I have a series of posts coming on the family and friends programs at both the DMR and the Bay-Waveland School District so today I begin with that preliminary US Department of the Interior Office of the Inspector General report on the problems at DMR. The twist is that I’m going to use that report to highlight the inherently flawed purchase of the Bay Tech Building by the Bay-Waveland School Board. In this series of posts I’m completely in my field of expertise as an auditor and hopefully I’ll set off a few light bulbs. First let’s do a quick review on the OIG report on the DMR family and friends program aka CIAP.
The DMR scandal broke on October 25 with reporting by the Sun Herald the Investigative Division of the Office of the State Auditor were at the Bolton Building in Biloxi going through Director Bill Walker’s office. The story that came from officialdom was that investigators were following up on a somewhat routine US DOI OIG audit of the Coastal Impact Assistance Program that found major problems in how DMR was running the program. The OIG audit, an unusual occurrence absent a major wasting of tax dollars or suspected criminal activity, was described in different terms by the folks at State Auditor’s office that claimed it was because the federal agency administering the program was changing. I do not believe that for a second personally as I firmly believe a dime was dropped. (I’ll explain more on that next week)
In any event the folks at the various OIG offices are auditors and since I’m an auditor by trade with a bit of practical experience let’s recreate some of the events through the eyes of an auditor.
First thing we have to do is figure out exactly what in the heck were looking at because the folks at OIG are not walking encyclopedias of compliance requirements related to the thousands of federal programs out there but luckily for us we have the internet so my first stop would be “The Catalog” aka the Catalog of Federal Domestic Assistance, specifically CFDA #15.426 Coastal Impact Assistance Program and a close second would be the enabling legislation, which contains this:
(d) Authorized uses
(1) In general
A producing State or coastal political subdivision shall use all amounts received under this section, including any amount deposited in a trust fund that is administered by the State or coastal political subdivision and dedicated to uses consistent with this section, in accordance with all applicable Federal and State laws, only for one or more of the following purposes:
(A) Projects and activities for the conservation, protection, or restoration of coastal areas, including wetland.
(B) Mitigation of damage to fish, wildlife, or natural resources.
(C) Planning assistance and the administrative costs of complying with this section.
(D) Implementation of a federally-approved marine, coastal, or comprehensive conservation management plan.
(E) Mitigation of the impact of outer Continental Shelf activities through funding of onshore infrastructure projects and public service needs.
(2) Compliance with authorized uses
If the Secretary determines that any expenditure made by a producing State or coastal political subdivision is not consistent with this subsection, the Secretary shall not disburse any additional amount under this section to the producing State or the coastal political subdivision until such time as all amounts obligated for unauthorized uses have been repaid or reobligated for authorized uses.
Not more than 23 percent of amounts received by a producing State or coastal political subdivision for any 1 fiscal year shall be used for the purposes described in subparagraphs (C) and (E) of paragraph (1).
So not only do we ascertain what to look for in the grant agreements for allowed uses of the funds we also find a spending limitation. Now that we know a bit about the program let’s apply this against the information in the Catalog and we determine OMB Circular A-102 applies to the program and that Circular A-102 requires what is known as the Grants Management Common Rule (formerly Circular A-87) be applied when expending CIAP funds. Yes folks this is some arcane stuff but before you can audit something you gotta know what is required before you can evaluate. Speaking of arcane when reading the OMB Circular that applies to this program (A-102 linked above) we find a requirement that all programs administered under that Circular use “standard forms” to apply for the federal grants and this means someone at DMR would have to have submitted form SF-424d Standard Assurances (Construction) to have their application approved. We have 2 snippets from that form well worth highlighting:
7. Will establish safeguards to prohibit employees from using their positions for a purpose that constitutes or presents the appearance of personal or organizational conflict of interest, or personal gain.
11. Will comply, or has already complied, with the requirements of Titles II and III of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (P.L. 91-646) which provide for fair and equitable treatment of persons displaced or whose property is acquired as a result of Federal and federally-assisted programs. These requirements apply to all interests in real property acquired for project purposes regardless of Federal participation in purchases.
To the extent those forms required signatures there can be no confusion as to what DMR agreed to. The same is true of the Bay Waveland School Board using FEMA recovery funding to rebuild storm damaged buildings because these requirements apply to the subgrantees of federal awards as well. Finally we gotta circle back to that pesky Common Rule that I linked above because it clearly states what is considered copacetic in terms of “allowable costs”:
1. Factors affecting allowability of costs. To be allowable under Federal awards, costs must meet the following general criteria:
a. Be necessary and reasonable for proper and efficient performance and administration of Federal awards.
b. Be allocable to Federal awards under the provisions of 2 CFR part 225.
c. Be authorized or not prohibited under State or local laws or regulations.
d. Conform to any limitations or exclusions set forth in these principles, Federal laws, terms and conditions of the Federal award, or other governing regulations as to types or amounts of cost items.
e. Be consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the governmental unit.
f. Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost.
g. Except as otherwise provided for in 2 CFR part 225, be determined in accordance with generally accepted accounting principles.
h. Not be included as a cost or used to meet cost sharing or matching requirements of any other Federal award in either the current or a prior period, except as specifically provided by Federal law or regulation.
i. Be the net of all applicable credits.
j. Be adequately documented.
Now all you guys know where to find the proverbial secret handshake of a governmental auditor as this section of the Common Rule is the golden rule for Single Audits. The people who write these regulations and design forms like those statement of assurances do so to ensure there is no grey area and people who get caught with their hands in the cookie jar can’t claim ignorance as an excuse for looting federal funds. That Common Rule doesn’t just give an outline of the above but then proceeds to drill down on each item as we look at what is considered “reasonable”.
2. Reasonable costs. A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when governmental units or components are predominately federally-funded. In determining reasonableness of a given cost, consideration shall be given to:
a. Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award.
b. The restraints or requirements imposed by such factors as: Sound business practices; arm’s-length bargaining; Federal, State and other laws and regulations; and, terms and conditions of the Federal award.
c. Market prices for comparable goods or services.
d. Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the Federal Government.
e. Significant deviations from the established practices of the governmental unit which may unjustifiably increase the Federal award’s cost.
In the case of the Bay-Waveland School Board’s expenditure of federal funds for its new central office the above is clearly not met and that is what made the School Board taking ownership of the shit house Bay Tech real estate transaction so significant IMHO. In the case of the DMR everyone has gone into hiding as Director Bill Walker, with the help of Governor Phil Bryant is trying to find a graceful exit after his shit house taxpayer-funded real estate deals have come to light.
Next up, we drill down on the appraisal requirements found in the DMR OIG report to illustrate the massive flaws in the appraisals obtained by Bay-Waveland School Board Attorney Ronnie Artigues to give cover to the specious acquisition of the Bay Tech Building by the School Board and then we highlight a few of the DMR land purchases. Stay tuned.