Background Overview of Federal  Disaster Response Federal agencies can respond to a disaster when effective response and  recovery are beyond the capabilities of the affected state and local  governments. In such cases, the Robert T. Stafford Disaster Relief and  Emergency Assistance Act (Stafford Act) permits the President to declare  a major disaster in response to a request by the governor of a state or  territory or by the chief executive of a tribal government. Such a  declaration is the mechanism by which the federal government becomes  involved in funding and coordinating response and recovery activities. At least 30 federal agencies administer disaster assistance programs and  activities. Under the National Response Framework, which governs any  type of federal disaster or emergency response, the Department of  Homeland Security (DHS) is the federal department with primary  responsibility for coordinating disaster response. Within DHS, FEMA  has lead responsibility and provides three principal forms of funding for  disaster recovery—Individual Assistance, Public Assistance, and Hazard  Mitigation. The Individual Assistance Program provides financial assistance  directly to survivors for expenses that cannot be met through  insurance or low-interest loans, such as temporary housing,  counseling, unemployment compensation, or medical expenses. The Public Assistance Program provides federal disaster grant  assistance to state, local, tribal, and territorial governments and  certain types of nonprofit organizations for debris removal, emergency  protection, and the restoration of facilities. The Hazard Mitigation Program is designed to help communities  prepare for and recover from future disasters. It funds a wide range of  projects, such as purchasing properties in flood-prone areas, adding  shutters to windows, and rebuilding culverts in drainage ditches. The Small Business Act also authorizes SBA to make direct loans to help  businesses, nonprofit organizations, homeowners, and renters repair or  replace property damaged or destroyed in a federally declared disaster.  HUD uses data from FEMA and SBA to make decisions on the amount of  CDBG-DR funding to allocate to affected communities. History of CDBG-DR The Housing and Community Development Act of 1974 created the  CDBG program to develop viable urban communities by providing decent  housing and a suitable living environment and by expanding economic  opportunities, principally for low- and moderate-income persons.  Program funds can be used for housing, economic development,  neighborhood revitalization, and other community development activities.  Because the CDBG program already has a mechanism to provide federal  funds to states and localities, the program is widely viewed as a flexible  solution to disburse federal funds to address unmet needs in emergency  situations. When disasters occur, Congress often appropriates additional  CDBG funding (CDBG-DR) through supplemental appropriations. These  appropriations often provide HUD the authority to waive or modify many  of the statutory and regulatory provisions governing the CDBG program,  thus providing states with greater flexibility and discretion to address  recovery needs. Eligible activities that grantees have undertaken with  CDBG-DR funds include relocation payments to displaced residents,  acquisition of damaged properties, rehabilitation of damaged homes,  rehabilitation of public facilities such as neighborhood centers and roads,  and hazard mitigation. In numerous appropriations from fiscal year 1993 to 2018, Congress  provided more than $86 billion in CDBG-DR funds to help states recover  from federal disasters. For example, Congress directed CDBG-DR  funds toward recovery and rebuilding efforts in the Gulf Coast after  Hurricanes Katrina, Rita, and Wilma in 2005; New York after the  September 11th terrorist attacks in 2001; North Dakota, South Dakota,  and Minnesota after the floods in 1997; Oklahoma City after the 1995  bombing of the Alfred Murrah Building; Southern California after the 1994  Northridge earthquake; and Florida after Hurricane Andrew in 1992. As of  January 2019, HUD was overseeing 106 CDBG-DR grants totaling more  than $54 billion. CDBG-DR Funds  Allocated to 2017  Grantees Once Congress appropriates CDBG-DR funds, HUD publishes notices in  the Federal Register to allocate the funding appropriated to affected  communities based on unmet need, and to outline the grant process and  requirements for the grantees’ use of the funds. In 2018, HUD allocated  the vast majority of the 2017 funds to four agencies: Puerto Rico’s  Department of Housing (Departamento de la Vivienda), the Texas  General Land Office, the U.S. Virgin Islands Housing Finance Authority,  and Florida’s Department of Economic Opportunity. Table 1 shows the  CDBG-DR funding that HUD had allocated to the 2017 grantees as of  February 2019 and the remaining funds to be allocated. The funding was  allocated in two portions, one in February 2018 and one in August 2018. The nearly $33 billion in funding that Puerto Rico, Texas, the U.S. Virgin  Islands, and Florida are to receive for recovery from Hurricanes Harvey,  Irma, and Maria is almost 60 times more than the total amount of  traditional CDBG funds they received in the last 5 years (see table 2). The 2017 CDBG-DR funding that Puerto Rico, Texas, and Florida  received also greatly exceeded their most recent prior CDBG-DR  grants. In 2008, Puerto Rico was allocated approximately $30 million in  CDBG-DR funds in response to Hurricane Ike. Between 2016 and 2017,  Texas was allocated approximately $313.5 million in CDBG-DR funds in  response to floods that occurred in 2015 and 2016. In 2016, Florida was  allocated approximately $117.9 million in CDBG-DR funds in response to  Hurricanes Hermine and Matthew. The U.S. Virgin Islands had not  previously received CDBG-DR funds. Administration of CDBG- DR Funds HUD’s Office of Community Planning and Development (CPD)  administers the traditional CDBG program and CDBG-DR funds. Before  2004, existing CPD staff administered CDBG-DR. In 2004, HUD  established the Disaster Recovery and Special Issues Division within  CPD’s Office of Block Grant Assistance to manage large CDBG-DR  grantees with allocations of $500 million or more. CPD field office staff  generally manage all other grantees. Other HUD officials are also involved with CDBG-DR, including the  Departmental Enforcement Center and Office of Policy Development and  Research. The Departmental Enforcement Center works with several of  HUD’s program areas, including CPD, to ensure that federally funded  programs operate according to program guidelines and regulations. For  example, center staff help CPD review grantees’ financial processes and  procedures. The Office of Policy Development and Research maintains  current information on housing needs, market conditions, and existing  programs and conducts research on community development issues. Its  staff use this information to help CPD award CDBG-DR funds. All Grantees Have  Signed Grant  Agreements but Need  to Take Additional  Steps before Funds  Reach Disaster  Victims As of January 2019, all four grantees had entered into grant agreements  with HUD for their initial 2017 CDBG-DR funds, but they needed to take  additional steps before disbursing funds to individuals affected by the  2017 hurricanes. According to the February 2018 Federal Register notice  allocating the initial $7.4 billion in CDBG-DR funds, grantees were  required to take a number of steps before they could enter into a grant  agreement with HUD and begin expending funds (see fig.1). These  steps had associated deadlines, which the four grantees generally met. The steps grantees were required to take before they could enter into a  grant agreement included the following: Financial processes and procedures. Grantees were required to  document their financial controls, procurement processes, and grant  management procedures (including those for preventing the  duplication of benefits, ensuring timely expenditures, and preventing  and detecting fraud, waste, and abuse). By the end of September  2018, HUD had certified that all four grantees had proficient financial  controls, procurement processes, and grant management procedures. Implementation plan. Grantees were required to submit an  implementation plan that describes their capacity to carry out the  recovery and how they will address any capacity gaps. By the end of  September 2018, HUD had approved the implementation plans and  capacity assessments of all four grantees. Action plan. Finally, grantees were required to submit an action plan  for disaster recovery that includes an assessment of unmet needs for  housing, infrastructure, and economic revitalization and a description  of activities intended to meet these needs. By the end of July 2018,  all four grantees had approved action plans. Once these steps were completed, HUD and the grantees could sign  grant agreements, and the grantees could begin drawing down funds. All  four of the grantees had signed grant agreements with HUD by the end of  September 2018. The February 2018 Federal Register notice required  grantees to begin drawing down funds by August 13, 2018, but a HUD  official told us that the grantees were unable to meet this requirement  because HUD had not yet finalized an agreement with three grantees by  that date and had just entered into a grant agreement with Florida. The grant agreements require grantees to expend their entire CDBG-DR  allocations on eligible activities within 6 years of signing their grant  agreements. According to HUD officials, this requirement has been  included in grant agreements since 2015 to help speed up the  expenditure of funds. (As discussed in the last section of this report, some  CDBG-DR grantees have been slow to expend their funds.) As of January  2019, the grantees had generally not drawn down funds for individuals  affected by the 2017 hurricanes because they were designing and setting  up the activities to assist these individuals. Specifically, as of January  2019, Texas had drawn down approximately $18 million and Florida had  drawn down approximately $1 million of their allocations generally for  administrative and planning expenses. The other two grantees had not  drawn down any of their February 2018 allocations (see table 3). As of the end of 2018, the grantees were taking steps to design and set  up the activities approved in their action plans and planned to implement  activities in stages. Florida. On September 24, 2018, Florida opened the registration  period for a program that provides rehabilitation or replacement  assistance to owner-occupied homes and rental properties impacted  by Hurricane Irma. According to Florida officials, residents have until  March 29, 2019, to register. The purpose of the registration process is  for Florida to evaluate the potentially eligible population. According to  Florida officials, Florida began taking applications from registrants on  November 27, 2018, and staff were conducting eligibility reviews on  completed applications as of late December 2018. Puerto Rico. Puerto Rico officials said they planned to stagger the  implementation of their approved CDBG-DR activities. They would  begin with activities they considered to be critical such as providing  assistance for the rehabilitation, reconstruction, or relocation of  owner-occupied units and gap financing for properties being  developed with Low-Income Housing Tax Credits. Officials said they  planned to begin taking applications by the end of calendar year 2018  or early 2019 but that the start dates depended on HUD’s approval of  the activities’ policies and procedures. Texas. On July 23, 2018, Texas began taking applications for a  program that provides assistance for the rehabilitation, reconstruction,  and new construction of affordable multifamily rental housing. Texas  officials said they expected to begin signing agreements with selected  developers early in calendar year 2019. In addition, on November 27,  2018, Texas began taking applications for a program that provides  assistance for the rehabilitation and reconstruction of owner-occupied  single-family homes. In late December 2018, Texas officials told us  they were reviewing the more than 1,500 completed applications for  program eligibility. U.S. Virgin Islands. The U.S. Virgin Islands planned to first  implement two housing programs that provide assistance for the  rehabilitation or reconstruction of storm-damaged residential owner- occupied units and for the construction of new homes for first-time  homebuyers. U.S. Virgin Islands officials stated that as of November  2018, they were working on policies and procedures for the  subrecipients that will help administer these programs and that they  planned to launch both programs early in calendar year 2019. The  U.S. Virgin Islands also planned to provide assistance for the  rehabilitation or construction of affordable rental housing units but did  not provide information on when it planned to implement this activity.  In addition, officials said they anticipate funding some infrastructure  projects in early 2019. Grantees Have Taken  Some Steps to  Establish Financial  Processes and  Assess Capacity and  Unmet Needs Grantees Generally Used  Existing Financial  Processes and  Procedures for  Certification To meet the requirement for certification of financial controls,  procurement processes, and grant management procedures (financial  processes and procedures), all four 2017 grantees told us that they  generally used processes and procedures that were already in place to  administer prior CDBG-DR grants or other HUD funds. For example,  Texas and Florida asked HUD to generally rely on the certification and  supporting documentation of financial processes and procedures that  they had submitted for previous CDBG-DR grants. U.S. Virgin Islands  officials told us they generally relied on the financial processes and  procedures they have in place for the administration of the traditional  CDBG program. Similarly, Puerto Rico officials told us that they relied on  existing financial processes and procedures they have in place for other  federal funds, including other HUD and FEMA funds. We and the HUD OIG have ongoing or completed work on controls over  CDBG-DR funds. We have ongoing work examining, among other things, HUD’s internal control plan for the 2017 appropriated disaster funds,  including CDBG-DR funds. In response to a congressional request, the  HUD OIG reviewed the ability of the grantees in Texas and Florida to  follow applicable federal regulations and requirements. In its reports on  Texas and Florida, the HUD OIG identified concerns with grantees’  financial processes and procedures. Texas. In a May 2018 report, the HUD OIG stated that Texas had  prior audit findings related to procurement that the agency should  avoid repeating. For example, for a prior CDBG-DR grant, the HUD  OIG found that Texas did not show how its procurement process was  equivalent to federal requirements. Among other things, the HUD  OIG recommended that HUD require Texas to ensure that its  procurement and expenditure policies and procedures are  implemented and working as designed. Texas responded that it would  clarify the procurement processes in its financial submission if  needed. Florida. In September 2018, the HUD OIG found weaknesses in  Florida’s controls over its drawdown of funds and classification of  costs. For example, it found that for a prior CDBG-DR grant, Florida  drew down more funds than it expended on administrative and  planning costs, and that the grantee charged $30,000 to a prior  CDBG-DR grant that should have been charged to its 2017 CDBG-DR  grant. The report acknowledged that Florida had taken steps to  address this concern, but the OIG recommended, among other things,  that the grantee establish adequate financial controls to ensure that its  disaster funds are properly classified and allocated to the correct  grant. Florida agreed with the recommendation, noting that it had  corrected the discrepancy the HUD OIG identified during the audit and  stating that it would continue to improve its internal controls. In  addition, Florida officials told us that they have worked with HUD staff  to ensure that financial and programmatic staff are trained to correctly  classify costs and verify that they are accurately allocated and  recorded. According to HUD OIG officials, they plan to begin similar reviews of  Puerto Rico and the U.S. Virgin Islands in early calendar year 2019. Grantees Made  Organizational Changes to  Increase Capacity and  Identified Significant  Staffing Needs The February 2018 Federal Register notice required grantees to assess  staff capacity and identify necessary personnel for the administration of  CDBG-DR funds. To increase their capacity to manage the 2017  CDBG-DR funds, grantees made changes to their organizational  structure. Florida. The Florida Department of Economic Opportunity created a  disaster recovery office to administer the 2017 CDBG-DR grants  because, according to Florida officials, the grants were significantly  larger than its traditional CDBG grant and prior CDBG-DR grants. Puerto Rico. The Puerto Rico Department of Housing, which had not  administered prior CDBG or CDBG-DR funding, created a disaster  recovery division to manage its CDBG-DR allocation. Texas. The Texas General Land Office, the lead state agency for  long-term disaster recovery, established a single point of contact for  its subrecipients and created a planning team. Authority, which administers the territory’s traditional CDBG program,  created a division to manage its CDBG-DR allocation. Grantees still need to fill many vacant positions to administer the 2017  CDBG-DR funds. All of the grantees planned to hire more in-house staff  (see table 4). As of December 2018, about 48 percent of the needed full- time equivalent positions at the four grantees were vacant—with  vacancies at individual grantees ranging from about 15 percent for Texas  to about 78 percent for Puerto Rico. These positions will be funded with  CDBG-DR funds. All four 2017 grantees also planned to use contractors to help fill gaps in  expertise and operational capacity. Florida. According to Florida officials, Florida had hired three vendors  to help administer its CDBG-DR funds as of December 2018. They  stated that the first vendor employed two staff to conduct an  organizational study for Florida to help improve staffing efficiencies,  the second vendor had 250 staff working to implement Hurricane Irma  programs and activities, and the third vendor supplied five project  management staff to support CDBG-DR activities. The officials also  stated Florida plans to procure third-party monitoring services,  contract staff services, and additional support to meet audit and  compliance requirements. Puerto Rico. Puerto Rico hired two contractors to help it set up the  grant. Specifically, 20 contract staff assisted Puerto Rico with  development of its action plan. Puerto Rico also planned to hire  vendors to help administer the territory’s CDBG-DR activities, but they  had not yet determined the number of contract staff needed. Texas. According to Texas officials, Texas hired eight vendors to,  among other things, administer the state’s housing assistance  activities and track the progress of its CDBG-DR activities. As of  December 2018, these vendors had 192 staff. U.S. Virgin Islands. According to a U.S. Virgin Islands official, the  U.S. Virgin Islands hired a contractor to help set up the grant,  including assisting with the development of its action plan. The official  also told us that the U.S. Virgin Islands planned to hire contractors to  help support the implementation of its CDBG-DR activities but it had  not yet determined the number of contract staff needed. The HUD OIG has raised concerns about the capacity of two of the 2017  CDBG-DR grantees. In a May 2018 report, the HUD OIG found that  Texas did not have enough staff to adequately administer its 2017 CDBG- DR funds. At the time of its review, the HUD OIG found that 37 percent  of the grantee’s full-time positions were vacant. Texas responded that it  had been actively determining optimal staffing levels and hiring  timeframes, but did not have a reserve budget to hire staff before  receiving its 2017 allocation. Similarly, in a September 2018 report, the  HUD OIG recommended that Florida continue to fill its vacancies and  assess staffing resources as it prepared for additional disaster funds.  Florida accepted the recommendation and stated that it was taking steps  to assess and address staffing needs. As discussed in the last section of  this report, building the capacity needed to manage large grants has  historically been a challenge for CDBG-DR grantees. Grantees Generally Used  the Same Data as HUD to  Estimate Unmet Housing  Needs, but Their  Methodologies Varied Grantees were also required to submit an action plan for disaster  recovery that includes an assessment of unmet needs in housing,  infrastructure, and economic revitalization. The purpose of these unmet  needs assessments was to help grantees understand the type and  location of community needs and to target their CDBG-DR funds to those  areas with the greatest need. We focused on grantees’ estimates of  unmet housing needs because the February 2018 Federal Register notice  required grantees to primarily use their initial CDBG-DR allocation to  address their unmet housing needs. HUD’s Estimation of Unmet  Needs Before grantees developed their unmet needs assessments, HUD  estimated their unmet needs to allocate the appropriated CDBG-DR  funds. HUD calculated unmet housing needs as the number of housing  units with unmet needs times the average estimated cost to repair those  units less repair funds already provided by FEMA and SBA. HUD relied  on FEMA Individual Assistance data to estimate the number of affected  owner-occupied and rental units and used SBA data on disaster loans to  estimate repair costs. HUD developed five damage categories to  determine the level of damage housing units sustained: minor-low, minor- high, major-low, major-high, and severe. Because both acts that  appropriated the CDBG-DR funds require HUD to allocate funding to the  “most impacted and distressed areas,” the agency only included owner- occupied and rental units that had major or severe damages in its  estimate of unmet housing needs. To determine the average cost of repairs for owner-occupied and rental  units in each damage category, HUD used SBA data rather than FEMA  data. HUD said SBA damage assessments better reflect the full cost to  repair a unit because the assessments are based on the total physical  loss to the unit. In contrast, FEMA assesses damage based on the cost to  make the unit habitable, and therefore its estimates are generally lower  than SBA’s estimates. To estimate unmet needs, HUD then multiplied the  number of units it identified as having major-low, major-high, and severe  damage by corresponding SBA average cost-of-repair amounts (see table  5). To estimate the needs of owner-occupied and rental units for their unmet  needs assessments, the four grantees generally used FEMA and SBA  data but used different methodologies to analyze these data. Below is  an overview of the methodology each of the 2017 CDBG-DR grantees  used to estimate housing needs for owner-occupied and rental units. Florida. Florida included all SBA applicants and FEMA applicants  with units that incurred minor damage as defined by HUD’s two lowest  damage categories, neither of which was included in HUD’s estimate.  Florida did not use HUD repair estimates; instead, it developed its  own estimates using SBA data. Puerto Rico. Like Florida, Puerto Rico included all SBA applicants  and FEMA applicants with minor damage. Puerto Rico also included  an estimate of units with “potential unmet needs.” Puerto Rico  calculated its own cost-of-repair estimates based on SBA data. Texas. Texas’ methodology was the same as HUD’s methodology. Specifically, Texas included FEMA applicants with major and severe  damage and used the repair estimates HUD provided in the February  2018 Federal Register notice. U.S. Virgin Islands. The U.S. Virgin Islands included units that FEMA  did not inspect and units with minor damage, neither of which HUD  included in its estimate. The U.S. Virgin Islands used estimates HUD  provided in an April 2018 memorandum to determine the repair costs. Because three of the grantees tailored their unmet needs estimates for  their individual planning purposes, aggregating these estimates would not  be appropriate because the estimates do not provide comparable  measures of unmet housing needs. Although we did not conduct an  extensive assessment of the estimates, we performed some limited  analysis to illustrate the impact of some of the grantees’ methodological  decisions. The three grantees’ decisions expanded the definition of unmet  housing needs, which resulted in higher estimates compared to HUD’s  methodology. Including FEMA applicants with minor damage. Florida, Puerto  Rico, and the U.S. Virgin Islands included FEMA applicants with minor  damages that fell into HUD’s two lowest categories of damage.  Including these applicants increased the needs estimate for the U.S.  Virgin Islands by approximately $431 million. Our analysis showed  that including these applicants increased Puerto Rico’s needs  estimate by at least $1.5 billion. Grantees said that including FEMA  applicants with the two lowest levels of damages provided a more  accurate representation of the needs for owner-occupied and rental  units. For example, Puerto Rico’s action plan states that these  applicants were unlikely to receive other federal or local assistance to  repair their homes, and therefore would have needs. HUD officials  told us that grantees have the discretion to use allocated funds to  assist applicants with less severe damage as long as those  individuals have unmet needs. Including SBA applicants that were denied assistance. Florida  and Puerto Rico included SBA applicants whose units were not  inspected because they were denied disaster loans, although the  extent to which these units sustained damages was unknown. Florida  estimated approximately $1.8 billion and Puerto Rico approximately  $1.5 billion in housing needs for these SBA applicants. Florida and  Puerto Rico officials told us that they included these applicants  because being denied did not necessarily mean that these applicants  did not experience losses. For example, SBA applicants can be  denied loan assistance based on their inability to repay, despite  potentially having unmet needs. Similarly, HUD officials explained that  they consider applications that SBA has denied as a potential  indicator of unmet needs. Including FEMA applicants without verified losses. Florida  included FEMA applicants without verified losses and the U.S. Virgin  Islands included units that FEMA did not inspect. Absent verified  losses and inspections, they assumed the FEMA applicants had some  level of unmet needs. Florida’s action plan states that it included  FEMA applicants without verified losses, but the plan did not include  the number of such applicants or their associated housing needs. The  U.S. Virgin Islands’ action plan states that it included 3,774 such  FEMA applicants in its estimate of damaged homes, but the plan did  not include the associated repair costs. According to Florida and  Virgin Islands officials, they included these applicants to account for  what they determined was underrepresentation of impacted  populations. According to HUD officials, grantees typically conduct  their own inspections or rely on SBA inspections in an effort to capture  more comprehensive damage estimates. Including owner-occupied and rental units with “potential unmet  needs.” Puerto Rico included an estimate of “potential unmet housing  needs” to account for owners and renters that did not apply to FEMA  and FEMA applicants without verified losses. Absent applications or  verified losses, Puerto Rico assumed that nonapplicants and  applicants without verified losses had some level of unmet needs.  Puerto Rico estimated these potential unmet needs to be  approximately $5.8 billion. HUD officials told us that there were a  significant number of FEMA applicants who were denied in Puerto  Rico due to an inability to prove property ownership. In general, HUD officials stated that the methodologies HUD and  grantees used to develop unmet needs estimates did not need to be the  same. This is because HUD’s estimate of unmet needs was used to  allocate funds to grantees and grantees’ estimates were used to target  their funding. They also noted that there was more than one way to  determine unmet needs and that it was acceptable for grantees to use  different methodologies to reflect their local circumstances. Although  grantees’ estimates of unmet needs do not affect the amount of CDBG- DR funds that they are allocated, the flexibility grantees have in defining  unmet needs increases the importance of HUD’s review of these  estimates. As discussed in the next section of this report, HUD’s review of  these estimates was limited. HUD’s Review of  Grantees’ Initial Steps  Was Limited, and It  Has Not Developed  Monitoring or  Workforce Plans HUD Does Not Have  Adequate Guidance for  Reviewing Financial  Processes and  Procedures and  Assessments of Capacity  and Unmet Needs HUD lacks adequate guidance for its staff to use when determining the  adequacy of a grantee’s financial processes and procedures and  assessments of its capacity and unmet needs. Financial processes and procedures. HUD staff use a checklist to  assess a grantee’s financial controls, procurement processes, and  procedures for prevention of duplication of payments to detect fraud,  waste, and abuse of funds (financial certification checklist). The  questions on this checklist focus on whether certain information required  in the February 2018 Federal Register notice was included. For  example, as figure 2 shows, the financial certification checklist asks HUD  staff to determine whether a grantee has attached its procedures for  preventing duplication of benefits and verifying all sources of disaster  assistance received. However, it does not ask HUD staff to assess the  adequacy of the grantee’s approach for verifying all sources of disaster  assistance. In addition, the financial certification checklist, which is  framed as a series of “yes” or “no” questions, does not include guidance  that the HUD reviewer must consider. For example, the certification  checklist asks whether the grantee has standards to maintain “adequate  control” over all CDBG-DR funds but does not define what it means to  maintain adequate control. HUD officials told us that HUD reviewers do  assess the quality of grantees’ submissions during their reviews. They  stated that they request additional information from grantees if they deem  the information initially submitted to be incomplete or unclear. However, in  the absence of additional guidance for HUD staff, it is unclear how they  assess quality on a consistent basis. Capacity assessments. HUD’s checklist for reviewing management  capacity (capacity checklist) assesses whether the grantee included  certain information required in the February 2018 Federal Register  notice. For example, the capacity checklist asks whether a grantee  provided a timeline for addressing the gaps it identified in its capacity  assessment. However, it does not require the reviewer to evaluate the  adequacy of the assessment or the timeline (see fig. 3). Similarly, the  capacity checklist asks whether the grantee planned to designate  personnel for program management, procurement, monitoring, and other  functions but does not require the reviewer to assess the adequacy of the  number of personnel. One question asks whether the personnel will be “in  proportion to applicant population” but does not cite the required  proportion. As discussed above, HUD officials told us that HUD reviewers  do assess the quality of grantees’ submissions during their reviews, but in  the absence of additional guidance for staff, it was unclear how they  determine that documents are adequate. Unmet needs assessments. HUD staff also use a checklist to assess  the grantees’ action plans, including their assessments of unmet needs  (see fig. 4). The questions ask the reviewer to determine whether the  needs assessment covers housing, infrastructure, and economic  revitalization and to estimate the portion of those three areas to be funded  from other sources, as required in the February 2018 Federal Register  notice. However, the reviewer is not required to evaluate the reliability of  the grantees’ assessments or estimates, and HUD does not provide  additional guidance for staff to help assess the reliability of the  information provided. HUD officials said they have other documentation that supplements the  checklists. However, we found that documentation lacked sufficient  information for assessing the submissions. For example: February 2018 Federal Register notice. According to HUD officials,  the notice is the primary source of guidance for HUD reviewers.  They stated that the notice defines “proficient financial processes and  procedures.” However, the February 2018 notice states that grantees  must submit certain audits, financial reports, and their financial  standards but does not describe how HUD reviewers should assess  the quality of those financial standards. In addition, the vague  language in the checklist often mirrors the February 2018 notice. For  example, neither document tells staff how to determine whether “the  overall effect of the  standards provide for full  and open competition.” Regulations for the traditional CDBG program. According to HUD  officials, reviewers can consult existing federal regulations governing  the development and review of plans required under the traditional  CDBG program when reviewing grantees’ action plans, including  unmet needs assessments. However, both the February 2018 and  August 2018 Federal Register notices waive the requirement for an  action plan under the CDBG regulation. The notices instead require  CDBG-DR grantees to submit an action plan for disaster recovery  specifically that includes an unmet needs assessment. Another reason HUD cited for not having additional guidance is the  reviewers’ years of professional experience. A senior HUD official said  the staff members who reviewed Florida and Texas’ submissions were  senior CPD staff who had been CDBG-DR grant managers since at least  2014. The same senior official, a CPD specialist since 1998, told us that  she reviewed the submissions from Puerto Rico and the U.S. Virgin  Islands. However, experienced staff may leave their positions, while the  guidance for reviewing grantees’ submissions would remain. The acts appropriating CDBG-DR funds for the 2017 disasters require  HUD to certify that a grantee has proficient financial controls, processes,  and procedures. In addition, both acts require grantees to submit action  plans to the HUD Secretary. The February 2018 Federal Register notice  requires that grantees demonstrate that they have capacity to effectively  manage the CDBG-DR funds and that their action plans include an  assessment of unmet needs. Further, federal internal control standards  state that management should use quality information to achieve the  entity’s objectives. For example, management is to obtain relevant data  from reliable internal and external sources in a timely manner based on  the identified information requirements. Federal internal control standards  also state that management should (1) internally communicate the  necessary quality information to achieve the entity’s objectives and (2)  establish and operate monitoring activities to monitor the internal control  system and evaluate the results. As discussed in the last section of this report, prior grantees’ lack of  adequate financial processes and procedures and capacity led to  challenges, such as improper payments and the need to acquire  additional expertise. Further, all four grantees’ initial assessments  showed that their CDBG-DR allocations will not meet their unmet needs.  Having reliable estimates of unmet needs that will not be met with the  appropriated $35.4 billion is important because Congress could use these  estimates to determine if further appropriations are necessary. Further,  grantees need accurate information to appropriately address unmet  needs. Without additional guidance for HUD staff to use in assessing the  quality of grantees’ submissions, HUD cannot provide reasonable  assurance that its reviews of these submissions are thorough and  consistent. HUD Lacks  Documentation Supporting  Its Conclusion That  Grantees’ Submissions  Were Sufficient In their reviews of the 2017 grantees’ financial processes and procedures  and assessments of capacity and unmet needs, HUD’s reviewers did not  document their conclusions. According to a HUD official, the final  completed checklists are the official records of the agency’s certification  of grantees’ financial processes and procedures and its review of capacity  and unmet needs assessments. However, the checklists do not require a  description of the basis for answering “yes” to a question. The checklists  require HUD reviewers to describe the basis for their conclusion for “no”  answers only. As a result, the final checklists that we reviewed, which  showed a “yes” to each question, did not explain how the reviewer  concluded that grantees’ submissions were sufficient. A HUD official told us that outside of the official administrative record,  there is documentation on the agency’s communication with grantees.  However, because this documentation was not readily available for all  four grantees, HUD provided examples of written feedback given to one  grantee. Our review of this documentation showed variation in the extent  to which the reviewer requested information about the quality of the  information provided. In written feedback that HUD provided to the  grantee on its capacity assessment, the HUD reviewer asked for more  comprehensive analysis of staffing needs and to include a rationale for  the number of staff to be assigned to each function. Yet, other feedback  HUD provided focused on whether certain information was included  rather than on the quality of the information. For example, when reviewing  the grantee’s financial processes and procedures, the reviewer pointed  out that the grantee had not shown that it had addressed prior audit  findings. In another instance, the reviewer asked the grantee to include  additional information in the section of its action plan on unmet needs, but  did not focus on the grantee’s methodology. According to a HUD official, this documentation was not readily available  for each grantee because it is not part of the official administrative record.  Even if readily available, such documentation likely would not  substantiate HUD’s conclusions that grantees’ submissions and estimates  were sufficient. CPD’s monitoring handbook states that staff must  document the basis for their conclusions during a monitoring review  because “monitoring conclusions must be clear to persons unfamiliar with  the participant, program, or technical area.” In addition, federal internal  control standards require management to design control activities to  achieve objectives in response to risk. One example of a control activity  is clearly documenting transactions and other significant events in a  manner that allows the documentation to be readily available for  examination. According to a HUD official, documentation is limited and not readily  available because CPD staff have many responsibilities in addition to the  review of grantees’ submissions, such as assisting in the monitoring of  prior CDBG-DR grants. However, it is important that HUD prioritize the  documentation of its reviews. Without documenting the basis for its  conclusions when reviewing grantees’ submissions, stakeholders and  decision makers lack information on why HUD concluded that grantees’  financial processes and procedures and capacity and unmet needs  assessments were adequate. HUD also misses an opportunity to  leverage this information later to mitigate risk and inform its monitoring of  grantees. HUD Does Not Have a  Comprehensive  Monitoring Plan for the  2017 CDBG-DR Grants HUD determined that the 2017 CDBG-DR grants posed high risk due to  the size of the grants, but did not have a comprehensive plan to monitor  these grants. First, HUD had not identified any unique risk factors  associated with the 2017 grants that required additional attention. For  example, HUD had not analyzed the potential risk of awarding a large  grant to an entity that had little or no experience administering CDBG-DR  funds. The agency also had not used any potential risks identified during  its reviews of grantees’ financial processes and capacity assessments to  inform its monitoring. Second, although HUD had plans to conduct onsite  monitoring, it had not defined the scope of this monitoring. HUD provided  a monitoring schedule that showed that the agency intended to conduct  two monitoring visits and two technical assistance visits each to Florida,  Texas, and the U.S. Virgin Islands in fiscal year 2019. Although the  schedule shows only one monitoring visit for Puerto Rico, HUD officials  told us that they also plan to conduct two monitoring visits and two  technical assistance visits to Puerto Rico. Regarding the scope of  monitoring visits, HUD officials said that staff consider where the CDBG- DR grantee is in the recovery process when identifying areas to be  reviewed during monitoring. For example, they said that they tend to  focus on grantees’ efforts to hire staff and develop policies and  procedures during the first year and on grantees’ implementation of  specific activities in the second year. Although HUD had these tentative  plans for the early years of the grants, the agency had not documented  them. According to HUD officials, as of November 2018 HUD had not developed  a comprehensive monitoring plan because it had not yet completed the  annual risk analysis process that it uses to determine the extent of  monitoring for programs such as CDBG and CDBG-DR. According to  HUD officials, this process is undertaken during the first quarter of each  fiscal year. HUD guidance states that the purpose of this analysis is to  provide the information needed for HUD to effectively target its resources  to grantees that pose the greatest risk to the integrity of CDBG-DR,  including identification of the program areas to be covered and the depth  of the review. In comments on the draft report, HUD stated that it had  completed its risk analysis and updated its monitoring schedule to include  all the grantees it planned to visit in fiscal year 2019. HUD also stated that  it had begun identifying monitoring strategies for all monitoring reviews  that would occur from March 2019 through May 2019 and would develop  the remaining strategies after the initial monitoring reviews. However, the risk analysis is of limited usefulness for new CDBG-DR  grants because, based on HUD guidance, the risk analysis assumes that  the grant has been active for several years. For example, a reviewer is to  select the high-risk category if, within the past 3 grant years, the grantee  had received two or more findings that are open, overdue, and  unresolved; sanctions have been imposed on the grantee; or the grantee  had not been monitored—all considerations that currently are moot for the  2017 grantees. Further, the risk analysis does not formally incorporate  information HUD gleaned from its reviews of grantees’ financial  processes and capacity assessments. For example, the risk analysis  worksheet does not include questions about the extent to which HUD’s  review of a grantee’s procurement processes and procedures raised any  concerns. According to the February 2018 Federal Register notice, HUD will  undertake an annual risk analysis and conduct on-site monitoring.  Further, federal internal control standards state that management should  establish and operate monitoring activities and evaluate results. The  standards suggest that as part of monitoring, management identify  changes that have occurred or are needed because of changes in the  entity or environment. However, HUD does not have a monitoring plan  that identifies the specific risk factors for each grantee and outlines the  scope of its monitoring. A comprehensive monitoring plan would help  HUD ensure that its oversight of grantees’ compliance with grant  requirements focused on grantees’ areas of greatest risk. HUD Has Not Conducted  Workforce Planning to  Determine the Staff It  Needs to Oversee CDBG- DR HUD has not conducted workforce planning to determine the number of  staff it needs to monitor the large 2017 CDBG-DR grants and other  outstanding grants. The growth in the number and dollar amount of  CDBG-DR grants has created workforce challenges for HUD. The more  than $35 billion in CDBG-DR funds Congress appropriated for the 2017  hurricanes was almost as much as HUD’s entire budget for fiscal year  2018. In addition, Congress appropriated more CDBG-DR funds to help  with recovery from the 2018 Hurricanes Florence and Michael, and will  likely appropriate more. As of October 2018, CPD’s Disaster Recovery  and Special Issues Division had 24 permanent full-time staff. However,  division officials told us that staffing had not increased at a rate  commensurate with the increase in CDBG-DR grants due to budget  constraints. Although the 2017 grants would be their priority for  monitoring, they said that they still had a responsibility to oversee other  grants. HUD officials told us that they planned to hire additional staff for the  Disaster Recovery and Special Issues Division but that they had not  finalized their hiring plans. In October 2018, a CPD official told us that in  fiscal year 2018 HUD approved the hiring of 17 limited-term hires to be  paid with supplemental disaster funds appropriated for HUD salaries and  expenses. Division officials also told us that HUD had approved two  permanent hires in fiscal year 2018, a financial analyst and a team leader  for oversight of the Puerto Rico grantee. For fiscal year 2019, the CPD  official said HUD was considering hiring five additional permanent staff for  the division but that if approved, the division had estimated that it would  need five more staff. In November 2018, division officials said that the  number of additional staff we were told had been approved for fiscal year  2018 seemed high and that as of November 2018, HUD had not finalized  its hiring plans for the division. In comments on the draft report, HUD  stated that the division had developed a staffing plan to address long- term oversight and management of the CDBG-DR portfolio and, as of  March 1, 2019, expected to fill 14 positions over the next 3 months. In  addition, it stated that the agency had identified an approach to secure 20  additional positions to support CDBG-DR, and expected the agency’s  financial and human capital officials to approve it in the next few weeks. Federal internal control standards state that management should design  control activities, including management of human capital, to achieve  objectives and respond to risks. Management is to continually assess  the knowledge, skills, and ability needs of the entity so that the entity is  able to obtain a workforce that has the required knowledge, skills, and  abilities to achieve organizational goals. In previous work on human  capital, we identified key principles for effective strategic workforce  planning, including determining the critical skills and competencies  needed to achieve current and future programmatic results and  developing strategies that are tailored to address gaps in number,  deployment, and alignment of human capital approaches for enabling and  sustaining the contributions of all critical skills and competencies. However, as of March 1, 2019, HUD had not hired any additional staff;  provided documentation showing that the number of staff it planned to  hire would be sufficient to oversee current CDBG-DR funds and funds  appropriated for Hurricanes Florence and Michael; or determined that  staff have the needed knowledge, skills, or abilities. HUD did not have  this information because it had not conducted strategic workforce  planning. According to HUD officials, they were in the process of  evaluating the division’s organizational structure. Without strategic  workforce planning that determines if the number of staff HUD plans to  hire is sufficient to oversee the growing number of CDBG-DR grants,  identifies the critical skills and competencies needed, and includes  strategies to address any gaps, HUD will not be able to identify the  staffing resources necessary to oversee CDBG-DR grants. HUD and CDBG-DR  Grantees Face  Challenges with  Program Design and  Administration Due to the lack of permanent statutory authority for CDBG-DR, CDBG-DR  appropriations require HUD to customize grantee requirements for each  disaster. The ad hoc nature of CDBG-DR has created challenges for  CDBG-DR grantees, such as lags in accessing funding and varying  requirements. CDBG-DR grantees have also experienced administrative  challenges not related to the lack of permanent statutory authority, such  as challenges with grantee capacity, procurement, and improper  payments. Lack of Permanent  Statutory Authority Has  Led to Challenges Such  as Lags in Accessing  Funding and Varying  Requirements Although Congress has used CDBG to meet unmet disaster recovery  needs since 1993, it has not established permanent statutory authority for  CDBG-DR. Because of its flexibility, Congress has relied on CDBG and  provided numerous supplemental appropriations for more than $86 billion  in CDBG-DR funds to HUD. When Congress appropriates CDBG-DR  funds, it also grants HUD broad authority to waive CDBG program  requirements and establish alternative requirements for CDBG-DR funds  via Federal Register notices. For example, in consecutive notices for  disasters that occurred from 2001-2016, HUD waived the requirement  that 70 percent of CDBG funds received by the state over a 1- to 3-year  period be for activities that benefit persons of low and moderate income. For disasters from 2004-2017, it issued a waiver permitting states to  directly administer CDBG-DR funds, rather than distributing all funds to  local governments as is required under the traditional CDBG program.  Also, since 2001 HUD has waived the requirement for CDBG action plans  and instead required grantees to submit to HUD an action plan for  disaster recovery. Because CDBG-DR is not a permanently authorized program, HUD  officials stated that they have not established permanent regulations.  Legislation was proposed in the 115th Congress that would have  permanently authorized the CDBG-DR program, but was not enacted.  According to HUD officials, they provided technical drafting assistance on  this bill. As of February 2019, Congress had not permanently authorized  CDBG-DR or any other program to meet unmet disaster needs. Unlike CDBG-DR, other federal disaster assistance programs, such as  those administered by FEMA and SBA, are permanently authorized. In  1988, the Stafford Act created permanent statutory authority for much of  the disaster assistance system in place today. Under this act, FEMA has  multiple mechanisms for providing assistance. For example, FEMA’s  Individual Assistance program provides various forms of help following a  disaster, such as financial assistance for housing, unemployment, and  crisis counseling assistance. In the late 1950s, the Small Business Act  permanently authorized the SBA Disaster Loan Program, which provides  low-interest direct loans to businesses, homeowners, and renters to  repair or replace property. A recent report on climate change supports a growing need for a  permanent program to address unmet disaster needs. According to a  2018 report from the U.S. Global Change Research Program, the  frequency and intensity of extreme weather and climate-related events  are expected to increase. The report noted that as hurricane damage  can be attributed to warmer atmosphere and warmer, higher seas, there  is a need to rebuild to more resilient infrastructure and develop new  frameworks for disaster recovery. In part because Congress has not established permanent statutory  authority for CDBG-DR or some other program to address unmet needs,  GAO, the HUD OIG, and some of the 2017 grantees have cited a number  of challenges. These include lags in accessing funding and varying  requirements. Lags in accessing funding. For earlier hurricanes, it took at least a  month for HUD to issue the Federal Register notices that outlined the  CDBG-DR requirements for each disaster. For the 2017 disasters, it took  longer. As noted previously, these notices lay out the steps that grantees  must take before they can enter into grant agreements with HUD and  begin expending funds. As shown in figure 5, it took 45 days for HUD to  issue the requisite Federal Register notice after the first appropriation for  the 2005 Gulf Coast hurricanes, 35 days after the first appropriation for  Hurricane Sandy, and 154 days (or 5 months) after the first appropriation  for the 2017 hurricanes. According to HUD officials, they delayed  issuance of the first notice for the 2017 hurricanes because they expected  a second appropriation and wanted to allocate those funds in the same  notice. After HUD issued the Federal Register notices, it generally took  the grantees months to complete all of the required steps to enter into  grant agreements. For example, it took each of the 2017 grantees over 6  months to execute grant agreements with HUD. Two 2017 grantees that we interviewed suggested that the CDBG-DR  process could be shortened if there were an established set of rules for  states to follow instead of waiting months for a new Federal Register  notice to be published for each allocation. One grantee told us that  CDBG-DR should be codified as a formal program with basic rules in  place so that grantees do not have to wait months for a notice to be  published before they begin planning. In a May 2018 hearing on CDBG- DR, a 2017 grantee testified that disaster recovery could be greatly  expedited if HUD had written regulations that governed CDBG-DR  allocations. The official stated that states would not have to wait for the  Federal Register notice to be published to begin designing activities and  developing action plans. Similarly, for our January 2010 report on the Gulf Coast hurricanes, HUD  officials told us that a permanently authorized CDBG-DR program would  allow HUD to issue permanent regulations and require less need for  Federal Register notices and the use of waivers after each disaster,  thereby allowing funds to be available for providing assistance sooner.  As part of our current review, HUD officials reiterated that a permanently  authorized CDBG-DR program would allow HUD to issue permanent  regulations. They stressed that for a permanently authorized CDBG-DR  program to be effective, Congress would need to provide HUD the  flexibility to waive traditional CDBG statutory requirements and adopt  alternative requirements to help address recovery needs. Varying requirements. CDBG-DR grant requirements vary from notice to  notice. In a July 2018 report, the HUD OIG found that as of September  2017, HUD used 61 notices to oversee 112 active disaster recovery  grants totaling more than $47.4 billion, and would issue additional notices  for funding provided in 2017 and 2018. The HUD OIG also noted that as  of February 2017, Louisiana had seven open grants and had to follow 45  Federal Register notices, and that Texas had 6 open grants and had to  follow 48 Federal Register notices. Officials from one of the 2017  grantees we interviewed said it was challenging to manage seven  different CDBG-DR grants, each with different rules. As an example, they  noted that 2015 grant funds cannot be used on levees, while funds from  other years can be. To help manage these different requirements, they  stated that they must tie each grant to the relevant public law in their  grant management system. To further ensure compliance with the various notices, their legal department prepares a new template for the  agreement that the states signs with subrecipients for each public law.  Officials from another 2017 grantee stated that it was difficult to build an  infrastructure for the management of current and future CDBG-DR funds,  as the rules often could be different for each allocation. They also noted  that variations across different allocations can make it more difficult for  grantees to manage and comply with differing requirements. According to  HUD officials, the requirements have varied due to differences in  appropriations language and policies across administrations and changes  made in response to input from the HUD OIG. In addition, the July 2018 HUD OIG report identified 59 duplicative or  similar requirements in most of the notices that could benefit from a  permanent framework. For example, the following rules or waivers were  consistently repeated: allowing states to directly administer grants and  carry out eligible activities, requiring grantees to submit an action plan,  requiring grantees to review for duplication of benefits, allowing states to  use subrecipients, and allowing flood buyouts. The HUD OIG  recommended that the Office of Block Grant Assistance work with its  Office of General Counsel to codify CDBG-DR in regulations. HUD  disagreed with this recommendation, stating that it lacked statutory  authority to create a permanent CDBG-DR program. In commenting on  the report, HUD acknowledged that the current process of changing  appropriations requirements, which results in waivers and alternative  requirements, can be challenging. It further stated that congressional  direction would be needed for a more standard, regulation-governed  program. Further, we and others have cited four additional challenges that could be  addressed in a statute permanently authorizing CDBG-DR or another  disaster assistance program for unmet needs. Lag between a disaster and appropriation of CDBG-DR funds. In a  July 2015 report on Hurricane Sandy, we found that the unpredictable  timing of the appropriation for CDBG-DR challenged grantees’ recovery  planning. As shown in figure 6, the first CDBG-DR supplemental  appropriation for the Gulf Coast hurricanes was enacted 4 months after  the first Gulf Coast hurricane occurred. Less time elapsed between  Hurricane Sandy and Hurricane Harvey (the first of the 2017 hurricanes)  and Congress’ appropriation of funds, 3 months and 2 weeks,  respectively. In contrast, a presidential disaster declaration activates the  provision of funds from FEMA’s Disaster Relief Fund. The SBA Disaster  Loan Program is also activated by a presidential disaster declaration.  Congress funds both programs through annual appropriations. Lag in spending funds once grant agreements have been signed.  Once grantees have entered into grant agreements with HUD, it can take  years for them to implement activities and expend all of their CDBG-DR  funds. There is no consensus on the amount of time it should take  grantees to expend their funds. Congress has established obligation and  expenditure deadlines, such as through a provision in the Disaster Relief  Appropriations Act, 2013. In that act, which applies to 47 grants, grantees  are required to spend the funds within 24 months of obligation unless the  Office of Management and Budget (OMB) provides a waiver. Similarly,  the appropriations for the 2017 disasters also must be expended within  24 months of the date of obligation, and OMB is authorized to provide a  waiver of this requirement. In addition, legislation has been proposed  that would require funds to be expended within 6 years, with the  possibility of an extension up to 3 years upon a waiver by OMB. Since 2015, HUD has imposed a requirement that grantees expend their  funds within 6 years of signing a grant agreement. According to HUD  officials, they chose 6 years because their research showed that most  expenditure activity occurs within the first 6 years of the grant. However,  of the 50 grants awarded in fiscal years 2012 and 2013 that are at or  approaching the original 6-year mark, 9 grantees (18 percent) had  expended less than half of the funds. Some of these grantees have  received extensions that allow their grants to remain open until  September 2022. According to HUD, a number of factors can delay  recovery efforts, including subsequent disasters, litigation, and limited  constructions seasons due to weather. See appendix III for more  information on these grants. Housing programs that are not aligned with unmet needs. In past  work, we found that CDBG-DR grantees are not required to align their  housing activities with the needs of the affected communities. In a  January 2010 report on the Gulf Coast hurricanes, we found that states  used their broad discretion and additional flexibility to decide what  proportion of their CDBG-DR funds went to homeowner units and rental  units. In Louisiana and Mississippi, more homeowner units were  damaged than rental units, but the proportional damage to rental stock  was generally greater. However, 62 percent of damaged homeowner  units were assisted and 18 percent of rental units were assisted. We  recommended that Congress consider providing more specific direction  regarding the distribution of disaster-related CDBG assistance that states  are to provide for homeowners and renters. Since the Gulf Coast  hurricanes, Congress has appropriated funding for subsequent disasters;  however, as of February 2019, no appropriations had addressed this  issue. Coordination with multiple federal agencies. In our July 2015 report on  Hurricane Sandy, we found that different federal disaster response  programs are initiated at different times, making it challenging for state  and local officials to determine how to use federal funds in a  comprehensive manner. In response to a survey that we conducted for  that report, 12 of 13 states and cities reported that navigating the multiple  funding streams and various regulations was a challenge that affected  their ability to maximize disaster resilience opportunities. For example,  state officials we interviewed for that report noted the redundancy of  some federal requirements for receiving disaster assistance such as the  duplication of environmental reviews, which are required by both HUD  and FEMA. In our January 2010 report on the Gulf Coast hurricanes, we  noted that a Department of Homeland Security study indicated that  experts should discuss how challenges associated with the different  federal efforts that provide disaster recovery assistance—such as CDBG- DR and those administered by FEMA—could be addressed. The study  also suggested that experts explore new methods for delivering  assistance. In our June 2009 report on CDBG-DR, we also found that guidance for  the Gulf Coast disaster recovery was insufficient and that conflicting  federal decisions hindered coordination of CDBG-DR and FEMA’s Hazard  Mitigation Grant Program funds. We recommended that HUD coordinate  with FEMA to ensure that new guidance clarified the potential options,  and limitations, available to states when using CDBG disaster assistance  funds alongside other disaster-related federal funding streams. HUD  issued the guidance, and the recommendation was closed in November  2011. Without permanent statutory authority for a disaster assistance program  that meets verified unmet needs, grantees will likely continue to  encounter the challenges associated with needing customized grant  requirements for each disaster, such as funding lags and varying  requirements. Permanent statutory authority could also improve  coordination among federal agencies that administer disaster funds. Grantees Have Faced  Administrative Challenges,  Such as Building Capacity  and Avoiding Improper  Payments In addition to the challenges experienced because CDBG-DR is not  permanently authorized, reports on prior disasters cited CDBG-DR  administrative challenges such as building capacity, avoiding improper  payments, and following procurement processes. Grantee capacity. Grantees have experienced difficulties establishing  the necessary capacity to manage large CDBG-DR grants. An Urban  Institute testimony described constraints on grantees’ comprehensive  capacity building. Specifically, it noted levels of expertise and program  management as a repeated source of challenges, citing limitations on the  availability of skilled staff. In addition, a paper on large-scale disaster  recovery reported that large-scale CDBG-DR programs are significantly  larger than traditional CDBG programs, and that many grantees need to  hire private contractors to fill gaps in expertise and operational capacity. We also found in our June 2009 report on Gulf Coast disaster recovery  that Louisiana and Mississippi lacked sufficient capacity to administer and  manage CDBG-DR programs of such unprecedented size. As  discussed previously, the 2017 grantees plan to hire more staff to  administer CDBG-DR funds. However, officials of one grantee and HUD  officials said they are all competing for the same small pool of potential  applicants with CDBG-DR expertise. HUD officials said grantees in  Puerto Rico and the U.S. Virgin Islands face the additional challenge of  relocating potential candidates, and in the case of Puerto Rico finding  bilingual candidates. Improper payments. Our prior reports and those of the HUD OIG have  identified improper payments as an ongoing challenge for HUD and  CDBG-DR grantees. In February 2015, we found that HUD’s policies and  procedures did not address all key requirements for estimating improper  payments for Hurricane Sandy CDBG-DR funds. To help ensure that  HUD produced reliable estimates of its improper payments, we  recommended that HUD revise its policies and procedures by (1)  requiring payments to federal employees to be included in populations for  testing as required by the Improper Payments Information Act of 2002, as  amended, and (2) including steps to assess the completeness of the  population of transactions used for selecting the samples to be tested.  HUD concurred with our recommendation and has since updated its  policies and procedures to require that payments to federal employees be  included in the improper payment testing for the program. However,  because it has not yet taken steps to ensure that all grantee files are  included in the population for testing improper payments, this  recommendation remained open as of February 2019. The HUD OIG also has conducted numerous audits of the internal  controls of prior CDBG-DR grantees, a number of which resulted in  findings related to improper payments. For example, in an August 2017  report on the State of New Jersey, the OIG found that the state disbursed  Sandy CDBG-DR funds to homebuyers who did not meet all of the  program eligibility requirements. It also found in a December 2016  report that the City of New York disbursed more than $18.2 million in  CDBG-DR funds for state sales tax on program repairs and maintenance  services that the city was not legally required to pay under New York  state law. In a July 2016 report on the administration of SBA and  CDBG-DR disaster assistance, the Congressional Research Service  noted that the availability and timing of disaster assistance from different  sources can result in agencies providing duplicative assistance. In  addition, according to SBA data we reviewed for our July 2010 report on  the Gulf Coast hurricanes, SBA determined that 76 small businesses  approved for loans under Louisiana’s Business Recovery Grant and Loan  Program, funded by CDBG-DR, received duplicate benefits under SBA’s  Disaster Loan Program. In the appropriations acts for the 2017 disasters, Congress required  federal agencies, including HUD, to submit their plans for ensuring  internal control over disaster relief funding to Congress, among others.  HUD submitted its plan to Congress on November 2, 2018. As previously  noted, we are conducting a separate review on, among other things,  HUD’s internal control plan. Procurement. The HUD OIG has issued nearly 20 audits on disaster  recovery grantees that contained findings related to procurement,  including reviews of grantees that received funds to recover from the Gulf  Coast hurricanes and Hurricane Sandy. In a September 2017 report, the  HUD OIG found that HUD did not provide sufficient guidance and  oversight to ensure that state disaster grantees followed proficient  procurement processes. The OIG focused on whether HUD staff had  ensured that the grantee had adopted federal procurement standards or  had a procurement process that was equivalent to those standards. It  made four recommendations to help ensure that products and services  are purchased competitively at fair and reasonable prices in future  disaster allocations. In a September 2016 report, the HUD OIG described the results of an  initiative by the Council of the Inspectors General on Integrity and  Efficiency to review funds provided by the Disaster Relief Appropriations  Act, 2013. This review was conducted by the HUD OIG and the OIGs  for seven other agencies that received funds for Hurricane Sandy and  other disasters under the act. The HUD OIG pointed out a range of  contracting issues that HUD grantees faced, including that they billed  outside the scope of work, lacked competitive procedures or full and open  competition, and had unsupported labor costs. It attributed these  challenges to HUD and the grantees (1) not understanding federal  contracting regulations and cost principles and (2) lacking internal  controls over procurement processes. As a result, the HUD OIG stated  that HUD and grantees did not know whether they received the best value  and greatest overall benefit from their various disaster relief procurement  contracts, amendments, and change orders. The OIG concluded that the  Council of the Inspectors General on Integrity and Efficiency should work  with HUD to ensure the agency, grantees, and contractors complied with  federal contracting requirements. The HUD OIG also recommended in a May 2018 report that Texas  adhere more closely to federal procurement regulations in applying for  and expending CDBG-DR grants. It recommended that HUD require  the grantee to (1) ensure that its procurement and expenditure policies  and procedures are implemented and working as designed and (2)  ensure that warnings about false statements and false claims are  included in all of its contract-related forms. Texas responded that it would  continue to strengthen its current program structure. Monitoring. In our June 2009 report on CDBG-DR guidance for the Gulf  Coast disaster recovery, we found that in addition to HUD’s four to five  on-site monitoring and technical assistance visits per year, a number of  state officials needed clarification of federal regulations, environmental  requirements, and waivers related to the use of CDBG-DR funds in  disaster recovery. Although HUD had field offices in both Louisiana and  Mississippi, the CDBG-DR grant management responsibilities were  handled by HUD headquarters staff. Grantees in both states emphasized  that an additional onsite presence from HUD would have been beneficial  to their recovery efforts. In addition, in a May 2018 report on CPD’s  monitoring of grantees’ compliance with requirements contained in the  Disaster Relief Appropriations Act, 2013, the HUD OIG found a lack of  monitoring of grantees’ drawdown transactions. The OIG  recommended that CPD monitor these transactions to ensure that  grantees appropriately record transactions. HUD agreed to open an  investigation to review the transactions before responding to the  recommendation. Conclusions CDBG has been widely viewed as a convenient, expedient, and  accessible tool for meeting needs in disaster-impacted communities that  are not met by other federal and private sources, but CDBG-DR has  proven to be slow for HUD and grantees to implement. Over a year after  Congress first appropriated CDBG-DR funds for recovery from the 2017  hurricanes, grantees have generally not drawn down these funds to aid  disaster hurricane victims because they continue to plan and design their  activities. While it is important to provide disaster assistance promptly,  HUD also needs to ensure that grantees are well positioned to administer  the funds. Before expending funds, HUD required grantees to submit planning  documentation, but its review of this documentation was limited.  Specifically, HUD did not have adequate guidance for staff to use when  assessing the adequacy of grantees’ financial controls, procurement  processes, and grant management procedures and of their capacity and  unmet needs assessments. HUD also did not maintain documentation to  substantiate staff’s conclusions that the grantees’ submissions were  sufficient. By developing additional guidance for staff to use in evaluating  the quality of grantees’ financial processes and procedures and capacity  and unmet needs assessments, HUD can provide better assurance that  its reviews are thorough and consistent. Further, without documenting the  basis for its conclusions when reviewing future grantees’ submissions,  stakeholders and decision makers lack information on why HUD  concluded that grantees’ financial processes and procedures and  capacity and unmet needs assessments were adequate. HUD also  misses an opportunity to leverage this information later to mitigate risk  and inform its monitoring of grantees. HUD’s monitoring of the 2017 grantees will be critical given challenges  that the HUD OIG has identified with grantees’ procedures and our  concerns about HUD’s reviews of grantees’ initial submissions. But HUD  did not have a monitoring plan that reflected the specific risk factors of  each grantee and outlined the scope of its monitoring. A comprehensive  monitoring plan would help HUD ensure that its oversight of grantees’  compliance with grant requirements focused on grantees’ areas of  greatest risks. Further, HUD did not yet have the staff in place to  effectively oversee CDBG-DR funds. Without strategic workforce planning  that determines if the number of staff the agency will be able to hire is  sufficient to oversee the growing number of CDBG-DR grants, identifies  the critical skills and competencies needed, and includes strategies to  address any gaps, HUD will not be able to identify the staffing resources  necessary to oversee CDBG-DR grants. Finally, if the federal government continues to use the CDBG program for  federal disaster assistance, grantees will likely encounter many of the  same challenges they have in the past—including lags in accessing  funding, requirements that may vary for each disaster, and difficulties  coordinating with multiple federal agencies. Establishing permanent  statutory authority for a disaster assistance program that meets verified  unmet needs in a timely manner would provide a consistent framework for  administering funds for unmet needs going forward. The program could  be administered either by HUD or another agency that had authority to  issue associated regulations. Such a statute and regulations could create  consistent requirements for grantees and specify how the program would  fit into the federal government’s disaster assistance framework. The  importance of establishing permanent statutory authority for such a  program is underscored by the expected increase in the frequency and  intensity of extreme weather and climate-related events. Matter for  Congressional  Consideration Congress should consider legislation establishing permanent statutory  authority for a disaster assistance program administered by HUD or  another agency that responds to unmet needs in a timely manner and  directing the applicable agency to issue implementing regulations. Recommendations for  Executive Action We are making the following five recommendations to HUD:  The Assistant Secretary for Community Planning and Development  should develop additional guidance for HUD staff to use when assessing  the adequacy of the financial controls, procurement processes, and grant  management procedures that grantees develop. (Recommendation 1) The Assistant Secretary for Community Planning and Development  should develop additional guidance for HUD staff to use when assessing  the adequacy of the capacity and unmet needs assessments that  grantees develop. (Recommendation 2) The Assistant Secretary for Community Planning and Development  should require staff to document the basis for their conclusions during  reviews of grantees’ financial controls, procurement processes, and grant  management procedures and capacity and unmet needs assessments.  (Recommendation 3) The Assistant Secretary for Community Planning and Development  should develop and implement a comprehensive monitoring plan for the  2017 grants. (Recommendation 4) The Assistant Secretary for Community Planning and Development  should conduct workforce planning for the Disaster Recovery and Special  Issues Division to help ensure that it has sufficient staff with appropriate  skills and competencies to manage a growing portfolio of grants.  (Recommendation 5) Agency Comments  and Our Evaluation We provided a draft of this report to HUD for comment. In written  comments, which are summarized below and reproduced in appendix IV,  HUD partially agreed with two of our recommendations and generally  agreed with the remaining three. HUD partially agreed with the draft report’s first recommendation to  develop standards for HUD staff to use when assessing the adequacy of  the financial controls, procurement processes, and grant management  procedures that grantees develop. HUD disagreed that it needed to  develop standards for financial processes and procedures, stating that  such standards already exist. Specifically, HUD pointed to the February  2018 Federal Register notice, which states that a grantee has proficient  financial policies and procedures if it submitted to HUD certain  information for its review. In the draft report, we acknowledged that the  notice required grantees to submit information such as certain audits,  financial reports, and their financial standards. However, we concluded  that the notice does not describe how HUD reviewers should assess the  quality of those financial standards. HUD agreed that providing additional  guidance to staff on defining the specific conditions that must exist within  these documents would improve its proficiency determination. This was  the intent of the recommendation included in the draft report. However, to  avoid confusion, we revised the recommendation and related report  language to further clarify our intent by substituting “additional guidance”  for “standards.” HUD also partially agreed with our second recommendation to develop  standards for HUD staff to use when assessing the adequacy of grantees’  capacity and unmet needs assessments. Similar to our first  recommendation, HUD stated that the standards for HUD staff to use  when assessing the adequacy of these assessments are included in the  February 2018 Federal Register notice. Specifically, HUD noted that it  states that HUD will determine the grantee’s implementation plan, which  contains its capacity assessment, to be adequate if it addresses the items  required in the notice. HUD also stated that the notice directed  grantees to develop a needs assessment to understand the type and  location of community needs and to target limited resources to those  areas with the greatest need. In the draft report, we acknowledged that the notice required grantees to  submit (1) an implementation plan that describes, among other things,  their capacity to carry out the recovery and how they will address any  capacity gaps for HUD and (2) an action plan for disaster recovery that  includes an assessment of unmet needs to help grantees understand the  type and location of community needs and to target their CDBG-DR funds  to those areas with the greatest need. However, we concluded that the  notice does not describe how HUD reviewers should assess the  adequacy of these assessments. HUD agreed that providing additional  guidance to HUD staff on defining the specific conditions that must exist  within the documents grantees submit to HUD would improve the review  of grantee capacity. HUD also agreed that there was an opportunity to  improve the consistency of HUD’s review of grantees’ action plans,  including their unmet needs assessments. Because providing additional  guidance to HUD staff was the intent of the recommendation in the draft  report, we revised the recommendation and related report language to  clarify our intent by substituting “additional guidance” for “standards.” HUD generally agreed with our remaining three recommendations. HUD agreed with our third recommendation to document the basis for  conclusions during reviews of grantees’ financial controls,  procurement processes, and grant management procedures and  capacity and unmet needs assessments, stating that it will require  staff to better document their analysis. HUD also agreed with our fourth recommendation to develop and  implement a comprehensive monitoring plan for the 2017 grants,  stating that such a plan is necessary to effectively manage the  growing portfolio of CDBG-DR grants. It provided a monitoring  schedule for fiscal year 2019 that it characterized as a monitoring  plan, and noted that it had begun identifying monitoring strategies for  all monitoring reviews that would occur from March 2019 through May  2019. It also said it would develop the remaining strategies after the  initial monitoring reviews. However, HUD still needs to develop a plan  that identifies the specific risk factors of each grantee and outlines the  scope of its monitoring. Similarly, HUD agreed with our fifth recommendation to conduct  workforce planning for the Disaster Recovery and Special Issues  Division. It stated that the division had developed a staffing plan to  address long-term oversight and management of the CDBG-DR  portfolio and, as of March 1, 2019, expected to fill 14 positions over  the next 3 months. In addition, it stated that it had identified an  approach to secure 20 additional positions to support CDBG-DR and  expected to finalize this approach in the next few weeks once it was  approved by HUD’s financial and human capital officials. We added  this updated information to the report. While developing a staffing plan  is a good first step, HUD still needs to conduct workforce planning to  determine if the number of staff they will be able to hire is sufficient to  oversee the growing number of CDBG-DR grants, identify the critical  skills and competencies needed, and develop strategies for  addressing any gaps. HUD also provided the following comments on our findings. Regarding the discussion of unmet needs assessments, HUD noted  that the draft report does not acknowledge that the second  appropriation for 2017 disasters directed HUD to provide a minimum  of $11 billion for Puerto Rico and the U.S. Virgin Islands for unmet  needs, which made HUD’s standard methodology for determining the  allocation based on unmet needs data moot. HUD stated that this  information is critical to understanding the allocation of funds toward  unmet needs associated with 2017 disasters. Our review of the unmet  needs assessments focused on the first CDBG-DR appropriation of  $7.4 billion, for which HUD used its standard methodology to allocate  the funds. We focused on this initial allocation because HUD had  reviewed and approved the grantees’ unmet need estimates for these  funds. In response to HUD’s comment, we added language to the  report that $11 billion was to be allocated to Puerto Rico and the U.S.  Virgin Islands where we make reference to the second CDBG-DR  appropriation of $28 billion. Regarding the discussion of our prior work that found that CDBG-DR  grantees are not required to align their housing activities with the  needs of the affected communities, HUD stated the agency had  implemented requirements that directed grantees to ensure that  CDBG-DR funding allocations are reasonably proportionate to the  total remaining unmet needs for housing, infrastructure, and economic  revitalization. It also noted that the February 2018 Federal Register  notice directs grantees to propose an allocation of CDBG-DR funds  that primarily considers unmet housing needs. The focus of our  discussion was the status of our recommendation that Congress  consider providing more specific direction on the distribution of  CDBG-DR funds. Although we acknowledged in the draft report that  HUD instructed the 2017 grantees to primarily use their initial CDBG- DR allocation to meet unmet housing needs, we did not do so in the  section of the draft report that discussed this prior work. In response  to HUD’s comment, we added similar language in that section. Regarding our discussion of prior HUD OIG reports on grantee  procurement practices, HUD said there has been a protracted  disagreement between HUD and the HUD OIG regarding the  procurement requirements that may be imposed on CDBG-DR  recipients, specifically the definition of “equivalent.” HUD stated that  the most recent resolution of this disagreement came in a January 10,  2017, decision memorandum from the former HUD Deputy Secretary,  supported by a legal opinion from HUD’s Office of General Counsel.  According to HUD, these documents supported CPD’s position that  states have the authority to follow their own procurement standards.  However, according to the HUD OIG’s December 2018 semiannual  report, the HUD OIG disagreed with this assessment and referred this  issue to the Deputy Secretary on March 31, 2017. The report noted  that, as of the end of fiscal year 2018, the HUD OIG had not received  a decision. We revised the report to state that HUD and the HUD OIG  have an ongoing disagreement. Regarding a HUD OIG report on Florida that we cited, HUD said it  was evident that the state’s financial policies and capacities were  functioning effectively because the state independently corrected a  bookkeeping error prior to the HUD OIG audit. However, the HUD  OIG noted in the report that Florida corrected the error the OIG  identified during the audit. Florida agreed with the finding and  accepted the recommendation. Therefore, we made no change to the  report. Further, HUD noted that the draft report cites  recommendations from a number of prior HUD OIG audits that had  been closed or where fundamental disagreement existed between  HUD and the HUD OIG. In the few instances where we did not  provide the status of HUD OIG recommendations to HUD, we added  their status to the report. Regarding our analysis of the status of 2012 and 2013 CDBG-DR  grants, HUD stated that the draft report included a simplified analysis  of CDBG-DR grant performance that dismissed HUD’s determination  that disbursements from a CDBG-DR grant are substantially  completed 6 years after the effective date of the agreement. It noted  that our analysis excluded grants that were closed out and included  grants that should not have been included because they had a  contract-effective date of mid-2015 or later. However, our analysis  that HUD commented on draws from its own publicly available  monthly report entitled “Monthly CDBG-DR Grant Financial Report.”  Based on HUD’s comments, the report appears to be missing key  information on the timing of the grants—namely, some grants  identified as 2012 and 2013 grants had effective dates of 2015 or  later. Further, many of the grants that HUD said were unfairly included  in our analysis were designated as “slow spenders” in HUD’s own  monthly report. We reviewed the additional documentation HUD  provided and updated our analysis. HUD also provided technical comments, which we incorporated as  appropriate. We considered three comments to be more than technical in  nature. First, HUD stated that the draft report (1) was critical of grantee  capacity challenges, implying that the varying requirements in the  numerous Federal Register notices further tax a grantee’s capacity,  and (2) suggested that permanent regulatory authority for CDBG-DR  would begin to address these issues. However, the draft report  identified grantee capacity as an administrative challenge that CDBG- DR grantees face that is not related to the lack of permanent statutory  authority. Second, HUD stated that the primary cause of the “ad hoc nature” of  the CDBG-DR program and grantee capacity challenges is the  unpredictability of disasters and the uniqueness of each recovery  effort, not the lack of permanent statutory authority. It said that each  congressional appropriation includes unique statutory provisions  aimed at making incremental program improvements that can only be  implemented through a new Federal Register notice. We recognize  that each disaster is unique, but as our past work and that of the HUD  OIG has shown, there are certain challenges associated with meeting  customized grant requirements for each disaster—such as funding  lags, varying requirements, and coordination with multiple programs— that could be addressed if Congress considered permanently  authorizing a disaster assistance program that meets unmet needs. Third, HUD stated that CDBG-DR funds are distinct from FEMA and  SBA response and recovery resources because FEMA and SBA  disaster programs have a narrower scope. HUD noted that CDBG-DR  funds aid in a community’s long-term recovery from a catastrophic  disaster, which requires substantial time for planning the community- wide recovery effort. We recognize that long-term recovery takes time,  but we maintain that this does not prohibit Congress from considering  legislation establishing permanent statutory authority for a disaster  assistance program that responds to unmet needs. Because we believe the draft report adequately addressed the various  issues HUD raised, we made no changes in response to these  comments. We are sending copies of this report to the appropriate congressional  committees, the Secretary of Housing and Urban Development, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix V. Appendix I: Objectives, Scope, and  Methodology Our objectives were to examine (1) the status of the 2017 Community  Development Block Grant Disaster Recovery (CDBG-DR) grants; (2) the  steps the 2017 CDBG-DR grantees have taken to establish financial  processes and procedures, build capacity, and estimate unmet needs; (3)  the extent to which the Department of Housing and Urban Development  (HUD) has reviewed the steps that grantees have taken and developed  plans for future monitoring; and (4) the challenges that HUD and grantees  have faced in administering grants. We focused our review on the states  of Florida and Texas and the U.S. territories of Puerto Rico and the U.S.  Virgin Islands—the states and territories most directly affected by  Hurricanes Harvey, Irma, and Maria and that received over $1 billion in  CDBG-DR funds to address unmet recovery needs. For all of our objectives, we visited Puerto Rico and Texas to interview  officials at the Puerto Rico Department of Housing and Texas General  Land Office, respectively, which are the 2017 CDBG-DR grantees in  those jurisdictions. During our visit to Puerto Rico, we also met with  Puerto Rico’s Central Office of Recovery, Reconstruction and Resilience,  which was created to provide administrative oversight of all programs  related to disaster recovery. We visited these two grantees because they  were the 2017 grantees that received the largest amounts of CDBG-DR  funds. We also conducted telephone interviews with officials from the  U.S. Virgin Islands Housing Finance Authority and the Florida Department  of Economic Opportunity, the 2017 CDBG-DR grantees in those  jurisdictions. To determine the status of the 2017 CDBG-DR grants, we reviewed  relevant laws and the Federal Register notices allocating the CDBG-DR  funds and interviewed HUD officials to determine the steps grantees were  required to take before signing a grant agreement and expending their  2017 CDBG-DR funds. We reviewed key documents—such as  documentation on financial processes and procedures, implementation  plans, and action plans—to determine when they were submitted and  approved. To determine how much CDBG-DR funding the 2017 grantees  had drawn down, we examined data from the Disaster Recovery Grant  Reporting system as of January 2019 (the most recent month available  during our review). To assess the reliability of these data, we reviewed  relevant documentation on the system and interviewed officials  knowledgeable about the data. We determined that the data were  sufficiently reliable for the purpose of reporting CDBG-DR draw down  information. To determine the steps the 2017 CDBG-DR grantees have taken to  establish financial processes and procedures, build capacity, and  estimate unmet needs, we reviewed grantees’ documents, such as their  organizational charts and capacity assessments, to determine how  grantees plan to administer the CDBG-DR grants. In addition, we  identified and reviewed relevant HUD Office of the Inspector General  (OIG) reports to determine whether the office had previously identified  concerns about these grantees’ financial processes and procedures and  capacity. To determine how grantees calculated their unmet housing needs for  homeowners and renters, we determined how HUD calculated grantees’  unmet needs by reviewing the methodology outlined in the Federal  Register notices allocating the CDBG-DR funds and interviewing HUD  officials. We focused on the calculation HUD used to determine unmet  housing needs because the February 2018 Federal Register notice  required grantees to primarily use their initial CDBG-DR allocation to  address their unmet housing needs. We further focused on the housing  needs of homeowners and renters because they constituted the largest  portion (ranging from 47 percent in Texas to 99 percent in Florida) of  grantees’ total estimates of housing needs. To determine how grantees  calculated the housing needs estimates of homeowners and renters and  the activities grantees planned to fund with the CDBG-DR grants, we  reviewed grantees’ descriptions of their methodologies in the action plans  they were required to develop for their initial CDBG-DR allocation.  Although we did not conduct an extensive review of the grantees’  methodologies for estimating the unmet housing needs of homeowners  and renters, we compared their methodologies to HUD’s methodology  (described in Federal Register notices), identifying any differences. To examine the extent to which HUD has reviewed the steps that  grantees have taken and developed plans for future monitoring, we  reviewed HUD documents such as the completed checklists it used to  review (1) documentation grantees submitted for certification of their  financial controls, procurement processes, and grant management  procedures, (2) grantees’ implementation plans, which contained a  capacity assessment, and (3) grantees’ action plans for disaster recovery,  including their unmet needs assessments. We compared these  checklists against relevant statutory and regulatory requirements and  internal control standards. In addition, we reviewed examples of  unofficial working documents that HUD provided, such as a grantee’s  response to HUD questions on the documentation that it had submitted.  Further, to determine HUD’s monitoring of the 2017 CDBG-DR grantees,  we reviewed HUD documents such as the Office of Community Planning  and Development’s monitoring handbook and monitoring schedule for  fiscal year 2019 and interviewed HUD officials. We compared HUD’s  monitoring policies and procedures against relevant internal control  standards. Finally, we interviewed HUD officials about their resource  needs, hiring plans, and plans to monitor current and future CDBG-DR  grants. We compared HUD’s hiring plans against relevant internal control  standards and best practices for workforce planning we have previously  identified. To determine the challenges that HUD and grantees have faced in  administering grants, we conducted a literature search for reports on  CDBG-DR funds used to recover from the 2005 Gulf Coast hurricanes  (Katrina, Rita, and Wilma) and Hurricane Sandy. We focused on these  hurricanes because Katrina, the costliest of the three Gulf Coast  hurricanes, and Sandy were among the top five costliest hurricanes on  record in the United States. We searched for GAO, HUD OIG, and Congressional Research Service reports and other literature such as  government reports, peer-reviewed journals, hearings and transcripts,  books, and association publications. To identify GAO reports, we used the search engine on GAO’s public  website and searched for relevant terms such as “community  development block grant,” “Sandy,” “Katrina,” and “Gulf Coast” from  August 2005 (the month of the 2005 hurricanes) to April 2018 (the  date of the search). To identify HUD OIG reports, we reviewed disaster-related reports the  HUD OIG made available on its public webpages titled “Disaster  Oversight Highlights,” “Superstorm Sandy,” and “Hurricane Katrina.” To identify Congressional Research Service reports, we used its  public website’s search engine and searched for the terms  “community development block grant” and “disaster.” To identify the other literature sources, we searched the following:  ABI/INFORM®, Econ Lit, National Technical Information Service, and  20 other databases through GAO’s ProQuest subscription; Nexis; and  Congressional Quarterly. We used terms such as “Community  Development Block Grant,” “CDBG,” “disaster,” “Katrina,” “Sandy,”  “challenge,” and “barrier” and limited the publication date range to  between 2005 and 2018. Our searches initially yielded 157 sources. We screened out 23 based on  their abstracts and an additional 103 sources after reviewing their full  content. We excluded studies that related to the traditional CDBG  program rather than CDBG-DR and those that provided general  background on CDBG-DR. We determined that the remaining 31 sources  were relevant for our purposes and reviewed them to determine if they  identified any challenges that HUD and CDBG-DR grantees faced in  administering prior CDBG-DR funds. Specifically, we considered any  description of concerns with the administration and oversight of CDBG- DR to be a challenge. Using a standard form, one analyst reviewed each  source, identified relevant challenges, and assigned the relevant  challenges to a category. A second analyst reviewed the identification  and categorization. Where there were differences in the review of the first  and second analyst, the two conferred and entered a final decision. We  also interviewed HUD officials and the 2017 CDBG-DR grantees to obtain  their perspectives on the challenges in administering the 2017 grants. To determine the time it took grantees to receive CDBG-DR funds (one of  the challenges we identified through our literature review), we reviewed  information from the Disaster Recovery Grant Reporting system, HUD  notices, and other sources to obtain the dates for the appropriations,  allocations, and grant agreement for the Gulf Coast hurricanes, Hurricane  Sandy, and the 2017 hurricanes. To determine the time it took grantees to  expend their CDBG-DR funds (another challenge we identified through  our literature review), we analyzed expenditure data in the Disaster  Recovery Grant Reporting system for grants made in fiscal years 2012  and 2013, as of January 1, 2019. We selected these grants because  HUD officials told us that grantees generally expend the majority of their  CDBG-DR funds within 6 years of signing a grant agreement, and the  2012 and 2013 grantees are approaching this milestone. To assess the  reliability of the Disaster Recovery Grant Reporting system data, we  reviewed relevant documentation on the system and interviewed officials  knowledgeable about the data. We determined that the data were  sufficiently reliable for the purpose of reporting grant agreement dates  and CDBG-DR expenditures. We conducted this performance audit from January 2018 to March 2019  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. Appendix II: Approved Community  Development Block Grant Disaster Recovery  Activities of the Four Largest 2017 Grantees The February 2018 Federal Register notice allocating the initial $7.4  billion in Community Development Block Grant Disaster Recovery  (CDBG-DR) funds appropriated for the 2017 disasters requires grantees  to use the funds primarily to address unmet housing needs. The initial  action plans for the four largest 2017 CDBG-DR grantees—Florida,  Texas, Puerto Rico, and the U.S. Virgin Islands—outline the various  activities they plan to implement to address unmet needs. These include  home buyout and rehabilitation programs to address unmet housing  needs, workforce training and business recovery grants to address unmet  economic revitalization needs, and the provision of matching funds for  FEMA-assisted infrastructure projects to address unmet infrastructure  needs. Florida’s Approved CDBG- DR Activities Florida focused its February 2018 CDBG-DR allocation on addressing  unmet housing and economic revitalization needs (see table 6). Texas’ Approved CDBG- DR Activities Texas allocated approximately 45 percent of its February 2018 CDBG-DR  allocation to the City of Houston and Harris County to directly administer  their own CDBG-DR housing and infrastructure activities. Texas plans to  use the majority of the remaining funds to address unmet housing needs  in other areas affected by Hurricane Harvey (see table 7). Puerto Rico’s Approved  CDBG-DR Activities Puerto Rico plans to use over 75 percent of its February 2018 CDBG-DR  allocation to address unmet housing and economic revitalization needs  (see table 8). U.S. Virgin Islands’  Approved CDBG-DR  Activities The U.S. Virgin Islands’ plans to use about 42 percent of its February  2018 CDBG-DR allocation to address unmet housing and economic  revitalization needs (see table 9). Appendix III: Status of 2012 and 2013  Community Development Block Grant  Disaster Recovery Grants Congress appropriates Community Development Block Grant Disaster  Recovery (CDBG-DR) funds to help states recover from federally  declared disasters. Once Congress appropriates CDBG-DR funds, the  Department of Housing and Urban Development (HUD) is responsible for  allocating the funds to designated grantees in affected areas. According  to HUD officials, most expenditure activity in CDBG-DR grants occurs  within the first 6 years of the grant. As shown in table 10, of the 50 grants  at or approaching the 6-year mark, 9 grantees had expended less than  half of the funds. Appendix IV: Comments from the  Department of Housing and Urban  Development Appendix V: GAO Contact and Staff  Acknowledgments GAO Contact Staff  Acknowledgments In addition to the contact named above, Paige Smith (Assistant Director),  Josephine Perez (Analyst in Charge), Meredith Graves, Raheem Hanifa,  Joe Maher, John McGrail, Marc Molino, Tovah Rom, and Michael Silver  made key contributions to this report.
The 2017 hurricanes (Harvey, Irma, and Maria) caused an estimated $265 billion in damage, primarily in Texas, Florida, Puerto Rico, and the U.S. Virgin Islands. As of February 2019, Congress had provided over $35 billion to HUD for CDBG-DR grants to help communities recover. Communities may use these funds to address unmet needs for housing, infrastructure, and economic revitalization. GAO was asked to evaluate the federal government's response to the 2017 hurricanes. In this initial review of CDBG-DR, GAO examined, among other things, (1) the status of the 2017 grants, (2) HUD's review of the initial steps grantees have taken and its plans for future monitoring, and (3) challenges HUD and grantees face in administering grants. GAO reviewed documentation from the four largest 2017 CDBG-DR grantees and HUD. GAO also reviewed prior work on CDBG-DR and interviewed officials from HUD and the four grantees. As of September 2018, the four states and territories that received the most 2017 Community Development Block Grant Disaster Recovery (CDBG-DR) funds had signed grant agreements with the Department of Housing and Urban Development (HUD). Before signing the agreements, HUD certified the grantees' financial processes and procedures. It also approved the grantees' assessments of their capacity to carry out the recovery and of unmet needs (losses not met with insurance or other forms of assistance). Before funding begins to reach disaster victims, the grantees need to take additional steps, such as finalizing plans for individual activities. As of January 2019, Texas had drawn down about $18 million (of $5 billion) for administration and planning only, and Florida had drawn down about $1 million (of $616 million) for administration, planning, and housing activities. Puerto Rico and the U.S. Virgin Islands had not drawn down any of the $1.5 billion and $243 million, respectively, they had been allocated. HUD lacks adequate guidance for staff reviewing the quality of grantees' financial processes and procedures and assessments of capacity and unmet needs, and has not completed monitoring or workforce plans. The checklists used to review grantees' financial processes and procedures and assessments ask the reviewer to determine if the grantee included certain information, such as its procurement processes, but not to evaluate the adequacy of that information. In addition, the checklists, which include a series of “yes” or “no” questions, do not include guidance that the HUD reviewer must consider. HUD also does not have a monitoring plan that identifies the risk factors for each grantee and outlines the scope of monitoring. Further, HUD has not developed a workforce plan that identifies the critical skills and competencies HUD needs and includes strategies to address any staffing gaps. Adequate review guidance, a monitoring plan, and strategic workforce planning would improve HUD's ability to oversee CDBG-DR grants. Without permanent statutory authority and regulations such as those that govern other disaster assistance programs, CDBG-DR appropriations require HUD to customize grant requirements for each disaster in Federal Register notices—a time-consuming process that has delayed the disbursement of funds. In a July 2018 report, the HUD Office of Inspector General found that as of September 2017, HUD used 61 notices to oversee 112 active CDBG-DR grants. Officials from one of the 2017 grantees told us that it was challenging to manage the multiple CDBG-DR grants it has received over the years because of the different rules. CDBG-DR grantees have faced additional challenges such as the need to coordinate the use of CDBG-DR funds with other disaster recovery programs that are initiated at different times and administered by other agencies. HUD officials said that permanently authorizing CDBG-DR would allow HUD to issue permanent regulations for disaster recovery. Permanent statutory authority could help address the challenges grantees face in meeting customized grant requirements for each disaster, such as funding lags, varying requirements, and coordination with multiple programs. The expected increase in the frequency and intensity of extreme weather events underscores the need for a permanent program to address unmet disaster needs.