Audit Exposes Millions Unaccounted For In FEMA Spending

Tristyn Bloom Contributor
Font Size:

A New Orleans non-profit that has spent over $19 million in disaster relief funds after Hurricane Katrina has only accounted for a fraction of its spending years later, a recent government audit has uncovered.

After Hurricane Katrina devastated New Orleans in 2005, the governor’s office awarded the New Orleans Research and Technology Foundation, a non-profit that supports the Louisiana State University system, $11.2 million for 12 major repair and recovery projects. Nearly a decade later, not only has the Foundation only accounted for $5.3 million of its spending, but it has actually spent significantly more than it was granted, and never requested authorization for these so-called “cost overruns.”

The Foundation also failed to follow federal contracting guidelines. “As a result,” the report explains, “open and free competition did not occur. FEMA also has no assurance that contract costs were reasonable or that small businesses, minority-owned firms, and women’s business enterprises had sufficient opportunities to bid on Federally funded work.” All told the Homeland Security Inspector General questioned $7,875,262 of spending on these grounds.

Federal regulations require that disaster relief grantees “perform procurement transactions in a manner to provide, to the maximum extent practical, open and free competition” and “make positive efforts to use small businesses, minority-owned firms, and women’s business enterprises, whenever possible.”

“Rather than compete these contracts in an open and free manner, Foundation officials notified contractors by word-of-mouth or by phoning known contractors about the required pre-bid conference,” the audit found. “Foundation officials said these contracts were competitive because they did not limit the competition to only the contractors they had contacted; they allowed any contractor that attended the pre-bid conference to bid. We disagree.” (RELATED: FEMA Wasted Millions Replacing Buildings That Only Needed Repairs)

The Inspector General also took issue with FEMA’s routine disregard of federal regulation, noting that “FEMA’s general practice has been to allow contract costs it considers reasonable regardless of noncompliance with Federal procurement regulations for open and free competition. We do not agree with this practice… Open and free competition not only provides an environment for obtaining reasonable pricing from the most qualified contractors, it also discourages favoritism, collusion, fraud, waste, and abuse.”

Nearly $2 million in “ineligible contract markups” on labor and materials was also questioned. When questioned about the markups, Foundation officials said they thought they told their insurance adjuster to tell the contractor to remove them from the invoice. Turns out he didn’t. Oops.

While all the disaster relief projects were completed over four years ago, the Foundation still hasn’t explained the vast majority of its spending, officially claiming just $5.3 million despite having incurred costs of $19 million. “These reconciliation problems,” as the report calls them, “make it impossible for FEMA to determine the precise status of Federal appropriations.” The Foundation blamed this, and the $7 million in cost overruns, on their desire to reopen buildings quickly.

“They told us that they are working as quickly as possible to prepare accurate documentation to submit to Louisiana,” the report noted. Things do reportedly tend to take a bit longer in the South.

The report also found fault with the state of Louisiana itself: “5 years ago, FEMA notified Louisiana that at least 6 of the 12 projects were 100 percent complete. The Foundation incurred $10,804,579 for these six projects. However, Louisiana did not report these projects complete until the second quarter of 2013, over 4½ years later.”

All told the audit recommended that nearly $10 million of the Foundation’s spending be disallowed. The report also originally recommended that Louisiana close all 12 of these long-finished projects within 6 months. However, after meeting with FEMA officials, they lengthened the time frame to 12 months, since expecting the Louisiana state government to do anything that quickly is unrealistic.

The report also notes that “Louisiana and Foundation officials generally disagreed with our findings and recommendations.”

Follow Tristyn on Twitter.