Objective

To determine whether Homes and Community Renewal (HCR) established and maintained adequate internal controls to oversee and monitor the Governor’s Office of Storm Recovery’s (GOSR) federally funded programs to ensure they meet grant requirements. The audit covered the period April 2017 through December 2022 for the Buyout and Acquisition Program (B&A), April 2017 through January 2023 for the Single-Family Housing Program (SFH), and agency actions through August 2023. Our scope included properties that were accepted into these programs prior to April 2017 but for which activity on the related projects was continuing during the audit period.

About the Program

HCR is New York’s affordable housing agency, with a mission to build, preserve, and protect affordable housing and increase homeownership throughout the State. As part of fulfilling this mission, New York State developed the NY Rising Housing Recovery Programs (NY Rising), along with several other disaster recovery initiatives, as outlined in the State of New York Action Plan for Community Development Block Grant Program Disaster Recovery (Disaster Recovery or CDBG-DR).

NY Rising programs are designed to help New Yorkers who were impacted by Superstorm Sandy, Hurricane Irene, and/or Tropical Storm Lee to recover and rebuild. Sandy – recognized as one of the most destructive storms in recorded U.S. history – hit New York in October 2012, one year after Irene and Lee. Combined, the three storms damaged or destroyed hundreds of thousands of housing units with estimated damages in the billions of dollars. NY Rising programs may also stimulate economic growth in storm-affected communities.

GOSR was established in June 2013 as a temporary agency to coordinate and direct statewide administration of the federal CDBG-DR funds used for recovery and rebuilding efforts in storm-affected municipalities across the State. GOSR operates within the Housing Trust Fund Corporation, which is a component of HCR. In October 2022, the permanent Office of Resilient Homes and Communities was created, which assumed GOSR’s portfolio. In this report, we refer to the agency as GOSR, which was the name in use during most of the time covered by our audit.

From August 2011 through March 2023, GOSR received more than $4.5 billion in U.S. Department of Housing and Urban Development CDBG-DR funding to address the devastation from these storms, including about $4.4 billion for Sandy, $71.6 million for Irene and Lee, and $35.8 million in National Disaster Resilience Grant funding. GOSR has used these funds to assist impacted residents – through a variety of programs – with housing recovery, small business, community reconstruction, and infrastructure.

B&A and SFH were two of the programs funded by Disaster Recovery funds. B&A consists of two components: Buyout and Acquisition. Through Buyout, GOSR purchased eligible properties within designated Enhanced Buyout Areas (areas within a floodplain that are more susceptible to future disasters) to transform them into wetlands, open space, or stormwater management systems to create a natural coastal buffer to protect against future storms. Through Acquisition, GOSR purchased properties that were at least 50% damaged by any of the three storms and these properties were generally auctioned to buyers to be redeveloped to be more resilient against future storms. SFH provided homeowners with financial assistance for home repairs, rehabilitation, and elevation for resilience against future storms.

GOSR can initiate a recapture process to recoup funds from program participants who fail to meet program deadlines or who receive benefits for which they weren’t eligible. According to the most recent quarterly report of Disaster Recovery expenditures, which HCR posts on its website, as of March 31, 2024, GOSR had expended about $4.4 billion of its $4.5 billion budget. For the purposes of our audit, we focused primarily on projects that GOSR funded through its B&A and SFH programs.

Key Findings

We found significant weaknesses in HCR’s internal controls that reduced the effectiveness of its oversight of the properties we examined in the two programs that we included in our audit. We reviewed 10 Buyout properties, 11 Acquisition properties, and 20 SFH properties, and identified potential weaknesses in GOSR’s methods for determining applicant eligibility to receive assistance and in determining award amounts. There were also delays in redevelopment of some Acquisition properties, and weaknesses in GOSR’s practices related to both recapturing funds and handling uncollectible accounts. Better practices and enhanced monitoring of project progress would contribute to more effective oversight of these important housing recovery programs.

• There were indications that two of the 11 Acquisition properties we reviewed, for which GOSR paid $189,540, may not have been eligible for funding.
• In our sample, we identified potentially duplicated benefits totaling $60,288 paid to B&A applicants and a $6,000 overpayment to an SFH applicant.
• GOSR’s controls weren’t adequate to ensure that the Acquisition projects we reviewed were effectively progressing and helping achieve program goals. Six of the 11 Acquisition properties we reviewed either remained undeveloped at the time of our audit or were completed late based on the certificate of occupancy and/or other available information. These findings may represent weaknesses in GOSR’s readiness to prevent and detect both inappropriate payments and potential fraud that could occur in these and other large-dollar housing development programs.
• We identified areas for improvement in GOSR’s practices related to both recapturing funds and handling uncollectible accounts. Together, these weaknesses increase the likelihood of funds not being used for Disaster Recovery program purposes and may represent a financial loss to the State and reduced opportunity for funding for other potential applicants. 

Though we cannot project our sample results to the related populations of the funded properties, the implications and significance of our findings warrant prompt and appropriate action to better manage the remaining open projects and to inform other HCR housing programs.

Key Recommendations

• Revise practices, which could include amending policies and procedures, to provide greater assurance that GOSR Disaster Recovery program funds are:
  • Awarded only to eligible applicants and for eligible properties; and
  • Accurately calculated, including making appropriate adjustments for duplication of benefits.
• Take steps to prevent potential losses of federal funds, including proactively addressing project delays that may lead to undeveloped properties and subsequent recapture efforts and uncollectibility determinations.