Audit Tips for Managing 

Disaster-Related Project 

Costs 

September 29, 2017 

OIG-17-120-D 
 

 

 

 

 

 

 

 

 

 

 

 

DHS OIG HIGHLIGHTS
 

AUDIT TIPS FOR MANAGING
 

DISASTER-RELATED PROJECT COSTS
 

September 29, 

2017 

Why We Did This 

Using this report will 

assist recipients and 

subrecipients of Federal 

Emergency Management 

Agency (FEMA) disaster 

assistance grants to: 

x document and 

account for disasterrelated costs; 

x minimize the loss of 

FEMA disaster 

assistance funds; 

x maximize financial 

recovery; and 

x prevent fraud, waste, 

and abuse of disaster 

funds. 

The revised report is 

effective for all 

emergencies and major 

disasters declared on or 

after April 1, 2017. 

For Further Information: 

Contact our Office of Public 

Affairs at (202) 254-4100, or email 

us at 

DHS-OIG.OfficePublicAffairs@oig.dhs.gov 

Key Points to Remember 

x	 Designate a person to coordinate the 

accumulation of records. 

x	 Establish a separate and distinct account for 

recording revenue and expenditures, and a 

separate identifier for each distinct FEMA

 project. 

x	 Ensure that the final claim for each project is 

supported by amounts recorded in the

 accounting system. 

x	 Ensure each expenditure is recorded in the 

accounting books and is referenced to 

supporting source documentation (checks, 

invoices, etc.) that can be readily retrieved. 

x	 Research insurance coverage and seek 

reimbursement for the maximum amount. 

Credit the appropriate FEMA project with that 

 amount. 

x	 Check with your Federal Grant Program 

Coordinator about the availability of funding 

under other Federal programs and ensure 

that the final project claim does not include 

costs that another Federal agency funded or 

should have funded. 

x	 Ensure that materials taken from existing 

inventories for use under FEMA projects are 

documented by inventory withdrawal and 

 usage records. 

x	 Ensure that expenditures claimed under the 

FEMA project are reasonable and necessary, are 

authorized under the scope of work, and 

directly benefit the project. 

x	 Ensure proper grant administration is 

established and enforced throughout the 

duration of the grant. 

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OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

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

September 29, 2017 

MEMORANDUM FOR: All Recipients and Subrecipients of 

Disaster Grant Awards from the 

Federal Emergency Management Agency 

FROM: John E. McCoy II 

Acting Assistant Inspector General 

Office of Emergency Management Oversight 

SUBJECT: Audit Tips for Managing Disaster-Related 

Project Costs 

Report Number OIG-17-120-D 

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

prepared this report to provide recipients and subrecipients (grantees and 

subgrantees) of Federal Emergency Management Agency (FEMA) Public 

Assistance and Hazard Mitigation grant funds examples of previous audit 

findings. The purpose of this report was not to audit FEMA or its grant 

recipients and subrecipients. Therefore, we did not prepare it in accordance 

with generally accepted government auditing standards. 

Rather, this report provides an overview of OIG responsibilities; roles of FEMA, 

recipients, and subrecipients; applicable disaster assistance Federal statutes, 

regulations, and guidelines; the audit process and frequent audit findings; and 

tips for managing project costs. Using this report should assist disaster 

assistance recipients and subrecipients to: 

x document and account for disaster-related costs; 

x minimize the loss of FEMA disaster assistance funds; 

x maximize financial recovery; and 

x prevent fraud, waste, and abuse of disaster funds. 

We prepared this report in accordance with our leadership, coordination and 

policy responsibilities to promote economy and efficiency, and to deter waste, 

fraud and abuse, with respect to DHS programs.1 This report does not 

constitute legal advice, but is designed to be a resource. It is not intended to, 

and does not, create any right or benefit, substantive or procedural, 

enforceable at law by any party or litigant. 

1 5 U.S.C. app. §§ 2(2), 4(a)(3)(4). 

www.oig.dhs.gov OIG-17-120-D 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Background
 

More than 152,900 recipients and subrecipients of FEMA disaster assistance 

grants are currently working on about 653,000 open projects worth over 

$68 billion. Under the Public Assistance (PA) Program, FEMA provides grants 

to state, tribal, and local governments, and private nonprofit organizations so 

that communities can quickly respond to and recover from major disasters. 

FEMA’s Hazard Mitigation Grant Program provides funding to some of the same 

entities to implement long-term measures to prevent damages from future 

disasters. 

Each year, OIG audit reports reveal significant issues representing millions of 

dollars of Federal funds allocated for disaster assistance and recovery efforts. 

These reports also contain recommendations to protect the integrity of and 

improve FEMA’s disaster assistance operations. 

The majority of our grant audits focus on FEMA’s PA and Hazard Mitigation 

grant programs (HMGP), funded from the Disaster Relief Fund. Under the PA 

Program, FEMA provides grants to state, tribal and local governments, and 

certain types of private nonprofit organizations so that communities can 

quickly respond to and recover from major disasters. FEMA’s HMGP provides 

funding to the same entities to implement long-term measures to prevent 

damages from future disasters. 

Overview of the Office of Inspector General 

The Homeland Security Act of 2002 established the OIG in DHS by amendment 

to the Inspector General Act of 1978 (P.L. 95-452). The OIG serves as an 

independent office to promote economy, efficiency, and effectiveness; to prevent 

waste, fraud, and abuse; and to keep Congress and the Secretary of DHS fully 

informed of problems in DHS programs and operations. The principal functions 

of the OIG are to: 

x perform or oversee audit and investigative functions relating to programs 

and operations of DHS; 

x inspect department activities to identify actual or potential fraud, waste, 

abuse, or mismanagement, and to develop recommendations for corrective 

action; and 

x investigate allegations of illegal, unethical, or other activities that may lead 

to civil or criminal liability on the part of DHS or its employees, contractors, 

or program participants. 

Roles of FEMA, Recipients, and Sub-Recipients 

FEMA awards PA and HMGP grants to assist state, tribal and local 

governments, and certain types of private nonprofit organizations with disaster 

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OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

relief and long-term hazard mitigation measures. These programs are 

administered through a coordinated effort between FEMA, the recipient (i.e. 

states or tribal governments), and the subrecipient (i.e. local or tribal 

governments, and eligible non-profit entities).2 While all three entities must 

work together to meet the overall program objective, each has a different role. 

FEMA is responsible for managing and administering the Federal award in a 

manner to ensure Federal funds are expended and programs are implemented 

in full accordance with Federal regulations and FEMA policy. Both FEMA and 

the recipients share the responsibility for making grant funds available to the 

subrecipients. FEMA approves the scope of work for the grants and provides 

technical assistance to the recipient, while the recipient disburses the grant 

funds, manages the grant, monitors the day-to-day activities, and provides 

technical assistance to the subrecipient. The subrecipient must complete 

eligible disaster work, maintain accounting records, document and monitor 

work performed, trace costs incurred, and adhere to Federal regulations and 

FEMA guidelines. 

Applicable Federal Statutes, Regulations, and Guidelines 

Federal grant recipients and subrecipients are responsible for understanding 

and complying with a large amount of criteria applicable to FEMA disaster 

grants, which include those for public assistance and hazard mitigation. Some 

help in responding to and recovering from a disaster, and others help in 

receiving and managing Federal funds. One of the most important criteria is 

Title 44 Code of Federal Regulations (CFR), which contains rules for 

implementing the Robert T. Stafford Disaster Relief and Emergency Assistance 

Act, as amended (Stafford Act). These rules govern disaster relief operations. 

Title 44 CFR is available at the following website: 

http://www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR. 

Another very important criterion is Title 2 CFR Part 200: Uniform 

Administrative Requirements, Cost Principles, and Audit Requirements for 

Federal Awards (“Super Circular” or “Omni Circular”). The purpose of the 

uniform guidance was to streamline the Federal government’s guidance on 

administrative requirements, cost principles, and audit requirements to 

effectively focus Federal resources on improving performance and outcomes, 

while insuring financial integrity of taxpayer dollars in partnership with nonFederal stakeholders. The uniform guidance supersedes 44 CFR Part 13, and 

Office of Management and Budget (OMB) Circulars A-102, A-110, A-87, A-21, 

2 Generally, the State for which the major disaster is declared is known as the recipient. 

However, an Indian Tribal government may choose to be a recipient, or it may act as a 

subrecipient under the State (44 CFR 206.431). In 2013, the Sandy Recovery Improvement Act 

(SRIA), allowed tribal governments acting as recipients to directly seek Stafford Act assistance 

from the President in the event of a disaster. 

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A-122 and A-133 for all FEMA awards made on or after December 26, 2014. 

Title 2 CFR Part 200 is available at the following website: 

http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title02/2cfr200_main_02.tpl. 

For all FEMA awards made before December 26, 2014, the following OMB 

circulars apply (https://www.whitehouse.gov/omb/information-foragencies/circulars): 

x	 OMB Circular A-102, Uniform Administrative Requirements for Grants and 

Cooperative Agreements to State and Local Governments. [FEMA codified 

these requirements, also referred to as the “Common Rule,” at 44 CFR 

Part 13.] 

x	 OMB Circular A-110, Uniform Administrative Requirements for Grants and 

Agreements with Institutions of Higher Education, Hospitals and Other 

Non-Profit Organizations. See 2 CFR, Part 215, January 1, 2012. 

x OMB Circular A-87, Cost Principles for State, Local and Indian Tribal 

Governments. See 2 CFR, Part 225, January 1, 2012. 

x OMB Circular A-21, Cost Principles for Educational Institutions. See 2 

CFR, Part 220, January 1, 2012. 

x	 OMB Circular A-122, Cost Principles for Non-Profit Organizations 

(excludes hospitals). See 2 CFR, Part 230, January 1, 2012. [According to 

2 CFR 215.27, the allowability of costs that hospitals incur “is 

determined in accordance with the provisions of Appendix E of 45 CFR 

part 74, Principles for Determining Costs Applicable to Research and 

Development Under Grants and Contracts with Hospitals.”] 

x	 OMB Circular A-133, Audits of States, Local Governments and Non-Profit 

Organizations. 

In April 2017, FEMA’s Public Assistance Division published the second edition 

of the Public Assistance Program and Policy Guide (PAPPG), which is effective 

for all emergencies and major disasters declared on or after April 01, 2017.3 

The PAPPG is comprehensive consolidation of program and policy documents 

for the PA program. This guide supersedes many of the previous PA 

publications and individual policy documents (e.g. 9500 series policy 

statements). The PAPPG will assist recipients and subrecipients in better 

understanding the PA and Hazard Mitigation grant programs. The PAPPG is 

available at the following website: 

https://www.fema.gov/public-assistance-policy-and-guidance. 

For all FEMA awards made before April 01, 2017, the following FEMA 

policies and guidelines still apply: 

x	 FEMA 321, Public Assistance Policy Digest (January 2008), 

3 The first edition of FEMA’s PAPPG was published in January 2016 and effective for all 

emergencies and major disasters declared on or after January 01, 2016 through 

April 01, 2017. 

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OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

x FEMA 322, Public Assistance Guide (June 2007), 

x FEMA 323, Public Assistance Applicant Handbook (March 2010), 

x FEMA 325, Public Assistance Debris Management Guide (July 2007), 

x FEMA 327, Debris Monitoring Guide (October 2010), and 

x FEMA Disaster Assistance Policy (9500 series policy statements). 

However, the PAPPG did not supersede the following policies and guidelines: 

x FEMA 329, Debris Estimating Field Guide (September 2010), 

x Hazard Mitigation Assistance (HMA) Unified Guidance, and 

x Public Assistance Policy on Stafford Act Section 705 (FP-205-081-2, 

March 31, 2016).4 

The policies listed above are available at the following websites: 

http://www.fema.gov/publications-archive and https://www.fema.gov/publicassistance-policy-and-guidance 

The Sandy Recovery Improvement Act of 2013 (P.L. 113-2) amended Title IV of 

the Stafford Act. Specifically, the law adds section 428, which authorizes 

alternative procedures for the PA Program under sections 403(a)(3)(A), 406, 

407, and 502(a)(5) of the Stafford Act. It also authorizes FEMA to implement 

the alternative procedures through a pilot program. The program will remain in 

place until FEMA promulgates and adopts revised regulations that reflect the 

program changes the law authorizes. Information is available at the following 

website: https://www.fema.gov/alternative-procedures 

The alternative procedures pertain to debris removal (emergency work) and 

repair, restoration, and replacement of disaster-damaged public and private 

nonprofit facilities (permanent work). Participation in the alternatives 

procedures is voluntary. 

The goals of the alternative procedures are to: 

x reduce the costs to the Federal Government of providing public 

assistance, 

x increase flexibility in the administration of such assistance, 

x expedite the provision of assistance to an applicant, and 

x provide financial incentives and disincentives for timely and cost effective 

completion of a project. 

4 This policy establishes guidelines under Section 705 (Disaster Grant Closeout Procedures) to 

determine whether Section 705 applies to prohibit FEMA from recovering payments made 

under the PA program. 

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OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

The Audit Process and Frequent Audit Findings
 

The OIG considers several factors to determine which activities to audit. These 

factors include: 

x the risk of fraud, waste, and abuse of Federal funds; 

x statutory and regulatory requirements; 

x current or potential dollar magnitude; 

x requests from congressional, FEMA, or state officials; and 

x reports/allegations of impropriety or problems in implementing FEMA 

programs. 

Traditionally, the OIG conducted most of its disaster grant audits after 

communities completed the majority or all of the work to determine whether 

they had accounted for and expended FEMA funds according to Federal 

requirements. However, in 2013, the OIG implemented a more proactive 

approach to auditing to place greater emphasis on prevention and early 

detection. This approach considers the entire life cycle of grant awards. 

Currently, the OIG has ongoing disaster grant audits that consist of 

(1) “capacity” audits that start usually within a year of the disaster; or (2) “early 

warning” audits that start before communities have begun work on most 

permanent projects. These audits identify areas where grant recipients may 

need additional technical assistance or monitoring to ensure compliance with 

Federal requirements. In addition, by undergoing an audit early in the grant 

cycle, grant recipients have the opportunity to correct noncompliance before 

they spend the majority of their grant funding. It also allows them the 

opportunity to supplement deficient documentation or locate missing records 

before too much time elapses. 

Frequent Audit Findings (examples) 

A. Improper Procurement Practices 

Criteria: According to Federal regulations (2 CFR 200.318 to .326), all nonFederal entities (other than states) must comply with the following 

procurement standards:5 

Conduct all procurement transactions in a manner providing full and open 

competition consistent with the standards of this section 

(2 CFR 200.319(a)). Noncompetitive procurement may be used under certain 

circumstances, one of which is when the public exigency or emergency will 

not permit a delay resulting from competitive solicitation 

(2 CFR 200.320(f)(2)). 

5 States must follow the same policies and procedures they use for procurements using nonFederal funds (2 CFR 200.317). 

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OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

x Take all necessary affirmative steps to assure the use of minority 

businesses, women’s business enterprises, and labor surplus area firms 

when possible (2 CFR 200.321)). 

x Maintain oversight to ensure contractors perform according to the terms, 

conditions, and specifications of their contracts or purchase orders 

(2 CFR 200.318(b)). 

x Maintain written standards of conduct covering conflicts of interest and 

governing the performance of its employees who engage in the selection, 

award, and administration of contracts (2 CFR 200.318(c)(1)). 

x Maintain records sufficient to detail the history of the procurement. These 

records will include, but are not 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 (2 CFR 200.318(i)). 

x Use time-and-material-type (T&M) contracts only after determining that no 

other contract is suitable and if the contract includes a ceiling price that the 

contractor exceeds at its own risk. Time and material type contract means a 

contract whose cost to a non-Federal entity is the sum of (1) the actual cost 

of materials; and (2) direct labor hours charged at fixed hourly rates that 

reflect wages, general and administrative expenses, and profit 

(2 CFR 200.318(j)(1)). 

x Perform a cost or price analysis in connection with every procurement 

action in excess of the Simplified Acquisition Threshold including contract 

modifications (2 CFR 200.323(a)). 

x Negotiate profit as a separate element of the price for each contract in which 

there is no price competition and in all cases where cost analysis is 

performed (2 CFR 200.323(b)). 

x Do not use cost-plus-a-percentage-of-cost and percentage-of-constructioncost methods of contracting (2 CFR 200.323(d)). 

x Ensure required bonds are included in construction or facility improvement 

contracts or subcontracts exceeding the simplified acquisition threshold 

(2 CFR 200.325). 

x Include required provisions in all contracts awarded as outlined in 

Appendix II in Part 200 (2 CFR 200.326). 

Finding 1. Competition and Disadvantaged Firms. The subrecipient 

received a PA grant award that included $6.1 million for disaster-related debris 

removal and permanent electrical repair work. The subrecipient solicited bids 

for the work only from contractors that it had used before the disaster. As a 

result, full and open competition did not occur and FEMA had no assurance 

that contract costs were reasonable or that small and minority firms, women’s 

business enterprises, and labor surplus area firms had an opportunity to bid 

on the work. As part of the audit, subrecipient officials stated that they 

procured the contracts under exigent circumstances. The OIG determined that 

the subrecipient had restored electrical power to almost all of its customers. 

After such time, exigent circumstances no longer existed to warrant the use of 

noncompetitive contracts. The OIG also determined that because the 

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solicitation of bids came from a limited number of contractors, full and open 

competition did not occur. Therefore, the OIG questioned $6.1 million because 

the subrecipient did not meet Federal procurement standards for competition. 

Clarification on Exigent versus Emergency: Subrecipients may use 

procurement through a noncompetitive proposal method when the public 

exigency will not permit delays that could result from competitive solicitation 

2 CFR 200.320(f)(2). 

Exigent is not necessarily the same as emergency, even though often used 

interchangeably. The general definition of exigent is a situation requiring 

immediate aid or action.6 An emergency represents an unforeseen combination 

of circumstances.7 A key distinction is that exigent circumstances represent 

those actions required to protect lives and property at the immediate outset of 

an emergency event. 

Examples Illustrating the Meaning of Exigency and Emergency 

Emergency. A tornado impacts the City of X and causes widespread 

and catastrophic damage, including loss of life, loss of power, damage 

to public and private structures, and millions of cubic yards of debris 

across the City, leaving almost the entire jurisdiction inaccessible. The 

City needs to begin debris clearance activities immediately to restore 

access to the community and support search and rescue operations 

and power restoration. 

Exigency. A tornado impacts the City of X in June and causes 

widespread and catastrophic damage, including damage to a City 

school. The City wants to repair the school and have it ready for the 

beginning of the following school year in September. The City estimates, 

based on past experience, that the sealed bidding process will take at 

least 90 days, and the City’s engineer estimates that the repair work 

would take another 60 days. This would bring the project completion to 

well after the beginning of the school year. Rather than going through 

sealed bidding, the City—in compliance with State and local law—wants 

to solicit bids from five contractors that have previously constructed 

schools in the State and award the contract to the lowest bidder among 

those five. This would be an example of an “exigency” for the purposes 

of 2 CFR 200.320 (f)(2), such that sealed bidding would be infeasible 

under the circumstances and the use of some other procurement 

method was necessary based on the particular situation. 

Source: Field Manual, Public Assistance Grantee and Subgrantee Procurements Requirements, 

FEMA Office of Chief Counsel, Procurement Disaster Team, p.76 (December 2014) 

6 "Exigent” - (1) requiring immediate aid or action (Merriam-Webster.com, Accessed 

August 28, 2017, http://www.merriam-webster.com/dictionary/exigent) 

7 “Emergency” - (1) an unforeseen combination of circumstances (Merriam-Webster.com,
 

Accessed August 28, 2017, http://www.merriam-webster.com/dictionary/emergency) 

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Finding 2. Use of T&M Contracts. The subrecipient used a T&M contract, 

which was not appropriate for the construction work performed, and did not 

include a not-to-exceed amount or cost ceiling. In addition, the contract 

included prohibited markups based on a percentage of costs. By definition, 

T&M contracts provide for acquiring supplies or services on the basis of (1) 

direct labor hours at specified fixed hourly rates that include wages, overhead, 

general and administrative expenses, and profit and (2) materials at cost, 

including, if appropriate, material handling costs. The T&M rates in the 

contract already included profit and overhead, yet the contractor charged 

markups of 15 to 33 percent on top of its T&M rates. Additionally, the 

subrecipient did not perform any cost or price analysis for the contract. As a 

result, the contractor had no incentive to contain project costs. In fact, 

markups as a percentage of costs provide contractors a disincentive to save 

costs because higher costs lead to higher profits. Therefore, the OIG questioned 

$1.2 million in T&M contract costs because the subrecipient did not follow 

Federal procurement standards. 

Finding 3. Competition and Cost Analysis. The subrecipient did not openly 

compete a contract totaling $4.1 million for the replacement/repair of pump 

stations and electrical components. Instead, the subrecipient used a contractor 

with which it had a business relationship before the disaster. In addition, the 

subrecipient accepted the contractor’s proposed prices without performing an 

independent analysis of the prices to ensure reasonableness. Finally, the 

subrecipient did not take the required steps to assure the use of small 

businesses, minority owned firms, women’s business enterprises, and laborsurplus area firms when possible. Therefore, FEMA has no assurance that 

these types of firms had adequate opportunities to bid on federally funded work 

as Congress intended. Therefore, the OIG questioned $4.1 million because the 

procurement did not comply with Federal requirements. 

Finding 4. Restricting Competition. The subrecipient used a shared services 

agreement with a regional planning commission to procure two debris removal 

contracts totaling $2.5 million that did not fully meet Federal requirements. 

When advertising for the debris removal contracts, the regional planning 

commission unreasonably restricted competition by not allowing smaller 

contractors to compete for the work. For both debris removal contracts, the 

regional planning commission’s procurement practices also did not take the 

specific steps that Federal regulations require to provide opportunities for small 

and minority businesses, women’s business enterprises, and labor surplus 

area firms to bid on federally funded work when possible. The OIG 

recommended FEMA disallow as ineligible $2.5 million for the two contracts 

that the subrecipient awarded using the regional planning commission’s 

procurement services. 

Federal regulations encourage grant recipients to enter into state and local 

intergovernmental agreements to foster greater economy and efficiency and 

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OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

promote cost-effective use of shared services across the Federal Government (2 

CFR 200.318(e)). These state and local intergovernmental agreements are made 

possible through cooperative purchasing programs. A cooperative purchasing 

program streamlines the procurement process by providing competitively 

priced contracts for goods and services. While Federal regulations encourage 

shared services agreements, this does not relieve the grant recipient or 

subrecipient of its responsibility to follow Federal procurement requirements. 

B. Unsupported Costs 

Criteria: Federal cost principles (2 CFR 200.403(g)) require recipients and 

subrecipients to adequately document costs that they claim under Federal 

programs. OMB Circular A-122, Attachment A, (A)(2)(c), require recipients and 

subrecipients to be consistent with policies and procedures that apply 

uniformly to both federally-financed and other activities of the organization. 

Finding 1. Inadequate Documentation. The subrecipient could not provide 

adequate documentation to support $194,000 in labor costs it claimed for 

seven large projects. The subrecipient’s support for its labor costs consisted of 

a single line item in its costs summary labeled as “Salary.” The subrecipient’s 

supporting documentation did not identify the names of the employees who 

performed the disaster-related work, when they completed the work, or the 

number of hours they worked. As a result, the subrecipient could not support 

the accuracy of the costs it claimed for labor. Therefore, the OIG questioned 

$194,000 as unsupported. 

Finding 2. The subrecipient’s claim included $300,000 for labor costs. 

However, the subrecipient provided time sheets and payroll registers to support 

only $275,000. The OIG questioned the unsupported difference of $25,000. 

C. Poor Project Accounting 

Criteria: Federal regulations (2 CFR 200.302 and 44 CFR 206.205) require 

recipients and subrecipients to maintain a system that accounts for FEMA 

funds on a project-by-project basis. The system must disclose the financial 

results for all FEMA-funded activities accurately, currently, and completely. It 

must identify funds received and disbursed, and reference source 

documentation (i.e., canceled checks, invoices, payroll, time and attendance 

records, contracts, etc.). 

Finding 1. Accounting for Costs on Project-by-Project Basis. The 

subrecipient did not account for expenditures for its $15 million grant on a 

project-by-project basis, as Federal regulations require. The subrecipient could 

not separate disaster-related costs by project, but rather set up a single 

account within its automated accounting system designated as the “flood 

disaster” account. That single account commingled eligible disaster-related 

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expenditures with non-eligible expenditures. Further, the subrecipient did not 

maintain any other systems such as spreadsheets or project files that 

separately accumulated all project costs on a project-by-project basis. 

Therefore, the OIG questioned the entire $15 million grant because the costs 

were not auditable by project. 

Finding 2. Inadequate Accounting Entries to Support Claim. The 

subrecipient’s journal of project expenditures did not contain references to 

payroll or daily activity reports that supported claimed payroll expenditures of 

$950,000 charged to the FEMA project. Although the subrecipient had 

timesheets to support the labor, the OIG could not trace expenditures for labor 

to supporting documents nor verify the claimed costs and, therefore, 

questioned the entire $950,000 claim for labor. 

D. Duplication of Benefits 

Criteria: Section 312 of the Stafford Act (see also 44 C.F.R. § 206.191) 

prohibits duplication of benefits. In other words, a subrecipient cannot receive 

disaster funding for activities covered by insurance benefits, other Federal 

programs, or any other source. 

Finding 1. Notice of Insurance Proceeds. The subrecipient claimed and 

received $200,000 to repair a fence, replace dirt, and construct a retaining wall 

at a baseball park facility. However, the subrecipient had insurance coverage 

that it had not disclosed to FEMA, and received $220,000 from its insurance 

carrier for the same damages. Therefore, the OIG questioned the $200,000 of 

FEMA funding received for damages that insurance covered. 

Finding 2. Notice of Insurance Proceeds and Other Federal Grant 

Funds. The subrecipient’s claim included $238,000 of duplicate benefits. The 

subrecipient claimed $140,000 of costs that insurance also covered and 

$98,000 to replace asphalt and perform road repairs that the U.S. 

Department of Housing and Urban Development (Community Block 

Development Program) paid for the same road repairs. The subrecipient 

disagreed with this finding, saying that they used the insurance and U.S. 

Department of Housing and Urban Development proceeds for road repairs 

that FEMA did not fund. However, the subrecipient did not provide the OIG 

with documentation to support their assertions. Therefore, the OIG 

questioned $238,000 of ineligible duplicate benefits the subrecipient claimed. 

E. Excessive Equipment Charges (applicability may vary with hazard

mitigation projects) 

Criteria: Federal regulations (44 CFR 206.228) require that subrecipients use 

the FEMA schedule of equipment rates or their local rates, whichever are lower 

when they use their own equipment. Subrecipients that do not have local 

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established rates must use the FEMA equipment rates when claiming costs 

under a FEMA project. 

Finding 1. Incorrect Use of Equipment Rates. The subrecipient claimed 

$78,348 for the use of bucket trucks based on the FEMA rate of $24 per hour 

(3,264.5 hours x $24 per hour). However, the subrecipient’s local equipment 

rate for bucket trucks was $16 per hour, or $8 less than the FEMA rate. 

Therefore, the OIG questioned $26,116 (3,264.5 hours x $8) of excess charges. 

Finding 2. Overstated Equipment Charges. The subrecipient overstated its 

claim for equipment by $964,756. It claimed $1,569,593 for equipment use 

based on the FEMA Schedule of Equipment Rates. However, the subrecipient 

should have based its claim on actual equipment costs recorded in its 

accounting system, which would have resulted in total equipment costs of 

$604,837 or $964,756 less than the amount claimed. The subrecipient’s 

recorded equipment costs contained all the cost elements included in the 

FEMA equipment rates for operation of the equipment such as fuel, insurance, 

maintenance, depreciation, etc. The OIG noted that the subrecipient used the 

recorded equipment costs to support equipment use in requests for 

construction work financing from the U.S. Department of Agriculture, Rural 

Utilities Service. However, when calculating its claim for equipment use under 

the FEMA projects, the subrecipient used the FEMA equipment rates, which 

resulted in the subrecipient receiving $964,756 more than its actual costs of 

operating the equipment. Therefore, the OIG questioned the $964,756 of 

excessive equipment charges. 

F. Excessive Labor and Fringe Benefit Charges 

Criteria: According to Federal cost principles (2 CFR 200.403(c)), allowable 

costs must be consistent with policies and procedures that apply uniformly to 

both Federal awards and other activities of the non-Federal entity. Additionally, 

according to 44 CFR 206.228(a)(2)(iii), straight- or regular-time salaries and 

benefits of permanent employees engaged in emergency work (other eligible 

emergency protective measures) are not eligible for PA funding. 

Finding 1. Incorrect Use of Fringe Benefit Rates. The subrecipient claimed 

$50,000 for overtime fringe benefits based on a fringe benefit rate of 23.55 

percent. However, the rate included the cost of worker’s compensation, which 

is not applicable to overtime. The subrecipient should have based its claim on a 

rate of 10 percent, which would have resulted in charges of $21,231. Therefore, 

the OIG questioned $28,769 that the subrecipient received, but to which it was 

not entitled. 

Finding 2. Overstated Labor Charges. The subrecipient’s claim included 

$19,000 in excess force account labor costs not based on the subrecipient’s 

written compensation policy in effect before the disaster. The $19,000 of 

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Department of Homeland Security 

excessive costs occurred because the subrecipient paid double time for all 

hours worked, including regular hours, when an employee worked 

16 consecutive hours during a work period. However, according to the 

subrecipient’s compensation policy and labor union contract, employees who 

work between 8 and 16 consecutive hours during a work period receive pay at 

time-and-a-half rates, and all hours greater than 16 would be paid at doubletime rates. Therefore, the OIG questioned the $19,000 of excessive force 

account labor costs that were not consistent with the subrecipient’s 

established compensation policy. 

G. Unrelated Project Charges 

Criteria: According to Federal cost principles (2 CFR 200.403(a)), charges to 

Federal grants must be necessary and reasonable for the performance of the 

Federal award. In addition, to be eligible for FEMA funds, an item of work must 

be required because of the major disaster event (44 CFR 206.223). Therefore, 

the subrecipient must substantiate that its claimed costs directly relate to the 

disaster. The subrecipient must also establish a clear relationship between 

claimed costs and the scope of work recorded on a project worksheet. 

Finding 1. Non-Disaster Related Costs. The subrecipient claimed $267,000 

for materials ($254,000 for transformers and $13,000 for utility poles) that it 

used for non-disaster-related repairs. However, the OIG determined that the 

subrecipient did not use either the $254,000 of costs for the transformers or 

the 13,000 for utility poles for disaster purposes. The non-disaster claim of 

$254,000 for transformers occurred because the subrecipient based its claim 

on invoices for all transformers purchased after the disaster. The non-disaster 

claim of $13,000 for utility poles occurred because the subrecipient did not 

adjust its inventory for, and inadvertently included costs for poles it used on a 

non-disaster work order in its claim. The subrecipient later adjusted the 

inventory, but did not credit the FEMA project. Therefore, the OIG questioned 

the $267,000 of non-disaster-related costs charged to the project. 

H. Unapplied Credits 

Criteria: According to Federal cost principles (2 CFR 200.406), credits 

accruing to or received by a non-Federal entity that relate to allowable costs 

must be credited to the Federal award either as a cost reduction or cash 

refund, as appropriate. 

Finding 1. Overstated Claim. The subrecipient overstated its claim under 

several projects because it did not reduce project costs for $42,000 of credits 

received on fuel and material costs and proceeds from sales of scrap. Therefore, 

the OIG questioned $42,000, as unapplied credits. 

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OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

I. Direct Administrative Costs 

Criteria: Federal regulations (44 CFR 207.5) and FEMA’s PAPPG, identify 

“section 324 management costs,” and other grant management and 

administrative costs that are eligible under the PA Program. The Policy also 

clarifies the process through which recipients and subrecipients can request 

reimbursement for these costs. Federal regulations and FEMA policy state: 

x	 Direct Administrative Costs (DAC) include costs that can be tracked, 

charged, and accounted for directly to a specific eligible project, such as 

staff time to complete field inspection and preparation of a project 

worksheet (FEMA Policy 104-009-2, Chapter II, section V.N.2, 

April 2017). 

x	 Indirect Costs are costs a recipient incurs for a common or joint purpose 

benefiting more than one cost objective that are not readily assignable to 

the cost objectives specifically benefited (44 CFR 207.2). 

x	 Indirect costs may not be charged directly to a project or reimbursed 

separately, but are considered to be eligible management costs (44 CFR 

207.6(b)). 

x	 Management Costs are any indirect costs, administrative expenses, and 

any other expenses that a recipient or subrecipient reasonably incurs in 

administering and managing the PA grant that are not directly 

chargeable to a specific project, but are reasonably incurred in the 

administration of the grant award (44 CFR 207.2). 

x	 Pass-through funds are the percentage or amount of management costs 

that the grantee (recipient) determines it will make available to the 

subgrantees (subrecipients) (44 CFR 206.207(b)(1)(iii)(K)). 

x	 Costs must be necessary and reasonable to be allowable under Federal 

awards (2 CFR 200.403(a)). 

According to Chapter II, section V. N.1 and N.2 of the PAPPG, recipients and 

subrecipients cannot charge costs to a project if it previously allocated similar 

costs for the same purposes in like circumstances to indirect costs. Direct 

costs may be appropriate only if they meet all of the following conditions: 

x Administrative or clerical services are integral to a project or activity; 

x Individuals involved are specifically identified with the project or activity; 

x Such costs are explicitly included in the budget for the project or have 

FEMA’s prior written approval; and 

x The costs are not recovered as indirect costs. 

Finding 1. Cost Allocations. The subrecipient claimed $2,272,675 as direct 

administrative costs, but could not track the costs separately to specific 

projects. The subrecipient allocated its administrative, travel, and per diem 

costs over all the projects. The OIG questioned the $2,272,675 because the 

subrecipient could not trace the costs directly to specific projects; therefore, the 

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Department of Homeland Security 

costs were indirect costs incurred for a common purpose. Although allocating 

administrative costs over all the projects may have been acceptable for project 

formulation (initial estimation of project cost) and/or to expedite the funding 

process, it is not acceptable for claiming direct administrative costs. 

Finding 2. Contractor Direct Administrative Costs. The subrecipient 

claimed $590,847 in ineligible direct administrative costs that included indirect 

activities (such as attending disaster briefings and completing preliminary cost 

estimates) and billings above contracted rates. This occurred because 

subrecipient officials did not consistently monitor contractor performance to 

ensure contractors completed eligible work based on contracted rates. Also, the 

subrecipient did not follow FEMA’s guidance on direct administrative costs 

allowances. As a result, the OIG questioned $590,847 as ineligible DAC. 

J. Obtain and Maintain Insurance 

Criteria: Section 311 of the Stafford Act 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 flood 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. 

Finding 1. Flood Insurance Requirements. The subrecipient did not obtain 

$52 million of required flood insurance coverage for its replaced disasterdamaged facilities, which is a condition for receiving Federal disaster 

assistance. As a result, the subrecipient does not have adequate flood 

insurance coverage to meet Federal regulation insurance requirements to 

protect it and taxpayers in future disasters. The subrecipient should have 

obtained and maintained $52 million in flood insurance or received an 

exemption from insurance requirements from its State insurance 

commissioner. Therefore, the OIG recommended that FEMA disallow as 

ineligible $52 million for its new buildings unless the subrecipient obtains the 

required insurance coverage or obtains an exemption. 

15 www.oig.dhs.gov OIG-17-120-D 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Key Points to Remember When Administering FEMA Grants 

1. Designate a person to coordinate the accumulation of records. 

2. Establish a separate and distinct account for recording revenue and 

expenditures, and a separate identifier for each distinct FEMA project. 

3. Ensure that the final claim for each project is supported by amounts 

recorded in the accounting system. 

4. Ensure each expenditure is recorded in the accounting books and is 

referenced to supporting source documentation (checks, invoices, etc.) that 

can be readily retrieved. 

5. Research insurance coverage and seek reimbursement for the maximum 

amount. Credit the appropriate FEMA project with that amount. 

6. Check with your Federal Grant Program Coordinator about the availability 

of funding under other Federal programs (Federal Highway, Housing and 

Urban Development, etc.) and ensure that the final project claim does not 

include costs that another Federal agency funded or should have funded. 

7. Ensure that materials taken from existing inventories for use under FEMA 

projects are documented by inventory withdrawal and usage records. 

8. Ensure that expenditures claimed under the FEMA project are reasonable 

and necessary, are authorized under the scope of work, and directly benefit 

the project. 

9. Ensure proper grant administration is established and enforced throughout 

the duration of the grant. 

16 www.oig.dhs.gov OIG-17-120-D 
________________________________________________________________________ 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Disaster Fraud Hotline 

The DHS OIG not only conducts audits, but also aggressively investigates 

allegations of fraud, waste, and abuse. Below are a few of the more common 

allegations reported through our Hotline. 

 Disaster assistance applicants use false names and/or fictitious 

addresses. 

 Disaster assistance applicants claim losses that they did not incur or 

were not entitled to claim. 

 Private individuals claim to be FEMA employees. 

 Disaster fund recipients are victimized by contractors who inflate repair 

fees and/or fail to properly complete repairs. 

 Disaster fund recipients damage their own properties to receive disaster 

assistance. 

 Recipients do not use FEMA funds for the purpose intended. 

If you have knowledge of fraud, waste, or abuse, or allegations of 

mismanagement involving disaster relief operations, you can: 

x Call the Disaster Fraud Hotline at 1-866-720-5721 

x Fax the Disaster Fraud Hotline at 1-225-334-4707 

x Email: disaster@leo.gov 

x Or write: National Center for Disaster Fraud 

Baton Rouge, LA 70821-4909 

Calls can be made anonymously and 

confidentially
 

17 www.oig.dhs.gov	 OIG-17-120-D 
Additional Information and Copies 

To view this and any of our other reports, please visit our website at: 

www.oig.dhs.gov. 

For further information or questions, please contact Office of Inspector General 

Public Affairs at: DHS-OIG.OfficePublicAffairs@oig.dhs.gov. 

Follow us on Twitter at: @dhsoig. 

OIG Hotline 

To report fraud, waste, or abuse, visit our website at www.oig.dhs.gov and click 

on the red "Hotline" tab. If you cannot access our website, call our hotline at 

(800) 323-8603, fax our hotline at (202) 254-4297, or write to us at: 

Department of Homeland Security 

Office of Inspector General, Mail Stop 0305 

Attention: Hotline 

245 Murray Drive, SW 

Washington, DC 20528-0305