Documenting disaster recovery costs.

Good record keeping is the basis for successful cost recovery from federal and state disaster assistance programs. Some points to consider.

Large disasters such as Hurricane Hugo, the Loma Prieta Earthquake and Hurricane Andrew have a major impact on individuals, governmental and nonprofit organizations, and the impacted areas' economic activity and base. Governments expend resources in preparing for, responding to and recovering from a disaster event. As an event progresses from preparatory activities to response and repairs to postevent recovery, the last thought of those caught up in the long list of unanticipated activities is record keeping. Good record keeping, however, is the basis for successful cost recovery from federal and some state disaster assistance programs. Failure to produce adequate expenditure records of disaster-related activities will severely limit an affected jurisdiction's ability to recover disaster-related costs from these programs. Participation in federal disaster assistance programs is long term and detail intensive.

Federal Relief

When a disaster event is beyond the response capability of a state and impacted local government(s), the President may declare an emergency or major disaster upon a governor's request. This makes a variety of federal resources and programs available, one of which is administered by the Federal Emergency Management Agency (FEMA). FEMA is the lead agency to fund and coordinate the assistance programs under the Robert T. Stafford Disaster Relief and Emergency Act (PL 100-707, 1988- an amendment to PL 93-288). The Stafford Act substantially broadened the federal assistance programs and increased the states' responsibility and flexibility in administering the programs.

In addition to direct federal assistance, there are two major federal disaster assistance programs: 1) Individual Assistance (IA) to assist with loans and/or grants for losses suffered by individuals and families and 2) Public Assistance (PA) to assist with grants to public agencies and some nonprofit organizations. Eligible organizations with disaster-related costs and damages, such as a state or state entities, local governments and "governmental-type" nonprofit groups, become applicants (subgrantees) in FEMA's PA program. The state serves as the administrator (grantee) of this program. Public Assistance is a cost-sharing program. Under the Stafford Act, the federal government is required to fund not less than 75 percent of "net eligible costs;" the remaining nonfederal share is the responsibility of the state and local governments. In some severely impacted areas, the President may, and in some instances has, fully funded the net eligible costs.

Required Forms and Procedures

A massive effort is activated upon a Presidential disaster declaration. FEMA and the state brief public agencies in the declared area on the PA program. Subgrantees incurring disaster related costs open their PA application by filing a Notice of Interest (NOI). This federal form identifies the types of public property damages and response costs incurred.

It is incumbent on the subgrantee to provide a thorough listing of all damage sites and cost pools related to disaster preparedness, response, repair and recovery activity. The subgrantee faces a series of (extendable) deadlines to identify its losses to the state and FEMA. Failure to identify sites and costs in a timely manner may result in a loss of available federal funds, hence the importance of accurate and thorough record keeping.

Inspection teams composed of a federal, state and local representative prepare quantitative estimates of the scope and cost of work performed or to be performed as a result of the declared disaster event. The inspection teams prepare a document called a Damage Survey Report (DSR) for each site or cost

pool. A DSR is a multi-page, federally supplied and prepared form to define and delimit the net eligible work and costs of a subgrantee's response, repair and restoration efforts. The DSR is intended to be the joint effort of knowledgeable representatives from FEMA, the state and the subgrantee; however, the FEMA representatives exert considerable influence on this process. The Federal Coordinating Officer (FCO) or authorized designee approves and commits funds to a DSR. Without written approval at that level a subgrantee is penniless.

A DSR is prepared for each damage location by eligible work category. Subgrantees are afforded the opportunity to "concur or non-concur" with the prepared DSR. Non-concurrence does not compromise work or cost eligibility, but rather, it indicates a difference of opinion or understanding between the team members. It is the first step in the process of negotiating an acceptable scope of work at a reasonable estimated cost or actual cost, if known. Minor differences or additions to the scope of work are resolved or amended into the grant by a supplemental DSR. Major differences are resolved through a sometimes lengthy appeal process.

It is significant to note that eligible work, as defined, includes adopted and enforced current codes and standards. There is considerable debate on the subject of "adopted and enforced." Subgrantees should review their codes and standards for opportunities to ensure that they are current. FEMA takes the position that the applicable codes and standards are those in effect at the time when its regional manager approves a DSR. This may ignore the conditions imposed by a building permit or by subsequent laws, which presents a problem because FEMA requires that repairs comply with all applicable laws and requirements. This "Catch-22" may result in a lengthy appeal process.

Hazard Mitigation

The Stafford Act emphasizes hazard mitigation as a critical element of the disaster assistance process. Hazard mitigation is defined as any action taken to eliminate or reduce long-term risk to life and/or improved property from natural and/or technological hazards. Hazard mitigation is the only element of emergency management aimed at breaking the cycle of repetitive damage and reconstruction. Federal and state agencies are placing increased emphasis on hazard mitigation throughout their disaster assistance programs. FEMA policy states:

"While the need to respond quickly to disaster and life-threatening conditions must remain paramount, FEMA shall assure that the ultimate benefits to be gained through effective hazard mitigation programs are not diminished and remain a primary objective."

Hazard mitigation should be considered when negotiating the eligible scope and cost of work. Required hazard mitigation is funded under the applicable cost sharing formula. FEMA also makes available a limited pool of funds to participate in nonrequired mitigation actions providing 50 percent federal funding.

The Importance of Documentation

Public Assistance places significant requirements on subgrantees for proper and adequate activity and accounting documentation. Failure to prepare, maintain and keep adequate documentation may result in disallowance of costs at final inspection and/or audit. All subgrantees are subject to the Single Audit Act of 1984 and the audit requirements of the state. FEMA retains the authority for line-item audit by DSR. Original cost and activity records must be retained for not less than three years after the latter of final payment or audit settlement. Documentation shortcomings may result in a subgrantee being required to refund disaster assistance proceeds. Subgrantees should establish a unique file for each DSR. (Charleston County, South Carolina, is maintaining approximately 850 such files from Hurricane Hugo.) The file should contain all originals of all documents to be available, but the file may be assembled with copies. Daily cost accounting of labor, equipment and materials transactions is required. Invoices for rented equipment and contracted work as well as purchases and proof of payment must be available. Materials used by a subgrantee from its own inventory must be tracked to a DSR site. Contracted work must be fully documented by DSR with copies of plans and specifications, bids, bid summaries, award and completion notices, properly authorized written change orders, insurance and bond documents in the file. Full compliance with federal, state and local procurement requirements is expected; legal emergency powers may be invoked for an appropriate time.

Participation by public agencies in the federal disaster assistance program is a demanding process. Top management and elected officials must control and manage the process and ensure prompt, effective performance by their organizations. To maximize cost recovery and ameliorate capital setbacks, their disaster response and recovery plan must have effective guidelines, for immediate initiation, for proper activity and cost documentation. Reconstruction of activity and cost documentation is an onerous, time-consuming and expensive process. Failure to capture or reconstruct records, however, guarantees loss of federal funds. This demanding effort continues through to the audit settlement. This effort may continue for a year or more after completion of the final physical recovery project.

GERARD J. QUINN and ROBERT E. SHEETS are vice presidents and CHRISTIAN E. STALBERG is a project manager with David M. Griffith and Associates. David M. Griffith and Associates is a national cost/resource management consulting firm to more than 1,800 state and local government entities in the United States.