We audited the State of Louisiana's (State) additional compensation grant (grant) component of the Road Home homeowner assistance program, managed by the State's contractor, ICF Emergency Management Services, LLC (ICF), in conjunction with the Office of Inspector General (OIG) Gulf Coast Region's audit plan and examination of relief efforts provided by the federal government in the aftermath of Hurricanes Katrina and Rita. Our audit objectives were to determine whether (1) applicants were eligible to receive the grant; and (2) the State ensured that grant income policies and procedures were in accordance with HUD rules and regulations and ensured that its contractor followed them.

The State did implement grant income policies and procedures as required by HUD rules and regulations. However, those policies and procedures were not sufficient to ensure that all applicants were eligible to receive their grant. Of 45 grants sampled, the State funded nine (20 percent) grants, totaling $263,959 that were either ineligible or unsupported. In addition, the State did not ensure that its contractor followed its policies and procedures for another 24 grants (53 percent), but the errors did not impact the grants' eligibility. These conditions occurred because the State did not ensure that its contractor's controls were sufficient to catch errors and that its policies and procedures were followed when determining eligibility. Further, although the State's contractor performed a review of all 45 grants sampled, issues remained undetected. As a result, based on a statistical projection, our best estimate is that the State spent $70 million on ineligible grants, and $57.4 million on unsupported grants, disbursed between June 12, 2006, and October 13, 2007.

We recommend that HUD's General Deputy Assistant Secretary for Community Planning and Development require the State to repay amounts disbursed for ineligible grants to its Road Home program, either support or repay amounts disbursed for unsupported grants, ensure that its contractor follows the established policies and procedures, ensure that its contractor's postclosing reviews detect and correct errors, and review the remaining 21,672 grants disbursed between June 12, 2006, and October 13, 2007, to ensure that grants were eligible and supported. By reviewing these grants, we estimate that the value of questioned costs will total more than $70 million for grant disbursements to ineligible participants and more than $57.4 million for grant disbursements to participants whose eligibility was not adequately supported.