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FTA’s Limited Oversight of Grantees’ Compliance With Insurance Requirements Puts Federal Funds and Hurricane Sandy Insurance Proceeds at Risk

Mandated by the Disaster Relief Appropriations Act of 2013
Project ID: 
ST2020005
What We Looked At
After Hurricane Sandy hit in October 2012, the Federal Transit Administration (FTA) awarded approximately $5.03 billion in grant funding to 14 grantees through 2017 for response, recovery, and rebuilding projects. Our prior audits supporting oversight of this funding, as mandated by the Disaster Relief Appropriations Act of 2013, found that FTA established formal reporting and tracking procedures for grantees’ receipt of insurance proceeds to help prevent the Agency from funding project expenses for which a recipient already received insurance proceeds. However, we could not assess implementation of these oversight procedures at the time, because grantees faced years of ongoing monitoring before reaching settlements with the insurance companies. Now that grantees have begun to receive insurance settlements and develop plans for applying them, we initiated this audit to assess FTA’s oversight of its Hurricane Sandy grantees’ compliance with insurance requirements. Specifically, we assessed FTA’s oversight of Hurricane Sandy recovery grantees’ compliance with requirements for (1) carrying required insurance, (2) reporting on insurance proceeds, and (3) applying insurance proceeds.
 
What We Found
We found that FTA has not verified that grantees have required flood insurance for Hurricane Sandy damages and its other Federal transit investments. This is in part because FTA relies on grantees to self-certify that they have the requisite insurance coverage, does not require the grantees to produce the necessary data to support their certifications, and lacks procedures to confirm that grantees carry flood insurance when required. As a result, FTA cannot conclusively determine whether its grantees are eligible for the full amount of funding they received for Hurricane Sandy grants or a portion of the billions in Federal transit investments it funds annually. Further, FTA lacks procedures to follow up with grantees that do not submit Insurance Proceeds Reports, which may diminish its ability to eliminate duplication between Federal funds and insurance proceeds, as well as to ensure proceeds are properly allocated. Lastly, FTA has failed to hold Hurricane Sandy grantees accountable for timely or completely applying their over $1 billion in insurance proceeds, in some cases years after they received them. Consequently, we found over $982.8 million in insurance proceeds could be put to better use.
 
Our Recommendations
We made eight recommendations to improve FTA’s oversight of its Hurricane Sandy grantees’ compliance with insurance requirements. FTA concurred with three, partially concurred with two, and did not concur with three. In response, we requested that FTA clarify and reconsider its actions.

Recommendations

Open

Closed

$2,125,000
No. 1 to FTA

Reduce permanently NYC DOT's Hurricane Sandy total damage assessment by $2.125 million to remove the ineligible expenses.

No. 2 to FTA

Assess the necessary data to affirm that Hurricane Sandy recovery grantees carried flood insurance that complied with the Flood Disaster Protection Act (FDPA). For any Hurricane Sandy recovery grantee that FTA determines had uninsured buildings, contents, or both that should have been insured in compliance with the FDPA, permanently reduce the grantee's total Hurricane Sandy damage assessment by the aggregate amount of the maximum available National Flood Insurance Program (NFIP) insurance or the amount of the Federal investment in the property prior to the storm (whichever is less).

No. 3 to FTA

Develop and implement procedures within FTA's Triennial and State Management Reviews to assess the necessary data to affirm that each grantee undergoing a comprehensive review carries flood insurance that complies with the FDPA. FTA's suggested corrective actions for any grantee deficiency in this area should include, at a minimum, requiring the grantee to submit to FTA documentation showing proof of flood insurance in the aggregate amount of the maximum available NFIP insurance or the amount of the Federal investment (whichever is less) for all structures required to have it.

No. 4 to FTA

Revise FTA's Emergency Relief Program (ERP) guidance to include a timeframe within which grantees must apply insurance proceeds to support the policy described in its ERP Final Rule.

$982,855,757
No. 5 to FTA

Require the Hurricane Sandy Recovery grantees to apply their insurance proceeds in accordance with the timeframe established in the revised ERP guidance and in support of the policy described in its ERP Final Rule. Implementation of this recommendation could put over $982.8 million in funds to better use. This is the amount of transit-related insurance proceeds that grantees have received but have not yet spent on eligible transit recovery projects.

$180,700,000
No. 6 to FTA

Require MTA to apply the full amount of its transit-related insurance proceeds to eligible transit projects. Implementation of this recommendation could put up to $180.7 million in funds to better use.

No. 7 to FTA

Develop procedures to track grantee allocation plan implementation for expenditures solely funded with insurance proceeds.

No. 8 to FTA

Revise the ERP Toolkit checklist to include a step for FTA Regional staff to crosscheck against the approved insurance allocation plan when reviewing Hurricane Sandy grant applications and awarding Hurricane Sandy grants.