Four Puerto Rico government agencies are experiencing delays in the disbursement of recovery funds related to the aftermath of Hurricanes Irma and María for failing to correct a series of problems related to how they handled money granted by the Federal Emergency Management Agency (FEMA) that the U.S. Department of Homeland Security’s Office of the Inspector General (OIG) flagged in audits conducted in 2019.
The Central Office of Recovery, Reconstruction and Resiliency, known as COR3, Executive Director Ottmar Chávez Piñero said the audit´s claims do not limit further approvals of recovery funds by FEMA, but they do affect the process of disbursement of these monies to the agencies. COR3 is the entity in charge of channeling FEMA funds to public agencies, municipalities and nonprofit organizations.
“Completing the corrective actions is certainly going to have an impact on the disbursement [of funds]. Within the grant validation process, in terms of compliance, we have to be sure that these agencies abide by the results of the audits, as part of the checklists. If they go uncorrected, they could have an impact on disbursement,” said Chávez Piñero.
The OIG evaluated the policies of use, contracting, and payroll payments of the departments of Housing, Education, the Department of Transportation and Public Works (DTOP, in Spanish) and the Puerto Rico Aqueduct and Sewer Authority (PRASA), related to FEMA Public Assistance program funds. The investigations focused on the management of the money assigned under Categories A and B, which includes debris removal and disaster mitigation, for the period from September 2017 to Dec. 14, 2018.
The audits did not establish penalties on the federal and local agencies evaluated. The OIG limited itself to offering recommendations to correct the problems and avoid fraud or misuse of public money in future disbursements.
FEMA had allocated $2,072,775,349 in Public Assistance funds to these four agencies through July 20, 2020, according to the COR3 website. Of this money, which corresponds to the work done during the emergency that began almost three years ago, the government has received $1,664,726,276, or 80.3%, the majority of which has gone to the Puerto Rico Department of Housing. The remainder has not yet been disbursed due to the planning, development and evaluation process that FEMA ordinarily requires to assign and disburse funds, in addition to compliance with the OIG audit reports that have not yet been fully corrected.
In audits conducted by Williams, Adley & Company – DC, all four agencies were found to lack adequate controls to prevent fraud or misuse of public money, such as having structured processes to document the use of FEMA Public Assistance program funds.
The findings point to FEMA and COR3 as being responsible for failing to provide adequate technical assistance to local agencies to avoid mismanagement of funds, especially when covering payroll, granting contracts, or procuring services during the recovery process in the months after Hurricane María made landfall in 2017.
Chávez Piñero rejected that claim, stating that COR3 has established technical training workshops for subrecipients of FEMA funds.
“Over the past year, our grant division has developed several online training modules for subrecipients on procurement requirements and using the Disaster Recovery System (DRS) tool to initiate the reimbursement request process. This training provided specific guidance on how to present the required documentation to support project costs, including labor costs,” said Chávez Piñero in a letter sent to FEMA Region II Regional Administrator Thomas Von Essen.
The audit done at the DTOP, for example, found flaws in granting recovery works contracts. The evaluation of 11 contracts awarded by DTOP — worth approximately $229 million — found that the contractors were not registered in the U.S. System for Award Management (SAM.gov) and excluded a detailed analysis of each applicant’s rates.
Similarly, the agreements did not subscribe to the provisions of FEMA’s Uniform Rules that establish a series of clauses that must be included in contracts involving federal funds. According to the OIG, those provisions were omitted from three debris removal contracts that the DTOP awarded and totaled $500,000.
Secretary of Transportation and Public Works, Carlos Contreras, justified the omission by saying that the contracts were awarded at a time when Puerto Rico was in the midst of the emergency after Hurricane María struck, prompting ordinary procedures not to be followed. In light of the indications, Contreras said “adjustments have been made and processes have been improved” to avoid making this type of mistake in the future. But he did not provide an updated list that shows which of the issues have already been resolved and which have not.
He said he has not received any information about how the warnings could limit the disbursement of remaining recovery funds, as opposed to what the executive director of COR3 told the Center for Investigative Journalism (CPI, in Spanish).
“If funds are limited, then it has an effect. But in the case of the DTOP, nothing has been said that funding may be affected. So, it’s a hypothetical situation that I cannot comment on,” he said.
As of July 20, FEMA has obligated $254,895,257 to DTOP under the Public Assistance A and B categories, of which only $183,613,827, or 72%, has been disbursed.
The OIG also wanted to evaluate DTOP’s payroll management processes. However, the federal agency claims that the DTOP did not provide the information requested and it took three months to respond to the requirements needed to complete the audit.
Specifically, the DTOP did not provide the timesheets of 10 randomly selected employees who were part of the group of 629 workers on payroll between September and December 2017. Furthermore, when the audit was released, the agency still had not claimed the funds to reimburse payroll payments to employees under categories A and B, although more than 18 months had passed since Puerto Rico’s disaster declaration.
Contreras declined to comment on allegations from Williams, Adley & Company–DC’s auditors about DTOP’s poor collaboration with the audit process.
In the case of the Puerto Rico Department of Housing, the audit found that the agency incorrectly entered its employees’ overtime timesheets in the payroll system, which caused the additional wages and benefits for some employees to be wrong.
The OIG evaluated the wages that Housing paid 15 employees, and that FEMA would later reimburse through the Public Assistance program. The auditors compared the hours reported with the salaries that the agency paid and found that six of those employees received $3,846.60 less than the reported hours. For example, auditors found that one of the workers had accrued a total of $3,413.92 in overtime. However, the Department of Housing only paid $432.68.
The remaining nine were overpaid, totaling $3,650.27 in excess distributed funds. FEMA and COR3 were advised to order Housing to conduct a payroll review for the remaining 123 employees who were paid between September and December 2017.
The recommendation did not specify which actions the agency should take. It was also unclear whether the money owed to underpaid employees would be paid or if overpaid workers should return the amount in question.
The Department of Housing did not respond to the CPI’s requests for an interview.
The OIG also found that PRASA did not follow established procedures to ensure that each provider had a certificate of eligibility on SAM.gov before granting a contract.
“PRASA did not confirm that suppliers had the appropriate certificate of eligibility in 2017,” the audit states, which evaluated five of 21 contracts awarded between September and December 2017 estimated at $9,687,524 combined.
However, PRASA Executive President Doriel Pagán contested the statement, saying the agency conducts its procurement processes through the General Services Administration of Puerto Rico. She insisted that PRASA “fulfilled all emergency procurement process requirements.”
PRASA was also pointed out for having claimed an additional $72,304 in the request for reimbursement of costs for the use of generators. PRASA attributed the problem to the fact that corporation employees incorrectly registered the consumption of the generators instead of using units in kilowatts (KW).
The rest of the claims remain unsolved.
The audit indicates that the Department of Education (DE) did not submit requests for reimbursement to COR3 in a timely manner, resulting in delays in recovering costs incurred for school repairs, specifically for debris removal services and to complete several of its emergency protection measures.
The audit noted that the shortage of DE staff knowledgeable about FEMA’s requirements to identify costs contributed to the delay of reimbursement requests. The period covered in the audit corresponds to the tenure of former Secretary Julia Keleher, who is facing federal charges of conspiracy to commit fraud, theft, electronic fraud, money laundering and conspiracy to launder money.
The audit also notes that the DE did not have the ability to effectively manage Public Assistance grant funds in accordance with federal regulations and FEMA guidelines. The audit recommends that FEMA and COR3 provide additional technical assistance and monitoring to the DE to ensure compliance with federal regulations on procurement of equipment and services.
Although Education Secretary Eligio Hernández Pérez was not available for an interview with the CPI, in written statements, the agency said that as a result of the earthquakes, the agency began a process to build up its staff of experts so that the Infrastructure Office is more effective in handling claims and using FEMA funds to cover its shortfall.
“The earthquakes that started in January and the pandemic that started in March prompted this division’s staff to work on issues related to the condition of the affected schools. The hiring process of experts was resumed to retake the [post-hurricane recovery] work. Furthermore, [this staff] has been in constant communication with COR3 for all the necessary assistance,” the agency said.
Education has $306,989,575 in funds obligated from the Public Assistance emergency categories until July 20. Of this amount, only $34,725,358 has been disbursed, that is, 11.3%. Most of the funds that have not been disbursed correspond to category B.
The agency alleged that the debris removal work at the schools was completed, because some $17.4 million corresponding to category A was used for that and was disbursed. But, in turn, it acknowledged that it is waiting for the reimbursement of about $52 million that was used under the “Renueva Tu Escuela” program.
“Roof mitigation and repair work has begun at several schools. The use of Category B funds was extended until January 2021, which will allow the work already underway to continue. At the same time, we’re working with COR3 to communicate with and train staff to manage the funds. COR3 carried out risk assessment training and visits to affected sites according to the evaluations that have been done during the damage claim process,” the agency mentioned.
The DE said it has turned to COR3 several times for the necessary assistance in managing the funds assigned through FEMA and that it has started the process of monitoring the funds, training, and providing the tools to start the funding refund.
As the central recipient of FEMA money, COR3 is the local agency responsible for disbursing funds that have been obligated for the recovery processes once the subrecipients (government, municipalities and nonprofit entities) complete a series of steps, evaluations and requirements.
For this reason, Chávez Piñero claimed that a number of the OIG’s findings were already resolved with the creation of COR3 in October 2017.
“In the period evaluated for the audits, it was FEMA who made the disbursements. Releasing an audit report two years after the evaluation was done, perhaps reflects results that have already been addressed as part of the compliance process that was established with COR3,” he said.
Juan Andrés Muñoz, FEMA’s Director of External Affairs, agreed with him, stating that OIG’s evaluations were done at a time when there was no intermediary between FEMA and Puerto Rico’s government agencies.
“FEMA recognizes the progress that COR3 has made and the long-term benefits of the measures implemented, including the application of strong internal controls for grant management and the establishment of mechanisms to report misuse, fraud and abuse in the use of recovery funds,” Muñoz said in written statements.
None of the two officials clarified which of the findings of the four audits have already been resolved, other than speaking generally about workshops and communications they’ve had with local agencies in the past two years.
However, Muñoz said, “FEMA will provide COR3 with the technical assistance necessary to ensure that it maintains its ability to manage the grants,” as the OIG recommended in the four audits.
So far, none of the four questioned agencies has resolved all the findings, the CPI found.
Gerardo Mena, director of COR3’s compliance division, said FEMA is currently working to resolve all the findings for the four audited agencies, but they do not have a specific date to complete the process.
“All of the scenarios included in those reports are handled directly by FEMA, which establishes its work plan. [FEMA] includes us in the final actions by these four specific subrecipients. We follow up with FEMA every two weeks, working on the process of each of the requirements that were discussed with the OIG,” said Mena.
COR3 is responsible for ensuring that local agencies comply with FEMA requirements. However, on June 18, 2020, Chávez Piñero sent a letter to Thomas Von Essen, FEMA Region II Regional Administrator, in which he questioned several of the points found in the audits and defended COR3’s work in providing technical assistance to audited government agencies.
In the letter, Chávez Piñero mentions that COR3 Compliance Office staff sent FEMA a corrective action plan to address each of the OIG’s recommendations. He noted that this staff has also contacted all four audited agencies and has worked to address the findings and recommendations.
He also expressed his discontent that the OIG did not allow local agencies to react before the four audits were published: One on March 26 (Department of Housing) and the rest on April 9, 2020.
“COR3 could have cleared up information if it had been allowed to comment before the final draft was released. In addition, the prior participation of COR3 and the subrecipients allows a more efficient correction of any problem,” he said.
For his part, Von Essen took note of the COR3 executive director’s complaint, which he stated on the record in a response letter sent on July 14.
“With respect to the previously published final reports, we will forward your concerns to the appropriate entity, as this will have a national impact,” he said.
Vanessa Colón Almenas and Cristina del Mar Quiles contributed to this story.
Víctor Rodríguez Velázquez is a member of Report for America