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Reissued 11/27/17

The subject report has been reissued to correct the memorandum number.  This reissued memorandum now correctly shows the report number.The number was corrected from 2018-AT-0801 to 2018-AT-1801.

The purpose of this memorandum is to provide time-sensitive information regarding the Office for the Socioeconomic and Community Development’s (ODSEC) proposed framework for the administration of the Community Development Block Grant Disaster Recovery program.  Based on Congressional concerns regarding the Commonwealth of Puerto Rico’s ability to administer disaster funds, we reviewed ODSEC because it was identified as a potential State grantee to administer disaster funds.  The objective of this review was to identify the plan Puerto Rico has developed as of mid-October 2017 for administering disaster funds and obtain an understanding of established or proposed mechanisms to ensure compliance with U.S. Department of Housing and Urban Development (HUD) requirements.  

Based on the information provided, there are certain issues that raise concern and that HUD should consider when allocating the disaster funds to Puerto Rico.  ODSEC is a new government entity established in February 2017; ODSEC’s Block Grant program is staffed with former OCMA employees; Puerto Rico’s inability to spend 2008 disaster funds in a timely manner; ODSEC’s proposed framework does not include an internal audit function; and ODSEC’s proposed framework includes government entities with no historical data available showing performance regarding HUD grants or programs.

Our general comments are: (1) the disaster funds should be administered by an entity that has experience in managing large-scale recovery projects (at a minimum, in the areas of housing, infrastructure, and economic development); (2) the entity managing disaster funds has to be independent and unaffected to changes in administration (elections) and be able to ensure the continuity of the plans and projects; (3) the framework to be established should include an internal audit division that reports to a board of directors to ensure independence and accountability; and (4) a robust financial management system that properly traces the receipt and expenditure of disaster funds is essential.  The financial management system, at a minimum, must permit the tracing of disbursements by grant, activity, and funding type and properly account for accounts payable and receivable.