The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) is auditing the use of Community Development Block Grant Disaster Recovery (CDBG-DR) funds as non-Federal match for the Federal Emergency Management Agency’s (FEMA)Public Assistance Program.  Our objectives are to determine whether four CDBG-DR grantees made improper payments and whether the Office of Community Planning and Development’s Office of Disaster Recovery (CPD ODR) had sufficient and adequate controls to prevent improper payments.  While performing this work, we identified an issue that was outside the scope of our current work and requires prompt attention from CPD ODR.  The objective of this interim report is to notify CPD ODR officials of the issue so they can take immediate action.

We determined that CPD does not collect accurate, reliable financial and activity data related to activities in which disaster recovery funds were used to satisfy the matching requirement for other Federal, State, or local programs (match activities).  In our ongoing audit, our sample of four disaster recovery grantees either did not report or reported incomplete information related to their match activities.  This condition occurred because CPD recommends but does not require that such information be reported.  Therefore, there is a risk of incomplete or inaccurate reporting of match activity data for the remaining 75 active disaster recovery grantees.  Due to the increased fraud risk that match activities may result in the possible duplication of payments for the same expenses, the collection of this information would be valuable to HUD’s fraud risk management program.  Requiring this data would also assist HUD in advancing its data analytics strategy and could result in the prevention and detection of potential improper payments or fraud in this area.  Additionally, it would provide increased transparency and could improve HUD’s overall grantee oversight.

We are recommending that CPD ODR require active disaster recovery grantees to report in DRGR other sources of funding used for non-Federal match activities.  In addition, CPD ODR needs to develop and implement internal controls to ensure that grantees completely and accurately report non-Federal match activities in DRGR.