We audited the State of North Carolina’s Community Development Block Grant Disaster Recovery (CDBG-DR) funds. We initiated this audit as part of our commitment to helping the U.S. Department of Housing and Urban Development (HUD) address its top management challenges and to support HUD’s strategic objective to support effectiveness and accountability in long-term disaster recovery. Further, Congress has expressed strong interest in HUD’s disaster programs. Our audit objective was to determine whether the State had sufficient capacity to administer its CDBG-DR funds and followed disbursement and procurement requirements related to those funds.
The State generally had capacity. It had staffing capacity, maintained an internal auditor position, and had policies in place for administering CDBG-DR funds. The State also mostly followed disbursement requirements. Of the 25 disbursements reviewed, only 3 (12 percent) were not adequately supported with required documentation. However, the State’s procurement process needs improvement. The three procurements reviewed lacked or did not have adequate documentation to support (1) that cost reasonableness was properly assessed or (2) that it prepared independent cost estimates before the bidding process as required by Federal regulations and its own policy, respectively. These conditions occurred because the State did not follow its disbursement procedure and did not fully understand the procurement requirements. In addition, the State’s procurement policy did not clearly address the procurement process for its staff to follow. As a result, the State could not provide reasonable assurance to HUD that more than $2.5 million of $5.4 million in CDBG-DR funds reviewed was spent properly.
We recommend that the Deputy Assistant Secretary for Grant Programs require the State to (1) provide adequate documentation to support that more than $2.5 million in CDBG-DR funds was spent for necessary and reasonable costs or repay the funds, (2) update its procurement policy, and (3) provide training to its staff to ensure that it understands and follows requirements to maintain adequate documentation to support program disbursements that are eligible and reasonable and procurement requirements, including completing independent cost estimates and cost analyses.