United States Government Accountability Office

Washington, DC 20548 

Comptroller General

of the United States

Decision 

Matter of: Department of Homeland Security Inspector General—Federal 

Emergency Management Agency Subgrantee’s Claim under the Stafford 

Act

File: B-317098 

Date: March 13, 2009 

DIGEST

The Federal Emergency Management Agency (FEMA) reimbursed a subgrantee 

receiving Stafford Act funds $3.8 million for rocks used for emergency repairs and 

improvements to facilities, notwithstanding that the rocks had originally cost the 

subgrantee less than $20,000. The Department of Homeland Security Inspector 

General subsequently questioned the reimbursement. Given the lack of 

documentation in the record regarding other pricing methods that may have been 

more appropriate to the circumstances, that would ensure the subgrantee did not 

obtain a windfall, and that would show whether the method chosen was consistently 

applied, we recommend that FEMA reassess its reimbursement. If FEMA finds that 

the reimbursement in question should be reduced or disallowed, but that recovery 

actions are barred under the Stafford Act, 42 U.S.C. § 5205(a), FEMA should be alert 

to opportunities that may be available under 31 U.S.C. § 3716 to offset or withhold 

funds for claims notwithstanding statutes of limitations. 

DECISION 

The Inspector General of the Department of Homeland Security (DHS) has requested 

a decision regarding the reimbursement in July 2000 of $3.8 million in Stafford Act 

grant funds provided by the Federal Emergency Management Agency (FEMA) to the 

state of Arizona for the Wellton-Mohawk Irrigation and Drainage District in Arizona. 

Letter from Richard L. Skinner, Inspector General, DHS, to Gary Kepplinger, General 

Counsel, GAO, Sept. 2, 2008 (Skinner Letter). A public assistance award was made to 

the irrigation and drainage district for emergency repairs and improvements to 
facilities damaged by floods.1

 The award provided that the FEMA grant funds would 

cover 75 percent of the district’s costs up to a maximum of $44,200,000, and the state 

would cover the remaining 25 percent. Id. After an audit of the district’s costs, 

FEMA’s Inspector General reported that the district used an incorrect valuation 

methodology to claim $5.1 million for the replacement value of rocks used from its 

own stock that had cost it under $20,000.2

 Skinner Letter. Wellton-Mohawk had used 

a Bureau of Land Management (BLM) average royalty rate method to value its rocks. 

At issue here is FEMA’s use of its appropriations to reimburse the district $3.8 

million, FEMA’s share of the $5.1 million claimed. 

As we explain below, FEMA should reassess its reimbursement to Wellton-Mohawk 

to ensure that it did not amount to a sizable windfall to the subgrantee. Nothing in 

the record before us addresses whether FEMA, in assessing the reasonableness of its 

reimbursement to Wellton-Mohawk, considered other pricing methods that may be 

more appropriate to the circumstances or whether Wellton-Mohawk, up to this time, 

had consistently applied the BLM average royalty method to value its inventory of 

rocks, as required by FEMA regulations. The Stafford Act requires FEMA to initiate 

an administrative action to recover payments within 3 years of the date of 

transmission of the final expenditure report for a disaster. We recommend that 

FEMA determine whether the statute of limitations bars recovery of funds from 

Wellton-Mohawk in this case. Even if recovery actions are barred under the Stafford 

Act, administrative offset may be available under 31 U.S.C. § 3716, which permits 

agencies to offset or withhold funds notwithstanding statutes of limitations. If FEMA 

finds that the reimbursement in question should be reduced or disallowed, FEMA 

should be alert to opportunities that may be available to offset or withhold other 

funds payable to the state of Arizona. 

BACKGROUND 

The Wellton-Mohawk Irrigation and Drainage District (Wellton-Mohawk) in Arizona is 

located between Painted Rock Dam and Yuma and spans a stretch of the Gila River 

that flows west toward the Colorado River. See generally www.wellton-mohawk.org/

history.html; www.usbr.gov/dataweb/html/gila.html#general (last visited Jan. 21, 

2009). Wellton-Mohawk provides irrigation water, drainage, and flood protection for 

farmland and support infrastructure. To quarry riprap, or rocks, needed for ongoing 

 

1

 FEMA, Office of the Inspector General—Audits Div., Memorandum from Robert J. 

Lastrico, Western District Audit Manager, for Karen E. Armes, Acting Regional 

Director, Region IX, Wellton-Mohawk Irrigation & Drainage District, Wellton, 

Arizona, FEMA Disaster No. 0977-DR-AZ, Public Assistance Identification No. 027-

91000, Audit Rep. No. W-08-02, Jan. 14, 2002, at 7 (Audit Memo). 

2

 FEMA’s Inspector General completed the audit in January 2002, before FEMA was 

merged into the newly created DHS by the Homeland Security Act of 2002, Pub. L. 

No. 107-296, §§ 503, 507, 116 Stat. 2135, 2213–14 (Nov. 25, 2002). 

Page 2 B-317098 
flood control and infrastructure projects, Wellton-Mohawk, in 1982, purchased 

Antelope Mountain, a 40-acre property, for $20,000.3

Flooding between January and March 1993 damaged Wellton-Mohawk facilities and 

its various projects. FEMA Audit Resolution Briefing Paper, IG Audit Report W-08-02, 

Wellton Mohawk Irrigation and Drainage District (WMIDD), Wellton, Arizona, Jan. 14, 

2002 (Audit Briefing); Audit Memo at 8. On January 19, 1993, the President declared 

that a major flood disaster existed in Arizona and ordered federal aid to supplement 

state and local recovery efforts. See White House Announcements, 29 Weekly Comp. 

Pres. Doc. 73 (Jan. 25, 1993) (Presidential Disaster Declaration). 

The Stafford Act4

 authorizes the President to issue major disaster or emergency 

declarations and specifies the types of assistance that the President may authorize for 

disaster relief. 42 U.S.C. §§ 5121--5206 (Stafford Act); see also 44 C.F.R. §§ 206.35--

206.48 (1996). See generally www.fema.gov/media/fact_sheets/declaration_ 

process.shtm (last visited Jan. 21, 2009). If the President issues such a declaration 

and finds that federal resources are required to supplement state and local resources, 

the federal government may provide various types of financial and essential 

assistance for disasters such as floods. See, e.g., 42 U.S.C. §§ 5170b, 5172; 29 Weekly 

Comp. Pres. Doc. 73. 

Each year Congress appropriates funds without fiscal year limitation to the 

disaster relief fund for FEMA to carry out the Stafford Act. See, e.g., Continuing 

Appropriations, 1996, Pub. L. No. 104-31, 109 Stat. 278, 279 (Sept. 30, 1995); 

Department of Veterans Affairs and Housing and Urban Development, and 

Independent Agencies Appropriations Act, 1995, Pub. L. No. 103-327, 108 Stat. 2298, 

2323 (Sept. 28, 1994). The appropriation is available under section 406 of the Stafford 

Act to make contributions to state or local government for at least 75 percent of the 

eligible costs of the repair, restoration, reconstruction, or replacement of a public 

facility that was damaged or destroyed by a major disaster and other associated 

expenses incurred by such government. 42 U.S.C. §§ 5172(a)(1), (b)(1). States apply 

for federal public assistance disaster funds and are responsible for processing 

subgrants to applicants in accordance with FEMA regulations. 44 C.F.R. § 206.202(a). 

A subgrantee is accountable to the state grantee for the use of the funds provided. Id. 

§ 206.201(l). 

Wellton-Mohawk received a public assistance award of $66.2 million of Stafford Act 

funds from the Arizona Department of Emergency and Military Affairs (ADEM), a 

FEMA grantee, for property damaged by the floods and for improvements to 

 

3

 While Wellton-Mohawk officials told FEMA that the mountain cost $20,000, WelltonMohawk did not make records available to FEMA to validate the purchase price of 

the Antelope Mountain property. Audit Memo at 2. 

4

 We refer to provisions of the Stafford Act and FEMA’s grant regulations in force on 

May 10, 1996, when FEMA Region IX awarded grant funds for the channel project. 

Page 3 B-317098 
irrigation, drainage system facilities, and flood control projects. Audit Memo at 8. 

FEMA agreed that ADEM could subgrant FEMA grant funds to Wellton-Mohawk to 

cover 75 percent of the $66.2 million, with the state of Arizona covering the remaining 

25 percent. Id. at 1. 

As work was underway on the channel project, Wellton-Mohawk informed ADEM 

that it would use rock from its Antelope Mountain property for the repairs and 

improvements to the project. Audit Memo at 8. Wellton-Mohawk proposed to charge 

ADEM a royalty rate for the replacement value of the rock consumed.5 

Id. at 2. The rate was determined using a BLM average royalty rate based on fair 

market value. Id. at 3; FEMA, Office of the Inspector General, Memorandum from 

Nathan S. Bergerbest, Counsel to the Inspector General, for Robert J. Lastrico, 

Western District Audit Manager, FEMA, Wellton-Mohawk, Sept. 18, 2002, at 2. Using 

that methodology, Wellton-Mohawk valued the rocks at $5,143,679, and claimed that 

amount from ADEM. Audit Memo at 2. In April 1994, ADEM agreed to pay WelltonMohawk the $5,143,679. Id. at 8. In July 2000, FEMA completed its final inspection 

report of the project and disbursed $3.8 million, the federal share of the $5.1 million. 

Id. at 9. See Final Inspection Report by Lester A. Ferguson, ADEM Reservist, $44.2 

Million Grant Project, Declaration No. 0977, Aug. 23, 2000. 

FEMA’s Inspector General completed an audit of Wellton-Mohawk’s FEMA-funded 

projects in January 2002. Audit Briefing. While the audit found that Wellton-Mohawk 

generally expended and accounted for public assistance funds according to federal 

regulations and FEMA guidelines, the audit questioned the costs claimed for rocks 

used on the channel restoration project. Audit Memo at 2. The Inspector General 

found that the royalty-based replacement value method resulted in excessive and 

unreasonable charges by claiming more than the actual cost of the rock used. These 

charges, the Inspector General found, were unreasonable under FEMA regulations 

and applicable cost principles because the claimed costs were not ordinary and 

necessary for Wellton-Mohawk’s operation, did not consider the restraints imposed 

by federal regulations, and unjustifiably increased the cost of the federal award. Id.

at 4, citing OMB Circular A-87, Cost Principles for State, Local and Indian Tribal 

Governments, at Attachment A, § C.2, (May 5, 1995), available at 60 Fed. Reg. 26489 

(May 17, 1995). 

The Inspector General concluded that Wellton-Mohawk should have claimed the 

actual cost paid for the Antelope Mountain property less the residual value of rock 

remaining after project completion.6

 Id. Since Wellton-Mohawk could not provide 

 

5

 The costs of extracting, processing, and delivering rock from Antelope Mountain to 

the project site were not included in the replacement value of the inventory but were 

also paid under this grant. Audit Memo at 8–9. 

6

 The report notes that rock from the Antelope Mountain property was still available 

for other needs after completion of the FEMA- and ADEM-funded projects. Audit 

Memo at 2–3. 

Page 4 B-317098 
supporting documentation regarding the cost paid for its Antelope Mountain property 

and the residual value of the remaining rock, the audit recommended that FEMA’s 

Regional Director, in coordination with ADEM, disallow the $5,143,679 

reimbursement for the claimed cost of the rocks. Audit Briefing; Audit Memo at 6. 

The DHS Inspector General maintains that FEMA had no regulatory authority to 

disburse funds for costs not incurred and has a legal obligation to recover the federal 

share, $3.8 million, of the $5.1 million awarded to Wellton-Mohawk. Skinner Letter. 

FEMA Region IX and FEMA Headquarters disagreed with the Inspector General. 

FEMA argues that materials drawn from grantee stores or stockrooms may be 

charged to the grantor agency at costs derived under any recognized method of 

pricing, consistently applied, and that the BLM pricing methodology that WelltonMohawk used is a “recognized method of pricing.” Memorandum from Amy 

Weinhouse, Attorney, for David Trissell, Chief Counsel, Wellton Mohawk, 

Oct. 2, 2007, at 2, citing OMB Cir. No. A-87, at Attachment B, § 29 (Weinhouse Memo). 

Id. FEMA concluded that the replacement value awarded for the rock was fair and 

reasonable compensation for the depleted inventory and that the agency would take 

no further action on the Inspector General’s audit report. FEMA, Region IX, 

Memorandum from Jeff Griffin, Regional Director, for Robert J. Lastrico,WelltonMohawk, May 21, 2003, at 1; DHS, Memorandum from Michael D. Brown, Under 

Secretary, Emergency Preparedness and Response, to Richard L. Skinner, Acting 

Inspector General, Wellton Mohawk, June 23, 2008. 

ANALYSIS 

The question before us involves the use of FEMA disaster relief funds to pay the 

Wellton-Mohawk Irrigation and Drainage District for the value of rocks used to carry 

out a disaster restoration project. As we describe above, the Inspector General and 

FEMA disagree on the applicability of the various grant regulations, and on cost 

principles and appropriate valuation methods thereunder, and even on the type of 

grants that were awarded for the channel restoration project.7 The record submitted 

to us in this case does not permit us to resolve these disagreements here. The record 

does not show, for example, whether Wellton-Mohawk consistently applied the BLM 

average royalty method to value its inventory of rocks. It does suggest, however, that 

FEMA may not have considered the implications of a 2004 federal circuit court 

decision interpreting the Stafford Act, Public Utility District No. 1 of Snohomish 

County, Washington v. FEMA, 371 F.3d 701 (9th Cir. 2004). We recommend that FEMA 

reassess its reimbursement to Wellton-Mohawk in light of that decision. 

In a case similar to the facts before us, the Ninth Circuit Court of Appeals upheld a 

FEMA order requiring a public utility district to repay portions of Stafford Act 

 

7

 The various arguments and rebuttals between the Inspector General and FEMA’s 

regional director and headquarters appear in a series of 10 memoranda, including 2 

legal memoranda, spanning the period January 14, 2002, through October 2, 2007. 

Page 5 B-317098 
disaster grants. Public Utility District, 371 F.3d 701. FEMA had awarded federal 

disaster relief grants to a public utility district in Washington State after severe winter 

storms damaged the district’s power distribution network. Id. at 705. An Inspector 

General audit found the utility district’s claimed “fringe benefit overhead rate” 

questionable and recommended that FEMA reduce the amounts of the awards and 

recover portions thereof. Id. The utility district’s policy was to claim an across-theboard, 36 percent fringe benefit overhead rate for each employee labor hour worked. 

Id. at 704. The district arrived at that rate by taking its total cost of fringe benefits 

and dividing by the total number of labor hours for a given time period. Id. FEMA’s 

Inspector General concluded that the 36 percent rate did not reflect the district’s 

actual expenses for providing fringe benefits for overtime labor because the district’s 

expenses remained constant for fringe benefits, regardless of the number of overtime 

hours worked by its employees. Id. By the utility district’s own calculation, the 

actual fringe benefit overhead rate for overtime labor was about 10 percent, not the 

36 percent rate it claimed. Id. FEMA adopted the Inspector General’s 

recommendation that the agency demand that the utility district return the fringe 

benefit overcharge. Id. The district appealed FEMA’s determination, FEMA rejected 

the appeal, and the district sued the agency. Id. at 706. 

The Ninth Circuit agreed with FEMA and the Inspector General that the utility 

district’s claim was unreasonable and not based on actual costs incurred. Id. 

at 709--10. The court noted that Congress’s declared intent in enacting the Stafford 

Act was “to provide an orderly and continuing means of assistance by the Federal 

Government to State and local governments in carrying out their responsibilities to 

alleviate the suffering and damage which result from such disasters.” Id. (emphasis 

in original), citing 42 U.S.C. § 5121(b). Referring to the Stafford Act’s declaration of 

intent, the court found that the utility district’s 36 percent rate resulted in a “sizable 

windfall” in an amount in excess of $600,000. Id. at 710. That this windfall may have 

resulted from the district’s use of an accepted accounting practice for determining 

fringe benefit overhead costs was of no consequence. Id. The court concluded that 

FEMA had not acted arbitrarily and capriciously by challenging the district’s 36 

percent fringe benefit rate where that rate resulted in FEMA paying the district 

amounts having nothing to do with the disasters for which federal relief was given. 

Id. See also B-203681, Sept. 27, 1982 (because grantee overallocated overhead 

costs to the grant, agency’s reimbursement violates the purpose statute, 31 U.S.C. 

§ 1301(a); those costs were not for the purpose of the grant). 

In this case, as the Inspector General has pointed out, Wellton-Mohawk charged 

ADEM and FEMA $5.1 million for rocks taken from a mountain that, in 1982, had cost 

Wellton-Mohawk $20,000. It is not disputed that Wellton-Mohawk is entitled under 

the grant to the value of the rocks it used from its own inventory. 

Page 6 B-317098 
OMB Circular A-87,8

 which FEMA has incorporated by reference into its regulations,9

provides, “Withdrawals from general stores or stockrooms should be charged at cost 

under any recognized method of pricing, consistently applied.” OMB Cir. No. A-87, at 

Attachment B, § 29 (May 5, 1995). It is undisputed also that, as FEMA has pointed 

out, the BLM average royalty rate method that Wellton-Mohawk used to value its 

rocks is one of “any recognized method[s] of pricing.” However, that should not be 

the end of FEMA’s assessment of Wellton-Mohawk’s cost valuation. When viewed in 

the context of the Ninth Circuit decision, Wellton-Mohawk’s use of the BLM average 

royalty rate in these circumstances certainly appears to result in a “sizable windfall” 

for Wellton-Mohawk: the subgrantee received $5.1 million as the value of rocks that 

cost the grantee under $20,000. Although FEMA accepted the BLM average royalty 

rate as a recognized method of pricing, it is not apparent from the record that FEMA 

took the next step; it is important that FEMA, as a steward of public funds, also 

assess the reasonableness of the pricing method to ensure that use of that method 

does not result in a “sizable windfall” for the grantee. 

OMB Circular A-87 offers guidance in this regard: “A cost is reasonable if, in its 

nature and amount, it does not exceed that which would be incurred by a prudent 

person under the circumstances prevailing at the time the decision was made to incur 

the cost.” OMB Cir. No. A-87, at Attachment A, § C.2. Among the factors that OMB 

advises agencies to consider are arms-length bargaining, sound business practices, 

“[w]hether the individuals concerned acted with prudence in the circumstances 

considering their responsibilities to the governmental unit, its employees, the public 

at large, and the Federal Government,” and “[s]ignificant deviations from the 

established practices of the governmental unit which may unjustifiably increase the 

Federal award’s cost.” Id. Indeed, while Circular A-87 provides for cost valuation 

based on “any recognized method of pricing,” it adds to that consideration that the 

method be “consistently applied.” Id. at Attachment B, § 29. 

Nothing in the record addresses whether Wellton-Mohawk, up to this time, had 

consistently applied the BLM average royalty method to value its inventory of rocks. 

Although FEMA accepted Wellton-Mohawk’s valuation method as a recognized 

pricing method, nothing in the record establishes that FEMA, in assessing the 

reasonableness of the cost that Wellton-Mohawk charged, considered other pricing 

methods that may have been more appropriate to these circumstances. Clearly, 

Wellton-Mohawk is entitled to be reimbursed for the rocks it provided to its channel 

restoration project; however, as the Ninth Circuit pointed out, the purpose of the 

Stafford Act is to alleviate damages suffered from natural disasters, not to enrich 

local governmental units. It is FEMA’s responsibility to ensure that whatever pricing 

method Wellton-Mohawk used to price its rocks is reasonable in the circumstances 

and consistently applied by the grantee. 

 

8

 OMB Circular A-87 establishes cost principles generally for federal grants to state, 

local, and tribal governments. OMB Cir. No. A-87, at 1. 

9

 44 C.F.R. § 13.22(b). 

Page 7 B-317098 
CONCLUSION 

We recommend that FEMA reassess its reimbursement to Wellton-Mohawk in view of 

the Ninth Circuit decision and this decision. We note that the record was silent with 

regard to the statute of limitations that appears in the Stafford Act. The Act requires 

FEMA to initiate an administrative action to recover payments within 3 years of 

transmission of the final expenditure report for the disaster. 42 U.S.C. § 5205(a). 

FEMA disbursed its reimbursement to Wellton-Mohawk in July 2000, although the 

record does not clearly establish the date of transmission of the final expenditure 

report. We recommend that FEMA determine whether the statute of limitations bars 

recovery of funds from Wellton-Mohawk in this case. 

Even if recovery actions are barred under the Stafford Act, administrative offset may 

be available under 31 U.S.C. § 3716, which permits agencies to offset or withhold 

funds for claims notwithstanding statutes of limitations. If FEMA finds that the 

reimbursement in question should be reduced or disallowed, FEMA should be alert to 

opportunities that may be available to offset or withhold other funds payable to the 

state of Arizona. See 58 Comp. Gen. 501 (1979) (statutes of limitations bar only the 

applicable remedy and do not discharge the debt or extinguish, or even impair, the 

government’s right or obligation to avail itself of every other lawful means of realizing 

on the debt or obligation); 44 C.F.R. § 13.52 (collection of amounts due). Agencies 

have a duty to recover grant funds awarded for an ineligible cost. See B-146285, 

B-164031(1), Apr. 19, 1972. Not to require repayment of funds for an ineligible cost 

constitutes giving away United States funds without authority of law. See 51 Comp. 

Gen. 162. 

Gary L. Kepplinger 

General Counsel 

Page 8 B-317098