We audited the State of New Jersey’s Community Development Block Grant Disaster Recovery-funded Sandy Integrated Recovery Operations and Management System.  We conducted the audit based on the significant amount of funds associated with the system and the importance of the system to the successful implementation of the State’s Disaster Recovery grant.  Our objective was to determine whether the State procured services and products for its system in accordance with Federal procurement and cost principle requirements.

The State did not procure services and products for its system in accordance with Federal procurement and cost principle requirements.  Specifically, it did not prepare an independent cost estimate and analysis before awarding the system contract to the only responsive bidder.  Further, it did not ensure that option years were awarded competitively and included provisions in its request for quotation that restricted competition.  It also did not ensure that software was purchased competitively and that the winning contractor had adequate documentation to support labor costs charged by its employees.  These issues show that the State’s process was not equivalent to Federal procurement standards; therefore, its certification to the U.S. Department of Housing and Urban Development (HUD) was inaccurate.  These conditions occurred because the State was not fully aware of the applicable requirements.  As a result, it did not demonstrate that the overall contract price of $38.5 million and option years totaling another $21.7 million were fair and reasonable and that the $1.5 million it disbursed was adequately supported.  The State began taking corrective actions during the audit and began providing some documentation to resolve these deficiencies.  HUD needs to assess the documentation to determine the appropriateness of all contract costs.

We recommend that HUD determine whether corrective actions and documentation the State provided are adequate to show that the $38.5 million contract price for the initial 2-year period was fair and reasonable and that $1.5 million disbursed for software and labor costs was allowable and supported or direct the State to repay HUD from non-Federal funds.  Further, HUD should determine whether the documentation provided is adequate to show that the contract price for the three additional option years was fair and reasonable or direct the State to rebid for the additional option years, thereby putting $9.1 million to better use.