North Carolina State Auditor Jessica Holmes’ office has released an audit that found the state’s Department of Public Safety (DPS) didn’t design or implement procedures to ensure that Hurricane Florence Disaster Recovery Funds were spent in accordance with the same-named legislation or that they achieved the intended results.
The report comes days after a separate report surfaced that the North Carolina Office of Recovery and Resiliency (NCORR) had ordered contractors to stop building new homes for Hurricanes Florence and Matthew victims and had stopped paying contractors in the process of completing construction projects.
The auditors report details the results of the Office of the State Auditor’s (OSA’s) second performance audit of the Hurricane Florence Disaster Recovery Fund and fulfills the legislative requirement for a final performance audit. It includes DPS’s oversight from Feb. 1, 2021, through Dec. 31, 2023.
OSA’s first audit in April 2022 audit, titled Oversight of Hurricane Florence Disaster Recovery Funds, found that from Nov. 1, 2018 to Jan. 31, 2021, DPS distributed:
- $502 million of Hurricane Florence Disaster Recovery Funds to recipients with limited monitoring.
- $783 million of Hurricane Florence Disaster Recovery Funds without ensuring all recipients had a method to measure the results.
The second and most recent audit found that from Feb. 1, 2021 to Dec. 31, 2023, DPS distributed:
- $18 million of Hurricane Florence Disaster Recovery Funds to external recipients with limited monitoring. The total since the fund was established is $520 million.
- $94 million of Hurricane Florence Disaster Recovery Funds without ensuring all recipients had a method to measure the results. The total since the fund was established is $877 million.
As a result, there was an increased risk that recipients could have misused funds without the misuse being detected and corrected promptly. Consequently, DPS was limited in determining whether funds achieved legislatively intended results.
After Hurricane Florence made landfall in September 2018, the North Carolina General Assembly enacted the Hurricane Florence Emergency Response Act in October 2018 to respond to its effects on the state. The Response Act established the Hurricane Florence Disaster Recovery Fund to provide necessary and appropriate relief and assistance from the effects of Hurricane Florence.
The fund is maintained as a special fund administered by DPS to carry out the provisions of the law and subsequent acts needed in response to Hurricane Florence.
The OSA stated that as of Dec. 31, 2023, DPS allocated a total of $942.4 million in Hurricane Florence Disaster Recovery Funds to various state agencies, including $271.3 million to DPS, institutions of higher education, a non-profit foundation; and disbursed $877 million (93%) to recipients.
Of the remaining unused funds, $30.1 million was reverted and transferred to the State Emergency Response and Disaster Relief Fund by S.L. 2023-134, Section 5.6(a). The remaining $34.7 million is also subject to reversion by the General Assembly if the funds continue to go unused.
To receive funds, each state agency, institution of higher education, and non-profit foundation would spend funds on recovery efforts and later request reimbursement from DPS for qualifying expenditures. These recipients would submit quarterly reports to DPS, including a summary of program activities, how much was spent to date, and the performance metrics outlined in legislation.
Hurricane Florence Recovery legislation also created the North Carolina Office of Recovery and Resiliency (NCORR) within DPS. NCORR is responsible for:
- Providing general disaster recovery coordination and public information.
- Citizen outreach and application case management.
- Program and construction management services.
- Audit, finance, compliance, and reporting on disaster recovery funds.
- Reporting on the use, oversight, and results achieved by Hurricane Florence Disaster Recovery Funds.
In the first finding, auditors found that $18 million of disaster recovery funds was dispersed with limited monitoring. DPS did not independently verify external recipient spending by comparing supporting documents (invoices, receipts, payroll records, etc.) to expenditures reported by external recipients.
DPS required recipients to submit monthly spending reports using templates noting legislative reference, appropriation amount, and purpose. DPS also reconciled reported spending to external recipient accounting records submitted with spending reports and legislative allocations.
As a result, there was an increased risk that external recipients could have misused funds without the misuse being detected and corrected in a timely manner.
DPS management told auditors that it did not independently verify spending because legislation did not specifically require or provide DPS with the authority to monitor recipient spending. While the legislation did not explicitly require DPS to monitor recipients to ensure funds were spent in accordance with the legislation, DPS was required by law to administer the Hurricane Florence Disaster Recovery Fund to carry out the provisions of Hurricane Florence Recovery legislation and best practices from the Government Accountability Office (GAO) recommend monitoring recipient spending.
Auditors recommended that DPS monitor external recipients’ spending in a timely manner to ensure funds are spent in accordance with the legislation. Also, the General Assembly should consider including monitoring requirements in future legislation regarding disaster recovery or emergency relief funds.
Auditors also found that $94 million of Hurricane Florence Disaster Recovery Funds were dispersed without ensuring that all recipients established objectives for what they would do with the funds and measured their progress towards meeting their objectives. As a result, DPS was limited in knowing whether the funds were achieving legislatively intended results and taking timely corrective action if necessary.
Hurricane Florence Recovery legislation required DPS to submit quarterly reports that provided updates regarding:
- How much was spent.
- What the funds were spent on.
- Summary of program activities.
- Performance metrics outlined in legislation.
- Summary of oversight activities and results achieved.
DPS management argued that it did not ensure all recipients established a method to measure results because the legislation did not specifically require or give DPS the authority to ensure that all recipients had a method to measure results.
Auditors disagreed, saying that state law required it.
Auditors recommended that DPS should develop policies and procedures to ensure all recipients have objectives for what they would do with any future disaster recovery or emergency relief funds and measure their progress towards meeting their objectives. Also, the General Assembly should consider including monitoring requirements in future legislation regarding disaster recovery or emergency relief funds.
In a statement to the OSA on the findings, DPS Secretary Eddie Buffaloe, Jr., said DPS was not specifically included in the legislation as administering the funds to external entities. Also, Assistant State Budget Officer Thomas Cheek delegated the OSB’s (Office of State Budget Management) authority to DPS so that DPS could directly request funds from the Hurricane Florence Disaster Recovery Reserve to meet the requirements of the session law.
Holmes’ office contended that was false, stating that OSBM issued a memo dated Nov. 5, 2018, from then-State Budget Director Charles Perusse, specifically transferring this responsibility to DPS. This memo clearly states that DPS is responsible for administering the Hurricane Florence Disaster Recovery Fund and “reviewing documentation for approval for the use of the HFDRF funds.”
Buffaloe said that DPS utilizes a scope of work document in which recipients explain a plan to expand funds along with a projected budget, and these recipients must also provide quarterly progress reports on the scope and budget.
Auditors agreed that, although the document required quarterly progress reports, it did not include an assessment or measurement of results achieved.
He concluded that DPS contends its authority is limited in withholding funding, or providing oversight, on grants such as those specifically appropriated in that legislation.
Auditors said, to the contrary, DPS was specifically assigned the authority and responsibility to administer the Hurricane Florence Disaster Recovery Fund.