Procedures & Tools for Reviewing and Preventing. Duplication of Benefits

Transcription

1 Procedures & Tools for Reviewing and Preventing Duplication of Benefits

2 Overview

3 What is a DOB? Recovery assistance may be provided by many sources A duplication of benefits (DOB) occurs when: Assistance from multiple sources and Total Assistance > Need for that Type Assistance Responsible use of taxpayer $$. Courts have said that governments are also subject to DOB requirements

4 DOB Example Assistance to an individual: Mr. Brown s home was damaged by a tornado Estimated cost to resiliently repair is $100,000. Mr. Brown receives a total of $150,000 from FEMA, insurance, SBA, and CBDG-DR. How much is the likely DOB?

5 Primary Framework for CDBG-DR DOB analysis 2011 DOB Federal Register Notice

6 DOB Federal Register Notice Designed to outline the DOB process: A. Determine need & duplicative benefits B. Calculate award C. Address remaining unmet need (if applicable) D. Use of CDBG funds E. Recapture (if applicable)

7 A. Determine Need & Duplicative Benefits 1. Assess need. Ex. How much will it cost to rehabilitate the damaged home? The CDBG-DR need may differ from an amount identified by another agency.

8 A. Determine Need & Duplicative Benefits recap 2. Identify all available assistance. Calculate total assistance available to the homeowner e.g., insurance proceeds, FEMA award, private loan, line of credit, etc.

9 A. Determine Need & Duplicative Benefits recap 3. Exclude non-duplicative funds The Notice provides a list of exclusions that will not reduce the CDBG-DR award to the homeowner Funds for a different purpose or general, non-specific purpose Funds for same purpose, different (eligible) use Funds not available Private loans Other assets or lines of credit

10 B. Calculate Award Assistance not excluded is duplicative. Subtract all assistance found to be duplicative from identified need; reduce award if program cap in place. Basic framework: 1. Identify Applicant s Total Need $ 100, Total All Assistance Received $ 35, Total Assistance Determined to be Duplicative $ 30, Maximum Eligible Award (Item 1 less Item 3) $ 70, Program Cap (if applicable) $ 50, Final Award (lesser of Items 4 and 5) $ 50,000

11 C. Unmet Needs Disaster recovery needs are calculated at a point in time; a subsequent change may affect need E.g., vandalism, contractor fraud, an increase in the cost of materials and/or labor, subsequent damage, etc. May provide additional assistance if initial need not fully met Unmet need can be identified during the CDBG-DR award process or after funds have been provided. Discretion to determine ways to identify and verify unmet need; physical inspection/professional appraisals are highly recommended

12 D. Use of CDBG-DR Funds Funds must be used for eligible purposes of the program or activity for which they have been provided The purpose of the award, and not the use of the funds, is the DOB determining factor. In general, CDBG disaster recovery funds should not be used to pay down an SBA loan Possibly some exceptions; HUD headquarters will evaluate on a case-by-case basis

13 E. Recapture CDBG-DR grantees that provide duplicative funds are responsible for recapture. Grantee s DOB policies and procedures need to address recapture A subrogation agreement or similar agreement must be signed by every applicant prior to the receipt of assistance Risk of DOB may inform policy regarding monitoring for DOB after CDBG-DR award Ex. If future assistance is nearly certain but amount is uncertain, higher risk of DOB

14 Assistance must be necessary and reasonable

15 Treatment of Declined SBA Loans - Grantees must have policies and procedures to guide assistance that replaces the amount of declined SBA loans: Identify the circumstances under which the applicant declined the SBA assistance; Establish why CDBG DR assistance is appropriate for the applicant; and Determine, most commonly through underwriting, the amount of CDBG DR assistance that is necessary and reasonable to assist the applicant in achieving recovery.

16 DOB Example - declined SBA loan Assistance to an individual: Mr. Brown s home was damaged by a tornado Estimated cost to repair and elevate is $150,000. Mr. Brown receives a total of $120,000 from FEMA and insurance, but declined a $30,000 SBA loan offer. Can Mr. Brown receive CDBG-DR? How much?

17 What does HUD look for when monitoring for DOB?

18 Monitoring for DOB HUD may ask grantee to walk through its DOB analysis Policies and procedures, data sharing with SBA and FEMA Review individual files for: Identification of CDBG-DR need Identification of sources of assistance Verification of sources of assistance Calculation of CDBG-DR award Subrogation agreement (or similar agreement) Treatment of SBA declined loans.

19 Practical Considerations

20 Tips to Avoid Duplications Program Design Planning

21 Best Practices Checklist Adopt DOB policies and procedures Provide Technical Assistance for Subrecipients and contractors Know which sources to document in the application Identify type of documentation required for all sources of funds received

22 Reimbursement vs. Non-reimbursement HUD permitted Public Law grantees to reimburse applicants for some pre-application costs. Notice CPD : Guidance for Charging Pre-Award Costs of Homeowners, Businesses, and Other Qualifying Entities to CDBG Disaster Recovery Grants, as may be amended If reimbursement is not permitted, grantee assesses need at the time of award

23 What happens when DOB is found? Steps to take when potential DOB is identified Re-evaluate need and document remaining DOB check documentation in file (re-evaluation of need, ensure all agreements in place, etc.) Letter to beneficiary requesting reimbursement debt collection procedures Collected amounts are CDBG funds

24 Questions before the sample exercise?

25 Analysis of Duplication of Benefits (DOB) Exercise December 2011

26 A. Determine Need & Duplicative Benefits 1. Assess need Post-disaster estimated rehab/elevation cost = $115,000 Estimated cost at time of application = $85,000 (e.g., grantee assesses need at time of application). Remaining need depends on whether reimbursement is permitted.

27 A. Determine Need & Duplicative Benefits 1. Assess need - Remaining need depends on whether reimbursement is permitted. Here, assume reimbursement is permitted. Therefore, look at need at date of disaster (i.e., $115,000). DOB analysis must consider costs incurred for repairs prior to the application $15,000 FEMA, $5,000 loan, and $10,000 in savings

28 A. Determine Need & Duplicative Benefits 2. Identify total assistance available to the applicant Total assistance = $122,500

29 A. Determine Need & Duplicative Benefits 3. Exclude: a) Funds for a different purpose or general, non-specific purpose b) Funds for same purpose, different (eligible) use c) Funds not available d) Private loans e) Other assets or lines of credit

30 A. Determine Need & Duplicative Benefits a) Exclude funds for a different purpose or general, non-specific purpose Exclude item (1) Red Cross = $2,500 Item (1) is for a general purpose (disaster recovery) and so is not considered duplicative to the potential CDBG-DR award for rehabilitation assistance

31 A. Determine Need & Duplicative Benefits b) Exclude funds for same purpose, different (eligible) use Exclude item (2) FEMA IA award used for interim housing eligible use = $10,000 In this case, funds spent on interim housing constitute a different (eligible) use of funds and do not duplicate assistance provided for rehabilitation In all cases, look at the FEMA award letter to determine what is eligible IA use.

32 A. Determine Need & Duplicative Benefits c) Exclude funds not available Exclude item (4) insurance = $40,000 Funds used for a forced mortgage payoff are not considered duplicative to rehabilitation assistance; since they can t be used for repairs, the applicant s need for safe/suitable housing still exists

33 A. Determine Need & Duplicative Benefits d) Exclude private loans Exclude item (6) bank loan = $5,000 Generally exclude private loans when calculating a DOB In this example, we are permitting reimbursement If reimbursement is permitted by HUD, a grantee may reimburse expenses paid for by the applicant if not duplicative.

34 A. Determine Need & Duplicative Benefits e) Exclude other assets or lines of credit Exclude item (7) = $30,000 (Savings) Generally exclude other assets or lines of credit when calculating a DOB When reimbursement is permitted, amounts from private resources might be able to be reimbursed

35 A. Determine Need & Duplicative Benefits Exclude anything else? In a reimbursement situation, FEMA funds already used for repairs (item 3, $15,000) are NOT excluded because the NEED estimate is the estimate at the time of the disaster - $115,000. Entire FEMA award of $20,000 is considered.

36 A. Determine Need & Duplicative Benefits 3. Summary of exclusions Item (1) = $ 2,500 Item (2) = $10,000 Item (4) = $40,000 Item (6) = $ 5,000 Item (7) = $30,000 $ 87,500

37 A. Determine Need & Duplicative Benefits 3. Need determined duplicative Total assistance of $ 122,500 - Total exclusions of $ 87,500 Duplicative amount $ 35,000*

38 A. Determine Need & Duplicative Benefits 3. So what is duplicative? Item (3) ($20,000) FEMA funds provided for the purpose of rehabilitation are duplicative. Item (5) ($15,000) SBA funds provided for the purpose of rehabilitation

39 B. Calculate Award Basic Reimbursement framework: 1. Identify Applicant s Total Need Prior to Any Assistance $115, Identify All Assistance Provided $122, Deduct Assistance Determined to be Duplicative $ 35, Maximum Eligible Award (Item 1 less Item 3) [of this, $15,000 is reimbursement for expenditures prior to point of application] $ 80, Program Cap (if applicable) $ 90, Final Award (lesser of Items 5 and 6) $ 80,000

40 A. Determine Need & Duplicative Benefits Does the point at which need is assessed matter? YES. If reimbursement is not permitted, costs incurred prior to application for CDBG-DR funds is not allowable, so need is cost of remaining rehabilitation.

41 B. Calculate Award Basic Non-Reimbursement Framework: 1. Identify Applicant s Total Need Prior to Any Assistance $115, Identify Applicant s Need at time of Application $ 85, Identify All Potentially Duplicative Assistance $122, Deduct Assistance Determined to be Duplicative [excludes $15,000 in FEMA IA assistance expended for eligible costs prior to point at which needs are assessed must show receipts] $ 20,000 [$5K FEMA + $15K SBA] 5. Maximum Eligible Award (Item 2 less Item 4) $ 65, Program Cap (if applicable) $ 90, Final Award (lesser of Items 5 and 6) $ 65,000

42 Questions?