HUD Inspector General: No “reasonable assurance” that ReBuild NC properly spent $2.5 million on Hurricane Matthew disaster relief

Laura Hogshead, director of the NC Office of Recovery and Resiliency, (left) and Ivan Duncan, program delivery manager, appeared before a state government oversight subcommittee last week (Image capture livestream screen)

A new federal inspector general report found that ReBuild NC could not provide “reasonable assurance” that $2.5 million in Hurricane Matthew disaster relief funds had been “properly spent,” according to an audit dated September 16 and released by the US Department of Housing. and urban development.

If the state cannot provide documentation for these expenses, it must reimburse these funds to HUD.

HUD donated $236.5 million for Hurricane Matthew disaster relief to ReBuild NC, also known as the NC Office of Recovery and Resiliency. More than four years after the appropriation, thousands of people remain outside their homes.

The construction delays are so severe that a state government oversight subcommittee held a hearing last week into ReBuild NC’s mismanagement of the program.

ReBuild spent $145.3 million — or 61% — of its Hurricane Matthew HUD allocation. Nearly 10% of that money was spent housing hurricane survivors in motels, apartments, with family or friends.

During the legislative hearing, NCORR director Laura Hogshead told lawmakers that only 789 homes had been built. However, it’s unclear if the total includes approximately 150 homes that were built in Robeson County before ReBuild NC took over that county’s program. Policy Watch asked for clarification.

Inspector General’s Office

The Inspector General’s audit covers prior transactions, in 2018 and 2019. These purchases spanned the time the North Carolina Department of Commerce and the state’s Division of Emergency Management shared the program administration tasks – from August 2017 to December 2018 – and when ReBuild NC took over in January 2019.

ReBuild NC, however, is the responsible entity representing the state to HUD, according to the audit.

The audit found that although ReBuild NC “mainly tracked” payment requirements, several invoices were vague and did not provide the details necessary to substantiate expenditures.

These errors occurred, according to the audit, because ReBuild NC did not fully follow and understand its contractual requirements. ReBuild NC’s procurement policy also did not clearly address this process for its staff to follow.

The Inspector General based some of his findings on a review of 25 payments, amounting to $5.5 million.

All of the payments reviewed were for monthly project management expenses outsourced to an outside firm, HORNE, whose deal with ReBuild NC began in 2019, according to state records. Three invoices were not accompanied by adequate documentation: two were the responsibility of Commerce/Emergency Management Division, and one was the responsibility of ReBuild NC, for a total of $2.5 million.

Furthermore, the audit revealed several shortcomings in ReBuild NC’s procurement process. These findings were based on a review of three contracts worth $68.6 million.

ReBuild NC failed to provide adequate documentation to support “reasonableness of costs”. To justify costs, HUD grant recipients, including ReBuild NC, must complete a price analysis for each contract.

Grant recipients are also required to independently calculate cost estimates before publish a call for tenders. This allows grant recipients to determine whether an offer is reasonable, inflated, or even artificially low. Failure to make these estimates before the bidding process begins violates federal regulations, according to the audit.

For example, in 2019, ReBuild NC issued a tender for construction management services, but without first conducting an independent estimate. Although ReBuild NC made this estimate before the bids arrived, it was only $4.6 million, according to the audit. That’s far less than the average of the six deals – $16.2 million.

ReBuild NC told HUD it underestimated the number of hours needed, resulting in a low number. However, this information was not documented in the file to explain the discrepancy.

Rebuild NC eventually signed a contract with AECOM for $16.8 million. ReBuild did not renew its AECOM contract this year, in order to save money, Hogshead previously told Policy Watch.

In his written response to the HUD Inspector General, Hogshead said a cost estimate is only required before an offer if it is “non-competitive” — a single-vendor proposal. HUD responded that federal disaster relief funding requires this estimate whether the bid is competitive or not.

Mike Sprayberry former Director of the Emergency Management Division

Some of ReBuild’s issues predate its creation by the legislature in late 2018. From 2016 until early 2019, Mike Sprayberry was the director of the Emergency Management Division. It was under its watch — and that of the Department of Commerce — that HUD named North Carolina a “slow spender” of Hurricane Matthew disaster relief funds. Such a designation may jeopardize a state’s receipt of future federal disaster relief funds.

Also during this period, the Emergency Management Division signed a $16.7 million contract with the IEM for project management services. The contract contained “unsubstantiated cost estimates,” the recent HUD audit said.

(That contracting process was also difficult. As WBTV’s Nick Ochsner reported at the time, Sprayberry tried to steer the contract to another company, ESP; IEM eventually won a new bid.)

Hogshead wrote to the Inspector General that ReBuild NC inherited some of its contracting practices and has since changed them, stating that “invoicing documentation requirements have been strengthened and the type of documents required are more robust. NCORR will work diligently to support payments identified by the Office of Inspector General.

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