Department of Homeland Security
 

 

Costs Claimed by the Port of Los Angeles Under 


Port Security Grant Number 2009-PU-R1-0176
 

American Recovery and Reinvestment Act of 2009 

OIG-13-46 February 2013
 
 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Federal Emergency Management Agency 

Anne L. Richards 

Assistant Inspector General for Audits 

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

FEB 28 2013 

MEMORANDUM FOR: 	 David J. Kaufman 

 Acting Assistant Administrator

 Grant Programs Directorate 

FROM: 

SUBJECT: 	 Costs Claimed by the Port of Los Angeles Under 

Port Security Grant Number 2009-PU-R1-0176 

Attached for your information is our final letter report, Costs Claimed by the Port of 

Los Angeles Under Port Security Grant Number 2009-PU-R1-0176. We incorporated the 

formal comments from the Associate Administrator for Policy, Program Analysis and 

International Affairs in the report. 

The report contains one recommendation to resolve the questioned costs. The 

Associate Administrator concurred with the recommendation. As prescribed by the 

Department of Homeland Security Directive 077-01, Follow-Up and Resolution for Office 

of Inspector General Report Recommendations, within 90 days of the date of this 

memorandum, please provide our office with a written response that includes your 

(1) agreement or disagreement, (2) corrective action plan, and (3) target completion 

date for each recommendation. Also, please include responsible parties and any other 

supporting documentation necessary to inform us about the current status of the 

recommendation. Until your response is received and evaluated, the recommendations 

will be considered open and unresolved. 

Consistent with our responsibility under the Inspector General Act, we are providing 

copies of our report to congressional committees with oversight and appropriation 

responsibility over the Department of Homeland Security. We will post the report on 

our website for public dissemination. 

Major contributors to this report are Roger LaRouche, Audit Director; Robert Leonard, 

Audit Manager; Nick Jather, Auditor; and Stephen Doran, Report Referencer. 

Attachment 
 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Background 

The AmericanfRecoveryfandfReinvestmentfActfoff2009, as amended (Recovery Act) 

appropriated $610 million to the Federal Emergency Management Agency (FEMA) for 

emergency food and shelter programs, and grants for public transit, port security 

assistance, and non-Federal fire station construction. FEMA awarded $150 million of 

that amount in port security grants to 214 ports, port authorities, ferry systems, and 

other eligible entities. 

The purposes of the FEMA port security grants are to support increased port-wide risk 

management; enhance domain awareness; and increase capabilities to prevent, detect, 

respond to, and recover from attacks involving improvised explosive devices, weapons 

of mass destruction, and other nonconventional weapons. 

On September 29, 2009, FEMA awarded a $6 million grant (number 2009-PU-R1-0176) 

to the Port of Los Angeles (port) for a port-wide fiber optics project.1

 Reimbursement 

for eligible project costs is based on the grant agreement; Office of Management and 

Budget (OMB) Circular A-87, CostfPrinciplesfforfState,fLocalfandfIndianfTribalf

Governments; and FEMA guidance.2 As of August 10, 2012, the Port had claimed project 

costs totaling $5,703,711. The costs covered the period from September 1, 2009, 

through June 30, 2012. 

The FEMA grant agreement also requires the port to comply with Recovery Act 

provisions to submit quarterly recipient reports to the Federal Government; pay 

prevailing wages as determined by the Secretary of Labor; and use steel, iron, and 

manufactured goods produced in the United States. 

Results of Audit

We questioned $174,060 of the $5,703,711 claimed by the port. The questioned costs 

represent costs incurred at the Cabrillo Way Marina (marina) that were transferred to 

the Port of Los Angeles FEMA grant project. The port could not support the basis for the 

1

 The Port of Los Angeles is a proprietary department of the City of Los Angeles and was created by the 

City Charter to promote and develop a deepwater port facility. It is governed by a five-member Board of 

Harbor Commissioners, which has the duty to provide for the needs of commerce, navigation, and 

fisheries for the citizens of California. It operates similar to a private business and is substantially 

autonomous from the city. 

2

 The Department of Homeland Security’s AmericanfRecoveryfandfReinvestmentfActfoff2009,fPortfSecurityf

GrantfProgram,fGuidancefandfApplicationfKitfof May 2009 contains FEMA guidance for the port security 

grant program. 

www.oig.dhs.gov 2 OIG-13-46
 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

transfer. We also determined that the port fulfilled the requirements for submitting 

quarterly reports, paying prevailing wages, and complying with the requirement to use 

manufactured goods produced in the United States. Furthermore, we concluded that 

the quarterly reports contained adequately supported expenditure and jobs data. 

Unsupported Costs – $174,060 

In June 2010, the port paid a contractor $6,284,867 for work at the marina project. 

Included in that amount was $174,060 that the port determined was for homeland 

security infrastructure. The port issued a journal voucher transferring the $174,060 

from the marina project to the Port of Los Angeles project in January 2011. However, 

the journal voucher did not indicate why the costs should be funded by the FEMA grant 

for the Port of Los Angeles. 

According to the guidelines in OMB Circular A-87, to be allowable, a cost must be 

properly documented and be allocable to the Federal award. Also according to the 

circular, “a cost is allocable to a particular cost objective if the goods or services 

involved are chargeable or assignable to such cost objective in accordance with relative 

benefits received.” 

The grant, grant application, and investment justification for the Port of Los Angeles 

project did not mention any work at the marina. In addition, the construction contract 

for the work at the FEMA-supported Port of Los Angeles involved the installation of 

infrastructure by directional drilling across the Main Channel, Consolidated Channel, and 

Cerritos Channel. The contract did not reference any construction at the marina. 

The port’s FEMA grant construction manager told us that he was not sure why the 

transfer took place. The port’s engineering associate said that she believed the work 

performed at the marina was allowable under the FEMA grant because the work 

involved a fiber optics network that would eventually connect to the three channel sites 

at the Port of Los Angeles. However, without support or adequate justification for the 

transfer, we were unable to determine whether the $174,060 of marina costs was 

applicable to the FEMA grant, and therefore, we questioned the costs. 

Recommendation

We recommend that FEMA’s Contracting Officer resolve the $174,060 of unsupported 

grant costs. 

www.oig.dhs.gov 3 OIG-13-46 
 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Management Comments and OIG Analysis

FEMA Comments to the Recommendation

FEMA Concurs: To resolve the question of $174,060 costs pertaining to the fiber 

infrastructure hardening at the Cabrillo Way marina, FEMA will request that the Port of 

Los Angeles submit an updated Investment Justification/Project Plan outlining the details 

of the expansion of the fiber optic communications network in question. 

After the Grants Program Directorate’s further consideration, FEMA has determined 

that the expansion of the fiber optic communications network to the Cabrillo Way 

Marina would be an eligible cost. This expansion aligns with the project's primary 

purpose of providing a high-speed system that will link the security agencies in charge of 

protecting the port and, as a result, will provide adequate communications necessary 

for daily operations, as well as emergency events. Furthermore, this activity clearly 

aligns with the goals outlined in Port Security Grant Program guidance by providing 

emergency response organizations with the tools and resources necessary to effectively 

protect the port area. If the updated proposal submitted by the Port of Los Angeles is 

acceptable, FEMA will amend its grant to deem the charges for the network expansion an 

eligible cost. 

OIG Analysis

FEMA’s proposed corrective action is responsive to the recommendation. However, the 

recommendation will remain open and unresolved until final implementation of the 

proposed corrective actions. 

www.oig.dhs.gov 4 OIG-13-46 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix A 

Objective, Scope, and Methodology 

The Department of Homeland Security (DHS) Office of Inspector General (OIG) was 

established by the HomelandfSecurityfActfoff2002 (Public Law 107-296) by amendment 

to the InspectorfGeneralfActfoff1978. This is one of a series of audit, inspection, and 

special reports prepared as part of our oversight responsibilities to promote economy, 

efficiency, and effectiveness within the Department. 

The objectives of this audit were to determine whether costs claimed by the port were 

allowable, allocable, and reasonable according to the funding agreement and applicable 

Federal requirements. We also wanted to determine whether the data on expenditure 

and jobs in the most recent quarterly recipient reports was adequately supported. Our 

audit covered claimed costs of $5,703,711 for the period from September 1, 2009, to 

June 30, 2012. This represents the total amount claimed as of August 10, 2012. 

Our tests and procedures included the following: 

•	 Reviewing the Recovery Act, FEMA and OMB guidelines, the FEMA grant, and the 

port’s grant application and investment justification; 

•	 Interviewing FEMA officials to obtain an understanding of the port security grant 

program; 

•	 Interviewing port officials to obtain an understanding of the grant, grant accounting, 

and claims for reimbursement; 

•	 Examining port accounting records and supporting documents for the amounts 

charged to the grant; 

•	 Reviewing the eligibility of the amounts claimed for reimbursement and discussing 

our findings with port officials; 

•	 Inspecting the project; and 

•	 Reviewing the audit working papers of the certified public accounting firm that 

performed the single audit of the port for the fiscal year ending June 30, 2011. 

The single audit of the port was performed by KPMG LLP and included Recovery Act– 

funded FEMA grant costs totaling $287,724 (about 5 percent of claimed costs). The 

single audit report classified the FEMA grant as a major program subject to financial and 

compliance testing. The single audit report did not identify any questionable costs 

related to the grant or any deficiencies in internal controls over financial reporting and 

compliance with applicable Federal requirements. However, the single audit disclosed 

two instances of noncompliance with the requirements of OMB Circular A-133. 

According to the report, (1) the vendor contract files did not have certifications of 

nonsuspension and debarment and (2) the amount of grant expenditures in the 

www.oig.dhs.gov 5 	 OIG-13-46 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

December 31, 2010, quarterly report was understated. We determined that the port 

took corrective action to resolve these two compliance issues. 

We limited the scope of our audit of the port’s internal controls over grant management 

based on our review of work performed by the single audit. In providing us access to its 

audit working papers, KPMG wrote, in part, “... our audit, based on the concept of 

selective testing, is subject to the inherent risk that material errors or fraud, if they exist, 

would not be detected.... Also, our use of professional judgment and the assessment of 

materiality for the purpose of our audit means that matters may have existed that 

would have been assessed differently by you.” Based on issues identified during our 

preliminary work, we included the costs covered by the single audit in our audit tests. 

We tested port records to determine compliance with OMB Circular A-87 and with other 

terms and conditions of the grant. We considered the port’s internal controls over the 

administration of grant funds in determining our audit procedures. 

Our audit was conducted without the benefit of a FEMA technical evaluation of the 

materials used in the construction of the project; therefore, our conclusions are 

qualified to the extent that a technical evaluation may affect the allowability of the 

claimed costs. 

We conducted this performance audit between June and September 2012, pursuant to 

the InspectorfGeneralfActfoff1978, 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 objectives. We believe that the evidence 

obtained provides a reasonable basis for our finding and conclusion based upon our 

audit objectives. 

www.oig.dhs.gov 6 OIG-13-46 
 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix B 

Management Comments to the Draft Report 

u.s. Ufllanmfnl\Jf II\Jmfl.nd SttUrll~' 

Washin,lon. DC 20,172 

tl(.j~ .. ~ ; FEMA 

DEC 2 1 2012 

MEMORANDUM FOR: Anne L. Richards 

Assistant inspeclor Geneml for Audits 

Officc of Inspector Gcneral 

FROM: D,vld J. K"rmoo /J.I I,~ Associate Administrator foY ~ Policy, Program Analysis and International Affairs 

SUBJECT: FEMA's Response 10 OIG I)RAFT REPORT: "Cosis Cluimed hy 

Port 0/ Los A"Ce/cs Under Port S ecurity Grunl Numher 1009-PUR /-O/76-For O/ftc/tli Use 0 111)''' 

OIG Projcct No. 12- 151 -AUO-FEMA 

The Federal Emergency Management Agency (FEMA) appreciates the opportunity to review and 

respond to the Office of Inspector General 's (OIG) ORAIT REPORT: "COl'IS Claimed by POrt of 

Los Angeles Under Pori Secllrity Gram Nllmber 2009-PU-RI-O/ 76-For Official Us/! Only": OIG 

Project No. 12-15 l-AUO-FEMA. As noted in our response to your recommendation below, 

FEMA is continuing to work to resolve the issues identified in the audit and we are putti ng in 

place a process to avoid similar challenges in the future. 

OIC Recommendation 1: We recommend that f'EMA's Contracting Officer resolve the $174,060 

of unsupported grant costs. 

FEMA Response: COl/cur 

FEMA concurs wi th the recommendation to resolve the questioned costs pertaining to the fiber 

infrastructure hardening at the Cabrillo Way Marina. 

After funhcr consideration by the Grants Program Directorate (GPO). FEMA has detennined 

that the expansion of the fiber-optic communications network to the Cabrillo Way Marina is an 

eligible COSI. This expansion aligns with the project's primary purpose of providing a hi gh-speed 

system that will link the security ugencies in churge of protecting the port, and as a result 

providing adequate communications necessary for dail y operations as well as emergency events, 

Funhennore, this activity clearly aligns with the goals outlined within the Port Security Grant 

Program Guidance by providing emergency response organi7..ations wi th the tools and resources 

necessary to effectively protect the port area. 

On February 17, 2012, FEMNGPO issued Information Bulletin No. 379, Gllid(mcc 10 SWle 

Adminislralirc Agencies (0 Expedite the Expenditure ofCcrwil1 DHSlF'EMA Gralll Funding. 

One of those provisions outlined within the IB altowed the reprioritization of gmnt funds, which 

included but not limited to meeting the following: A grantee may choose (0 reprogram and 

www.oig.dhs.gov 7 OIG-13-46 
 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

commit grant funds to an approved project to purchase equipment and/or incur costs that were 

not previously allowable under grant guidance but that are stili within the scope of the 

previously awarded fonds. 

The FY 2009 ARRA Port Security Grant Program is administered by GPD concurrent with 

GPD's administration of the non-ARRA Port Seeurity Grant Program (PSGP) grants. During the 

course of a typical grant life cycle, it is not uncommon for grantees to re-scope a project. 

Therefore, after a thorough review of the details associated with this activity, FEMAlGPD 

believes this action is consistent with current allowability policy and keeping within the spirit 

and intent of the IB to reprioritize and modify projects to accelerate the spending of FY07 -

FYlI grant funding. 

FEMA will request that the Port of Los Angeles submit an updated Investment 

lustificationIProject Plan outlining the details expansion of the fiber-optic communications 

network in question (C.brillo Way Marina) within 90 days of their receipt of the final rcportwith 

the grantee notification memorandum. If the proposal is acceptable, FEMA will amend their 

grant to incur these charges and deem them as an eligibJe cost. 

FEMA requests that this recommendation be considered resolved and open pending the grantee's 

implementation of this corrective action plan. 

Again, we thank you for the opportunity to review and respond to OIG's draft report, which 

contains recommendations aimed at improving the efficiency of OUT agency_ Should you have 

any further questions regarding our response, please do not hesitate to call Gary McKeon, FEMA 

Chief Audit Liaison, at 202-646-1308. 

2 

www.oig.dhs.gov 8 OIG-13-46 
 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix C 

Report Distribution 

Department of Homeland Security

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretary 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

Recovery Act Coordinator 

Acting Chief Privacy Officer 

Federal Emergency Management Agency 

Branch Chief, Transportation Infrastructure Security 

Chief, Audit Branch, Grants Program Directorate 

Office of Management and Budget

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress

Congressional Oversight and Appropriations Committees, as appropriate 

www.oig.dhs.gov 9 OIG-13-46 
 

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at: @dhsoig. 

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