oversight

The State of Louisiana, Baton Rouge, LA, Did Not Always Maintain Adequate Documentation or Comply With Website Reporting Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-28.

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

   State of Louisiana, Baton Rouge, LA
        Community Development Block Grant Disaster
               Recovery Assistance Funds




Office of Audit, Region 6     Audit Report Number: 2018-FW-1007
Fort Worth, TX                           Date: September 28, 2018
To:            Stanley Gimont, Deputy Assistant Secretary for Grant Programs, DG

               //signed//
From:          Kilah S. White, Regional Inspector General for Audit, 6AGA
Subject:       The State of Louisiana, Baton Rouge, LA, Did Not Always Maintain Adequate
               Documentation or Comply With Website Reporting Requirements


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) results of our review of the State of Louisiana’s Restore Louisiana Homeowner
Assistance program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG 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-1007
                    Date: September 28, 2018

                    The State of Louisiana, Baton Rouge, LA, Did Not Always Maintain
                    Adequate Documentation or Comply With Website Reporting Requirements



Highlights

What We Audited and Why
We audited the State of Louisiana’s Restore Louisiana Homeowner Assistance program as part
of our annual audit plan to review Community Development Block Grant Disaster Recovery
programs. Our objective was to determine whether the State ensured that it complied with (1) its
eligibility requirements for the Homeowner Assistance program and (2) website reporting
requirements.

What We Found
The State did not always ensure that it complied with (1) its eligibility requirements for its
Homeowner Assistance program or (2) website reporting requirements. Specifically, it did not
always maintain adequate documentation to support that (1) applicants owned and occupied
properties and (2) it considered or completed the elevation of properties when required. In
addition, although it did not affect applicant eligibility, the State did not always maintain
adequate and accurate file documentation to support applicant status determinations. For its
website reporting, the State did not always ensure that it posted its quarterly performance reports
as required. This condition occurred because the State did not always follow HUD’s
requirements and its own program policies and procedures and did not have adequate policies
and procedures. As a result, the State could not provide reasonable assurance to HUD that it
administered its program effectively and efficiently, could not support $515,149 disbursed to
applicants, and lacked transparency to the public.

What We Recommend
We recommend that HUD require the State to (1) support that it complied with the ownership
and occupancy requirements or repay $396,905, (2) support that it complied with the elevation
requirements or repay $118,244, (3) implement additional controls and procedures to ensure that
adequate and accurate supporting documentation is maintained in its applicant files and all
website information is maintained and updated as required.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: The State Did Not Always Maintain Adequate Documentation or Comply
         With Website Reporting Requirements .......................................................................... 5

Scope and Methodology ...........................................................................................9

Internal Controls ....................................................................................................11

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .................................................................................. 12

         B. Auditee Comments and OIG’s Evaluation ............................................................. 13




                                                              2
Background and Objective
The Continuing Appropriations Acts of 2017, 1 Further Continuing and Security Assistance
Appropriations Act of 2017, 2 and the Consolidated Appropriations Act of 2017 3 made available
more than $2.7 billion in Community Development Block Grant (CDBG) funds for disaster
relief, long-term recovery, restoration of infrastructure and housing, and economic revitalization
in the most impacted and distressed areas resulting from a major disaster declared in 2016.
In 2016, Louisiana experienced severe storms and flooding in both March 4 and August, 5
collectively referred to as the 2016 Severe Storms and Flooding, with 56 of the State’s 64
parishes receiving a Federal disaster declaration. As a result, the U.S. Department of Housing
and Urban Development (HUD) 6 allocated more than $1.7 billion of its CDBG Disaster
Recovery (CDBG-DR) funds to the State. HUD regulations required the State to submit an
action plan detailing its proposed use of funds and maintain comprehensive websites regarding
all disaster recovery activities assisted with these funds. 7
The State’s action plan, approved April 10, 2017, stated that the State would implement the
Restore Louisiana Homeowner Assistance program to assist eligible homeowners to reconstruct,
rehabilitate, reimburse, and elevate their properties. 8 To initiate a request for assistance under
the Homeowner Assistance program, the State required applicants to register for an account and
take an initial survey. Once these requirements were completed, the State moved applicants into
an open application phase, during which it collected and reviewed applicant-provided
documentation to verify eligibility for the program. If the applicants were deemed eligible, the
State completed an award calculation and mailed an award acknowledgment letter to the
applicants. The maximum award provided was determined by the scope of work, less any
disaster assistance received by other agencies, such as the National Flood Insurance Program
(NFIP), Federal Emergency Management Agency (FEMA), or Small Business Administration
(SBA), to prevent a duplication of benefits. In addition, funds for the elevation of properties
would be included for homeowners that met requirements determined by the program and would
be evaluated case by case. Before receiving the grant funds, the State required applicants to
complete a grant execution process, which included reviewing all program requirements and
executing a grant agreement. As of May 31, 2018, the State had spent more than $319 million
and disbursed more than $101 million to applicants under its program.



1
    Public Law 114-223 (September 29, 2016), Division C, Section 145, made available $500 million.
2
    Public Law 114-254 (December 10, 2016), Division A, Section 101, made available more than $1.8 million.
3
    Public Law 115-31 (May 5, 2017), Division K, Title II, Section 421, made available $400 million.
4
    Disaster number 4263
5
    Disaster number 4277
6
    81 Federal Register 224 (November 21, 2016) allocated more than $437.8 million, 82 Federal Register 11
    (January 18, 2017) allocated more than $1.2 million, and 82 Federal Register 150 (August 7, 2017) allocated
    more than $51.4 million.
7
    81 Federal Register 224 (November 21, 2016), sections VI(A)(1)(a) and VI(A)(2)(a)
8
    The Louisiana governor designated the State Office of Community Development - Disaster Recovery Unit as
    the administering agency for these recovery funds.



                                                        3
Our objective was to determine whether the State ensured that it complied with (1) its eligibility
requirements for the Restore Louisiana Homeowner Assistance program and (2) website
reporting requirements.




                                                 4
Results of Audit

Finding: The State Did Not Always Maintain Adequate
Documentation or Comply With Website Reporting Requirements
The State did not always ensure that it complied with (1) its eligibility requirements for its
Homeowner Assistance program or (2) website reporting requirements. Specifically, it did not
always maintain adequate documentation to support that (1) applicants owned and occupied
properties and (2) it considered or completed the elevation of properties when required. In
addition, although it did not affect applicant eligibility, the State did not always maintain
adequate and accurate file documentation to support applicant status determinations. For its
website reporting, the State did not always ensure that it posted its quarterly performance reports
as required. This condition occurred because the State did not always follow HUD’s
requirements and its own program policies and procedures and did not have adequate policies
and procedures. As a result, the State could not provide reasonable assurance to HUD that it
administered its program effectively and efficiently, could not support $515,149 disbursed to
applicants, and lacked transparency to the public.

The State Did Not Always Maintain Adequate Documentation
The State did not always maintain adequate documentation to support applicant eligibility and
award determinations. To be eligible for the program, the State’s program policies required
applicants to have owned and occupied the damaged property at the time of the disaster. 9
Federal regulations also required that disaster-assisted residential properties located in the 100-
year floodplain be elevated, with the lowest floor at least 2 feet above the floodplain elevation. 10
Additionally, the State’s program policy stated that the State would consider elevations for
properties (1) inside the floodplain and required to be elevated by local ordinance, with a
determination that the property was substantially damaged or would be substantially improved,
and (2) outside the floodplain and required to be elevated by local ordinance as part of a
reconstruction. 11

Of 70 files reviewed, the State did not maintain adequate documentation to support that it
complied with eligibility requirements for 9 applicants. Specifically, for seven applicants, with
disbursements totaling $396,905, the State did not maintain documentation, such as tax records
showing a homestead exemption 12 or other documentation showing proof of ownership and
occupancy. For two applicants, with disbursements totaling $118,244, the State did not have
adequate documentation to ensure that it considered or completed elevation on properties,
although the properties required elevation. For one, the applicant submitted documentation to
the State showing that the local jurisdiction required elevation of the property. For the other one,


9
     Restore Louisiana Homeowner Assistance Program Policy, version 3.1, section 11.f.1
10
     81 FR 224, section VI, paragraph B.28.e
11
     Restore Louisiana Homeowner Assistance Program Policy, version 3.1, section 5.d
12
     Homestead exemption gives property owners a tax break on their property taxes, Louisiana State law requires
     that the homeowner own and occupy the property to qualify for a homestead exemption.



                                                         5
the applicant submitted an elevation certificate to the State showing that the property did not
comply with elevation requirements. However, the State did not provide elevation funds for
these applicants. Not elevating the two properties in accordance with Federal and local building
requirements put the properties at risk for future flood damage and additional requests for
disaster assistance.

In addition, although it did not affect applicant eligibility, the State did not always have adequate
and accurate documentation in its applicant files. Federal regulations required the State to have
necessary records, adequate procedures to prevent duplication of benefits, and effective internal
controls. 13 The State’s program policy also required applicants to provide a copy of the current
flood insurance declaration page or declination letter before receiving a grant award. 14 However,
the State

     •   Did not always maintain documentation to support its reason for recapturing funds in 10
         instances. In one example, the State miscalculated an applicant’s award amount because
         it overrode award data and changed it to an amount that was different from that reported
         by SBA, which resulted in the applicant’s receiving more funding than the eligibility
         requirements allowed and, thus, being placed in recapture status. However, the State did
         not have documentation in the file showing the correct SBA award amount or the new
         award calculation. In another example, the State placed one applicant in recapture status
         to recover $2,136, citing that the FEMA data and the damage assessment did not support
         that the applicant’s property had major damage. This action reduced the applicant’s
         award to $0. However, the file did not include the FEMA data or other documents from
         FEMA.

     •   Did not maintain adequate documentation showing why it deemed an applicant ineligible
         in one instance. Although the State’s letter to this applicant stated that the determination
         was based upon the applicant’s not maintaining flood insurance after receiving previous
         disaster assistance, the file did not contain documentation, such as a previous grant award
         statement, showing that the applicant received previous disaster assistance.

     •   Miscalculated assistance amounts for applicants because it did not always confirm
         information provided by FEMA, NFIP, or SBA and in some cases did not use
         information provided by applicants, resulting in 1 instance of underpayment and 10
         instances of overpayments. For the underpayment, the State used SBA data showing that
         the applicant received $20,000, although the applicant had not received any funds from
         SBA, which resulted in the applicant’s qualifying for additional funding and having to
         participate in a second award process. As an example of overpayment, one applicant
         provided documentation showing the amount of their NFIP award. However, the State
         did not use the applicant provided documentation but rather a lesser amount reflected in
         the State’s database, resulting in an overpayment of $9,707. The State did not notify the
         applicant of the error until 3 months after the grant execution process, although it had the


13
     Public Law 114-223, Continuing Appropriations Act, 2017, Section 145; 2 CFR 200.303(a); and 81 FR 224,
     section VI, paragraph A.14
14
     Restore Louisiana Homeowner Assistance Program Policy, version 3.1, section 10.c



                                                       6
         updated information 19 days after the grant was executed. These errors potentially
         caused undue burden and delayed these applicants in their recovery.

     •   Did not have documentation in its files to support proof of flood insurance in 10 instances
         until after the grant execution process.

     •   In two instances, cited in its letters the wrong criteria for rejecting applicants from the
         program. For example, one letter cited damage level as a reason for ineligibility;
         however, the file showed that the damage level complied with program requirements.
The State’s Website Did Not Provide Required Information
The State’s public website did not always provide the required public information showing how
it used, managed, and administered grant funds. 15 HUD required the State to certify that it had
adequate procedures to maintain a comprehensive website regarding all disaster recovery
activities, including posting quarterly performance reports. To comply, the State developed a
website maintenance policy, 16 which required it to update the site on at least monthly. However,
in May 2018, the State’s website did not include the 2017 HUD quarterly performance reports as
required.

The State Did Not Follow Requirements and Policies Were Not Adequate
In addition to not following HUD’s requirements and its own written program policies and
procedures to ensure that program staff processed applicant files in a consistent manner and in
compliance with program requirements, the State’s did not have adequate policies and
procedures. Although the State had policies to determine whether applicants received disaster
assistance from FEMA, SBA, and NFIP, it did not have mechanisms to verify and process
conflicting award data received from applicants and these agencies. For example, the State’s
policy required it to use the information in the dataset received from individual agencies;
however, it required staff to consider documentation provided by the applicant only if the data
could not be verified from the individual agencies. In addition, the State’s procedures did not
require supporting documentation when it made system overrides that changed applicant award
amounts to an amount different from that reported by FEMA, SBA, and NFIP. Further, the
State’s website maintenance policy did not include oversight procedures to ensure that website
updates occurred as required.
The State Had Begun To Take Action To Resolve Deficiencies Identified
After our June 2018 update meeting with the State, the State began taking measures to correct
the deficiencies identified in the report. Specifically, the State (1) began obtaining the permits
and quotes from contractors regarding elevating one property, (2) updated its website to include
the HUD quarterly reports for 2017, and (3) asserted that it had corrected its override procedures.
Conclusion
Because the State did not always follow program requirements and its own policies and
procedures, it did not have adequate documentation to support applicant eligibility and


15
     Public Law 114-223, Continuing Appropriations Act, 2017, Section 145, and 81 FR 224, sections VI, paragraph
     A.1.a.(5) and A.23
16
     Policy and Procedure for Maintaining a Comprehensive Website, sections I and II



                                                        7
compliance with all Homeowner Assistance program requirements and did not comply with
website reporting requirements. As a result, the State could not provide reasonable assurance to
HUD that it administered its program effectively and efficiently, could not support $515,149
disbursed to applicants, and lacked transparency to the public.

Recommendations
We recommend that the Deputy Assistant Secretary for Grant Programs require the State to
   1A. Support that seven applicants met the ownership and occupancy requirements or repay
       $396,905 to its program from non-Federal funds.
   1B. Support that it complied with the elevation requirements for two applicants or repay
       $118,244 to its program from non-Federal funds.
   1C. Implement additional controls and revise policies and procedures to ensure that
       adequate documentation is maintained in its files to support (1) recapture decisions, (2)
       eligibility related to ownership or occupancy, (3) ineligible decisions, (4) elevation
       considerations, and (5) mitigation of duplication of benefits issues related to override
       procedures and incorrect data provided by other agencies.
   1D. Implement additional controls and revise policies and procedures to ensure that the
       website is maintained and updated in compliance with requirements.




                                                8
Scope and Methodology
We conducted our audit at the State’s offices in Baton Rouge, LA, and the HUD Office of
Inspector General’s (OIG) offices in New Orleans and Baton Rouge, LA, between March and
August 2018. Our audit scope generally covered the period between September 29, 2016, and
February 28, 2018. We expanded the audit period to May 7, 2018, to review documentation
related to applicant eligibility as needed to accomplish our audit objective.

To accomplish our objective, we reviewed

•    Relevant laws, regulations, and program guidance.
•    HUD and State grant agreements.
•    HUD monitoring reports.
•    The State’s organizational structure and written policies and procedures.
•    The State’s action plans, consolidated plan, and quarterly performance reports.
•    The State’s single audit report for 2017.
•    The State’s disaster recovery website, homeowner applicant files, procurement files, and
     expenditure files.

We also interviewed HUD and State staff.

The homeowner applicant universe included 30,572 applicants, with eligible applicants at
various stages of the award process, ineligible applicants, and withdrawn applicants. Of the
30,572 applicants, the State awarded more than $274.5 million, disbursed more than $101
million for 10,320 applicants, and deemed 2,258 applicants not eligible to participate in the
program. 17 Using nonstatistical random sampling, we selected 70 applicant files for review. The
70 files included 61 18 applicants with awards totaling more than $3.18 million and disbursements
totaling more than $2.9 million and 9 applicants deemed ineligible. We reviewed these files to
determine whether the State adequately ensured that it complied with its eligibility requirements
for the Homeowner Assistance program. We assessed the reliability of the computer-processed
applicant data for the Homeowner Assistance program and determined that the data were
generally reliable. Although this approach did not allow us to project the results of the sample to
the population, it was sufficient to meet the audit objective.
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


17
     The remaining 17,994 applicants were not awarded or disbursed any funding as they were still in the
     verification process, had withdrawn from the program, or qualified for a zero award amount.
18
     The 61 samples included 45 applicants who were awarded and disbursed amounts more than or equal to
     $50,000, 3 applicants who had no award date or award amount but had funds that were disbursed, and 14
     applicants who were awarded and disbursed funds and were in recapture status. One of these samples was both
     in recapture status and did not have an award date or amount and should be counted only once.



                                                        9
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               10
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:

•   The effectiveness and efficiency of policies and procedures used to implement the State’s
    CDBG-DR grant.
•   The reliability of data concerning CDBG-DR expenditures.
•   Compliance with applicable Federal requirements.

We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.

Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

•   The State’s Homeowner Assistance program policies and procedures were not always
    sufficient to ensure that program staff processed applicant files in a consistent manner and in
    compliance with program requirements (finding).
•   The State’s policies and procedures for maintaining its website were not adequate to ensure
    that all website information was updated as required (finding).




                                                  11
Appendixes

Appendix A


                              Schedule of Questioned Costs
                           Recommendation
                                                  Unsupported 1/
                               number
                                   1A                $396,905
                                   1B                 118,244
                                 Totals               515,149


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.




                                             12
Appendix B
                 Auditee Comments and OIG’s Evaluation



Ref to OIG
                    Auditee Comments
Evaluation

             September 17, 2018

             Kilah White
             Acting Regional Inspector General for Audit
             U.S. Department of Housing and Urban Development
             Office of Inspector General
             819 Taylor Street, Suite 13A09
             Fort Worth, TX 76102

             RE: Response to HUD Regional Inspector General for Audit Draft Report
             2018-FW-100x dated September xx, 2018

             Dear Ms. White:

             The Division of Administration, Office of Community Development, Disaster
             Recovery Unit is providing this letter in response to the HUD Office of Inspector
             General Audit Draft Report 2018-FW-100x, issued September xx, 2018 regarding
             the HUD OIG Audit of the State of Louisiana’s Restore Louisiana Homeowner
             Assistance program. The report had four recommendations which are as follows:

             HUD Recommended Corrective Action:

                 1A Support that seven applicants met the ownership and occupancy
                    requirements or repay $396,905 to its program from non-Federal funds.

                 1B Support that it complied with the elevation requirements for two
                    applicants or repay $118,244 to its program from non-Federal funds.

                 1C Implement additional controls and revise policies and procedures to ensure
                    that adequate documentation is maintained in its files to support (1)
                    recapture decisions, (2) eligibility related to ownership or occupancy, (3)
                    ineligible decisions, (4) elevation considerations, and (5) mitigation of
                    duplication of benefits issues related to override procedures and incorrect
                    data provided by other agencies.

                 1D Implement additional controls and revise policies and procedures to ensure
                    that the website is maintained and updated in compliance with
                    requirements.




                                           13
Ref to OIG    Auditee Comments
Evaluation
             OCD-DRU Response for HUD Recommendations1A:
             Recommendation 1A seeks support that seven specific applicants met the ownership and occupancy
             requirements for the program in lieu of repayment of $396,905 from non-Federal funds. OCD-DRU
             disagrees with this recommendation. OIG cited 24 CFR 570.490, Recordkeeping Requirements which
             states:

                        The content of records maintained by the state shall be as jointly agreed upon by HUD and
                        the states and sufficient to enable HUD to make the determinations described at 570.493

             It is the policy and procedure of the Restore Program to establish ownership/occupancy via automated
             interface of eGrants with a 3rd party local tax assessor data set. These data are received electronically
             from the tax assessors and that information is maintained in our system, which includes the data
             warehouse. The documentation of the verification is evidenced via a “green check” in the eGrants Go
             Screen for an applicant file. This is evident in each of the seven files questioned by OIG. Of the seventy
             files reviewed by OIG, all seventy (100%) show evidence of this ownership/occupancy eligibility.

             Prior to the issuance of the draft report, OCD-DRU made available to OIG and offered to demonstrate
Comment 1    its system of record, specifically eGrants, an Oracle Database commonly referred to as the “Data
             Warehouse”. The offer to review the source data was declined, so OCD provided screen shots for
             samples of the source feed for those data.

             OCD-DRU believes it is compliant with 24 CFR 570.490 and all files reviewed demonstrate evidence of
             eligibility and that the Restore policies and procedures regarding eligibility were accurately
             implemented. Further, the verification is considered a best practice ensuring third party accuracy, cost
             savings, and less delays for recovery to homeowners. The Restore program has been monitored two
             separate times by HUD CPD with the most recent visit being August 13 – 17, 2018. During these
             monitoring visits, OCD-DRU demonstrated the above process to CPD as part of their file review and
             record keeping checklist with no concerns stated by CPD personnel..

             Finally, although it is not the State’s policy or procedure to verify the final results of the 3rd party data
             set, for the seven applicants identified by OIG, a print screen of the local tax assessors records showing
             that each of the seven applicants owned the property and maintained a homestead exemption at the time
             of the flood has been provided. See attached exhibit A.

             OCD-DRU Response for HUD Recommendations1B:
             Recommendation IB seeks support that OCD-DRU complied with the elevation requirements for two
             applicants in lieu of repayment of CDBG-DR funds from non-Federal funds. Our response with respect
             to support for elevation outcomes for the two applicant files follows.

             Sampled applicant 6/Account ID 121060, award date September 29, 2017
Comment 2
             OCD-DRU disagrees with this exception. We acknowledge that an elevation certificate, procured by the
             applicant is present in this Solution 2,3 applicant file, and that there are no additional documents
             supporting a requirement to elevate such as a Substantial Damage Letter (SDL) or a substantial
             improvement determination.

             The existence of an elevation certificate in a file does not constitute a requirement that the home needs
             to be elevated or an indicator that it should have been elevated when repairs were completed. The




                                            14
Ref to OIG    Auditee Comments
Evaluation
             observation that there is no SDL in the file is substantiated by the fact that there was never an SDL for
             this applicant property. This applicant did not appear on the OCD-DRU master list of SDL issued by
             local jurisdictions. The applicant property is in the City of Central’s district. An SDL was never issued
             for the property according to Ms. Kathi Cowen, the Certified Floodplain Manager for Central. 122802
             further verified that Central issues an SDL on existing structures if damage exceeds 50% of pre-flood
             property value as determined by damage calculations using FEMA’s Cost Estimator Program. The
             applicant structure is less than 50% substantially damaged and the base flood elevation for existing
             property in Central is 47.00 feet. Therefore, the property was eligible for rehabilitation.

             The applicant property would also not meet a substantial improvement determination when based on the
             reconstruction square footage standard ($108) for the Restore program. With no other means to
             substantiate an elevation requirement for this property, the decision to not require elevation scope in the
             reimbursed repair work is justifiable.

             Sampled applicant 7/Account ID 122802, award date December 22, 2017

             OCD-DRU acknowledges that an SDL for this applicant property was uploaded in the eGrants file prior
Comment 3    to the award date and that the scope for the repair portion of the award should have been adjusted either
             prior to the award determination or via a change order prior to execution of the grant agreement. Once
             detected, OCD-DRU put the applicant in a payment hold status to assess an appropriate corrective
             action.

             On September 12, 2018, OCD-DRU received notice that the SDL for this applicant was rescinded;
             therefore, according to program policies, elevation is not required for this property. See attached exhibit
             B.

             OCD-DRU Response for HUD Recommendations1C:

             Recommendation 1C addresses the addition of controls and revision of policies to ensure adequate
             documentation is maintained in Restore Louisiana program files to support five specific decision,
             determination or mitigation issues. In many cases OCD-DRU has either added controls to address issues
             identified with files awarded earlier in the program or is continuing the process towards full
             implementation of planned controls that OCD supports are adequate to ensure compliant files. The
             following narrative addresses each of the five topics in Recommendation 1C in the order presented.

             Support for Recapture Decisions

Comment 4    The eGrants system of record currently has not fully been activated with the planned recapture workflow
             in the system production environment. Given critical outstanding award impacts based on pending
             policy decision in reimbursement percentages and the SBA duplication of benefits legislation, the
             program delayed full programming in eGrants to avoid duplicative and costly efforts to manage
             recapture decisions. For that reason, manual controls were put into place; such as, QC inspection, one-
             over-one reviews and full file review prior to advancing an applicant to payment requisition. Further,
             OCD-DRU established a file status of “Recapture” in eGrants to enable the functionality for a file to be
             notably assigned to that status and held from proceeding to any further action or statuses. As detections
             occurred that resulted in a file going to Recapture status, the documentation and description of the
             justification for the file status change is noted in the eGrants file transaction log and/or the applicant file
             Notes area.




                                             15
Ref to OIG    Auditee Comments
Evaluation
             OCD-DRU does not agree that the documentation and decision support for Recapture was inadequate,
             given the basic core information of date/time, status at the time of detection, and reason for designating
             the applicant as Recapture status in eGrants are readily available and noted in the transaction log notes,
             or secondarily in technical notes logged via the eGrants Help Desk ticket system. The key data on a
             recapture determination is available and reproducible. The recommendation for improvement areas on
             the process for recapture are acknowledged for upcoming implementation, particularly with respect to
             use of automated controls and consistency in documenting the decisions.

             As an interim measure, OCD-DRU analyzed the root causes of the small number of Recapture files
             currently in the program (63 out of over 13,900 positive award Restore Louisiana applicants are in
             Recapture status to date, 29 at the time of the audit). From this relatively small sample, the program took
             responsible actions to add further controls that would prevent additional recapture scenarios such as
             applied to the applicant previously discussed in our response to Recommendation IA (Account ID
             105048), specifically:

                  1)    The program started development in February 2018 of an eGrants enhancement to
                        specifically control for differences between applicant provided data and automated pulls of
                        3rd party data; and
                  2)    The enhancement (eGrants version 3.0.3) was implemented in the production environment in
                        May 2018 with the full set of automated controls to significantly reduce the potential for
                        errors or omission due to the manual controls and quality sampling methods previously used.

             As a next step OCD-DRU will prioritize recapture requirements for eGrants development to provide
             additional structure and consistency into the handling of recapture cases that result from the controls
             detections. This will further enhance the documentation of the recapture decisions and actions and will
             more efficiently address the reproducibility of the information.

             Support for Eligibility Related to Ownership or Occupancy

Comment 5    The eGrants system of record was designed to automate third party verification for eligibility
             requirements in accordance with program policies and procedures. The OCD-DRU intent with the
             automated verification implementation is to create efficiencies, reduce processing and other operational
             costs, and mitigate human error in processing applications. The confirmation of valid Tax Assessment
             documents are confirmed through the third-party data feed that is stored in the eGrants program data
             warehouse. Based on the automated feed, a positive confirmation of document proof will appear as a
             green check and for those homeowners lacking documentation in the third-party database, or an
             unsuccessful match are marked with a red ‘x’ within the user interface of eGrants. Additional
             documentation is not required under program policies to be printed and uploaded to individual applicant
             files, which would be both time consuming and costly, to confirm what is already validated by the
             systematic data feed process. Please refer to the policy reference and expanded discussion on
             verification of occupancy and ownership in our earlier response to Recommendation IA. OCD-DRU
             maintains that it has implemented an effective policy and system, with a reproducible result, that
             eliminates the need for collection and upload of additional documents for inclusion in the applicant file.

Comment 6    Support for Ineligible Decisions

             OCD-DRU has implemented a series of clear policies and procedures in support of ineligible decisions,
             including the following:




                                            16
Ref to OIG    Auditee Comments
Evaluation
                        •     RLHP Ineligible Due to Failure to Provide Required Documentation Procedures
                              (7/20/18)
                        •     RLHP Ineligible Due to Non-Responsiveness Procedures (6/11/18)
                        •     Restore LA Homeowner Policies and Procedures V3.1 (3/16/18)
                        •     PCA – Documentation of Requirement to Maintain Flood Insurance (8/10/18)


             OCD-DRU will continue to update procedures taking into consideration the OIG recommendations. A
             discussion follows concerning the specific file in the sample that led to the HUD OIG recommendation.

             Sampled applicant 64/Account ID 125132
Comment 6    OCD-DRU disagrees with the unsupported ineligible determination issue as this applicant previously
             received Federal flood disaster assistance and did not maintain required flood insurance according to
             third party data, specifically the March FEMA data set. The determination is documented in both the
             transaction log comments and notes history and is supported by program policy. Finally, the applicant
             received a “Notice of Ineligibility” dated May 18, 2018. See attached supporting documents in exhibit
             C.

             Support for Elevation Considerations

             OCD-DRU continues to implement procedure updates that add visibility and improve communications
Comment 7    regarding elevation considerations and interaction with local officials. The following policies and
             procedures provide additional guidance and clarification on documentation requirements and
             communications with applicants regarding elevation considerations:

                  •             Procedure Change Alert – Elevation Documentation Process (2/28/18)
                  •             Substantial Damage Letter Procedures (7/3/18)
                  •             RLHAP SDL SOP (8/29/18)
                  •             Restore LA Homeowner Policies and Procedures V3.1 (3/16/18)

             OCD-DRU maintains a master list of SDL properties using information provided by parish and
             municipality floodplain departments and maintains an active dialog with the floodplain managers. The
             relationships fostered through this communication process allowed OCD-DRU to quickly reach a no-
             elevation determination for the first applicant cited by HUD OIG for Recommendation IB and to
             respond quickly when reconsideration was given on the second applicant cited in the Recommendation.

             The increased attention and our increased communications with the flood plain managers will serve to
             minimize the risk of missed or delayed elevation determinations. OCD-DRU will increase emphasis on
             documentation for rationale and determinations via the applicant Notes in applicable files.

             Mitigation of Duplication of Benefits Issues Related to Override Procedures and Incorrect Data Provided
Comment 8    by Other Agencies

             With regards to duplication of benefits, OCD-DRU continued to build upon initial controls, resulting in
             improvements that may not have been in place during earlier stages of the Restore program. These
             automated controls are specifically designed to mitigate the risk of issues related to override procedures.
             For example, eGrants release 3.0.3 (March 2018) improved the accuracy of the auto verification process
             for third party DOB data by updating the logic used to match damage addresses within the affected
             parishes.




                                           17
Ref to OIG    Auditee Comments
Evaluation
             The Go Screen of eGrants was also modified to display “Not Found” for scenarios in which no match of
             benefits was discovered within a given dataset. This limits the number of cases that would be subject to
             override since the business rules were fully implemented in that release to apply the correct logic to
             determine the appropriate applicant provided value versus the 3rd party data value, and ensure that value
             populates the file. Focusing the override only on cases where a data value is missing will thereby limit
             the potential for incorrect overrides. The history for any override is maintained in the user interface so
             that a one-over-one review and a QA/QC review can easily determine if the correct override value was
             applied.

             The eGrants release 3.1 (May 2018) included additional functionality that required a justification
             comment to be entered for all Go Screen program verifications or overrides, which is retained in the
             criteria history for each respective value. This justification comment, which is required to proceed with
             an override action, provides an additional automated control and enhances the file transaction history
             further.

             With respect to the HUD OIG observation that the grantee should mitigate errors in 3rd party datasets,
             particularly those belonging to other federal agencies, OCD-DRU advises that it would require a
             significant level of effort to do independent verification and validation of that data, especially since
             these datasets update continually. This forces OCD-DRU to rely on the organic quality and data
             assurance practices of the source agencies. From a risk management perspective, OCD-DRU is
             comfortable with this position since there have not been a significant number of data anomalies detected
             since the 3rd party data sets were implemented in the program delivery and there are adequate controls in
             place to detect issues.

             OCD-DRU Response for HUD Recommendations1D:

             OCD-DRU has updated its Internal Policies and Procedures – RGR Reporting to include a Quarterly
Comment 9    Performance Reports Process Flow Checklist.

                                                                                            Quarterly Performance Reports Process Flow
                                                                                                                                                                                           Responsible Party
                                                     Task                                                              Date                                    Responsible Party               Signature             Check
             Request End Date updates from Program Managers                                        Beginning 2-4 weeks before end of quarter Daniel Marshall                                      n/a          Michelle Barnett
             Inform all Program Managers of pending closeout of DRGR and final call for changes    3 weeks before end of quarter                  Michelle Barnett                                n/a          n/a
             Update End Dates                                                                      Before end of quarter                          Daniel Marshall                                 n/a          Michelle Barnett

             Submit DRGR Action Plan                                                               Within one week after quarter end close:       George Woods                                    n/a          Michelle Barnett
                                                                                                                     Qtr end 03/31: 04/01-04/07                                                   n/a          Michelle Barnett
                                                                                                                     Qtr end 06/30: 07/01-07/07                                                   n/a          Michelle Barnett
                                                                                                                     Qtr end 09/30: 10/01-10/07                                                   n/a          Michelle Barnett
                                                                                                                     Qtr end 12/31: 01/01-01/07                                                   n/a          Michelle Barnett

             Send quarterly change log to HUD                                                      Within one week after quarter end close        George Woods, Erica Brew, Amanda Clark          n/a          Michelle Barnett
             Request QPR Program narratives from Program Managers                                  Within 10 days after quarter end close         George Woods, Erica Brew, Amanda Clark          n/a          Michelle Barnett
             Request QPR Grant narratives from Grant Managers                                      Within 10 days after quarter end close         George Woods, Erica Brew, Amanda Clark          n/a          Michelle Barnett
             Complete QPRs                                                                         Months of April, July, October, January        George Woods, Erica Brew, Amanda Clark          n/a          Michelle Barnett

             Submit QPRs into CPD DRGR                                                             04/30, 07/30, 10/30, 01/30 for each quarter    George Woods, Erica Brew, Amanda Clark          n/a          Michelle Barnett
             Distribute QPRs in PDF to HUD and DRU staff with instructions for addition to website 04/30, 07/30, 10/30, 01/30 for each quarter    George Woods, Paul Catrou                       n/a          Michelle Barnett
             Check online to confirm that QPRs are on DRU website and links work                   04/30, 07/30, 10/30, 01/30 for each quarter    George Woods                                                 Michelle Barnett
             Check online to confirm that QPRs are on DRU website and links work                   04/30, 07/30, 10/30, 01/30 for each quarter    Erica Brew                                                   Michelle Barnett
             Check online to confirm that QPRs are on DRU website and links work                   04/30, 07/30, 10/30, 01/30 for each quarter    Amanda Clark                                                 Michelle Barnett




             See attached exhibit D.




                                                                             18
Ref to OIG    Auditee Comments
Evaluation
             OCD-DRU believes HUD-OIG will find the information contained herein to be sufficient to address the
             outstanding recommendations in their audit. As always, should you have any questions or require
             additional information, please do not hesitate to notify me.

             Sincerely,



             Patrick W. Forbes, P.E.
             Executive Director
             Office of Community Development

             cc:
                          Desireé Honoré Thomas
                          Marsha Guedry




                                          19
                         OIG Evaluation of Auditee Comments
Comment 1   The State stated that prior to the issuance of the draft report, it made available to
            OIG and offered to demonstrate its system of record. The State further stated that
            the offer to review the source data was declined, so it provided screen shots for
            samples of the source feed for those data. In addition, the State believed that it
            was compliant with HUD regulations at 24 CFR 570.490 and that its files
            supported ownership and occupancy of the 70 files reviewed by HUD OIG. The
            State provided additional documentation with its response.
            We disagree. The State did not offer to provide a demonstration but rather to
            provide OIG with access to the system during a July 2018 update meeting.
            During this update meeting, we explained to the State that for security reasons,
            the OIG does not typically access sensitive database systems. In addition, the
            State had ownership and occupancy documentation in its other files. Further, 24
            CFR 570.490 required the State to establish recordkeeping requirements sufficient
            to facilitate reviews and audits. We requested and the State agreed to provide the
            documentation, but did not do so until after the exit conference. Due to the
            volume of documentation and extensive review and clarification needed to verify
            that the applicants owned and occupied the properties, we were unable to clear
            this issue before we issued the final report. Therefore, the State will need to
            provide the additional documentation to and work with HUD to resolve the
            finding and recommendations during the audit resolution process.
Comment 2   The State disagreed and asserted that for sampled applicant 6, the property was
            not required to be elevated because it was not substantially damaged. The State
            explained that the existence of an elevation certificate in a file does not constitute
            a requirement that the home needs to be elevated nor is it an indicator that it
            should have been elevated when repairs were completed. The State further
            explained that (1) a substantial damage letter was never issued for the property,
            (2) the applicant structure is less than 50 percent substantially damaged and (3)
            the base flood elevation for existing property is 47 feet. Therefore, the property
            was eligible for rehabilitation and would not meet a substantial improvement
            determination; and, with no other means to substantiate an elevation requirement
            for this property, the decision to not require elevation scope in the reimbursed
            repair work is justifiable.
            The State’s policies and procedures required an elevation certificate only in the
            event that an elevation has taken place or should take place to demonstrate
            compliance with the base flood elevation requirements. At the time of our
            review, the file included an elevation certificate and did not have documentation
            showing that the State considered elevation for the applicant’s home. In addition,
            the file did not include the explanation or additional documentation mentioned in
            the State’s response. Due to the extensive review and additional clarification
            needed to verify that the applicant did not require elevation, we were unable to
            clear this issue before we issued the final report. Therefore, the State will need to
            provide documentation to and work with HUD to resolve the finding and
            recommendations during the audit resolution process. The applicant account



                                              20
            numbers and names included in the auditee comments were hidden for privacy
            reasons.
Comment 3   The State acknowledged that it uploaded a substantial damage letter for this
            applicant property prior to the award date and that the scope for the repair portion
            of the award should have been adjusted either prior to the award determination or
            via a change order prior to execution of the grant agreement. The State put the
            applicant in a payment hold status to assess an appropriate corrective action. On
            September 12, 2018, the State received notice that the substantial damage letter
            was rescinded; therefore, according to program policies, elevation is not required
            for this property. The State provided additional documentation with its response.
            The State did not provide this explanation or documentation during our review.
            Due to the extensive review and additional clarification needed to verify that the
            applicant did not require elevation, we were unable to clear this issue before we
            issued the final report. Therefore, the State will need to provide documentation to
            and work with HUD to resolve the finding and recommendations during the audit
            resolution process.
Comment 4   The State asserted that it added controls to address issues identified within the
            files awarded earlier in the program or is continuing the process towards full
            implementation of planned controls. For recapture decisions, the State indicated
            that the recapture workflow had not yet been fully implemented in its system due
            to pending program policy decisions and it believed that it had adequate support
            in its files for those applicants that had been placed in recapture status.
            We acknowledge the State’s efforts to make improvements to its program and
            policies. However, based upon our file reviews, the State’s transaction log notes
            referenced additional documentation which was not located in the files to support
            the decision to place the applicant in recapture status. Therefore, the State did not
            always have adequate and accurate documentation in its applicant files.
Comment 5   The State stated that its system was designed to automate third party verification
            for eligibility requirements in accordance with program policies and procedures.
            Based on an automated feed, a positive confirmation of document proof will
            appear as a green check, and for those homeowners lacking documentation in the
            third-party database that result in an unsuccessful match are marked with a red
            ‘x.’ The State asserted that additional documentation is not required under
            program policies to be printed and uploaded to individual applicant files, which
            would be both time consuming and costly, to confirm what is already validated by
            the systematic data feed process.
            We acknowledge the State’s intention to defray cost and time when administering
            its program. However, due to potential errors in third party data, which may
            result in applicants having to repay funds, the State should maintain
            documentation showing that it verified the validity of third party data. In
            addition, the State did not establish recordkeeping requirements sufficient to




                                              21
            facilitate our audit, as required by 24 CFR 570.490. Thus, we stand by our
            original conclusion.
Comment 6   The State asserted that its policies and procedures regarding ineligible decisions
            was clear and that it would continue to update its procedures taking into
            consideration OIG recommendations. Additionally, it disagreed with OIG’s
            conclusion that the ineligible decision for sampled applicant 64 was unsupported.
            We acknowledge the State’s efforts to update its procedures; however, we
            disagree. Although the transaction log showed that the applicant was ineligible,
            the file did not include documentation to support that determination. Therefore,
            the State did not always have adequate and accurate documentation in its
            applicant files.
Comment 7   The State indicated that it continues to implement procedure updates regarding
            elevation considerations. It also stated that it was able to quickly reach a no-
            elevation determination for the first applicant in Recommendation 1B and respond
            quickly when reconsideration was given to the second applicant cited in the
            recommendation.
            We acknowledge the State’s efforts to continue to implement procedural updates
            regarding elevation consideration. However, the State should adequately
            document its determinations in the files. The State should provide the updated
            policy to and work with HUD to resolve the finding and recommendations during
            the audit resolution process.
Comment 8   The State stated that it continued to build upon initial controls related to
            duplication of benefits, resulting in improvements that may not have been in place
            during the earlier stages of the program and were specifically designed to mitigate
            the risk of issues related to override procedures. The State also stated that it
            believed it would require a significant level of effort to mitigate errors in third
            party datasets, which forced the State to rely on the data assurance practices of the
            source agencies.
            We acknowledge the State’s intention to defray cost and time when administering
            its program. However, due to potential errors in third party data, which may
            result in applicants having to repay funds, the State should maintain
            documentation showing that it verified the validity of third party data.
Comment 9   The State asserted that it updated its internal policies and procedures to include a
            quarterly performance reports process flow checklist.
            We acknowledge the State’s efforts to improve its policies and procedures to
            ensure that the website is maintained and updated in compliance with
            requirements. The State should provide the updated policy to and work with
            HUD to resolve the finding and recommendations during the audit resolution
            process.




                                              22