We audited the State of Mississippi's Development Authority's (Authority) Homeowners Assistance Program (Program), implemented by Reznick Group and Reznick Mississippi, LLC (contractor). We initiated the audit 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 objective was to determine whether the Authority ensured that the contingency amounts were eligible and supported.

We found that the Authority executed a contract, which included an ineligible provision that allowed its contractor to bill and receive payment for ineligible and unsupported contingency amounts. The Authority paid these amounts to its contractor because it was unaware of federal prohibitions. As a result, the Authority paid its contractor more than $3.9 million for ineligible and unsupported contingency amounts during the period May 10, 2006, to August 29, 2007. In addition, $243,210 in contingency amounts in the contract remained unpaid and could be put to better use.

We recommend that the U.S. Department of Housing and Urban Development's (HUD) General Deputy Assistant Secretary for Community Planning and Development require the Authority to repay the Program from nonfederal funds more than $3.9 million, which it disbursed for ineligible and unsupported contingency amounts; cease from making further contract payments for $243,210 in contingency amounts, which could be put to better use; and develop and implement a process to ensure that all future contracts and amendments involving State of Mississippi Community Development Block Grant disaster recovery funds do not include such ineligible provisions and amounts.