We audited the State of New Jersey’s Community Development Block Grant Disaster Recovery-funded Superstorm Sandy Housing Incentive Program contract.  We conducted the audit because the contract involved a significant amount of funds ($67.7 million), was critical to the implementation of three of the State’s disaster programs, and was terminated less than 1 year into the 3-year contract term.  Our objective was to determine whether the State disbursed disaster funds to its contractor in accordance with U.S. Department of Housing and Urban Development (HUD), Federal, and other applicable requirements for costs that were eligible, supported, reasonable, and necessary.

The State did not disburse disaster funds to its contractor in accordance with HUD, Federal, and other applicable requirements.  Specifically, it did not ensure that (1) disbursements met a national objective, (2) expenses were incurred after the contract was executed, (3) other direct costs were fully supported and the prices paid were fair and reasonable, (4) labor costs were fully supported, (5) travel costs were fully supported, and (6) disbursements were for costs that were reasonable and necessary.  Further, the State did not show that it properly managed equipment purchased with disaster funds.  These conditions occurred because the State did not have adequate controls in place to administer its contract and monitor contract performance and was not fully aware of Federal procurement and cost principle requirements.  As a result, HUD did not have assurance that the $43.1 million disbursed under the contract was for costs that were eligible, supported, reasonable, and necessary.

We recommend that HUD require the State to provide documentation to show that the $43.1 million disbursed under the contract was for costs that met a national objective and were supported, reasonable, and necessary or direct the State to repay HUD from non-Federal funds.  Further, HUD should require the State to repay HUD from non-Federal funds for the $128,990 in charges incurred before the contract effective date.  HUD should also require the State to implement controls to ensure that it adequately administers current and future contracts related to disaster funds, adequately monitors contract performance, and takes appropriate action when contractors fail to meet performance goals stated in the contract.