OIG’s Evaluation



 Ref to OIG    Auditee Comments
 Evaluation




                                16
Ref to OIG   Auditee Comments
Evaluation




Comment 1




                            17
Ref to OIG   Auditee Comments
Evaluation




Comment 2




Comment 3




                            18
Ref to OIG   Auditee Comments
Evaluation




Comment 4




Comment 5




Comment 6




                            19
Ref to OIG   Auditee Comments
Evaluation




Comment 7




Comment 8




Comment 8




Comment 8




                            20
                         OIG Evaluation of Auditee Comments


Comment 1   The Texas General Land Office explained that for its 2015 disaster grant, it
            submitted a memo as part of the self-certification process indicating that Texas
            Government Code 2155 and 2156 met the general specifications outlined in 24
            CFR 570.489. State Code requires goods and services be acquired by the most
            cost effective method of acquisition available, which is equivalent to full and
            open competition standards of 24 CFR 570.489(g).
            We did not revise the audit report because the Texas General Land Office’s
            response did not identify which sections of the State code aligned with 2 CFR
            200.318 through 200.326, which is what HUD requested in its required
            certification. Further, procurement standards from which the overall effect is to
            provide for full and open competition are not equivalent to the overall effect of
            the Federal procurement standards found in 2 CFR 200.318 through 200.326.
Comment 2   The Texas General Land Office discussed its response to HUD OIG audit report
            2016-PH-0005 and explained its position regarding equivalency and the use of
            cost plus percentage of cost contracting.
            We acknowledge the Texas General Land Office's awareness that cost plus
            percentage of cost contracting is prohibited under Federal requirements. This
            capacity audit report pointed out previous audit findings that the agency should
            avoid repeating. We encourage the agency to work with HUD to clarify its
            certification checklist and resolve the recommendation during the audit resolution
            process.
Comment 3   The Texas General Land Office stated that the procurement findings cited in the
            OIG’s audit report 2012-FW-1005 covered the period from October 2008 through
            June 2011, and reflected the procurement actions of the predecessor agency. As
            the new responsible agency for the Disaster Recovery program, the Texas General
            Land Office took immediate corrective actions.
            We acknowledge that the Texas General Land Office assumed responsibility for
            the State's disaster program from a predecessor agency and made improvements.
            We revised the report.
Comment 4   The Texas General Land Office presented its plans for increasing its staff.
            We acknowledged in the draft report that the Texas General Land Office planned
            to fill positions as funding became available. We encourage the Texas General
            Land Office to continue filling the positions needed to adequately administer its
            disaster funding.
Comment 5   The agency strongly objected to the inclusion of the DHS OIG report.


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                 We included the DHS OIG report because it described some of the same staffing
                 concerns identified during our review. The goal to cultivate positive internal and
                 external stakeholder relations is an integral part of our strategic plan.
                 Specifically, we regularly initiate and participate within the Inspector General
                 community to further our ability to enhance Federal government performance in
                 service to the taxpayer. Further, the congressional request that initiated this
                 review specifically asked that we engage in information sharing with other OIGs
                 through the Disaster Assistance Working Group, which HUD OIG leads. In
                 addition, the U.S. Senators who authored the request sent similar requests for
                 reviews to other Offices of Inspector General. Meeting with other OIG
                 stakeholders, reviewing their published reports, and including relevant findings in
                 this report achieves these objectives. For these reasons and because the agency’s
                 assertion to the DHS OIG illustrates that it was aware that its staffing resources
                 were inadequate, we did not remove our references to the DHS OIG report.
Comment 6        The Texas General Land Office asserted that it exercised its professional
                 judgment in relying on the subrecipient’s statement of intent and considered this
                 decision reasonable and sufficient. Furthermore, the addition of staff members
                 would not have affected its decision.
                 The agency’s decision illustrated a lack of due diligence when following up on
                 findings. The Texas General Land Office, as the grantee, was still responsible for
                 ensuring that CDBG funds were used in accordance with all program
                 requirements. The use of subrecipients or contractors did not relieve the State of
                 this responsibility. 33 The State was also required to monitor the activities of the
                 subrecipient as necessary to ensure that the subaward is used for authorized
                 purposes and in compliance with Federal statutes and regulations.” 34 Thus, we
                 determined that further review of the contract was warranted since the contract
                 expended Disaster CDBG (Hurricane Ike) funds. Additionally, HUD’s May 9,
                 2017 monitoring report had 3 open findings and 2 open concerns which indicated
                 that the Texas General Land Office historically did not always adequately monitor
                 its subrecipients in the areas of financial management, payroll, duplication of
                 benefits, procurement, and recordkeeping.
Comment 7        The Texas General Land Office stated that it was not allowed an opportunity to
                 provide us with an understanding of the processes in place to identify
                 improvements made over the last several years.
                 We met with the Texas General Land Office’s Deputy Director of the Monitoring
                 and Quality Assurance division on several occasions during our fieldwork, which
                 afforded him the opportunity to discuss any matters of concern to the agency, or


33
     24 CFR 570.501(b)
34
     2 CFR 200.331(d)



                                                   22
            resolve any potential misunderstandings. Additionally, the 2016 independent
            auditor’s report explained the history of the monitoring framework at the Texas
            General Land Office. Therefore, we were able to obtain an adequate background
            and understanding of the Quality Assurance division, including the changes made
            since the 2016 independent auditor’s report.
Comment 8   The Texas General Land Office agreed with recommendations 1C, 1D, and 1E,
            and had begun making changes to address the issues in the audit report.
            We acknowledge the Texas General Land Office’s efforts in addressing the issues
            identified in the audit report. It will need to continue working with HUD to
            address the recommendations.




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