We audited the U. S. Department of Housing and Urban Development (HUD) Community Development Block Grant (CDBG), Supplemental II Disaster Recovery program, funds, administered by the Texas Department of Housing and Community Affairs (TDHCA). Specifically, we wanted to determine whether TDHCA followed Federal and State of Texas (State) regulations in procuring the program management firm to administer the Housing Assistance and Sabine Pass Restoration Programs. This is the third audit of the State Disaster Recovery funds conducted as part of the Office of Inspector General’s (OIG) commitment to HUD to implement oversight of the Disaster Recovery funds to prevent fraud, waste, and abuse.

TDHCA did not follow requirements or best practices in the acquisition of its Disaster Recovery-funded program management firm (Firm). Specifically, it accepted and approved the only proposal received when the proposal’s cost exceeded the request for proposals’ specification by $3.68 million. TDHCA made material changes to the contract that increased the maximum cost by $1.99 million, budgeted $210,000 in prohibited costs, and contracted to pay the Firm using multiple payment types including $2.23 million for a cost plus a percentage of cost type, which is prohibited by Federal regulations. In addition, TDHCA’s contract with the Firm lacked sufficient detail tying construction management services and oversight to the payment and budget section costs for the proper identification and allocation of $14.33 million in costs. As a result, TDHCA cannot ensure it received the best value to the State, and its contract included ineligible and unsupported costs of almost $18.76 million.

We recommend that HUD’s Disaster Recovery Assistance and Special Issues Division Director require TDHCA to (1) adopt sound agency business procedures for Disaster Recovery-funded procurements in accordance with State policy, (2) train its staff to ensure that they follow its policies, (3) reimburse its Disaster Recovery account for $2.44 million in ineligible costs, (4) provide support for or reimburse $16.32 million in unsupported costs, and (5) modify its contract language.