Department of Homeland Security
 

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FEMA Should Recover $48.9 Million for Inadequate 


Insurance Coverage for Holy Cross School, 


New Orleans, Louisiana
 

OIG-14-10-D November 2013
 
OFFICE OF iNSPECTOR GENERAL 

Department ofHomdand Security 

NCV 2 2 2013 

MEMORANDUM FOR: George A. Robinson 

Regional Administrator, Region VI 

Federal Agency 

FROM: 

SUBJECT: FEMA Should Recover $48.9 Million for Inadequate Insurance 

Coverage for Holy Cross School, New Orleans, Louisiana 

FEMA Disaster Number 1603-DR·LA 

Audit Report OIG-14·10-D 

We are currently auditing Federal Emergency Management Agency {FEMA) Public Assistance 

grant funds awarded to the Holy Cross School (Holy Cross), (Public Assistance Identification 

Number 071-U1Z17-00). 1 The Governor's Office of Homeland Security and Emergency 

Preparedness (GOHSEP), a FEMA grantee, awarded Holy Cross the gross amount of 

$89.3 million for damages resulting from Hurricane Katrina, which occurred on August 29, 2005. 

As table 1 shows, Holy Cross's insurance proceeds as of September 2012 reduced the gross 

amount to a net award of $86.6 million. The award provided 100 percent funding for 

16 projects-131arge and 3 small projects. 

Table 1. Gross and Net Award Amounts 

' Gross Award Insurance Net Award 

1-------

.I 

J ....:.A:!:m:.:O:.: U:;Il:,:.t_+__;_R:.::e::: d:::U.::Ct:;:iO:::Il ::.:S:__+-·· ~mount --

All Projects $89,346,449 ($2,791,9841_ $86,554,465 

1 We are auditing the gross amount of $89.3 million awarded before reductiOI'Is of $2.8 million for Insurance 

setllements. 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

This memorandum advises you of an issue that requires your immediate attention. FEMA 

should disallow $48.9 million of Holy Cross’ $86.6 million award because Holy Cross has not 

obtained and maintained the required amounts of flood insurance, or obtained certification of 

insurance from the State insurance commissioner to obtain an exemption from all or part of the 

obtain-and-maintain insurance requirements (see Exhibit, Schedule of Holy Cross Projects 

Questioned for Inadequate Flood Insurance Coverage). 

We are conducting this performance audit pursuant to the InspectorfGeneralfActfoff1978, as 

amended, and in accordance with generally accepted government auditing standards. Our 

overall objective is to determine whether Holy Cross accounted for and expended FEMA Public 

Assistance funds according to Federal regulations and FEMA guidelines. Because of the size of 

the award, we have divided this audit into phases. At the conclusion of our audit, we will issue a 

final audit report that may include additional findings and recommendations. 

BACKGROUND 

Holy Cross operates as a private, non-profit school with a curriculum that covers grades 5–12. 

Hurricane Katrina devastated the Holy Cross school buildings located in the Ninth Ward 

neighborhood of New Orleans. In January 2006, Holy Cross opened a temporary campus; and, 

in 2007, the Brothers of the Congregation of Holy Cross and their board of directors elected to 

relocate the campus to the Gentilly neighborhood of New Orleans. Holy Cross constructed four 

new buildings—an administration building, a middle school, a high school, and a central 

services/student center building—using FEMA funding. 

Holy Cross Did Not Obtain Required Flood Insurance Coverage 

Holy Cross did not obtain $48.9 million of required flood insurance coverage for its replaced 

disaster-damaged facilities, which is a condition for receiving Federal disaster assistance. As a 

result, Holy Cross does not have adequate flood insurance coverage to meet Federal regulation 

insurance requirements to protect it and taxpayers in future disasters. 

Section 311 of the RobertfT.fStaffordfDisasterfRelieffandfEmergencyfAssistancefAct, Public Law 

93-288 as amended, requires applicants of disaster assistance to obtain and maintain such 

types and extent of insurance as may be reasonably available, adequate, and necessary, to 

protect against future loss to any property to be replaced, restored, repaired, or constructed 

with such assistance. Federal regulations at 44 CFR 206.252(d) also require grant recipients to 

obtain and maintain insurance in the amount of eligible disaster assistance as a condition of 

receiving Federal funds. Grant recipients may also seek an exemption from insurance 

requirements from their State insurance commissioner. FEMA also provides additional guidance 

on the obtain-and-maintain requirement in its PublicfAssistancefGuide (FEMA 322, October 

1999, p. 97). The guide states that (1) as a condition for receiving public assistance for a facility, 

www.oig.dhs.gov 2 OIG-14-10-D 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

an applicant must obtain and maintain insurance to cover that facility for the hazard that 

caused the damage; and (2) such coverage must, at minimum, be in the amount of the 

estimated eligible project costs for that structure before any reduction. 

Based on the required amount of the flood-related eligible damage assistance FEMA 

determined the required amount of obtain-and-maintain insurance was $52.9 million. Holy 

Cross should have obtained and maintained $52.9 million in flood insurance or received an 

exemption from insurance requirements from its State insurance commissioner.2

 However, 

Holy Cross obtained only $4.0 million in flood insurance, or $48.9 million less than the required 

amount. Holy Cross completed construction on the high school and middle school in August 

2009, completed the administration building in March 2010, and completed the central 

services/student center in February 2011. Holy Cross should have increased its flood insurance 

coverage as it completed these buildings or obtained an exemption with a certification of 

insurance from the Louisiana insurance commissioner. 

Holy Cross officials said that they intended to file for an insurance exemption, but delayed filing 

because they were not certain of the process or how much flood insurance FEMA required. 

However, uncertainty over how to proceed does not justify inaction given that Holy Cross 

started occupying its new buildings 4 years ago—more than adequate time to obtain the 

required flood insurance or insurance exemption. Further, each project worksheet clearly 

identified the amount of flood insurance coverage that FEMA required for each building. 

Therefore, FEMA should disallow as ineligible $48,879,429 for the uninsured portion of the new 

buildings unless Holy Cross obtains the required insurance coverage or obtains an exemption. 

Holy Cross officials also said they “obtained the maximum flood insurance available through the 

National Flood Insurance Program (NFIP) for each building; however, the FEMA obtain-andmaintain requirement sets forth substantially more flood insurance than what is available 

through the NFIP.”3

 In addition, Holy Cross officials said they have a pending application to the 

Louisiana Insurance Commissioner seeking a certification that the insurance currently in place is 

adequate and reasonable, but the application is still in process. Although Holy Cross may have 

obtained the maximum available NFIP insurance, it did not obtain insurance available from 

other carriers, and the $4 million it obtained is $48.9 million less than the amount Federal 

regulations require. The Louisiana Insurance Commissioner has not completed the certification. 

Additionally, the Louisiana Commissioner’s review is an evaluation of insurance availability and 

affordability for Holy Cross not an evaluation of the adequacy of insurance coverage. 

2 This amount represents the total required flood insurance per the project worksheets for the six projects with 

insurance requirements. 

3 NFIP offers a maximum of $500,000 each for building and contents coverage. Additional flood insurance for 

amounts greater than $500,000 is available from private insurance providers.

www.oig.dhs.gov 3 OIG-14-10-D 
 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Grant Management for Monitoring Insurance Requirements Is Inadequate

GOHSEP did not adequately monitor Holy Cross’ compliance with FEMA’s Public Assistance 

grant procedures. FEMA requires GOHSEP, as grantee, to ensure that Holy Cross obtained the 

required amount of flood insurance or obtained an exemption. However, neither GOHSEP nor 

Holy Cross started the process of filing an application for an exemption until November 2012. 

GOHSEP did not take steps to ensure the proper amount of coverage because it did not have 

procedures to monitor an applicant’s insurance coverage. In a June 2011 letter to GOHSEP, 

FEMA emphasized that GOHSEP should seek exemptions for its grant recipients as soon as 

possible. GOHSEP should, therefore, develop and implement written procedures to better 

monitor its grant applicants and enforce the requirement to obtain and maintain adequate 

insurance coverage and obtain exemptions promptly. GOHSEP officials stated that they sent a 

March 2013 letter to all their applicants and had recently implemented procedures to ensure 

better oversight of insurance requirements. Although GOHSEP officials sent a letter, it did not 

follow up to ensure applicants obtained the required insurance or certification, and GOHSEP 

does not have procedures in place to actively identify applicants without insurance in a timely 

manner.

RECOMMENDATIONS 

We recommend that the Regional Administrator, FEMA Region VI:

Recommendation #1: Disallow $48,879,429 ($52,879,429 required less $4,000,000 purchased) 

for the replacement of buildings and their contents as ineligible, unless Holy Cross obtains the 

required flood insurance coverage or a certification of insurance exemption from the State 

insurance commissioner. 

Recommendation #2: Require GOHSEP to develop and implement procedures to monitor and 

enforce FEMA’s obtain-and-maintain insurance requirements. 

DISCUSSION WITH MANAGEMENT AND AUDIT FOLLOWUP 

We discussed the results of our audit with Holy Cross officials during our audit and included 

their comments in this report, as appropriate. We also provided a draft report in advance to 

FEMA, GOHSEP, and Holy Cross officials and discussed it at exit conferences held with FEMA, Holy

Cross, and GOHSEP officials on September 11, 2013, and again with GOHSEP officials on 

September 26, 2013. FEMA officials generally agreed with our findings and recommendations. 

GOHSEP and Holy Cross officials generally disagreed with our findings and recommendations 

and said they would complete the insurance certification within a short period of time. 

www.oig.dhs.gov 4 OIG-14-10-D 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

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 the contact 

information of responsible parties and any other supporting documentation necessary to 

inform us about the current status of the recommendation. Until we receive and evaluate your 

response, we will consider the recommendations to be open and unresolved. 

Consistent with our responsibility under the InspectorfGeneralfAct, we will provide copies of our 

report to appropriate 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 Christopher Dodd, Acting Director; Paige Hamrick, Audit 

Manager; Jeffrey Campora, Senior Auditor; and John Polledo, Senior Auditor. 

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

Christopher Dodd, Acting Director, Central Regional Office, at (214) 436-5200.

www.oig.dhs.gov 5 OIG-14-10-D 
 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Exhibit 

Schedule of Holy Cross Projects Questioned for Inadequate Flood Insurance Coverage 

Project 

Number Description 

Gross Project

Amounts 

Less Wind 

Damage and 

Non-Insurable 

Amounts4

Required 

Flood Insurance 

Insurance 

Obtained 

Inadequate

Flood 

Insurance 

Coverage 

12753 Gymnasium $12,650,999 ( 4,171,198) $8,479,801 $ 05 $ 8,479,801

12965 Main High School 14,541,175 ( 1,634,397) 12,906,778 500,000 12,406,778

13136 Central Services 7,970,166 ( 65,522) 7,904,644 500,000 7,404,644

13237 Middle School 14,018,670 ( 620,166) 13,398,504 500,000 12,898,504

13333 Main Administration 26,951,577 ( 21,033,840) 5,917,737 500,000 5,417,737

18224 Building Contents6 4,557,192 ( 285,227) 4,271,965 2,000,000 2,271,965

Totals $80,689,779 ($27,810,350) $52,879,429 $4,000,000 $48,879,429

4 Includes wind damage, direct administrative costs, and amounts FEMA deducted for actual or estimated 

insurance proceeds.

5

 The gymnasium and central services buildings are on a common foundation; therefore, NFIP insurance is 

reflected on only one project. 

6 Building contents applies to all four buildings. 

www.oig.dhs.gov 6 OIG-14-10-D 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix
 

Report Distribution List 

Department of Homeland Security

Acting Secretary 

Chief Financial Officer

Under Secretary for Management 

Audit Liaison, DHS

Chief Privacy Officer

Federal Emergency Management Agency

Administrator 

Chief of Staff

Chief Financial Officer

Chief Counsel

Director, Risk Management and Compliance

Interim Director, FEMA Louisiana Recovery Office 

Audit Liaison, FEMA Louisiana Recovery Office 

Audit Liaison. FEMA Region VI

Audit Liaison, FEMA (Job Code G-11-064) 

Recovery Accountability and Transparency Board

Director, Investigations, Recovery Accountability and Transparency Board 

State

Director, Louisiana Governor’s Office of Homeland Security and Emergency Preparedness 

Audit Liaison, Louisiana Governor’s Office of Homeland Security and Emergency Preparedness 

Louisiana Legislative Auditor 

Subgrantee

Headmaster, Holy Cross School 

Chief Financial Officer, Holy Cross School 

Office of Management and Budget

Chief, Homeland Security Branch

DHS OIG Budget Examiner

Congress

Senate Committee on Appropriations, Subcommittee on Homeland Security 

Senate Committee on Homeland Security and Governmental Affairs 

House Committee on Appropriations, Subcommittee on Homeland Security

House Committee on Homeland Security 

House Committee on Oversight and Government Reform 

House Committee on Transportation and Infrastructure 

www.oig.dhs.gov 7 OIG-14-10-D 
 

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at: @dhsoig. 

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