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The U. S. Department of Housing and Urban Development’s Office of Inspector General (HUD OIG) audited the Housing and Urban Development (HUD) Community Development Block Grant (CDBG), Supplemental I and II Disaster Recovery program funds, administered by the Texas Department of Housing and Community Affairs (TDHCA). Specifically, we wanted to determine whether TDHCA administered the floodplain management program as required by federal, state, and local policies and whether it protected HUD’s CDBG investments in properties reconstructed or rehabilitated with Disaster Recovery program funds against future potential losses.

TDHCA generally administered the program funds in accordance with applicable federal, state, and local floodplain regulations and policies. However, its action plan did not require homeowner’s insurance on properties reconstructed or rehabilitated with Supplemental I funds, and its grants required only 3 years of homeowner’s insurance for homes reconstructed or rehabilitated with Supplemental II funds. Due to the lack of or limited insurance, HUD’s CDBG Disaster Recovery funds invested in the homes provided to the disaster victims are at risk of loss. Of a sample of 59 Supplemental I funded homes tested, 38 were later damaged by another hurricane or storm. Of the 38 homes, 23 did not have insurance. Based on a projection of the sample results, at least 133 of 453 reconstructed or rehabilitated homes, or homes awaiting reconstruction, lacked insurance and were damaged or are at risk of being damaged by another storm. If TDHCA changes and improves its action plan and policies, an estimated $ 60.2 million of program funds could be saved.

We recommend that HUD’s Director of Disaster Recovery Assistance & Special Issues Division request TDHCA to modify its action plan to provide homeowner’s insurance for a period equitable to the amount of funds invested, request the homeowner to obtain homeowner’s insurance as a prerequisite to obtaining assistance for a period equitable to the amount of funds invested, or prohibit the homeowner from receiving future Disaster Recovery assistance if an insurance policy is not maintained on a newly reconstructed or rehabilitated home.