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OIG Audit – Insurance

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1539/1561
Applicant City of Orlando
Appeal TypeSecond
PA ID#095-53000-00
PW ID#Multiple PWs
Date Signed2017-03-22T00:00:00

Conclusion: On second appeal, the City of Orlando (Applicant) has demonstrated that a portion of FEMA funding previously deobligated as the result of DHS Office of Inspector General (OIG) audits was incorrectly identified as a duplication of benefits, and is eligible for Public Assistance (PA) reimbursement.    

 

Summary Paragraph

In August 2004, rain, high winds, and 105 miles per hour gusts from Hurricane Charley caused severe damage throughout Orlando, Florida.  FEMA prepared and obligated numerous Project Worksheets (PWs) to address disaster-related work.  In September 2004, Hurricane Jeanne struck Florida damaging many facilities throughout the City of Orlando.  FEMA prepared several PWs to address work to repair, restore, or replace various public buildings and obligated funding to address associated costs.  In February 2012, the OIG issued two audit reports—DA-12-10 and DA-12-11—recommending that FEMA disallow PA funding from 13 large projects and 37 small projects related to Hurricane Charley and nine small projects related to Hurricane Jeanne because the Stafford Act § 312 prohibits the use of PA funds for damages covered by insurance.  FEMA subsequently deobligated funding, totaling $861,003.00, based on the OIG recommendations.  In two first appeals, the Applicant appealed FEMA’s deobligation of funding based on OIG audit recommendations.  The Region IV Regional Administrator (RA) denied both first appeals determining that FEMA and the OIG made reasonable determinations as to what were the Applicant’s entitlements to insurance proceeds based on the information provided.  In addition, the RA determined that the Applicant had not provided sufficient documentation to reconcile the questioned PWs with the corresponding Statements of Loss.  In separate second appeals, the Applicant asserts that Stafford Act § 705(c) statutorily prohibits FEMA from deobligating any of the funds at issue because the PWs at issue were formulated, reviewed, and obligated by FEMA, FEMA determined the costs were reasonable, and the projects were completed.  The Applicant, again, requests that FEMA re-obligate a total of $659,309.69 that it asserts was incorrectly deobligated based on OIG findings.  Through its response to FEMA’s Request for Information, the Applicant adjusted the total requested amount to $547,392.21. 

Authorities and Second Appeals

  • Stafford Act §§ 312 & 705(c).
  • 44 C.F.R. § 13.51.

Headnotes

  • Pursuant to Stafford Act § 312, FEMA must reduce the amount of assistance provided to the Applicant by the amount of financial assistance it will receive from insurance proceeds.
  • Following OIG Audit Report DA-12-10 with accompanying recommendations, FEMA deobligated $809,052.00 from various Hurricane Charley PWs.  On second appeal, the Applicant’s documentation substantiates re-obligating $463,444.89 of the deobligated amount.
  • Similarly, FEMA deobligated $51,951.00 from several Hurricane Jeanne PWs following recommendation in DA-12-11.  On second appeal, the Applicant has substantiated re-obligating $46,069.59 of the deobligated amount. 
  • According to Stafford Act § 705(c), an applicant is not required to reimburse PA funds if the payment was authorized in an approved agreement specifying the costs, the costs were reasonable, and the purpose of the grant was accomplished.
  • FEMA is not precluded from deobligating funds that are duplicative as insurance proceeds.

 

Appeal Letter

Bryan W. Koon
Director
State of Florida Division of Emergency Management
2555 Shumard Oaks Boulevard
Tallahassee, Florida  32399-2100

Re: Second Appeal – City of Orlando, PA ID 095-53000-00, FEMA-1539/1561-DR-FL, Multiple Project Worksheets (PWs) – OIG Audit – Insurance

Dear Mr. Koon:

This is in response to a letter from your office dated March 10, 2015, which transmitted the referenced second appeal on behalf of the City of Orlando (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $547,392.21 deobligated as a duplication of benefits following two DHS Office of Inspector General (OIG) audits. 

As explained in the enclosed analysis, I have determined that the Applicant has demonstrated that a portion of its requested amount is not a duplication of benefits and, thus, is eligible for Public Assistance reimbursement.  In addition, FEMA’s deobligation of the remaining funds is not prohibited by Stafford Act § 705(c).  Therefore, I am partially granting the appeal and, as detailed in analysis, $509,514.48 will be allocated among the appropiate PWs. 

By copy of this letter, I am requesting the Regional Administrator to take appropriate action to implement this determination.  This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.
 

Sincerely,

/s/                                   

Alex Amparo
Assistant Administrator
Recovery Directorate                                                                      

Enclosure

cc: Gracia Szczech
     Regional Administrator
     FEMA Region IV

Appeal Analysis

Background

In August 2004, rain, high winds, and 105 miles per hour gusts from Hurricane Charley caused severe damage throughout the City of Orlando (Applicant).  FEMA prepared numerous Project Worksheets (PWs) to address disaster-related work.  Hurricane Jeanne struck Florida damaging many facilities throughout the City of Orlando in September 2004.  FEMA developed additional PWs to address work to repair, restore, or replace various public buildings impacted by that disaster. 

In two February 2012 Reports, the Department of Homeland Security (DHS) Office of Inspector General (OIG) reported findings from its audits of Public Assistance (PA) funds awarded to the Applicant, focusing on $13.1 million in costs incurred following Hurricane Charley and $4.3 million in costs resulting from Hurricane Jeanne.[1]   For Hurricane Charley, the OIG reviewed 13 large projects and 37 small projects.[2]  By comparison, the OIG reviewed four large projects and several small projects resulting from Hurricane Jeanne.[3]  The focus of both reports was insurance proceeds, received and anticipated, and project implementation.  Based on those audits, the OIG recommended FEMA disallow $809,052.00 for Hurricane Charley[4] and $51,951.00 for Hurricane Jeanne[5] in duplicate funding covered by insurance proceeds, prohibited by Section 312 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act).[6]  FEMA accepted the OIG’s recommendations and deobligated the full amount questioned from the applicable PWs.    

First Appeals

In two first appeals dated August 9, 2012, the Applicant appealed FEMA’s deobligation of funding based on the OIG’s audit recommendations.  Regarding Hurricane Charley, the Applicant contested $574,775.00 for five large projects and $35,178.00 for various small projects arguing that it never received insurance proceeds for some of the questioned projects, and in others, insurance proceeds were claimed and accounted for in the final PWs and proper deductions were made during closeout.  For Hurricane Jeanne, the Applicant appealed $49,356.63 for eight PWs deobligated by FEMA as a result of audit report DA-12-11 arguing it had not received a duplication of benefits pursuant to the Stafford Act § 312 because it never received insurance proceeds for the work set forth in the questioned PWs.  In addition, the Applicant asserted that, based on its analysis of the Statement of Loss, the OIG reported certain amounts that were inaccurate and inconsistent with the Applicant’s records.  In both appeals, the Applicant provided statements refuting the OIG’s findings. 

In a letter dated November 25, 2014, the Region IV Regional Administrator (RA) denied both first appeals concluding that FEMA and the OIG made reasonable determinations as to what were the Applicant’s entitlements to insurance proceeds based on the information provided.  In addition, the RA found that the Applicant provided insufficient documentation to reconcile the questioned PWs with the corresponding Statements of Loss.

Second Appeal

In separate second appeals dated February 25, 2015, the Applicant asserts that Stafford Act § 705(c) statutorily prohibits FEMA from deobligating any of the funds at issue because the PWs at issue were formulated, reviewed, and obligated by FEMA, the Agency determined the costs were reasonable, and the purpose of the grant was accomplished (e.g., all projects were completed).  The Applicant separately argues that FEMA should re-obligate $609,953.06 related to Hurricane Charley and $49,356.63 for Hurricane Jeanne because it contends that FEMA inaccurately applied insurance proceeds received, and duplicated actual insurance proceeds that were deducted in the original PWs, and deobligated eligible funds for items not afforded coverage or reimbursement from the insurance carrier. 

In response to a Request for Information (RFI) from FEMA, the Applicant adjusted its requested amount of relief in a November 30, 2015 letter.  Instead of the $659,309.69 requested on second appeal, the Applicant now asserts $523,827.16[7] in deductions were improperly made in response to DA-12-10 and DA-12-11.[8]  The response provided further explanations, along with a detailed spreadsheet for all questioned PWs, to substantiate the revised amount.  Through its response, the Applicant requested for the first time $23,565.05 in unclaimed costs resulting from Hurricane Charley.[9] 

Discussion

Insurance Deductions

Pursuant to Stafford Act § 312, FEMA reduces the amount of assistance provided to an Applicant by the amount of financial assistance it will receive from insurance proceeds.  If FEMA obligates PA funds for work that it subsequently finds to be covered by insurance, FEMA must deobligate the funds.[10]  The closeout of a grant does not affect FEMA’s right to disallow costs and recover funds on the basis of a later audit.[11] While FEMA deducts the total insurance proceeds received or anticipated from the total eligible cost of the project, it does not further reduce eligible costs by an insurance deductible.[12] 

On second appeal, FEMA conducted a comprehensive insurance review of the file, including additional information provided in the Applicant’s RFI response.[13]  In doing so, FEMA found several instances where Region IV deobligated funding pursuant to Stafford § 312’s prohibition, but a duplication of benefits did not occur.  Specifically, a review of the insurance policy demonstrates that many of the costs claimed in the various PWs, and later deobligated based on insurance proceeds, were not covered by insurance.  For instance, the insurance policy includes a two percent deductible per location, after the initial $500,000.00 deductible, for windstorm coverage.[14]  FEMA deobligated funding associated with facilities not covered by insurance because the costs associated with windstorm damage fell under the two percent deductible in several PWs, including Hurricane Charley PW 5824 and Hurricane Jeanne PWs 620, 4001, and 4106.  However, this was done in error since deductibles are generally eligible for PA reimbursement.[15]    

In addition, the insurance policy does not provide windstorm coverage for outdoor property, defined as “retaining walls not part of a building, lawns, trees, shrubs, plants, bridges, walks, roadways, patios, or other paved surfaces.”[16]  Moreover, the policy does not provide any coverage for piers.[17]  FEMA deobligated Hurricane Charley PWs 997 and 6119 for items that were not covered under the Applicant’s insurance policy.  As these items are otherwise eligible for PA reimbursement and were not covered by insurance, there was not a duplication of benefits.

Finally, there are several instances where FEMA Region IV deobligated more than the actual insurance proceeds based on OIG recommendations.  For example, FEMA deobligated $2,538.45, $3,165.25 and $1,126.20 more than the actual proceeds received for PWs 3313, 4792 and 6079, respectively.   

Through the documentation provided, FEMA is able to support re-obligating $509,514.48 in funding erroneously deobligated as a result of DA-12-10 and DA-12-11.  As reflected in Tables 1 and 2, this amount includes $463,444.89 for Hurricane Charley and $46,069.59 for Hurricane Jeanne, respectively.

Table 1: Hurricane Charley (DR-1539)

Project Worksheet

Amount Deobligated

Amount Requested on 2nd Appeal

Amount Requested in RFI Response

Amount Substantiated/ Eligible for Reimbursement

997

$14,281.00

$14,281.00

$14,281.00

$14,281.00

3313

$9,225.69

$2,538.44

$2,538.45

$2,538.45

5824

$8,041.00

$3,247.46

$3,247.46

$3,247.46

6079

$1,126.00

$1,126.00

$1,126.20

$1,126.20

6459

$3,389.15

$2,924.85

$2,924.85

$2,924.85

6119

$35,578.00

$35,578.00

$35,578.00

$35,578.00

5411

$432,408.31

$384,845.00

$384,845.00

$384,845.00

5924

$51,353.37

$2,763.92

$2,763.92

$2,763.92

6228

$26,561.00

$26,561.00

$26,561.00

$26,561.00

4792

$427.00

$4,987.83

$3,165.25

$3,165.25

5885

$22,661.00

Not Included

$14,312.56

$0.00

5413

$65,947.00

Not Included

$0.87

$0.87

6253

$3,641.00

Not Included

$1,782.59

$1,782.59

4621

$246.00

Not Included

$246.00

$246.00

5891

$430.00

Not Included

$0.42

$0.42

6435

$22,984.30

Not Included

-$8,527.41

-$8,527.41

6353

$10,566.72

Not Included

-$7,088.71

-$7,088.71

 

 

 

Total

$463,444.89

 

Table 2: Hurricane Jeanne (DR-1561)

Project Worksheet

Amount Deobligated

Amount Requested on 2nd Appeal

Amount Requested in RFI Response

Amount Substantiated/Eligible for Reimbursement

213

$1,121.27

$1,121.27

$1,121.27

$1,121.27

620

$2,795.55

$2,356.00

$2,356.00

$2,356.00

3206

$3,973.68

Not Included

$3,973.68

$3,973.68

4001

$2,562.91

$2,562.91

$2,562.91

$2,562.91

4106

$22,332,10

$22,332.10

$22,332.10

$22,332.10

4827

$1,500.00

$1,500.00

$1,500.00

$1,500.00

5202

$5,235.00

Not Included

$0.00

$0.00

5302

$2,282.00

$2,282.00

$2,282.00

$2,282.00

5310

$10,148.00

$122.92

$9,941.63

$9,941.63

 

 

 

Total

$46,069.59

 

 

While FEMA is able to substantiate the entire requested amount for Hurricane Jeanne and the majority of the Applicant’s request for Hurricane Charley, certain costs requested for PW 5885 for Hurricane Charley could not be verified, and are consequently denied.  Specifically, the Applicant requests $14,312.56 for work related to a chain link fence and driving range netting on the Applicant’s golf course in PW 5885,[18] but does not provide an adequate explanation or documentation to support the request. 

 

In addition, FEMA found instances of requested costs associated with PW 5885 that, if it were to reimburse them, would constitute a duplication of benefits in violation of Stafford Act § 312.[19]  For instance, FEMA initially deducted $22,661.00 as anticipated insurance proceeds.  The Applicant received this exact amount from its insurance company.  It also appears the Applicant may have received $40,900.44 from another insurance source for the same work.  Further, the Applicant is requesting FEMA reinstate $12,005.50 for hazard mitigation; however this cost is currently included in PW 5885’s obligated amount of $23,239.00.[20]  As such, these costs are not eligible for PA reimbursement.     

 

In its RFI Response, the Applicant acknowledges that the anticipated insurance deduction on PWs 6353 and 6435 was less than the actual insurance proceeds received by the Applicant.  With regard to PW 6353, FEMA deobligated $10,566.72 in funding related to insurance proceeds, yet the Applicant received $17,655.43 from its insurance company, a difference of $7,088.71.  Similarly, FEMA deobligated $22,984.30 for anticipated insurance proceeds and OIG findings from PW 6435, and the Applicant’s documentation shows it received $31,511.71 in actual insurance proceeds.  As such, $7,088.71 and $8,527.41 related to PWs 6353 and 6435, respectively, constitute duplications of benefits pursuant to Stafford Act § 312 and FEMA will prepare versions of those PWs to deobligate those amounts.     

 

Additional Amount for Hurricane Charley PWs

 

 

The Applicant also requests through its RFI response an additional $23,565.05 in PA funding related to different PWs that were not reviewed under DA-12-10 or DA-12-11 and not subject to this appeal.[21]  The Assistant Administrator for Recovery’s authority on second appeal relates to matters raised through review of the first appeal.[22]  The substantive issue of the first appeal was FEMA’s decision to deobligate PA funding from various Hurricane Charley and Hurricane Jeanne PWs, as specified by the OIG in DA-12-10 and DA-12-11.  If the Applicant disagreed with obligated amounts for these other PWs that were not the subject of the first appeal, it should have presented the applicable documentation at closeout or appealed FEMA’s determinations regarding those obligations within 60 days of the determination.  It failed to do so then and is time barred from doing so now.  

Stafford Act § 705(c) Applicability

The Stafford Act § 705(c) provides that a state or local government is not liable for reimbursement or any other penalty for any payment made pursuant to the Stafford Act if the payment was authorized in an approved agreement specifying the costs, the costs were reasonable, and the purpose of the grant was accomplished.  FEMA implemented this statutory provision through Recovery Policy FP-205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures.[23]

For the portion of funding that FEMA is re-obligating, the question of whether § 705(c) of the Stafford Act applies is moot.  For the remaining portion of deobligated funding— $14,312.68— the section’s prohibition is not applicable to payments that constitute a duplication of benefits, which are prohibited by Stafford Act § 312.[24]  The Applicant received insurance proceeds for the amount at issue, resulting in a duplication of benefits pursuant to Stafford Act § 312.  Therefore, FEMA is not prohibited from recouping the duplicative funds.[25] 

With regard to the additional $23,565.05 in PA funding the Applicant requests in its second appeal RFI response, the funds were never obligated in any PW and therefore FEMA has never made a payment for these costs for which the Applicant would ever be liable to reimburse.  Therefore, § 705(c) does not apply.

Conclusion

FEMA finds that $509,514.48[26] of the Applicant’s requested amount is not prohibited by Stafford Act § 312 and is eligible under the PA program.  As such, FEMA will re-obligate this amount of federal funding, as allocated across the various PWs as detailed in Tables 1 and 2 above.  However, $14,312.68 in requested funding constitutes a duplication of benefits if awarded, thus violating Stafford Act § 312.  As such, FEMA Region IV appropriately deobligated this amount, and Stafford Act § 705(c) does not prohibit FEMA from doing so.  Finally, the Applicant’s request for $23,565.05 as part of its second appeal is untimely and therefore will not be obligated as a result of this appeal. 

 

[1] U.S. Dep’t of Homeland Sec. Office of Inspector Gen. (OIG), DA-12-10, FEMA Public Assistance Grant Funds Awarded to City of Orlando, Florida—Hurricane Charley (2012) [hereinafter DA-12-10]; and  U.S. Dep’t of Homeland Sec. Office of Inspector Gen. (OIG), DA-12-11, FEMA Public Assistance Grant Funds Awarded to City of Orlando, Florida—Hurricane Jeanne (2012) [hereinafter DA-12-11].

[2] DA-12-10, at 1.  The following PWs were the subject of the audit: 578, 751, 997, 1679, 5068, 5147, 5408, 5411, 5413, 6119, 6126, 6228, 6997, 1713, 1903, 1938, 2063, 2800, 2802, 2807, 3309, 3311, 3313, 3517, 3858, 3874, 4426, 4520, 4621, 4792, 4914, 5824, 5826, 5885, 5891, 5924, 5975, 6079, 6152, 6176, 6223, 6225, 6253, 6257, 6352, 6353, 6435, 6459, 6493 and 6513. 

[3] DA-12-11, at 1. The following PWs were subjects of the audit: PW 213, 260, 3206, 4001, 4106, 4827, 5202, 5302 and 5310.

[4] DA-12-10, at 3.

[5] DA-12-11, at 3.

[6] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 312, 42 U.S.C. § 5155 (2003).

[7] The Applicant now requests $477,757.57 for Hurricane Charley and $46,069.59 for Hurricane Jeanne. 

[8] Letter from Controller, Orlando Office of Bus. & Fin. Services, to Attorney-Advisor, FEMA, at 4 (Nov. 30, 2015) [hereinafter RFI Response].

[9] Id.

[10] Stafford Act § 312(c); 44 C.F.R. § 206.250(c) (2003) (requiring FEMA to deduct actual and anticipated insurance proceeds from otherwise eligible costs).

[11] 44 C.F.R. § 13.51. 

[12] Public Assistance Guide, FEMA 322, at 97 (Oct. 1999) [hereinafter PA Guide].

[13] During the review of the second appeal, FEMA reviewed the insurance-related documentation and independently verified the insurance proceeds associated with the disputed costs.  Using the Applicant’s Spreadsheet provided in its RFI response, the Agency was able to correlate the insurer’s Statement of Losses and Statement of Values against the corresponding Project Worksheets.  FEMA reviewed the insurance policy and verified the terms and conditions of coverage, including the policy endorsements, exclusions, additional windstorm deductible and confirmed proper insurance deobligations.  Based on such, FEMA concluded that the Applicant partially substantiated its request for an additional $509,514.48 of PA funding. 

[14] Travelers Excess and Surplus Lines Company, KTQ-CMB-296T155-1-03, at 5, signed Nov. 20, 2003.

[15] PA Guide, at 97.

[16] Travelers Excess and Surplus Lines Company, KTQ-CMB-296T155-1-03, at 3.

[17] Id. at 7.

[18] RFI Response, at Excel Attachment. 

[19] See Stafford Act § 312 (stating “…no such person, business concern, or other entity will receive such assistance with respect to any part of such loss as to which he has received financial assistance under any other program or from insurance or any other source”) (emphasis added).

[20] Project Worksheet 5885, City of Orlando, at 3 Version 1 (May 29, 2012).

[21] RFI Response, at Excel Attachment (associating $23,565.05 with Hurricane Charley PWs 5939, 6282, 6248, 6473, 3776, 6069 and Hurricane Jeanne PW 4705). 

[22] 44 C.F.R. § 206.206(b)(2). 

[23] See FEMA Recovery Policy FP-205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 4-7 (Mar. 31, 2016) (interpreting 705(c) requirements as follows: (1) payment occurs when the recipient draws down funds obligated through SmartLink, regardless of whether the recipient has disbursed funds to the subrecipient, (2) the purpose of the grant was accomplished when the scope of work is completed and the Applicant has demonstrated compliance with post-award terms, and (3) costs are reasonable if, in their nature and amount, they do not exceed that which would be incurred by a prudent person under similar circumstances).

[24] Id. at 6-7.

[25] Id. at 6 (stating “FEMA may adjust the amount of insurance benefits or other duplication of benefits recorded in the PW at any time post-award to ensure compliance with the terms of the award, based on information it identifies or the applicant provides,….”).

[26] This amount includes $463,444.89 for Hurricane Charley and $46,069.59 for Hurricane Jeanne.  For individual PW obligations, refer to Tables 1 and 2.  

Last updated May 28, 2020