Results of Antiterrorism and Emergency Assistance Program Grant Audits

Audit Report GR-70-05-016
August 2005
Office of the Inspector General

Executive Summary

The Office of the Inspector General (OIG), Audit Division, has prepared this report to summarize the results and conclusions of audits of eight Antiterrorism and Emergency Assistance Program (AEAP) grants awarded by the U.S. Department of Justice, Office of Justice Programs (OJP), Office for Victims of Crime (OVC).

The September 11 terrorist attacks created an unexpected funding need at state crime victim agencies in New York, New Jersey, California, Virginia, Pennsylvania, and Massachusetts. In addition to being acts of terrorism and a national disaster, the attacks constituted a crime. Therefore, victims and their families were eligible to receive compensation and assistance from state agencies that normally help victims of more common crime such as robberies and assaults. In the months following the attacks, OVC awarded over $65 million in AEAP grants as supplemental funding for state victim compensation and victim assistance programs.

In general, state victim compensation programs reimburse individuals for financial losses caused by crime. These payments to victims are most often based on loss of earnings or financial support and medical costs not covered by insurance or other sources. Victim assistance programs, on the other hand, are operated by states and typically provide services that include crisis intervention, counseling, emergency shelter, criminal justice advocacy, and emergency transportation. States normally deliver these services through grants between the state victim assistance agency and community-based organizations.

The AEAP grants we audited were awarded for both victim compensation and victim assistance to the established crime victim agencies in New York, New Jersey, and California. As shown in the following table, our audits included $43.4 million, or nearly 67 percent, of all AEAP grants OVC awarded states following the terrorist attacks.

OIG Report
AEAP Grantee Grant Amount
GR-70-05-001 Department of Law
and Public Safety, Division
of Criminal Justice (NJ)
GR-70-05-002 Crime Victims Board (NY) $15,228,000
GR-70-05-003 Crime Victims Board (NY) $13,107,900
GR-70-05-004 Victims of Crime
Compensation Board (NJ)
GR-90-04-017 Victim Compensation and
Government Claims Board (CA)
GR-90-04-018 Victim Compensation and
Government Claims Board (CA)
Total   $43,415,610
Note: These six audit reports cover eight AEAP grants.
Source: OIG

The objective of these audits was to determine whether reimbursements claimed for costs under the grants were allowable, supported, and in accordance with applicable laws, regulations, guidelines, and terms and conditions of the grants.

As a result of our audits, we made 16 recommendations to OJP. These recommendations are listed in Appendix I. For ease of discussion in this report, we present the four significant audit findings we made in the following areas: (1) estimating award amounts, (2) expenditures, (3) reporting, and (4) subgrantee monitoring.

We concluded that, generally, grantees did not accurately estimate the amount and timing of grant funding they eventually spent. In addition, we found that the funding was often used for purposes different from those the states initially requested from OVC.

For example, we determined that New York was likely to use less than 20 percent of the victim assistance funding originally planned. We also found that 28 months after the award date, New Jersey had reprogrammed over $3 million, or 36 percent, of the original victim assistance grant, to implement an alternative strategy that significantly differed from the original plans for the funding. California also made significant changes to its original spending plans after requesting that $50,000, or 25 percent, of the original grant award be reprogrammed.

We identified five contributing factors that likely caused the problems with these estimates. They are: (1) lack of victim information, (2) grant restrictions, (3) location of victim assistance providers, (4) alternative resources for victims, and (5) administrative problems.

When combined, we found that questioned costs for these 8 grants totaled $643,631, or less than 2 percent, of the $43,415,610 in total grant awards audited. We identified questioned costs at each of the states audited, and all the questioned costs were related to victim compensation grants.

The questioned costs for the 2 California victim compensation grants totaled $370,149, and of this amount, $280,000 related to payments the state made to September 11 victims. We determined these victims were ineligible to receive compensation benefits. The remaining expenditures we questioned were made for personnel expenses that were not sufficiently documented, a concert in honor of a terrorism victim unrelated to September 11, and other expenses made for purposes unrelated to the grant.

In New York, most of the questioned costs were victim compensation payments that the state made before the related claims were investigated. While the state’s normal procedure is to verify claims before making payments, the state will make emergency payments before an investigation of the claim in cases where undue hardship on the part of the victim will result if immediate payment is not made. Our audit found that the state made emergency payments of over $200,000 that were later proved to be unallowable based on a subsequent investigation of the claim.

In New Jersey, the questioned costs of $17,302 were made for unallowable administrative expenses and crime victim payments of $9,702 that were not related to the September 11 attacks.

Despite this relatively small percentage of questioned costs, we identified significant recordkeeping and internal control problems at some of the grantees. For example, New York did not maintain accounting records that showed the source of funding for the grant-related expenditures. In addition, we reported that the procedures New Jersey followed for investigating and paying victim compensation should be strengthened to prevent the potential for fraudulent claims.

We determined that grantees generally complied with the financial reporting requirements; however, the progress reports submitted by these grantees were often inaccurate, not in the correct format, and not timely. AEAP grantees awarded funding between September 2001 and April 2002 were required to submit a special progress report that OVC created specifically for these grants. This special report covered the period from the time the grants were awarded to September 2002 and requested both victim and financial data. Our audits found that New Jersey failed to submit this report, and reports submitted by New York were not entirely accurate. We determined the accuracy problems in New York were related to the lack of accounting records mentioned previously. Following the special progress report, the grantees were required to submit semiannual progress reports using the Victims of Crime Act State Performance Report. Again, our audits identified numerous instances in which the grantees submitted these reports late, used the wrong report format, or provided inaccurate data. The likely causes of these reporting problems were a lack of accounting data, confusion on the part of the grantees concerning reporting requirements, and competing demands on grantee staffs.

We concluded that New York and New Jersey, which used subgrantees to distribute aid, could have monitored their subgrantees more closely. New York adequately managed its subgrantees by:

(1) requiring and evaluating proposals from subgrantees,

(2) maintaining records, including subgrantee contracts and evaluations, and (3) requiring and obtaining timely fiscal and activity reports from subgrantees. However, New York had not performed any site visits of its subgrantees at the time of our audit. New Jersey, in addition to not making site visits to its subgrantees, did not have up-to-date cost reports or activity reports from some of its subgrantees.

Based on the information developed in this report and our audits of eight AEAP grants that OVC awarded to state crime victim agencies following the September 11 terrorist attacks, we plan to initiate an audit of OVC’s management of the program.

Timely Grants Awarded for Allowable Purposes

We believe OVC was effective in working with the states, New York being most significantly affected by the attacks, to provide needed supplemental funding for crime victim compensation. OVC also provided significant funding for victim assistance. However, as discussed previously, the timing and amount of these funds were overestimated.

For both victim compensation and victim assistance, OVC awarded AEAP grants with the proper terms and conditions that required grantees to use funding for allowable purposes only. OVC was effective in awarding AEAP grants with terms and conditions that included restrictions contained in the Department of Defense Appropriations Act of 2002, and the grantees complied with those restrictions.

Potential for Fraud

We concluded from our audits of victim compensation grantees that the circumstances creating the need for AEAP grants, such as an act of terrorism, also create an environment that increases the risk that the grantees could be defrauded.

In New York, we identified procedures that the state adopted to improve outreach and aid to victims in the chaotic aftermath of the attacks. Unfortunately, we determined that these same procedures also resulted in higher rates of unallowable payments when compared to established practices. We questioned over $219,000 of unallowable payments caused by these practices.

In New Jersey, we determined the grantee established streamlined procedures to expedite the processing of September 11 victim claims in order to minimize the burden on victims in providing documentation for claims. We found these modified procedures circumvent good internal control practices and create an environment vulnerable to fraud by someone with knowledge of the procedures working inside or outside the agency.

We believe our findings developed in New York and New Jersey demonstrate that when grantees modify procedures and controls in response to extraordinary circumstances, such as the September 11 attacks, the risk of fraud increases.

In addition to the risk posed by streamlining procedures, we also believe that AEAP grant funds could be at increased risk of being used to pay false claims due to the large numbers of government agencies and charities providing similar services, the chaotic nature of these events, and the interstate aspects of large-scale acts of terrorism.

In our upcoming audit, we plan to evaluate OVC’s ability to ensure AEAP funds are not used to pay victim compensation to persons who may have defrauded other government or private organizations responding to the same terrorist or mass violence incident.

Pre-Award Evaluation of Grantees and Grant Amounts

During our audits of these AEAP grants, some grantees told us they did not have adequate personnel or procedures in place to administer their grants as effectively as possible. For example, in New Jersey, a lack of staff was, in part, responsible for subgrantee monitoring problems. In addition, a New Jersey official told us his state was overwhelmed by the large amounts of funding awarded after September 11, and this contributed to the delays in making use of grant funds. New York officials also pointed to a lack of available staff to make subgrantee site visits and ensure proper progress reporting.

As we discussed extensively in this report, we determined that grantees generally did not accurately estimate the amount and timing of grant funding they eventually spent. In addition, we found that funding was often used for purposes different from those the grantees initially requested.

While we have explored these issues and attempted to identify their causes in this report, in our upcoming audit we plan to assess OVC’s procedures for evaluating both the capabilities of AEAP grantees and the requests for grant awards they submit. Our objective will be to assess OVC’s ability to ensure that AEAP grantees are able to effectively administer grants and accurately assess the amount and timing of grant awards.

Progress Reporting

Although we determined OVC effectively communicated to grantees the restrictions associated with counseling grants, AEAP grantees were generally confused regarding the AEAP reporting requirements. This confusion contributed to reports that were late, inaccurate, and not in the correct format. Also, we recommended in some of our grant audit reports that OVC provide clear guidance to grantees concerning progress report requirements. OVC disagreed with this recommendation in some of these audit reports and stated that grantees were provided clear and consistent guidance. As part of our audit of OVC’s management of AEAP, we plan to examine the reasons for grantees’ confusion, which resulted in numerous non-compliant progress reports.