FEMA Should Recover $395,032 of Improper Contracting Costs from $14.3 Million Grant Funds Awarded to East Jefferson General Hospital, Metairie, Louisiana

The East Jefferson General Hospital, Metairie, Louisiana (Hospital) received a $14.3 million award from the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Louisiana), a Federal Emergency Management Agency (FEMA) grantee, for damages resulting from Hurricane Katrina in August 2005. Our audit objective was to determine whether the Hospital accounted for and spent FEMA funds according to Federal requirements. The Hospital did not comply with Federal procurement standards in awarding $9.5 million for 17 contracts. Ten of the 17 contracts were prohibited cost-plus-a-percentage-of-cost contracts for exigent work. We did not question the majority of contract costsbecause contractors performed most of the work under exigent circumstances. We did, however, question $395,032 ofmarkups on costs because Federal regulations strictly forbid the cost-plus-a-percentage-of-cost method of contracting because it provides a disincentive for contractors to control costs. Because of our audit, the Hospital was preparing a Disaster Policy Guide to assist them in complying with Federal regulations for any future disasters.