Department of Homeland Security
 

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FEMA Should Recover $615,613 of Public Assistance 


Grant Funds Awarded to Orlando Utilities Commission 


under Hurricane Jeanne
 

OIG-14-08-D November 2013
 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

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

NOV 2 1 2013 

MEMORANDUM FOR: Major P. (Phil) May 

Regional Administrator, Region IV 

Federal · g cy Management Agency 

FROM: 

SUBJECT: FEMA Should Recover $615,613 of Public Assistance 

Grant Funds Awarded to Orlando Utilities Commission 

under Hurricane Jeanne 

FEMA Disaster Number 1561-DR-FL 

Audit Report Number OIG-14-08-D 

We audited Public Assistance grant funds awarded to the Orlando Utilities Commission, Florida, 

(Utility) (FIPS Code OOO-UT15M-OO). Our audit objective was to determine whether the Utility 

accounted for and expended Federal Emergency Management Agency (FEMA) grant funds 

according to Federal regulations and FEMA guidelines. 

The Utility received a Public Assistance award of $3.4 million from the Florida Department of 

Emergency Management (FDEM), a FEMA grantee, for damages resulting from Hurricane 

Jeanne, which occurred in September 2004. The award provided 90 percent FEMA funding for 

debris removal activities, emergency protective measures, repair of the electric transmission 

and distribution system, repair/replacement of buildings and equipment, and other disasterrelated activities. The award consisted of 6 large projects and 11 small projects. 1 

We audited three large projects with awards totaling $2.7 million (see Exhibit, Schedule of 

Projects Audited and Questioned Costs). The audit covered the period September 24, 2004, to 

June 5, 2012, during which the Utility claimed $2.7 million under the projects reviewed. At the 

time of our audit, the Utility had submitted final claims on project expenditures to FDEM for the 

three projects in our audit scope. 

We conducted this performance audit between January and August 2013 under the authority of 

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 and appropriate evidence to provide a reasonable basis for our findings and 

conclusions based upon our audit objective. We believe that the evidence obtained provides a 

1 Federal regulations in effect at the time of Hurricane Jeanne set the large project threshold at $54,100. 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

reasonable basis for our findings and conclusions based on 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. 

We judgmentally selected and reviewed project costs (generally based on dollar value); 

interviewed Utility, FDEM, and FEMA officials; reviewed the Utility’s procurement policies and 

procedures; reviewed applicable Federal regulations and FEMA guidelines; and performed 

other procedures considered necessary to accomplish our audit objective. We did not assess 

the adequacy of the Utility’s internal controls applicable to its grant activities because it was 

not necessary to accomplish our audit objective. However, we gained an understanding of the 

Utility’s method of accounting for disaster-related costs and its policies and procedures for 

administering the activities provided for under the FEMA award. 

RESULTS OF AUDIT 

The Utility’s claim included $615,613 for nonemergency contract work that did not meet 

Federal procurement requirements and FEMA guidelines. As a result, full and open competition 

did not occur, and FEMA has no assurance that contract costs were reasonable or that minority 

firms, women’s business enterprises, and labor surplus area firms had an opportunity to bid on 

the work. These conditions occurred because FDEM did not fulfill its duty as the grantee to 

ensure that subgrantees were aware of and followed Federal regulations. 

Finding A: Contracting Procedures 

The Utility did not comply with Federal procurement requirements when awarding five 

contracts valued at $615,613; two for nonemergency debris removal and three for permanent 

electrical repair work. Federal procurement regulations at 44 CFR 13.36 required the Utility, 

among other things, to— 

•	 Conduct all procurement transactions in a manner providing full and open competition. 

Subgrantees may use noncompetitive procurement under certain circumstances, one of 

which is when a contract award is infeasible under small purchase procedures, sealed 

bids, or competitive proposals, and the public exigency or emergency will not permit a 

delay resulting from competitive solicitation. (44 CFR 13.36(c)(1) and 44 CFR 

13.36(d)(4)(i)(B)) 

•	 In connection with every procurement action, including contract modifications, perform 

a cost analysis when the offeror is required to submit the elements of his estimated cost 

or a price analysis, to determine the reasonableness of the proposed contract price. (44 

CFR 13.36(f)(1)) 

www.oig.dhs.gov 2 OIG-14-08-D 
 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

•	 Take all necessary affirmative steps to assure the use of minority firms, women’s 

business enterprises, and labor surplus area firms when possible during the 

procurement process. (44 CFR 13.36(e)(1)) 

•	 Maintain records sufficient to detail the significant history of a procurement. These 

records will include, but are not necessarily limited to the following: rationale for the 

method of procurement, selection of contract type, contractor selection or rejection, 

and the basis for the contract price. (44 CFR 13.36(b)(9)) 

In addition, FEMA’s Public Assistance Guide (FEMA 322, October 1999, p.39) specifies that 

contracts “must be of reasonable cost, generally must be competitively bid, and must comply 

with Federal, State, and local procurement standards.” 

FEMA may grant exceptions to Federal procurement requirements to subgrantees on a case-bycase basis. (44 CFR 13.6 (c)) 

The Utility did not solicit competitive bids or take affirmative steps to use minority firms, 

women’s business enterprises, and labor surplus area firms for nonemergency contract work 

valued at $615,613. Instead, the Utility solicited bids only from contractors that it had used 

before the storm or ones that it believed had the requisite knowledge, expertise, and work 

force to perform the required work. Table 1 identifies the projects and related scope of work. 

Table 1. Projects with Non-Competitive Contracts 

Project 

Number Scope of Work 

FEMA

Category of 

Work 

Total 

Value of 

Contracts 

1109 Debris Removal A $125,460

2176 Electrical Repairs F 490,153 

Total $615,613

In addition, the Utility did not have adequate documentation to show that it performed a cost 

or price analysis in connection with every procurement action. A cost or price analysis 

decreases the likelihood of unreasonably high or low prices, contractor misinterpretations, and 

errors in pricing relative to the scope of work. Utility officials said that they used the scope of 

work and prices they established with existing contractors to set prices for the new contractors. 

However, they could not provide us with documentation to show how they negotiated the 

prices with the existing contractors. Without adequate documentation, we could not validate 

that the Utility performed a proper cost or price analysis and that the prices the Utility paid for 

the contract work were reasonable. 

Utility officials said that the Utility procured the contracts under exigent circumstances and that 

its emergency procurement procedures do not require it to consider procurement 

www.oig.dhs.gov 3 OIG-14-08-D
 
 

 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

opportunities for minority firms, women’s business enterprises, and labor surplus area firms. 

However, we disagree that emergency conditions warranted the use of the noncompetitive 

contracts in question. Further, subgrantees may use their own procurement procedures, but 

those procedures, at minimum, must comply with Federal procurement standards at 44 CFR 

13.36(b) through (i), unless excepted from the requirements by FEMA pursuant to 44 CFR 13.6. 

The Utility restored electrical power to almost all of its customers by September 29, 2004, 

which we consider the end of the emergency period. We did not question about $1.8 million in 

contract costs the Utility claimed under Project 2176 for the emergency restoration of power 

during this period. The five contracts in question were for electrical repair and debris removal 

work that the Utility performed after September 29, 2004, and that it continued for several 

months. The Utility should have procured such work through open competition because exigent 

circumstances no longer existed to justify the use of noncompetitive contracts. Full and open 

competition increases the probability of reasonable pricing from the most qualified contractors, 

and helps discourage and prevent favoritism, collusion, fraud, waste, and abuse. It also allows 

the opportunity for minority firms, women’s business enterprises, and labor surplus area firms 

to participate in federally-funded work. Therefore, we question the $615,613 the Utility 

claimed for the contract work that did not meet Federal procurement requirements and FEMA 

guidelines. 

Utility Response. Utility officials generally disagreed with our finding. They said that it was 

infeasible for the Utility to use a competitive award process because of a shortage of viable 

contractors and the public emergency that widespread power outages created after the 

disaster. They also said that the emergency did not permit the Utility to use minority firms, 

women’s business enterprises, and labor surplus area firms for the required services.

Office of Inspector General Response. As discussed in the body of this finding, we disagree that 

emergency circumstances existed to warrant the use of noncompetitive contracts for the 

contracts in question. Further, the Utility did not provide us with any evidence to support its 

assertion that viable contractors were not available to support a competitive award process. 

Finally, Federal regulations required the Utility to take all affirmative steps to assure that 

minority firms, women’s business enterprises, and labor surplus area firms were used when 

contracting for goods and services under a Federal grant. 

Finding B: Grant Management 

FDEM should have ensured that the Utility was aware of and followed Federal procurement 

standards. According to 44 CFR 13.37(a)(2), FDEM, as grantee, is required to ensure that 

subgrantees are aware of requirements that Federal regulations impose on them. Further, 44 

CFR 13.40(a) requires the grantee to manage the day-to-day operations of subgrant activity and 

monitor subgrant activity to ensure compliance with applicable Federal requirements. 

www.oig.dhs.gov 4 OIG-14-08-D
 
 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

For the two projects where we questioned contract costs, FEMA and FDEM personnel reviewed 

and approved the contract costs during the closeout process that took place between January 

2006 and July 2009. The closeout file documentation did not indicate that the closeout team 

reviewed the contracts for adherence to Federal procurement requirements and FEMA 

guidelines, or for cost reasonableness. The closeout team’s procedures focused mainly on 

whether the Utility followed its own contracting procedures and whether contract invoices 

supported the costs. Therefore, we recommend that FEMA remind FDEM of the requirement to 

adequately review costs subgrantees claim for adherence to applicable Federal regulations and 

FEMA guidelines. 

RECOMMENDATIONS 

We recommend that the Regional Administrator, FEMA Region IV:

Recommendation #1: Disallow $615,613 (Federal share $554,053) of ineligible contract costs 

the Utility claimed unless FEMA grants the Utility an exception for all or part of the costs as 

provided for in 44 CFR 13.6(c) and Section 705(c) of the Robert T. Stafford Disaster Relief and 

Emergency Assistance Act, as amended, and determines the costs were reasonable. 

Recommendation #2: Instruct FDEM to remind the Utility of the requirement to comply with 

applicable Federal procurement standards when acquiring goods and services under a FEMA 

award. 

Recommendation #3: Reemphasize to FDEM the requirement to adequately review costs 

subgrantees claim for adherence to applicable Federal regulations and FEMA guidelines. 

DISCUSSION WITH MANAGEMENT AND AUDIT FOLLOWUP 

We discussed the audit results with Utility, FDEM, and FEMA officials during our audit. We also 

provided a written summary of our findings and recommendations in advance to these officials 

and discussed them at exit conferences with Utility officials on August 13, 2013, FDEM officials 

on August 15, 2013, and FEMA officials on August 20, 2013. We included Utility officials’ 

comments, where appropriate, in the body of this report. 

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 we receive and evaluate your response, we will consider the 

recommendations as open and unresolved. 

www.oig.dhs.gov 5 OIG-14-08-D
 
 

 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Consistent with our responsibility under the Inspector General Act, 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 David Kimble, Director; Felipe Pubillones, Audit Manager; 

Salvador Maldonado-Avila, Auditor-in-Charge; and Larry Jones, Auditor. 

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

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

www.oig.dhs.gov 6 OIG-14-08-D
 
 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Exhibit 

Schedule of Projects Audited and Questioned Costs 

Project 

Number 

Category 

of Work 

Amount 

Awarded 

Amount 

Questioned 

Federal

Share 

1109 A $543,518 $125,460 $112,914

2185 E 114,757 0 0

2176 F 2,081,493 490,153 441,139

Total $2,739,768 $615,613 $554,053

www.oig.dhs.gov 7 OIG-14-08-D
 
 

 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix
 

Report Distribution 

Department of Homeland Security

Acting Secretary 

Chief Financial Officer 

Under Secretary for Management 

Chief Privacy Officer 

Audit Liaison, DHS 

Federal Emergency Management Agency

Administrator 

Chief of Staff 

Chief Financial Office 

Chief Counsel

Director, Risk Management and Compliance 

Audit Liaison, FEMA Region IV 

Audit Liaison, FEMA (Job Code G-13-013)

State

Executive Director, Florida Division of Emergency Management 

State Auditor, Florida 

Subgrantee

Director of Accounting Services, Orlando Utilities Commission 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner

Recovery Accountability and Transparency Board

Director, Investigations, Recovery Accountability and Transparency Board

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

www.oig.dhs.gov 8 OIG-14-08-D
 
 

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