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FEMA Disaster Assistance UpdateErnest B. AbbottWashington, D.C.(202) [email protected]
Why Should Independent Auditors of Electric Cooperatives Care about FEMA?
q FEMA Disaster Grants to Electric CooperativesAre “Material.” Since 2010:Ø FEMA has awarded over $550 million to
electric utilities Ø 12 grants in excess of $10 millionØ Nearly 100 grants in excess of $1 million
q FEMA Policy Allows Retroactive “Deobligation”of Disaster Grants based on:Ø Improper procurement, unreasonable cost, work
beyond approved scope, FEMA mistake inapproving scope
q“Deobligation” means FEMA takes the funds back – even if already spent!
Ø OIG recommendations: $51.2 million deobligationof an Oklahoma electric cooperative
Ø FEMA deobligation: City of Vero Beach
q Success in retaining funds depends onØ Pre-disaster policies and proceduresØ Compliance with rules and policies during
performanceØ Documentation of procurements and
expenditures segregated by FEMA grants
For Power Restoration: Disaster expenditures precede application for FEMA funding!
Timeline:Ø Disaster damages lines and polesØ Crews get the power back on Ø Work completeØ Later, President declares disaster and FEMA arrivesØ Yet, for FEMA reimbursement – co-ops must show
expenditures complied with federal grant rules. Creates risk where cooperative procedures for non-disaster power restoration differ from FEMA-funded power restoration.
A Primer on FEMA’s Public Assistance
Program
(6 slides)
Eligibility For FEMA grantsTriggered by Presidential declaration of “Major Disaster”or “Emergency”
Four main components:ØCost
ØWork
ØFacility
ØApplicant
Eligible Applicant and Eligible FacilityEligible Applicant
• Electric Cooperatives are eligible if─ Have effective IRS ruling letter or─ Show established as non-profit under state law
Eligible “Facility”• Includes buildings, distribution and transmission facilities
where─ Repairs are the legal responsibility of the eligible applicant;─ Located in a designated disaster area;─ Not under the specific authority of another Federal agency;
and─ In active use* at the time of the disaster
*Primary use must be for eligible purpose (50% of space or time)
Eligible Work“Emergency Work”:qDebris removal to obtain access to damaged linesqRemove damaged trees and branches that impact
conductorqWork to restore power, including replacing damaged
poles, conductor, transformers, anchors “Permanent Work”:qRepair, restore, replace, reconstruct damaged
facilitiesØ“Permanent work” can occur during
emergency power restoration
Permanent Work
qEligible costs of work determined:ØOn the basis of the design of such facility as it existed
immediately prior to the major disasterØ In conformity with current applicable codes, specifications,
and standardsØ In conformity with floodplain management and hazard
mitigation criteria required by the President
Eligible CostGenerally, costs that can be directly tied to the performance of eligible work are eligible. Such costs must be:
q Reasonable and necessary to accomplish the work;
Ø Can include direct administrative costs (DAC)
q Compliant with Federal, State, and local requirements for procurement; and
q Reduced by all applicable credits, such as insurance proceeds and salvage values.
FEMA Public Assistance Program
q Structured as reimbursement programØ Funds advanced only for a portion of emergency
expensesØ Critical to segregate accounts for FEMA-eligible
expendituresq Disaster assistance funds are Federal Grants
Ø Subject to Uniform Federal Grant Rules: 2 CFR Part 200
Federal Grant Rules 2 C.F.R. Part 200*q Work funded by federal grants must comply with rules
coveringØ Financial and program management
Ø Property Standards
Ø Procurement Standards [2 C.F.R. §§200.317-200.326]Ø Performance and Financial Monitoring and Reporting
Ø Record Retention and Access
Ø Penalties for Non-complianceØ Audits [2 C.F.R. §§200.500-200.521]
*Applies to disasters on or after December 26, 2014. Grant rules applicable to disasters declared before this date are at 2 C.F.R. Part 215 (2014)
Procurement Standards …
q Are the largest single target area for DHS-OIG
q In FY 2014, resulted in 32 recommendations to disallow up to $61,654,399 due to perceived procurement issues
q In the 6 years ending September 30, 2014, OIG questioned $352.3 million in costs due to procurement issues
q Average lag time of audits – 5.9 years!
OIG to FEMA:Crack Down on Procurement Violations!
q Even where procurement violations existed, FEMA historically allowed costs found “reasonable.”
q 2016 OIG Audit Report:Ø FEMA has allowed 91% of costs questioned in OIG audit
sampleØ Goals of proper procurement relate to more than just
reasonable costØ Better enforcement would “motivate” recipients of federal
funds to follow the rules
Most Common OIG Findingsq Noncompetitive contracting practices
q Failure to include required contract provisions
q Failure to employ required procedures to ensure small/minority/women-owned firms are used
q Cost-plus-percentage-of-cost contracting
Procurement Standards for Federal Grants
q General procurement standards (2 C.F.R. § 200.318)
q Competition (2 C.F.R. § 200.319)
q Methods of procurement (2 C.F.R. § 200.320)
q Contracting with small and minority businesses, women’s business enterprises, and labor surplus area firms (2 C.F.R. §200.321)
Procurement Standards for Federal Grants
q Procurement of recovered materials (2 C.F.R. § 200.322)
q Contract cost and price (2 C.F.R. § 200.323)
q Awarding agency/pass-through entity review (2 C.F.R. § 200.324)
q Bonding requirements (2 C.F.R. § 200.325)
q Contract provisions (2 C.F.R. § 200.326 and Appendix II)
General Procurement Standards (2 C.F.R. § 200.318 )
Focus Today on FIVE of the eight mandatory standards
1. Maintain and use documented procurement procedures
Ø Must be compliant with State/Local/Federal
Ø Must be in writing and must be followed
2. Maintain records sufficient to detail the history of procurement
Note: These are opportunities to create checklists triggering and documenting compliance with other requirements
General Procurement Standards (cont.)
3. Award contracts only to responsible contractors
Ø Document procedures for checking qualifications
Ø Contractors must certify they and subcontractors arenot debarred
Ø Coops must check SAM.gov website─ No reimbursement for any work awarded to debarred contractor
General Procurement Standards (cont)
4. Time and Materials/Equipment Contracts:Ø T&E contracts are permissible only:
─ After a determination that no other contract is suitable ─ If there is a ceiling price that the contractor exceeds at its own
risk. 2 C.F.R. § 200.318(j)
Ø T&E contracts are considered by electric utilities to benecessary during power restoration
Ø Recommendation:─ Checklist to document reasons for determination of suitability,
cost analysis, development of ceiling price─ Demonstrate monitoring of performance of work
General Procurement Standards: T&M/T&E Contracts (cont.)
q November 2016 Second Appeal Decision from FEMA HQ,City of Vero Beach:Ø Following an OIG Audit, FEMA deobligated nearly
$1 million of the City’s contract costs.Ø On Appeal, FEMA upheld denial because the City
could not show that the T&M contract satisfied allprocurement requirements.
Ø FEMA HQ allowed first 70 hours of costs but reducedother claimed costs down to pricing of lowest contractrate for similar work.
General Procurement Standards (cont.)
5. Conflicts of InterestØ Must Have Written Standards of Conduct Covering Conflicts
of Interest of Employees [2 C.F.R. § 200.318(c)(1)]
─ Applies to “employee, officer, or agent”─ Must cover “real or apparent” conflicts ─ Must provide for disciplinary actions
General Procurement Standards: Conflicts of Interest (cont.):
q Employees/officers may not participate in contract decisions if they have conflicts [2 C.F.R. § 200.318(c)(1)]
Ø “A conflict of interest would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract.”
Ø Issue Areas:− Financial and business conflicts− Gifts and gratuities
General Procurement Standards: Conflicts of Interest (cont.):
q Examples of prohibited “financial or other interest” in a procurement
Ø Compensation, including wages, salaries, commissions, professional fees, or fees for business referrals;
Ø Consulting relationships (such as commercial and professional consulting and service arrangements);
Ø Investment in the form of stock or bond ownership or partnership interest;
Ø Real estate investments; and Ø Business ownership
General Procurement Standards: Conflicts of Interest (cont.):
Gifts and Gratuitiesq “Employees/officers may neither solicit nor accept gratuities, favors,
or anything of monetary value” from contractors or subcontractors.
q Grant recipients may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value.Ø Nominal value not defined by regulationØ Co-op must establish in its Code of Conduct
General Procurement Standards: Conflicts of Interest (cont.): Gifts and Gratuities: “Nominal Value” of Gifts
q Focus should be on a balance of:
Ø Whether the item of value is furthering the business interests of the utility;
Ø Whether the value is large enough that it could be seen as an attempt to improperly influence; and
Ø Whether the value is directed/intended to influence specific person.
General Procurement Standards: Conflicts of Interest (cont.):
Conflict of Interest Compliance Program q Code of Conduct should specify system to assure
complianceØ Annual Distribution of Procurement Code of ConductØ Acknowledgment form signed by employeesØ Annual trainingØ Designate one person to manage complianceØ KEEP RECORDS OF ALL ACTIONS
Question: Can an effective compliance program be limited to procurement of federally funded contracts?
General Procurement Standards: Conflicts of Interest (cont.):
q Must have written Standards of Conduct covering“Organizational Conflicts of Interest” [2 C.F.R. § 200.318(c)(2)]
Ø Who are the “Affiliates” of cooperatives─ G&T cooperative with distribution cooperative
members?─ Purchasing cooperative?─ Financing cooperative?─ Charitable interests
q Exclusion of contractors who develop or draftspecifications, RFPs, etc. [2 C.F.R. 200.319(a)]
“Contract Cost and Price” [2 C.F.R. §200.323]
q Cost or Price Analysis RequiredØ For every procurement above “Simplified
Acquisition Threshold” - $150,000Ø Document the cost analysis in procurement file
q Cost Plus % of Cost Contract IllegalØ Contrast: Cost plus fixed fee, where the fee is
based upon a % of estimated cost
Contract Provisions [2 C.F.R. §200.326 and Appendix II]
q Lists boilerplate provisions thatmust be included in contractsfunded by federal grantsØ E.g.: EEO, Davis Bacon,
Contract Work Hours andStandards…
Ø Should be included in Co-op standard formcontracts pre-disaster
Minority Contracting [2 C.F.R. §200.321]
q Co-ops must “take all necessary affirmative steps to assurethat minority businesses, women’s business enterprises, andlabor surplus area firms are used when possible.”
q Regulation lists six specific affirmative steps
q OIG audits recommend deobligation if not taken
q Recommend: documented affirmative outreach programfor minority contractors prior to disaster
Policy Guidance on Mutual Aid
q Three types of mutual aid are eligible: Ø Emergency work, Ø Emergency utility restoration (regardless of whether it is deemed
Category B or F), and Ø Grant management.
q However – Mutual Aid can be treated as procurement:Ø “If the Applicant utilizes mutual aid for other permanent
work, FEMA evaluates the mutual aid agreement as aprocurement utilizing the criteria noted in Chapter 2Section V.G.”
Single Audit Requirement
q Required when the entity has expended $750,000 or more inFederal funds during entity’s fiscal year
q Must include all Federal awards and, if applicable, a scheduleof prior year findings and the status
q 2 CFR Part 200 Subpart F (previously OMB Circular A-133),Audits of States, Local Governments, and Non-ProfitOrganizations, implements the law and provides the basicrequirements that must be followed
FEMA Is Changing Delivery Model…Stay Tuned In 2014, FEMA conducted an in-depth analysis of the existing Public Assistance program's delivery process. … [t]he program had not evolved to meet the changing needs of its customers during the last 20 years. -FEMA
Important: Changing Procedures can lead to mistakes-- by FEMA and by Co-ops…
Questions?
FEMA Disaster Assistance Update
Ernest B. AbbottWashington, D.C.(202) [email protected]
CFC Independent Auditors ConferenceJuly 10-12, 2017Dulles, Virginia
