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The State of New Jersey Did Not Fully Comply With Federal Procurement and Cost Principle Requirements in Implementing Its Tourism Marketing Program

We audited the State of New Jersey’s Community Development Block Grant Disaster Recovery-funded tourism marketing program.  We conducted the audit based on a congressional request to review the State’s Hurricane Sandy tourism marketing contract bidding process and the appropriateness of the content of its marketing campaign.  Our objectives were to determine whether the content of the marketing campaign was proper and whether the State procured services and products for its tourism marketing program in accordance with applicable Federal procurement and cost principle requirements. 

The audit found nothing improper in the content of the State’s marketing campaign.  The State was challenged to quickly launch the campaign before the 2013 summer beach season.  However, although the State complied with HUD instructions by certifying that its policies and procedures were equivalent to Federal procurement requirements, it did not procure services and products for its tourism marketing program in a manner that fully met the intent of the Federal requirements.  It did not immediately address the need for a required independent cost estimate and cost analysis before awarding a contract with a budget of up to $25 million for marketing and outreach services.  The regulations required the State to make independent estimates before receiving bids or proposals.  They also required the State to perform a cost analysis.  Also, the State could not demonstrate that purchases of marketing services and products were made competitively and that the winning contractor had timesheets to support wages and salaries it charged to the program.  These deficiencies occurred because the State was not fully aware of Federal procurement and cost principle requirements.  As a result, the State needed to fully demonstrate that the budgeted contract amount was fair and reasonable and that $23 million it had disbursed under the contract was adequately supported.  The State began taking corrective actions at the end of 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’s Deputy Assistant Secretary for Grant Programs determine whether corrective actions and documentation the State began providing at the end of the audit are adequate to show that (1) the overall contract price was fair and reasonable, (2) $19.5 million disbursed under the contract for marketing costs was fair and reasonable, and (3) $3.5 million disbursed under the contract for labor costs was allowable and supported or direct the State to repay HUD from non-Federal funds for any amount that it cannot support.