FEMA Should Disallow 

$577,959 of $2.9 Million 

Awarded to Puerto Rico 

Aqueduct and Sewer 

Authority for Hurricane 

Irene Damages 

January 10, 2017 

OIG-17-20-D 
 

 

DHS OIG HIGHLIGHTS

 FEMA Should Disallow $577,959 of $2.9 Million 

Awarded to Puerto Rico Aqueduct and Sewer Authority

for Hurricane Irene Damages 

January 10, 2017 

Why We Did 

This Audit 

The Puerto Rico Aqueduct 

and Sewer Authority 

(Authority) received a FEMA 

grant award of $8.7 million 

for damages resulting from 

Hurricane Irene in August 

2011. We audited five 

projects for permanent 

repairs with awards totaling 

$2.9 million. 

What We 

Recommend 

FEMA should disallow 

$577,959 of unsupported 

and ineligible costs. FEMA 

should also direct Puerto 

Rico to provide technical 

assistance to the Authority 

to ensure it is aware of 

Federal grant requirements 

to prevent future 

noncompliance. 

For Further Information: 

Contact our Office of Public Affairs at 

(202) 254-4100, or email us at 

DHSOIG.OfficePublicAffairs@oig.dhs.gov 

What We Found 

The Authority did not account for FEMA funds on a projectby-project basis as Federal regulations and FEMA guidelines 

require. We also identified $577,959 (Federal Share $433,469) 

of project costs that FEMA should disallow. These costs 

consisted of $572,959 of unsupported contract costs and 

$5,000 of costs claimed twice (duplicate benefits). 

The findings we discuss in this report occurred primarily 

because the Authority did not implement a recommendation 

we made in July 2008 to account for disaster costs on a 

project-by-project basis. However, the grantee (Puerto Rico) is 

responsible for monitoring subgrant activities and ensuring 

that its subgrantee (the Authority) is aware of and complies 

with grant requirements. 

FEMA Response 

FEMA Region II officials concurred with our 

recommendations. Appendix C includes FEMA’s written 

response in its entirety. 

www.oig.dhs.gov OIG 17-20-D 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Washington, DC 20528 / www.oig.dhs.gov 

January 10, 2017 

MEMORANDUM FOR: Jerome Hatfield 

Regional Administrator, Region II 

Federal Emergency Management Agency 

~1Yf · ~ 

FROM: Thomas M. Salmon 

Assistant Inspector General 

Office of Emergency Management Oversight 

SUBJECT: FEMA Should Disallow $577,959 of $2.9 Million 

Awarded to Puerto Rico Aqueduct and Sewer Authority 

for Hurricane Irene Damages 

Audit Report Number OIG-17-20-D 

We audited Public Assistance grant funds awarded to the Puerto Rico Aqueduct 

and Sewer Authority (Authority). The Puerto Rico Emergency Management 

Agency (Puerto Rico), a Federal Emergency Management Agency (FEMA) 

grantee, awarded the Authority $8.7 million for damages resulting from 

Hurricane Irene, which occurred in August 2011. 1 The award provided 

75 percent FEMA funding for debris removal, emergency protective measures, 

and permanent repairs to damaged facilities. We audited five projects for 

permanent repairs totaling $2.9 million. At the time of our audit, the Authority 

had completed work on all projects, but had not submitted a final claim to 

Puerto Rico for all project expenditures. 

Results of Audit 

The Authority did not account for FEMA funds on a project-by-project basis 

as Federal regulations and FEMA guidelines require. We also identified 

$577,959 (Federal Share $433,469) of project costs that FEMA should disallow. 

These costs consisted of $572,959 of unsupported contract costs and $5,000 of 

costs the Authority claimed twice (duplicate benefits). 

1 The award amount is the gross amount because total disaster-related damages were less than 

the Authority's insurance deductible and no other credits were applicable to the Authority's 

disaster costs. 

1 www.oig.dhs.gov OIG-17-20-D 
 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

The findings we discuss in this report occurred primarily because the Authority 

did not implement a recommendation we made in July 2008 to account for 

disaster costs on a project-by-project basis (OIG Report Number DA-08-07). 

However, the grantee (Puerto Rico) is responsible for monitoring subgrant 

activities and ensuring that its subgrantee (the Authority) is aware of and 

complies with grant requirements. 

Finding A: Project Accounting 

The Authority did not separately account for project expenditures as Federal 

regulations require. According to 44 Code of Federal Regulations (CFR) 

206.205(b), grantees must account for large project expenditures on a projectby-project basis. FEMA’s Public Assistance Guide (FEMA 322, June 2007, 

p. 137) mandates the same requirement for subgrantees (applicants): “The 

importance of maintaining a complete and accurate set of records for each 

project cannot be over-emphasized. Good documentation facilitates the project 

formulation, validation, approval, and funding processes. All of the 

documentation pertaining to a project should be filed with the corresponding 

PW [project worksheets] and maintained by the applicant as the permanent 

record of the project.” 

The Authority set up a single account within its automated accounting system 

designated as “FEMA disaster” to account for disaster costs. However, the 

account did not identify expenditures to the corresponding projects. The 

Authority also commingled eligible FEMA disaster expenditures with noneligible expenditures. As a result, we could not readily identify and trace 

individual project expenditures to supporting documentation without direct 

assistance from Authority officials. 

We reported this same condition to FEMA in July 2008 in an audit we 

conducted on a Public Assistance grant the Authority received under Hurricane 

Georges.2 In that audit, we recommended that FEMA, in coordination with 

Puerto Rico, inform the Authority that it must account for disaster costs on a 

project-by-project basis as Federal regulations require. However, as this audit 

identified, the Authority did not implement sufficient accounting procedures to 

fulfill Federal accounting requirements. 

Authority officials agreed with this finding, saying that they will work with their 

accounting department to ensure the Authority accounts for disaster costs 

according to Federal grant accounting requirements. 

2 OIG Report DA-08-07, Hurricane Georges Activities for Puerto Rico Aqueduct and Sewer 

Authority, July 2, 2008 

2 www.oig.dhs.gov OIG-17-20-D 
 

 

 

 

 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Finding B: Supporting Documentation 

The Authority did not provide adequate documentation to support $572,959 of 

contract costs. As a result, FEMA has no assurance that these costs are valid 

and eligible. Federal cost principles (Cost Principles for State, Local, and Indian 

Tribal Governments) at 2 CFR 225, Appendix A, section C.1.j., require costs to 

be adequately documented to be allowable. 

The Authority claimed a total of $2,931,285 under five projects for repairs to 

damaged pumps, dams, and sewer lines throughout the island. However, the 

Authority’s project documentation such as invoices, canceled checks, and 

electronic payments supported only $2,358,326 of costs, or $572,959 less than 

the amount it claimed. We question the $572,959 of unsupported costs as table 

1 shows. 

Table 1: Unsupported Contract Costs 

Project 

Number 

Amount 

Claimed 

Amount 

Supported 

Amount 

Questioned 

1383 $ 128,737 $ 124,988 $ 3,749 

1981 114,790 85,104 29,686 

1983 969,418 582,141 387,277 

2270 272,700 206,850 65,850 

2273 1,445,640 1,359,243 86,397 

Total $2,931,285 $2,358,326 $572,959 

Source: FEMA and Authority records and Office of Inspector General (OIG) Analysis 

Authority officials agreed with this finding. However, for Project 1983, they said 

that the Authority sent a request in February 2013 to Puerto Rico to adjust the 

claimed amount to the actual costs incurred of $582,141. Puerto Rico officials 

acknowledged receiving the request but said that they have not taken any 

action pending the results of our audit. 

Finding C: Duplicate Benefits 

The Authority erroneously claimed $5,000 of contract costs twice for damage 

surveys under Project 2273. The Authority claimed $5,000 under the project 

for surveys that an engineering firm performed to determine repairs needed to 

repair a damaged 24-inch sewer main in the city of Humacao. However, the 

contractor that the Authority hired to make the necessary repairs to the sewer 

line also billed the Authority $5,000 for the damage surveys that the 

engineering firm performed. According to Section 312 of the Robert T. Stafford 

Disaster Relief and Emergency Assistance Act, as amended, no entity will 

3 www.oig.dhs.gov OIG-17-20-D 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

receive assistance for any loss for which it has received financial assistance 

from any other program, from insurance, or from any other source. Therefore, 

we question the $5,000 as ineligible duplicate benefits. 

Authority officials agreed with this finding. 

Finding D: Grant Management 

The findings we discuss in this report occurred primarily because the Authority 

did not implement a recommendation we made in July 2008 to account for 

disaster costs on a project-by-project basis (OIG Report Number DA-08-07). 

However, the grantee (Puerto Rico) is responsible for monitoring subgrant 

activities and ensuring that its subgrantee (the Authority) is aware of and 

complies with grant requirements. Puerto Rico should provide technical 

assistance to the Authority to ensure it is aware of Federal grant requirements 

to prevent future noncompliance. Authority officials agreed with this finding, 

saying that they will work with Puerto Rico to implement an appropriate 

corrective action plan. 

Authority officials agreed with this finding. 

Recommendations 

We recommend that the Regional Administrator, FEMA Region II: 

Recommendation 1: Direct Puerto Rico to remind the Authority of its 

responsibility to comply with the grant accounting requirements (finding A). 

Recommendation 2: Disallow $572,959 (Federal share $429,719) of 

unsupported costs unless the Authority provides FEMA with additional 

documentation to support the costs (finding B). 

Recommendation 3: Disallow as ineligible $5,000 (Federal share $3,750) 

of contract costs the Authority claimed twice (duplicate benefits) (finding C). 

Recommendation 4: Direct Puerto Rico to provide technical assistance to 

the Authority to ensure it is aware of Federal grant requirements to prevent 

future noncompliance (finding D). 

4 www.oig.dhs.gov OIG-17-20-D 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Discussion with Management and Audit Follow-up 

We discussed the results of our audit with Authority, Puerto Rico, and FEMA 

officials during our audit. We also provided a draft report in advance to these 

officials and discussed it at the exit conference on September 15, 2016. 

Authority and Puerto Rico officials agreed with the findings and 

recommendations. We included their comments, as appropriate, in the body of 

this report. 

FEMA Region II provided a written response on October 13, 2016, agreeing 

with our recommendations (see appendix C). The response indicated that 

FEMA expects to implement its proposed corrective actions to address all 

recommendations by February 21, 2017. Therefore, we consider all four 

recommendations to be resolved but open. We will evaluate for closure upon 

documentation that FEMA has implemented its proposed corrective actions. 

Please email closeout documentation and request to Carl.Kimble@oig.dhs.gov. 

The Office of Emergency Management Oversight major contributors to this 

report are David Kimble, Director; Felipe Pubillones, Audit Manager; and 

Oscar Andino, Auditor-in-Charge. 

Please call me with any questions at (202) 254-4100, or your staff may contact 

David Kimble, Director, Eastern Regional Office - South, at (404) 832-6702. 

5 www.oig.dhs.gov OIG-17-20-D 
 

 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix A 

Objective, Scope, and Methodology 

We audited Public Assistance funds awarded to the Authority, FIPS Code 000-

UK500-00. Our audit objective was to determine whether the Authority 

accounted for and expended FEMA grant funds according to Federal 

regulations and FEMA guidelines for Disaster Number 4017 DR-PR. Puerto 

Rico awarded the Authority $8.7 million for damages resulting from Hurricane 

Irene in August 2011. The award consisted of 19 large projects and 231 small 

projects.3 

We audited five large projects with awards totaling $2.9 million (see appendix 

B, table 2). The audit covered the period from August 22, 2011, to June 16, 

2014. At the time of our audit, the Authority had completed work on the five 

projects included in our scope, but had not submitted a final claim to Puerto 

Rico for all project expenditures. 

To accomplish our objective, we interviewed Authority, Puerto Rico, and FEMA 

personnel; gained an understanding of the Authority’s method of accounting 

for disaster-related costs and its procurement policies and procedures; 

judgmentally selected (generally based on dollar amounts) and reviewed project 

costs and procurement transactions for the projects in our audit scope; 

reviewed applicable Federal regulations and FEMA guidelines; and performed 

other procedures considered necessary to accomplish our audit objective. We 

did not perform a detailed assessment of the Authority’s internal controls 

applicable to its grant activities because it was not necessary to accomplish our 

audit objective. 

As part of our standard audit procedures, we also notified our Office of 

Information Technology Audits of contracts the Authority awarded under the 

grant that we reviewed to determine whether the contractors were debarred or 

whether there were any indications of other issues related to those contractors 

that would indicate fraud, waste, or abuse. As of the date of this report, the 

Office of Information Technology Audits’ analysis of contracts was ongoing. 

When it is complete, we will review the results and determine whether 

additional action is necessary. 

3 Federal regulations in effect at the time of disaster set the large project threshold at greater 

than $63,900. [Notice of Adjustment of Disaster Grant Amounts, Vol. 75, No. 194, Fed. Reg. 

62135 (October 7, 2010)]. 

6 www.oig.dhs.gov OIG-17-20-D 
 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix A (continued) 

We conducted this performance audit between February and September 2016 

pursuant to the Inspector General Act of 1978, as amended, and according to 

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 upon our 

audit objective. We believe the evidence obtained provides a reasonable basis 

for our findings and conclusions based upon our audit objective. To conduct 

this audit, we applied the statutes, regulations, and FEMA policies and 

guidelines in effect at the time of the disaster. 

7 www.oig.dhs.gov OIG-17-20-D 
 

 

 

 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix B 

Potential Monetary Benefits 

Table 2: Projects Audited and Questioned Costs 

Project 

Number 

FEMA 

Category 

of Work4 

Award 

Amount 

Questioned 

Costs 

Federal 

Share Finding 

1383 F $ 128,737 $ 3,749 $ 2,812 B 

1981 F 114,790 29,686 22,264 B 

1983 F 969,418 387,277 290,458 B 

2270 F 272,700 65,850 49,387 B 

2273 

Totals 

F 1,445,640 

$2,931,285 

91,397 

$577,959 

68,548 

$433,469 

B,C 

Source: FEMA and Authority records and OIG analyses 

Table 3: Summary of Potential Monetary Benefits 

Type of Potential Monetary 

Benefit Amount 

Federal 

Share 

Questioned Costs – Ineligible $ 5,000 $ 3,750 

Questioned Costs – Unsupported 572,959 429,719 

Funds Put to Better Use 0 0 

Totals $577,959 $433,469 

Source: OIG analysis of findings in this report 

4 FEMA classifies disaster–related work by type: debris removal (Category A), emergency 

protective measures (Category B), and permanent work (Categories C through G). 

8 www.oig.dhs.gov OIG-17-20-D 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix C 

FEMA Management Response 

9 www.oig.dhs.gov OIG-17-20-D 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix C (continued) 

10 www.oig.dhs.gov OIG-17-20-D 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Chief of Staff 

Chief Financial Officer 

Under Secretary for Management 

Chief Privacy Officer 

Director, GAO/OIG Liaison Office 

Federal Emergency Management Agency 

Administrator 

Chief of Staff 

Chief Financial Officer 

Chief Counsel 

Director, Risk Management and Compliance 

Audit Liaison, FEMA Region II 

Audit Liaison, FEMA (Job Code G-14-030) 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees 

External 

Executive Director, Puerto Rico Governor’s Office of Recovery and Rebuilding 

State Auditor, Puerto Rico 

State Coordination Officer, Homeland Security Branch, Puerto Rico Aqueduct 

and Sewer Authority 

Administrator, Puerto Rico Aqueduct and Sewer Authority 

Chief Financial Officer, Puerto Rico Aqueduct and Sewer Authority 

11 www.oig.dhs.gov OIG-17-20-D 
 

 

 

 

 

 

 

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