Puerto Rico Disasters: Progress Made, but the recovery Continues to Face Challenges (feb. 2024)

United States Government Accountability Office

Report to Congressional Requesters

February 2024

PUERTO RICO DISASTERS Progress Made, but the Recovery Continues to Face Challenges

GAO-24-105557

February 2024

PUERTO RICO DISASTERS Progress Made, but the Recovery Continues to Face Challenges Highlights of GAO-24-105557, a report to congressional requesters

Why GAO Did This Study

What GAO Found

In September 2017, hurricanes Irma and Maria caused billions of dollars in damage to Puerto Rico’s infrastructure, housing, and economy. Earthquakes in 2019 and 2020 caused additional damages. More than 6 years after hurricanes Irma and Maria, Puerto Rico’s recovery is ongoing.

The Federal Emergency Management Agency (FEMA) had awarded about $23.4 billion in Public Assistance to Puerto Rico’s permanent recovery work related to hurricanes Irma and Maria and the 2019 and 2020 earthquakes, as of June 2023. Of that, Puerto Rico has expended about $1.8 billion and a substantial amount of permanent work remains. Further, about $11.3 billion of the awarded funds needs FEMA’s authorization before Puerto Rico can expend it. Puerto Rico subrecipients plan to submit project applications and obtain FEMA’s authorization to access and expend these remaining funds through 2030 and possibly beyond.

FEMA is the lead federal agency assisting Puerto Rico’s recovery operations. It administers the Public Assistance program to provide grant funds to repair and rebuild damaged infrastructure, such as schools and the power grid, among other things. GAO was asked to review federal recovery efforts in Puerto Rico. This report addresses: (1) the status of permanent recovery work in Puerto Rico using Public Assistance; (2) the extent to which FEMA and Puerto Rico’s government have addressed challenges to starting and completing permanent recovery work; and (3) the results of FEMA efforts to monitor Puerto Rico’s use of grant funds. For this report, GAO analyzed relevant FEMA and Puerto Rico government documents and data; conducted site visits; and interviewed FEMA, Puerto Rico, and grant subrecipient officials.

What GAO Recommends In prior work, GAO made two recommendations to FEMA related to the management of risks to the remainder of Puerto Rico’s recovery that still warrant action. FEMA concurred with these recommendations and has drafted a risk management plan in response, but has yet to finalize this plan and demonstrate efforts to continuously monitor risks to the recovery. View GAO-24-105557. For more information, contact Chris Currie at (404) 512-1875 or curriec@gao.gov.

Work on Puerto Rico Aqueduct and Sewer Authority’s Central Laboratory in 2021 and 2022

To help jump-start permanent work construction, FEMA and Puerto Rico have taken actions, such as providing advance disbursements of funds; however, projects face additional challenges. Specifically, grant subrecipients that received awards from FEMA through an expedited process in Puerto Rico have identified increased project costs that pose risks to the completion of work on their facilities. For example, officials from Puerto Rico’s Aqueduct and Sewer Authority said that the costs for one water treatment plant project exceeded its original estimate by 42 percent. Under the expedited process, these cost increases are of concern because a subrecipient’s award acts as a fixed budget to complete projects across its various facilities. Therefore, increased costs for one project could excessively reduce the established budget to complete later projects. In May 2021, GAO identified a number of risks to Puerto Rico’s recovery, including subrecipient difficulties in starting project construction, and recommended that FEMA take several actions to manage them. FEMA has partially addressed these recommendations; however, further steps are needed, including finalizing its risk management plan and taking actions to continuously monitor recovery risks. As challenges continue to complicate Puerto Rico’s recovery, fully implementing GAO’s prior recommendations remains important. FEMA has monitored Puerto Rico’s use of Public Assistance grant funds through two oversight activities: improper payment reviews and grants management compliance reviews. Both efforts found improvement in Puerto Rico’s ability to manage FEMA grant funds since the 2017 hurricanes. For example, by fiscal year 2020, FEMA found that Puerto Rico’s potential improper payments fell below the amount considered significant by statute. United States Government Accountability Office

Contents

Letter

1 Background Puerto Rico Has a Substantial Amount of Permanent Recovery Work Remaining FEMA and Puerto Rico Have Taken Some Actions to Help JumpStart Permanent Work, but Challenges Remain FEMA Oversight Efforts Have Shown Improvements in Puerto Rico’s Grants Management Agency Comments

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Appendix I

Comments from the Commonwealth of Puerto Rico

31

Appendix II

GAO Contact and Staff Acknowledgments

44

GAO Related Products

6 15 19

45

Tables Table 1: Status of Federal Emergency Management Agency (FEMA) Public Assistance Funds Awarded to Permanent Recovery Work Under the Accelerated Award Strategy as of June 30, 2023 Table 2: Status of FEMA’s Validate As You Go Reviews in Puerto Rico, Reported by FEMA as of September 2023

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Figures Figure 1: The Paths of Hurricanes Irma and Maria in Puerto Rico and Areas Affected by the 2019 and 2020 Earthquakes Figure 2: Federal Emergency Management Agency’s Public Assistance Program Categories of Work Figure 3: Federal Emergency Management Agency’s (FEMA) Accelerated Award Strategy Process Figure 4: Federal Emergency Management Agency (FEMA) Public Assistance Awarded to Permanent Work for Hurricanes Irma and Maria and 2019-2020 Earthquakes Recoveries in Puerto Rico, as of June 30, 2023

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7 8 13

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Figure 5: Repairs to Buena Vista Arriba Water Storage Tank in Humacao, Puerto Rico Completed with Federal Emergency Management Agency Public Assistance Funds Figure 6: Federal Emergency Management Agency (FEMA) Public Assistance Awarded to Puerto Rico through the Accelerated Award Strategy, as of June 30, 2023 Figure 7: Puerto Rico’s Electric Power Authority Power Plant in San Juan

16 17 21

Abbreviations COVID-19 DHS FEMA Puerto Rico Recovery Office Stafford Act

Coronavirus Disease 2019 Department of Homeland Security Federal Emergency Management Agency Puerto Rico Central Office for Recovery, Reconstruction and Resiliency Robert T. Stafford Disaster Relief and Emergency Assistance Act

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Letter

441 G St. N.W. Washington, DC 20548

February 13, 2024 Congressional Requesters In September 2017, hurricanes Irma and Maria struck Puerto Rico causing billions of dollars in damage to its infrastructure, housing, and economy. To repair and reconstruct the infrastructure damaged by the hurricanes, the government of Puerto Rico later estimated it would need $132 billion in funding from 2018 through 2028. As noted in Puerto Rico’s recovery plan, the damages caused by the hurricanes exacerbated an already difficult financial situation in Puerto Rico, which had been operating under severe fiscal constraints, suffering from outdated infrastructure and power systems, and lacked the emergency management capacity needed to respond to such catastrophic events. 1 Further complicating its recovery from the 2017 hurricanes, Puerto Rico experienced a series of earthquakes in December 2019 and January 2020 that added millions of dollars in damages. Recovery from this set of disasters was again impacted by subsequent events including the COVID-19 pandemic starting in March 2020 and Hurricane Fiona in September 2022. More than 6 years after hurricanes Irma and Maria struck the territory, Puerto Rico’s recovery remains ongoing. The Federal Emergency Management Agency (FEMA)—a component of the Department of Homeland Security (DHS)—is the lead federal agency responsible for assisting Puerto Rico’s recovery from these natural disasters. 2 FEMA administers the Public Assistance program that provides grant funds to state, territorial, local, and tribal governments, as well as certain types of private nonprofit organizations, to assist them in

1In fiscal year 2016, Puerto Rico’s total outstanding public debt stood at $65.2 billion. Puerto Rico’s total outstanding public debt increased continuously between fiscal years 2005 and 2014, prior to a default in 2015. Puerto Rico completed its major debt restructuring in 2022, and as of January 2023, Puerto Rico’s restructured debt obligations totaled about $28.6 billion (in addition to debt obligations of Puerto Rico’s Power and Electricity Authority, which is pending restructuring). Remaining steps to support sustained economic growth in Puerto Rico include (1) completing remaining debt restructurings, (2) implementing debt management reforms, and (3) implementing financial management and reporting reforms. See GAO, U.S. Territories: Public Debt Outlook – 2019 Update, GAO-19-525 (Washington, D.C.: June 28, 2019) and U.S. Territories: Public Debt Outlook – 2023 Update, GAO-23-106045 (Washington, D.C.: June 29, 2023). 2See 6 U.S.C. § 313.

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responding to and recovering from major disasters or emergencies. 3 In partnership with the government of Puerto Rico, FEMA provides Public Assistance grant funds for a wide range of eligible recovery activities and projects, such as the repair and reconstruction of damaged schools, hospitals, and power infrastructure. We have previously reported on Puerto Rico’s disaster recovery efforts, including its use of Public Assistance funds and difficulties it has faced implementing recovery projects. For example, in May 2021, we reported that FEMA made progress in approving Public Assistance projects, but that FEMA had not comprehensively identified or assessed the risks that could affect the success of the remainder of Puerto Rico’s recovery, such as Puerto Rico’s ability to start construction on recovery projects. 4 We recommended that FEMA, in coordination with Puerto Rico and relevant federal agencies, identify and assess the risks to Puerto Rico’s recovery, including Puerto Rico’s capacity to carry out projects, and identify potential actions to manage the risks. FEMA is working to address these recommendations and has thus far drafted a risk management plan in response, which we discuss later in this report. You asked us to review the federal government’s continued response and recovery efforts related to the 2017 hurricanes. This report addresses (1) the status of permanent recovery work in Puerto Rico using FEMA’s Public Assistance; (2) the extent to which FEMA and Puerto Rico have addressed challenges that grant subrecipients face in starting and completing permanent work construction; and (3) the results of FEMA efforts to monitor Puerto Rico’s use of grant funds.

3The Public Assistance program represents the largest share of the Disaster Relief Fund,

which is the primary source of federal disaster assistance for state and local governments when a disaster is declared. The Disaster Relief Fund is appropriated no-year funding, which allows FEMA to fund, direct, coordinate, and manage response and recovery efforts until the funds are expended. Recovery efforts associated with domestic disasters and emergencies may include certain efforts by other federal agencies and state and local governments, among others.

4GAO, Puerto Rico Recovery: FEMA Made Progress in Approving Projects, But Should

Identify and Assess Risks to the Recovery, GAO-21-264 (Washington, D.C.: May 19, 2021). Also see: GAO, Puerto Rico Disaster Recovery: FEMA Actions Needed to Strengthen Project Cost Estimation and Awareness of Program Guidance, GAO-20-221 (Washington, D.C.: Feb. 5, 2020); Puerto Rico Electricity: FEMA and HUD Have Not Approved Long-Term Projects and Need to Implement Recommendations to Address Uncertainties and Enhance Resilience, GAO-21-54 (Washington, D.C.: November 17, 2020); and Puerto Rico Hurricanes: Status of FEMA Funding, Oversight, and Recovery Challenges, GAO-19-256 (Washington, D.C.: March 14, 2019).

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To address these objectives, we reviewed relevant laws and FEMA Public Assistance grant program guidance, including the June 2020 Public Assistance Program and Policy Guide and the September 2019, February 2020, and January 2022 versions of the Public Assistance Alternative Procedures Permanent Work Guide for Puerto Rico. 5 We also interviewed officials from FEMA headquarters, including from the Office of Response and Recovery and the Office of the Chief Financial Officer, as well as officials from FEMA Region 2, the regional office with oversight for Puerto Rico. 6 Further, in March and July of 2022, we conducted site visits to Puerto Rico to observe hurricane and earthquake-damaged areas, the progress of permanent recovery work, and interview relevant FEMA, and Puerto Rico government officials, as well as officials from local entities that received FEMA grants. Information obtained during these site visits was not generalizable to all damaged areas across Puerto Rico, but provided important context about the status of recovery efforts. In addition, we interviewed officials from five Puerto Rico government agencies and public corporations and one private corporation operating in the Commonwealth. 7 Further, we also interviewed officials from seven municipalities, including four that we visited to observe recovery projects in our prior review, to obtain their perspective on changes to the Public Assistance program in Puerto Rico. 8 In interviews with FEMA and Puerto 5Federal Emergency Management Agency, Public Assistance Program and Policy Guide. (Washington, D.C.: June 1, 2020). Federal Emergency Management Agency, Public Assistance Alternative Procedures (Section 428): Guide for Permanent Work FEMA-4339DR-PR. (Washington, D.C.: Sept. 2019). Federal Emergency Management Agency, Public Assistance Alternative Procedures (Section 428): Guide for Permanent Work FEMA-4339DR-PR. (Washington, D.C.: Feb. 10, 2020). Federal Emergency Management Agency, Public Assistance Alternative Procedures (Section 428): Guide for Permanent Work FEMA-4339-DR-PR. (Washington, D.C.: Jan. 1, 2022). 6FEMA Region 2 is responsible for the states of New Jersey and New York, the

Commonwealth of Puerto Rico, the territory of the U.S. Virgin Islands, and eight Tribal Nations.

7In 2019, we selected and interviewed five of these entities because they had the greatest

shares of Public Assistance funds awarded in Puerto Rico as of December 6, 2018: (1) Puerto Rico Aqueduct and Sewer Authority, (2) Puerto Rico Electric Power Authority, (3) Puerto Rico Department of Education, (4) Puerto Rico Department of Public Housing, and (5) Puerto Rico Department of Transportation and Public Works. See GAO-20-221. We selected the sixth entity, LUMA Energy, because of its involvement in the Puerto Rico Electric Power Authority’s recovery work.

8In prior work, we visited the municipalities of Ciales, Guanica, Guayanilla, and Humacao. See GAO-21-264. In addition, we interviewed officials from selected municipalities affected by Hurricane Fiona to obtain their perspectives about ongoing challenges with permanent recovery work. These municipalities included: Guayama, Ponce, and Yabucoa.

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Rico entities, we asked officials about their experiences implementing the Public Assistance program and the status of projects. The results from our interviews cannot be generalized to all of Puerto Rico’s government agencies and public corporations; however, they provide important context about the Public Assistance program in Puerto Rico. To address our first objective, we obtained and analyzed data from two FEMA systems—the Emergency Management Mission Integrated Environment and the Web-Integrated Financial Management Information System. These data included the amount of Public Assistance funds that FEMA has awarded to assist in the recovery from hurricanes Irma and Maria and the 2019 and 2020 earthquakes (the earthquakes) as of June 30, 2023 as well as Puerto Rico’s expenditure of those funds. 9 In addition, we obtained and analyzed data on the progress of permanent work projects related to the 2017 hurricanes and the earthquakes from the Puerto Rico Central Office for Recovery, Reconstruction, and Resiliency’s data system, the Disaster Recovery Solution, as of the third quarter of fiscal year 2023—ending on June 30, 2023. To determine the reliability of these data, we reviewed information about the FEMA and Puerto Rico systems, interviewed data users and managers responsible for these data, and checked for obvious errors in accuracy and completeness. Based on these steps, we determined these data to be sufficiently reliable for describing the status of Public Assistance funds and projects in Puerto Rico. Further, we reviewed documentation on Public Assistance in Puerto Rico and interviewed FEMA officials in Puerto Rico, FEMA Region 2, and FEMA headquarters, as well as Puerto Rico government officials. These interviews focused on the status of the Public Assistance permanent work projects in Puerto Rico. To address our second objective, we reviewed FEMA policies and guidance related to Public Assistance work. This included FEMA’s standard operating procedure for Accelerated Award Strategy projects and the draft of FEMA Region 2’s risk management plan for the

9For the purposes of this report, amounts awarded represent the amount of grant funding

FEMA provided through the Public Assistance program for specific projects in Puerto Rico. An expenditure is an amount paid by federal agencies, by cash or cash equivalent, during the fiscal year to liquidate government obligations. For the purposes of this report, an expenditure represents the actual spending by the Puerto Rico government of money awarded by the federal government.

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Caribbean. 10 We interviewed officials from FEMA headquarters, FEMA Region 2, Puerto Rico officials from the Central Office for Recovery, Resiliency, and Reconstruction, and Puerto Rico entities participating in FEMA’s Accelerated Award Strategy. In addition, we interviewed officials from various Puerto Rico municipalities. In these interviews, we asked officials about their progress developing and constructing Public Assistance permanent work projects and any challenges they experienced or faced with the recovery. We also interviewed officials from nongovernmental organizations in Puerto Rico to obtain their perspectives on recovery challenges. The results from our interviews are not generalizable to all of Puerto Rico’s government agencies and public corporations; however, they provide important context about the Public Assistance program in Puerto Rico and the progress and impediments to completing permanent recovery work. To address our third objective, we reviewed FEMA documentation on improper payment and grants management compliance reviews. 11 This included FEMA’s Validate As You Go program guidance and training documents, as well as grants management compliance review protocols that outline oversight activities for FEMA grant recipients. In addition, we obtained and reviewed the results of FEMA’s Validate As You Go reviews, which identify potential improper payments of Puerto Rico’s Public Assistance grant expenditures in fiscal years 2018 to 2020 (the most recent year available at the time of our review). To assess the reliability of the results, we interviewed FEMA officials responsible for the improper payment reviews and reviewed the protocols FEMA takes to conduct its improper payment tests. Further, we reviewed and analyzed the results of FEMA’s annual grants management compliance reviews of Puerto Rico from fiscal year 2019 to 2023. We also interviewed FEMA officials in Puerto Rico, FEMA Region 2, and the FEMA Office of the Chief Financial Officer. These interviews focused on FEMA’s policies and procedures for conducting oversight of Puerto Rico’s grants management activities, and Puerto Rico’s ability and progress in managing FEMA grant funds since hurricanes Irma and Maria. In addition, we reviewed documents and interviewed officials from Puerto Rico’s Central Office for 10Federal Emergency Management Agency, FEMA-4339-DR-PR Public Assistance Post-

Fixed Cost Estimate Obligation for PREPA, PRASA, and PRDE Standard Operating Procedure. (Washington, D.C.: August 8, 2022).

11The federal government defines an improper payment as any payment made using

grant funds that should not have been made or was made in an incorrect amount under legally applicable requirements. See 31 U.S.C. § 3351(4).

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Recovery, Reconstruction, and Resiliency to learn about their efforts to respond to FEMA’s reviews. We conducted this performance audit from November 2021 to February 2024 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Background Disaster Declarations

In response to the request of the Governor of Puerto Rico following the effects of hurricanes Irma and Maria in 2017 and the 2019 and 2020 earthquakes, the President issued major disaster declarations in Puerto Rico after each event. 12 The major disaster declarations for hurricanes Irma and Maria together covered the entirety of the Commonwealth of Puerto Rico. 13 The major disaster declaration for the earthquakes covered 14 municipalities in the southwest portion of Puerto Rico. 14 Figure 1 shows the paths of hurricanes Irma and Maria, as well as the areas affected by the earthquakes.

12In accordance with the Robert T. Stafford Disaster Relief and Emergency Assistance Act

(Stafford Act), as amended, the President of the United States may declare that a major disaster or emergency exists in response to a Governor’s or tribal chief executive’s request if the disaster is of such severity and magnitude that effective response is beyond the capabilities of a state, tribe, or local government and federal assistance is necessary. See 42 U.S.C. § 5170.

13Puerto Rico; Notice of Major Disaster and Related Determinations, 82 Fed. Reg. 44,639

(Sept. 25, 2017); Puerto Rico; Notice of Major Disaster and Related Determinations, 82 Fed. Reg. 46,820 (Oct. 6, 2017).

14Puerto Rico; Notice of Major Disaster and Related Determinations, 85 Fed. Reg. 6,964 (Feb. 6, 2020).

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Figure 1: The Paths of Hurricanes Irma and Maria in Puerto Rico and Areas Affected by the 2019 and 2020 Earthquakes

FEMA’s Public Assistance Program

Major disaster declarations by the President trigger the availability of various federal response and recovery programs, which may include assistance in restoring public infrastructure through FEMA’s Public Assistance program. The Public Assistance program provides funds for debris removal efforts; life-saving emergency protective measures; and the repair or replacement of disaster-damaged publicly-owned or certain private non-profit facilities, roads and bridges, electrical utilities, among other activities. As shown in figure 2, Public Assistance program funds are categorized broadly as either “emergency work” or “permanent work.” Within those two broad categories are separate sub-categories. In addition to the emergency work and permanent work categories, FEMA’s Public Assistance program includes Category Z, which represents any

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indirect costs, any direct administrative costs, and any other administrative expense associated with a specific project. 15 Figure 2: Federal Emergency Management Agency’s Public Assistance Program Categories of Work

a The Disaster Recovery Reform Act of 2018 amended the definition of Category Z management costs. See Pub. L. No. 115-254, § 1215, 132 Stat. 3186, 3449 (codified at 42 U.S.C. § 5165b(a)).

15The Disaster Recovery Reform Act of 2018 amended the definition of management cost,

referred to as category Z. See Pub. L. No. 115-254, § 1215, 132 Stat. 3186, 3449 (codified at 42 U.S.C. § 5165b(a)).

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FEMA also funds cost-effective hazard mitigation measures for permanent work projects under the Public Assistance program. 16 FEMA provides these grant funds in conjunction with the repair of these facilities to enhance their resilience during future disasters.

Implementation of FEMA’s Public Assistance Program in Puerto Rico

Entities Involved. In Puerto Rico, FEMA administers the Public Assistance program in partnership with the Puerto Rico Central Office for Recovery, Reconstruction and Resiliency — also known by its acronym COR3 and herein referred to as the “Puerto Rico Recovery Office”. The Puerto Rico Recovery Office acts as the recipient of federal grant funds from FEMA and in turn, provides Public Assistance funds in the form of “subawards” to local entities. The local entities are subrecipients of grant funds and carry out recovery work under the program. As a recipient of federal funds, the Puerto Rico Recovery Office must oversee subrecipients to ensure that they are aware of and comply with federal regulations for grant awards. 17 Puerto Rico’s agencies, such as the Department of Housing, and public corporations, such as the Puerto Rico Electric Power Authority, act as subrecipients of federal grant funds. Additional subrecipients include local entities such as Puerto Rico’s 78 municipalities as well as eligible private non-profits. These subrecipients work with FEMA and the Puerto Rico Recovery Office to identify and develop Public Assistance projects to receive grant funds through subawards. Public Assistance Alternative Procedures. The Public Assistance program has been implemented in Puerto Rico through different procedures over time. In November 2017, an amendment to the presidential disaster declaration for Hurricane Maria was issued. At that time, due to the extraordinary level of infrastructure damage caused by Hurricane Maria, as well as Puerto Rico’s difficult financial position, FEMA was to award Public Assistance funds to all large permanent work 16FEMA may fund hazard mitigation measures related to the damaged facilities receiving Public Assistance funds pursuant to Section 406 of the Stafford Act, as amended. 42 U.S.C. § 5172; 44 C.F.R. § 206.226. 17Amendment 5 to the President’s disaster declaration required Puerto Rico to establish

an oversight authority supported by third-party experts to provide centralized oversight over recovery funds. Amendment No. 5 to Notice of a Major Disaster Declaration, 82 Fed. Reg. 53,514 (Nov. 16, 2017). Further, federal regulations adopted by DHS that govern federal grant awards require that recipients of federal grant awards, including states and territories, must monitor subrecipients to ensure they are aware of, and comply with, federal regulations. See 2 C.F.R. §§ 200.331-200.332.

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projects through alternative procedures. 18 Under the standard Public Assistance program, FEMA will fund the actual cost of a large project, and will increase or reduce the amount of funds provided based on the cost of completed eligible work. In contrast, the alternative procedures require that FEMA limit the funds provided to permanent work projects based on estimated costs of a project at the time it makes the subaward. 19 As a result, the recipient or subrecipient is responsible for any project costs that exceed the agreed-upon estimated costs of the project. However, if actual costs are less than the fixed-cost subaward, the recipient or subrecipient may expend all or part of excess funds for other eligible purposes. Further, the Bipartisan Budget Act of 2018 authorized FEMA, when using the alternative procedures, to help fund the replacement or restoration of disaster-damaged infrastructure that provides critical services to an industry standard without regard to pre-disaster condition. 20 For example, FEMA may fund the restoration of a disaster-damaged school building— which provides a critical service—to accepted industry standards for

18See 82 Fed. Reg. at 53,514. Since that time and as discussed later in this section, FEMA has issued additional guidance providing more flexibility with regard to the use of alternative procedures in Puerto Rico. 19The Sandy Recovery Improvement Act of 2013 amended the Stafford Act by adding

Section 428, which authorized FEMA to approve Public Assistance program projects under the alternative procedures provided by that section for any presidentially-declared major disaster or emergency. This section further authorized FEMA to carry out the alternative procedures as a pilot program until FEMA promulgates regulations to implement this section. Pub. L. No. 113-2, div. B § 1102(2), 127 Stat. 39, amending Pub. L. No. 93-288, tit. IV, § 428 (codified at 42 U.S.C. § 5189f). 20See Pub. L. No. 115-123, § 20601(1), 132 Stat. 64 (2018). For the purposes of our report, discussion of the Bipartisan Budget Act of 2018 refers specifically to section 20601. Critical services include public infrastructure in the following sectors: power, water, sewer, wastewater treatment, communications, education, and emergency medical care. See 42 U.S.C. § 5172(a)(3)(B). Section 20601 applies only to assistance provided through the Public Assistance alternative procedures program for the duration of the recovery for the major disasters declared in Puerto Rico and the U.S. Virgin Islands following hurricanes Irma and Maria. Further, the Additional Supplemental Appropriations for Disaster Relief Act of 2019, which was signed into law on June 6, 2019, provides additional direction to FEMA in the implementation of section 20601. Pub. L. No. 116-20, tit. VI, § 601, 133 Stat. 871, 882 (2019). Specifically, it directs FEMA to “include the costs associated with addressing pre-disaster condition, undamaged components, codes and standards, and industry standards in the cost of repair” when calculating whether a facility should be repaired or replaced. According to FEMA officials, FEMA evaluated this and other provisions of the Act and, in September 2019, issued an updated policy to provide clear guidance.

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education facilities, even if the building was in poor condition or not up to industry standards prior to the disaster. On January 23, 2020, FEMA made the use of Public Assistance alternative procedures optional for the repair of non-critical service facilities damaged by Hurricane Maria. 21 Following this action, FEMA issued updated guidance on January 1, 2022 that made the use of Public Assistance alternative procedures optional for all Hurricane Maria permanent recovery work projects. This included those for critical service facilities that had not accepted a fixed-cost subaward. 22 Under the updated guidance, when applicants choose the standard Public Assistance procedures for critical service facility projects they lose the potential additional assistance that is authorized by the Bipartisan Budget Act of 2018. FEMA Accelerated Award Strategy. In 2019 and early 2020, FEMA developed a novel Public Assistance award process — the FEMA Accelerated Award Strategy (Accelerated Award Strategy) — that intended to expedite awards of grant funds to three critical service providers: (1) Puerto Rico Electric Power Authority, (2) Puerto Rico Aqueduct and Sewer Authority, and (3) Puerto Rico Department of Education. FEMA focused the Accelerated Award Strategy on these subrecipients because they (1) had geographically dispersed systems in which similar components had like damages; (2) provided critical services across Puerto Rico; and (3) sustained significant, widespread damage from hurricanes Irma and Maria, which FEMA and the Puerto Rico Recovery Office estimated would take years to assess. In 2021, FEMA included a fourth Accelerated Award Strategy subrecipient, the Puerto Rico Public Housing Administration. 23 21FEMA, Region 2. Letter to the Governor’s Authorized Representative on FEMA-4339-

DR-PR Section 428 Applicability and Guidance, (Guaynabo, Puerto Rico: January 23, 2020). Facility means any publicly or privately owned building, works, system, or equipment, built or manufactured, or an improved and maintained natural feature. 44 C.F.R § 206.201(c).

22FEMA. Public Assistance Alternative Procedures (Section 428): Guide for Permanent Work FEMA-4339-DR-PR, (Washington, D.C.: Jan. 1, 2022). 23According to FEMA officials, the Puerto Rico Public Housing Administration has used a hybrid model to complete permanent recovery work projects with a portion of projects using the Accelerated Award Strategy process and another portion following the typical Public Assistance alternative procedures. FEMA allows the sharing of grant funds between Accelerated Award Strategy recovery projects and those using the typical Public Assistance alternative procedures.

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Under the Accelerated Award Strategy, FEMA coordinated with these entities to capture and consolidate damages to their facilities across Puerto Rico through sampling and extrapolation, where appropriate. From these damage assessments, FEMA estimated the cost of the recovery work for all damaged facilities of each subrecipient into a single consolidated project (consolidated project) without detailed scopes of work. All four subrecipients opted to participate in FEMA’s Public Assistance alternative procedures, and consequently were awarded a single related fixed-cost subaward. Under this approach, the fixed-cost subaward provided to each subrecipient’s consolidated project works as a budget from which the subrecipients can plan the recovery of their respective facilities throughout Puerto Rico. This subaward, however, is not an authorization to access and expend funds on recovery projects. Following the FEMA award to the consolidated project, subrecipients must submit applications for individual projects (“subprojects”) to FEMA for review and approval before they can access and expend the awarded funds on recovery work (see fig. 3). 24 FEMA allows reduced requirements for these subproject applications with each needing a detailed scope of work for the project, information for compliance with environmental and historic preservation regulations and where applicable, information on hazard mitigation measures. This is different from the non-accelerated alternative procedures approach where (1) applicants typically submit a detailed scope of work prior to award; (2) FEMA awards funds directly to individual projects based on their related cost estimate; and (3) allows subrecipients immediate access to funds for construction related expenses.

24Subprojects may consist of work on individual facilities, groups of facilities, or segments of infrastructure.

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Figure 3: Federal Emergency Management Agency’s (FEMA) Accelerated Award Strategy Process

FEMA Oversight of Puerto Rico’s Grants Management Activities

Improper payment reviews. The Payment Integrity Information Act of 2019 requires, among other things, that each federal agency regularly review all of its programs and activities to identify those that may be susceptible to significant improper payments. 25 The federal government defines an improper payment as any payment made using grant funds (grant expenditures) that should not have been made or was made in an incorrect amount under legally applicable requirements. Identification of a potential improper payment is not confirmed as an actual improper payment until FEMA completely reviews the transaction and makes an official determination. Under the Payment Integrity Information Act of 2019, programs with a significant amount of improper payments are subject to additional assessment and reporting requirements. 26 FEMA has conducted improper payment reviews of Puerto Rico’s Public Assistance grant expenditures through its Validate As You Go program. As part of this process, FEMA tests a sample of recipient and subrecipient expenditures to ensure that sufficient documentation, such as receipts or timesheets, was provided for the full amount expended and that all expenses fall within the scope of the project. FEMA analysts identify costs that do not meet documentation or eligibility requirements 25Pub. L. No. 116-117, 134 Stat. 113 (codified as amended at 31 U.S.C. §§ 3351-3358). 26Under the Payment Integrity and Information Act of 2019, improper payments are considered “significant” if in the preceding fiscal year they have exceeded either (1) 1.5 percent of program outlays and $10 million or (2) $100 million, regardless of the improper payment rate. See 31 U.S.C. § 3352(a)(3)(A); and Office of Management and Budget, OMB Circular A-123, Appendix C, Requirements for Payment Integrity Improvement, M21-19 (Mar. 5, 2021).

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as potential improper payments and work with Puerto Rico’s Recovery Office to remediate the costs by obtaining additional supporting documentation or information to clarify them. According to FEMA, the Validate As You Go program ensures its compliance with statutory improper payment review and reporting requirements and helps to ensure that the government of Puerto Rico has the tools to manage federal funds. 27 FEMA initiated the Validate As You Go pilot program in March 2019, when it began testing Public Assistance grant expenditures from hurricanes Harvey, Irma, and Maria for fiscal years 2018 and 2019. In its fiscal year 2020 review, FEMA expanded the Validate as You Go program to cover all new disasters declared effective in fiscal year 2020 (including COVID-19) in any of FEMA’s 10 regions within the United States. Grants Management Compliance Reviews. FEMA annually assesses Puerto Rico’s compliance with federal laws, policies, and standards for managing grant funds through its grants management compliance reviews. FEMA officials describe the reviews as a two-part process, beginning with a review of the recipient’s financial reports to gauge the recipient’s ability to conduct timely and accurate reporting on its use of federal funds. During the second part of the review, FEMA officials conduct selected site visits to review Puerto Rico’s management of grant awards for compliance with federal requirements (such as regulations, policies, and standards for managing grant funds). 28 Areas of review include the recipient’s financial management systems, standards for managing property and equipment purchased with federal funds, and monitoring and management of subrecipients. FEMA reports the results of its review to Puerto Rico’s Recovery Office for each fiscal year. Each review includes a list of recommended corrective actions intended to enhance Puerto Rico’s efforts in managing federal funding.

27Additionally, as of August 2023, FEMA recipients who achieve and maintain a potential

improper payment rate below 1.5 percent or less for two consecutive testing cycles are eligible for simplified grant closeout procedures for large projects, which require qualified recipients to submit less paperwork during the public assistance grant closeout process. 28To determine which awards are subject to the site visit, FEMA conducts an annual risk

analysis of all open grant awards provided to the recipient and selects those with higher risk ratings.

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Puerto Rico Has a Substantial Amount of Permanent Recovery Work Remaining FEMA Has Awarded Puerto Rico About $23.4 Billion in Public Assistance for Permanent Recovery Work

As of June 30, 2023, FEMA had awarded about $23.4 billion in Public Assistance to 9,304 permanent work projects related to the recoveries from hurricanes Irma and Maria and the earthquakes, according to our analysis of FEMA’s data. 29 This reflects progress that FEMA and Puerto Rico have made since we last reported, when FEMA had awarded about $17.5 billion to 4,810 projects as of January 15, 2021. 30 According to FEMA officials, these awarded funds represent 98 percent of permanent work projects that FEMA expects to approve in Puerto Rico for both the 2017 hurricanes and the 2019 and 2020 earthquakes recoveries. See figure 4 below for the amounts awarded to each permanent work category.

Figure 4: Federal Emergency Management Agency (FEMA) Public Assistance Awarded to Permanent Work for Hurricanes Irma and Maria and 2019-2020 Earthquakes Recoveries in Puerto Rico, as of June 30, 2023

Note: Percentages may not sum to 100 because of rounding.

The majority of funds are for public utilities ($13.2 billion) and for public buildings and equipment ($7.0 billion). As of June 30, 2023, Puerto Rico had expended about $1.8 billion—about 8 percent—of the funds awarded 29Permanent work project total includes Accelerated Award Strategy consolidated

projects, Accelerated Award Strategy subprojects, and non-accelerated projects. 30GAO-21-264.

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for permanent recovery work. Figure 5 below shows a water storage tank project in Humacao, Puerto Rico repaired with Public Assistance funds. Figure 5: Repairs to Buena Vista Arriba Water Storage Tank in Humacao, Puerto Rico Completed with Federal Emergency Management Agency Public Assistance Funds

Puerto Rico Has to Take Additional Steps to Access About $11.3 Billion Awarded for Permanent Recovery Work

According to our analysis of FEMA data, Puerto Rico has to take additional steps to gain access to about $11.3 billion in Public Assistance funds that FEMA has awarded for permanent recovery work through its Accelerated Award Strategy. Of the approximately $23.4 billion awarded to Puerto Rico for permanent recovery work, FEMA awarded about $15.7 billion (about 67 percent) through the Accelerated Award Strategy to four subrecipients. As previously described, funds awarded to projects under the Accelerated Award Strategy act as a budget for permanent recovery work across subrecipients’ network of facilities and infrastructure. To access and expend these funds, subrecipients must submit scopes of work for specific subprojects for FEMA’s eligibility review and authorization. As of June 30, 2023, the four Accelerated Award Strategy

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subrecipients had received subproject approvals and obtained access to expend about $4.4 billion (about 28 percent) of the funds FEMA awarded. Nearly $11.3 billion (about 72 percent) remains to be accessed (see fig. 6). Figure 6: Federal Emergency Management Agency (FEMA) Public Assistance Awarded to Puerto Rico through the Accelerated Award Strategy, as of June 30, 2023

Three of Puerto Rico’s Accelerated Award Strategy subrecipients—the Aqueduct and Sewer Authority, Department of Education, and the Electric Power Authority—have not obtained FEMA authorization to access the majority of their awarded funds (see table 1). Based on work plans from the four subrecipients, they plan to submit project applications to access the remaining $11.3 billion through 2030 and possibly later. Table 1: Status of Federal Emergency Management Agency (FEMA) Public Assistance Funds Awarded to Permanent Recovery Work Under the Accelerated Award Strategy as of June 30, 2023 Dollars in millions Total awarded amount

Awarded amount authorized for expenditure

Remaining awarded amount requiring authorization to expend

Puerto Rico Aqueduct and Sewer Authority

$3,662.7

$1,221.9 (33.4%)

$2,440.9 (66.6%)

Puerto Rico Department of Education

$2,065.3

$378.5 (18.3%)

$1,686.8 (81.7%)

Puerto Rico Electric Power Authority

$9,458.2

$2,370.4 (25.1%)

$7,087.8 (74.9%)

Puerto Rico Public Housing Administration

$475.3a

$432.8 (91.0%)

$42.6 (9.0%)

$15,661.6

$4,403.5 (28.1%)

$11,258.1 (71.9%)

Subrecipient

Total Source: GAO analysis of FEMA data. | GAO-24-105557

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Notes: Amounts exclude supplemental funds subrecipients received from Public Assistance Hazard Mitigation grants, which FEMA awards at the time of subproject approval. Totals may not sum because of rounding. a Amount may not total the full Accelerated Award Strategy award originally made to the Puerto Rico Public Housing Administration due to fund sharing to non-Accelerated Award Strategy recovery projects.

Puerto Rico Data Indicate that Subrecipients Have Completed About 9 percent of Permanent Work Project Line Items

According to Puerto Rico Recovery Office data, Puerto Rico’s subrecipients had completed about 9 percent of permanent work project line items as of June 30, 2023. The Puerto Rico Recovery Office tracks the progress of projects at the line item level after FEMA awards Public Assistance funds to permanent recovery work projects. A line item could be a school playground, a basketball court, or a bathroom. One project, such as a school, could include multiple line items. According to Puerto Rico Recovery Office data, subrecipients reported the status of 23,603 project line items as of the third quarter of fiscal year 2023 that ended on June 30, 2023. 31 These data indicate that subrecipients had completed at least 2,064 line items of permanent recovery work and at least 21,539 line items were in the various stages of execution—planning, procurement, or in construction, among other things—leading up to project completion.

31The Puerto Rico Recovery Office requests that subrecipients complete surveys detailing the progress of their projects on a quarterly basis. In the third quarter of fiscal year 2023, subrecipients did not respond and report the status for 471 project line items to the Puerto Rico Recovery Office. We do not include these project line items in our calculations.

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FEMA and Puerto Rico Have Taken Some Actions to Help Jump-Start Permanent Work, but Challenges Remain FEMA and Puerto Rico Have Initiated Efforts to Reduce Challenges to Permanent Work Construction

We previously reported that subrecipients in Puerto Rico have experienced challenges starting construction on Public Assistance permanent work projects due to limited access to start-up funds. 32 In addition to funding issues, officials from subrecipient entities we spoke with also stated that they have faced other impediments that have slowed their construction progress. For example, officials from the Puerto Rico Electric Power Authority stated that disruptions in the global supply chain have increased the delivery time for some construction materials from 6 to 10 months to 24 to 36 months. Officials from the Puerto Rico Recovery Office also stated that subrecipients have faced extended construction delays due to a lack of specialized labor, such as architects to design projects, and a limited supply of construction contractors to build projects. In addition, according to FEMA and Puerto Rico Recovery Office officials, permanent work projects have experienced general delays due to subsequent natural disasters that have required attention on other work priorities. While some of these issues, such as delays due to natural disasters, are out of FEMA’s control, FEMA and Puerto Rico Recovery Office officials told us that they have worked together to take actions that address some challenges to construction. These actions include (1) piloting a program to provide the advance disbursement of Public Assistance funds to begin construction and (2) working to allow the access and expenditure of Public Assistance funds for labor and equipment acquisition in advance of project approvals. Pilot program for advance disbursement of funds. In June 2022, FEMA and the Puerto Rico Recovery Office piloted the Working Capital Advance Program to provide start-up funds to projects that have not yet 32GAO-21-264.

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begun construction. Under the Working Capital Advance Program, applicants may request an advance disbursement of Public Assistance funds for up to 50 percent of a project’s cost to begin construction. 33 According to data from the Puerto Rico Recovery Office, as of April 2023, Puerto Rico disbursed funding for 847 projects. Officials from several subrecipient entities we interviewed stated that the Working Capital Advance Program has been helpful in addressing challenges they have in accessing start-up funds for construction. Advance acquisition funds for labor and materials. According to FEMA and Puerto Rico Recovery Office officials, they have worked together to allow access and expenditure of Public Assistance funds for certain activities ahead of project approvals. Specifically, FEMA has allowed subrecipients under the Accelerated Award Strategy to access and expend a portion of their subawards to complete selected architectural and engineering work that will aid in the progress of their permanent work projects. Because of this adjustment, these subrecipients’ projects can begin developing the plans needed for construction before each subproject goes through FEMA review and approval process to access funds. In addition, FEMA has allowed Puerto Rico’s Electric Power Authority to access and expend a portion of their Accelerated Awards Strategy subaward for the purchase materials and equipment with long production and delivery lead times. As a result, Puerto Rico’s Electric Power Authority has received disbursements of funds totaling about $179 million, as of June 30, 2023, for the purchase of materials ahead of project construction.

Certain Permanent Recovery Work Projects Face Challenges Due to Increased Costs

Subrecipient entities that have received Public Assistance awards under the Accelerated Award Strategy have identified increased project costs that pose challenges to the full recovery of their facilities. According to officials from the four Accelerated Award Strategy subrecipient entities, inflation and labor shortages have increased the costs of projects beyond their anticipated amounts.

33Under the Working Capital Advance Program, large permanent work projects are eligible

for a capital advance of 25 percent of the awarded amount for that project. Subrecipients can apply for an additional capital advance of 25 percent of a large permanent work project’s awarded amount once they have used the initial 25 percent advance in accordance with FEMA’s Public Assistance regulations and requirements.

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For example, parts for Puerto Rico’s Electric Power Authority’s San Juan Power Plant project (see fig. 7) were estimated to cost approximately $9 million; however, officials from the subrecipient stated that the actual costs for those parts are now approximately $12 million. In addition, officials from Puerto Rico’s Public Housing Administration said that based on their own projections their agency is estimated to exceed the total estimated cost for all their projects under the Accelerated Awards Strategy projects. Further, according to officials from Puerto Rico’s Aqueduct and Sewer Authority, one of their water treatment plant projects has increased in cost over its original cost estimate by 42 percent. Finally, officials from the Puerto Rico Recovery Office stated that the costs for some critical service projects under the Accelerated Awards Strategy have doubled. Figure 7: Puerto Rico’s Electric Power Authority Power Plant in San Juan

Note: Puerto Rico’s Electric Power Authority has received a Public Assistance award of about $65.4 million toward repairs for its San Juan Power Plant. As of July 2022, construction was underway.

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Cost increases for individual subprojects are of particular concern because of the amount of the awards provided to the Accelerated Award Strategy subrecipients’ consolidated projects and how the awards are structured. As previously discussed, under the Accelerated Awards Strategy, FEMA has provided fixed-cost subawards that act as budgets for the completion of recovery work across their network of facilities and infrastructure, such as Puerto Rico’s electrical grid. Therefore, cost increases that these subrecipients incur for subprojects early in the recovery process could have cumulative impacts on the available budget to complete subsequent subprojects. Based on their estimates, officials from all four Accelerated Awards Strategy subrecipient agencies said that the fixed amount of Public Assistance funds provided under the consolidated project subawards will not support the full recovery of their agencies’ facilities. For example, officials from Puerto Rico’s Aqueduct and Sewer Authority said they anticipate that they will only be able to complete about half of the agency’s planned projects provided under their consolidated project subaward due to increased project costs. According to FEMA officials, they are monitoring these risks to Puerto Rico’s recovery through regular communication with the Puerto Rico agencies and periodic progress reports sent to them from each subrecipient agency. FEMA officials said that these agencies are far from reaching the midpoint of construction of all their projects—a key point at which FEMA can assess recovery progress—and that they are currently focused on moving projects forward with the available Public Assistance funds. In addition, FEMA officials told us that the cost estimating process that FEMA used to award funds accounted for the external events subrecipients are experiencing, such as inflation and increased costs of local labor and construction materials in Puerto Rico. Further, as of June 2023, they said that there are indications that some of these factors have eased in severity. In our prior work, we identified risks to Puerto Rico’s recovery, including subrecipient difficulties in starting project construction. To help manage these risks, we recommended that FEMA, in coordination with Puerto Rico and relevant federal agencies, should identify and assess the risks to the remainder of Puerto Rico’s recovery, including Puerto Rico’s capacity to carry out projects. 34 Further, we recommended that FEMA identify potential actions to manage the risks they identified and continuously monitor risks to the recovery. FEMA concurred with these 34GAO-21-264.

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recommendations and has drafted a risk management plan related to Puerto Rico’s recovery in response, which it intends to formally adopt for implementation by February 2024. Through this plan, FEMA has identified actions recovery stakeholders can take to address various risks. For example, to help to reduce construction delays due to supply-chain issues, the plan proposes that Puerto Rico could eliminate storage taxes on construction materials, which may be cost prohibitive to subrecipients that order supplies in advance of project approvals. However, FEMA needs to take further steps to address these recommendations, including finalizing its risk management plan and taking actions to continuously monitor recovery risks. While it is too early to determine the full effect of the increased project costs on the recovery of Accelerated Award Strategy subrecipients’ facilities, it remains all the more important for FEMA to continue to identify, assess, and manage risks in coordination with Puerto Rico. We will continue to monitor FEMA and Puerto Rico’s efforts to implement our prior recommendations and develop specific actions to address the various challenges to the recovery.

FEMA Oversight Efforts Have Shown Improvements in Puerto Rico’s Grants Management

FEMA has monitored Puerto Rico’s use of public assistance grant funds through two oversight activities—improper payment reviews and grants management compliance reviews. Both efforts have found improvement in Puerto Rico’s ability to manage FEMA grant funds since hurricanes Irma and Maria in 2017.

FEMA Found Decreases in Potential Improper Payments of Public Assistance Funds

FEMA’s improper payment reviews have found that potential improper payments of Puerto Rico’s Public Assistance grant funds decreased significantly, from 15 percent of reviewed expenditures (nearly $254 million) 35 in fiscal year 2018 to 0.13 percent (less than $358 thousand) in fiscal year 2020—below the statutory definition for significant improper

35FEMA’s fiscal year 2018 review resulted in an initial potential improper payment amount of nearly $254 million. In our prior work, we reported that FEMA provided Puerto Rico with a February 2021 letter for the fiscal year 2018 review notifying it of potential debt in the amount of about $243 million after the resolution of approximately $10 million in potential improper payments from the initial calculation. In May 2021, the Recovery Office appealed this determination and has been working with FEMA to remediate these payments. FEMA has not yet made a final determination of improper payments in fiscal years 2019 and 2020. See GAO-21-264.

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payments. 36 FEMA officials attributed the reductions in potential improper payments to Puerto Rico’s progress, through its Recovery Office, in managing grant funds expended by subrecipients and to overall improvements in the office’s management structure. As of September 2023, FEMA’s review of fiscal year 2021 expenditures is ongoing. According to officials, FEMA is experiencing delays in its Public Assistance improper payment reviews due to the enormity of the hurricane Irma and Maria recoveries followed by the COVID-19 pandemic, but it intends to conduct these reviews in bi-annual cycles around fiscal year 2024. Table 2 shows the results of FEMA’s Public Assistance improper payment reviews, as of September 2023, through the Validate As You Go program for fiscal years 2018 through 2020. Table 2: Status of FEMA’s Validate As You Go Reviews in Puerto Rico, Reported by FEMA as of September 2023 Fiscal year

Dollar amount of expenditures sampleda

Initial potential improper payment amount (percent of total expenditure sampled)b

Remaining potential improper payment amount as of September 2023 (percent of total expenditure sampled)c

2018

$1,713,263,291

$253,783,753 (15%)

$16,113,049 (1%)

2019

$2,036,825,954

$190,075,816 (9%)

$38,092,511 (2%)

2020

$272,986,280

$357,214 (Less than 1%)

$13,010 (Less than 1%)

Source: GAO analysis of DHS and FEMA documentation. | GAO-24-105557 a FEMA initiated the Validate As You Go program as a pilot program in March 2019, when it began testing Public Assistance grant expenditures from Hurricanes Harvey, Irma, and Maria for fiscal years 2018 and 2019. In fiscal year 2020, FEMA expanded its Validate As You Go program to cover all new disasters declared effective in fiscal year 2020 (including COVID-19) in any of FEMA’s 10 regions within the United States. This resulted in a smaller amount of expenditures sampled in Puerto Rico. Puerto Rico’s fiscal year 2020 sample included expenditures from hurricanes Irma and Maria, the 2019-2020 earthquakes, and the COVID-19 pandemic. b Percentages are rounded to the nearest percentage point. Initial potential improper payment amounts are figures that FEMA first reported to DHS. A potential improper payment is not confirmed as an actual improper payment until FEMA completely reviews the transaction and makes an official determination. c According to FEMA officials, the remaining potential improper payment amount changes regularly as the recipient continues to submit documentation in support of its expenditures.

In addition to the reductions in initial potential improper payments found in its reviews, FEMA and the Puerto Rico Recovery Office have worked together to remediate—and therefore reduce—Puerto Rico’s potential improper payments identified in each fiscal year. According to FEMA officials, this remediation process is ongoing, and the amount of potential 36As mentioned earlier, improper payments are considered “significant” if in the preceding fiscal year that may have exceeded either (1) 1.5 percent of program outlays and $10 million or (2) $100 million, regardless of the improper payment rate. 31 U.S.C. § 3352(a)(3)(A).

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improper payments continues to decline as the Recovery Office continues to submit additional documentation and other support for its expenditures. These remediation efforts have resulted in considerable reductions in potential improper payments. For example, as detailed in table 2 above, as of September 2023, Puerto Rico has reduced its potential improper payments for fiscal year 2018 to approximately $16 million (nearly one percent of the expenditures sampled). For fiscal year 2019, Puerto Rico has reduced the potential improper payment amount to around $38 million (nearly two percent of the expenditures sampled). According to FEMA officials, many of the potential improper payments identified in the fiscal year 2018 and 2019 reviews related to insufficient documentation of expenditures, which they were able to obtain through coordination with Puerto Rico. In fiscal year 2020, Puerto Rico has been able to reduce the amount of potential improper payments from nearly $358 thousand to around $13 thousand (both amounts are less than 1 percent of the expenditures sampled). 37 According to FEMA officials, the potential improper payments identified in the fiscal year 2020 review were related to compliance issues. 38 FEMA officials said that they plan to continue working with Puerto Rico to remediate the remaining potential improper payments in each fiscal year.

FEMA Compliance Reviews Found Improvement in Puerto Rico’s Grants Management Structure and Capacity

FEMA’s grants management compliance reviews from fiscal years 2019 through 2023 indicate that Puerto Rico has developed a grants management structure that addresses federal requirements and has improved its capacity to manage FEMA grant funds. 39 From fiscal year 2019 to 2023, the recommended corrective actions identified through FEMA’s reviews have shifted from a focus on identifying needed improvements to Puerto Rico’s overall grants management structure to recommendations focused on implementing 37As noted in table 2, Puerto Rico’s fiscal year 2020 sample included expenditures from

hurricanes Irma and Maria, the 2019-2020 earthquakes, and the COVID-19 pandemic.

38According to FEMA’s Validate As You Go procedures, supporting documentation are

considered to have compliance issues when they are not within a project’s approved scope of work, or do not meet federal regulations. Federal Emergency Management Agency, Validate As You Go, (July 21, 2023). 39FEMA did not conduct a compliance review in fiscal year 2018 due to the ongoing

Hurricane Maria recovery efforts. According to FEMA officials, the agency ensured fiscal oversight during this time through its manual drawdown procedures, which required the Puerto Rico Recovery Office to submit a request with supporting documentation to receive reimbursements for disaster recovery work.

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specific grants management activities. 40 In fiscal year 2019, FEMA officials recommended that Puerto Rico implement a number of structural changes to improve its management of subrecipients. For example, FEMA recommended developing standard operating procedures for federal reporting requirements, monitoring subrecipient equipment purchases, and creating a policy for the return of federal funds in instances of overpayment. In response to FEMA’s compliance reviews, Puerto Rico took a number of actions to improve its management of grant funds and compliance with federal laws and regulations, policies, and standards. For example, the Puerto Rico Recovery Office developed protocols to review and track subrecipient compliance with federal reporting requirements, updated its guide for the management of federal disaster recovery funds, and developed procedures to monitor subrecipient use of federal funds, among other things. FEMA’s fiscal year 2022 and 2023 compliance reviews made no recommendations related to Puerto Rico’s grants management structure. However, the reviews made recommendations related to addressing deficiencies in the implementation of specific grants management activities, such as instances of incomplete timesheets, insufficient proofs of payment for specific projects, and non-compliance or delays with federal reporting requirements. 41 As Puerto Rico continues to improve its grants management structure through the efforts mentioned above,

40In fiscal years 2020 and 2021, FEMA conducted a desk review in lieu of a site visit due to the COVID-19 pandemic. Consequently, FEMA was unable to test for every item listed in federal regulations. 41For example, FEMA’s fiscal year 2023 review contained one recommendation that the

Puerto Rico Recovery Office complete overdue single audit reports for fiscal years 2020 and 2021. Federal regulations require federal grant recipients that that expend at least $750,000 of its funds in a fiscal year to submit single audit reports, which must include information about the recipient’s operations and financial documents, among other things. See 2 C.F.R. § 200.501. In November 2023, the Recovery Office had completed the single audit report for fiscal year 2020 and planned to send it before the end of the year. The audit work for fiscal year 2021 has been completed and the Recovery Office expects to submit that report around January 2024. As of October 2023, the Recovery Office is undergoing single audit reviews for fiscal years 2022 and 2023, but could not estimate a report submission date until the audit work is completed. FEMA officials stated that because of the number of active disasters in Puerto Rico, they remain flexible with the Recovery Office’s audit reporting requirements.

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FEMA officials said they expect to see continued improvement in Puerto Rico’s improper payment and grants management reviews. 42

Agency Comments

We provided a draft of this report to DHS, FEMA, and Puerto Rico’s Central Office for Recovery, Reconstruction, and Resiliency (Puerto Rico Recovery Office) for review and comment. DHS and FEMA provided technical comments, which we incorporated, as appropriate. The Puerto Rico Recovery Office provided written comments, including technical comments, that are reprinted in appendix I. The Puerto Rico Recovery Office’s technical comments describe variations between its data and our analyses of FEMA data. Our analyses relied on FEMA’s data and we obtained technical comments from FEMA to ensure their accuracy. In addition, the Puerto Rico Recovery Office provided supplemental comments on issues it has experienced in executing disaster recovery operations, accomplishments and progress it has made while recovering from these disasters, and potential opportunities to improve or enhance FEMA regulations and processes.

42According to FEMA officials, Puerto Rico has expanded its capacity to manage disaster recovery funds in other ways as well. Prior to Hurricane Maria, Puerto Rico had five employees dedicated to disaster recovery, according to Recovery Office officials. As of October 2023, the Puerto Rico Recovery Office has approximately 200 positions, including a compliance division and a team that is dedicated to managing the Validate As You Go process.

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We are sending copies of this report to the appropriate congressional committees, the Secretary of Homeland Security, the Administrator of FEMA, the Puerto Rico government, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you and your staff have any questions, please contact me at (404) 6791875 or curriec@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II.

Chris P. Currie Director, Homeland Security and Justice

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List of Requesters The Honorable Chuck Grassley Ranking Member Committee on the Budget United States Senate The Honorable Gary C. Peters Chairman The Honorable Rand Paul, M.D. Ranking Member Committee on Homeland Security and Governmental Affairs United States Senate The Honorable Ron Johnson Ranking Member Permanent Subcommittee on Investigations Committee on Homeland Security and Governmental Affairs United States Senate The Honorable Maxine Waters Ranking Member Committee on Financial Services House of Representatives The Honorable Bennie G. Thompson Ranking Member Committee on Homeland Security House of Representatives The Honorable James Comer Chairman The Honorable Jamie Raskin Ranking Member Committee on Oversight and Accountability House of Representatives The Honorable Nydia Velázquez Ranking Member Committee on Small Business House of Representatives

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The Honorable Sam Graves Chairman The Honorable Rick Larsen Ranking Member Committee on Transportation and Infrastructure House of Representatives The Honorable Emanuel Cleaver, II Ranking Member Subcommittee on Housing and Insurance Committee on Financial Services House of Representatives The Honorable Marco Rubio United States Senate The Honorable Al Green House of Representatives The Honorable Jim Jordan House of Representatives The Honorable Michael McCaul House of Representatives The Honorable Gary Palmer House of Representatives The Honorable Ann Wagner House of Representatives

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Appendix I: Comments from the Commonwealth of Puerto Rico Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix I: Comments from the Commonwealth of Puerto Rico

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Appendix II: GAO Contact and Staff Acknowledgments Appendix II: GAO Contact and Staff Acknowledgments

GAO Contact

Chris Currie, (404) 679-1875 or curriec@gao.gov.

Staff Acknowledgments

In addition to the contact named above, Joel Aldape (Assistant Director), Jeffrey Love (Analyst-in-Charge), Steven Rocker (Analyst-in-Charge), Lorraine Ettaro, Emilio Fonseca, Eric Hauswirth, Heidi Nielson, Danielle Pakdaman, Kevin Reeves, and Yinghua Shi made key contributions to this report.

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GAO Related Products GAO Related Products

COVID-19: U.S. Territory Experiences Could Inform Future Federal Relief. GAO-23-106050. Washington, D.C.: September 19, 2023. Disaster Recovery: HUD Should Develop Data Collection Guidance to Support Analysis of Block Grant Fraud Risks. GAO-23-104382. Washington, D.C.: August 17, 2023. U.S Territories: Public Debt Outlook – 2023 Update. GAO-23-106045. Washington, D.C.: June 29, 2023. Emergency Alerts: NOAA Should Take Additional Actions to Help Ensure Tsunami Alerts Reach Those at Risk. GAO-23-105961. Washington, D.C.: May 16, 2023. Disaster Recovery: Better Information Is Needed on the Progress of Block Grant Funds. GAO-23-105295. Washington, D.C.: December 15, 2022. 2017 Hurricanes: Update on FEMA’s Disaster Recovery Efforts in Puerto Rico and the U.S. Virgin Islands. GAO-22-106211. Washington, D.C.: December 15, 2022. FEMA: Opportunities to Help Address Mission and Management Challenges. GAO-22-105786. Washington, D.C.: February 16, 2022. FEMA Workforce: Long-Standing and New Challenges Could Affect Mission Success. GAO-22-105631. Washington, D.C.: January 20, 2022. Disaster Recovery: Better Data Are Needed to Ensure Equitable Delivery of HUD Block Grant Funds to Vulnerable Populations. GAO-22-105548. Washington, D.C.: January 19, 2022. Disaster Recovery: Better Data Are Needed to Ensure HUD Block Grant Funds Reach Vulnerable Populations. GAO-22-104452. Washington, D.C.: November 10, 2021. U.S. Territories: Public Debt Outlook – 2021 Update. GAO-21-508. Washington, D.C.: June 30, 2021. La Recuperación de Puerto Rico: FEMA progresó en la aprobación de proyectos, pero debería identificar y evaluar los riesgos para la recuperación. GAO-21-442. Washington, D.C.: May 19, 2021.

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GAO Related Products

Puerto Rico Recovery: FEMA Made Progress in Approving Projects, But Should Identify and Assess Risks to the Recovery. GAO-21-264. Washington, D.C.: May 19, 2021. Disaster Recovery: HUD Should Take Additional Action to Assess Community Development Block Grant Fraud Risks. GAO-21-177. Washington, D.C.: May 5, 2021. Telecommunications: FCC Assisted in Hurricane Maria Network Restoration, but a Clarified Disaster Response Role and Enhanced Communication Are Needed. GAO-21-297. Washington, D.C.: April 29, 2021. Electricity Grid: Opportunities Exist for DOE to Better Support Utilities in Improving Resilience to Hurricanes. GAO-21-274. Washington, D.C.: March 5, 2021. High-Risk Series: Dedicated Leadership Needed to Address Limited Progress in Most High-Risk Areas. GAO-21-119SP. Washington, D.C.: March 2, 2021. Disaster Response: Agencies Should Assess Contracting Workforce Needs and Purchase Card Fraud Risk. GAO-21-42. Washington, D.C.: November 24, 2020. Puerto Rico Electricity: FEMA and HUD Have Not Approved Long-Term Projects and Need to Implement Recommendations to Address Uncertainties and Enhance Resilience. GAO-21-54. Washington, D.C.: November 17, 2020. Disaster Assistance: Additional Actions Needed to Strengthen FEMA’s Individuals and Households Program. GAO-20-503. Washington, D.C.: September 30, 2020. Disaster Assistance: FEMA Should Take Additional Action to Strengthen Fraud Risk Management for Public Assistance Emergency Work Grants. GAO-20-604. Washington, D.C.: September 29, 2020. National Flood Insurance Program: FEMA Can Improve Community Oversight and Data Sharing. GAO-20-396. Washington, D.C.: May 5, 2020.

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GAO Related Products

FEMA Disaster Workforce: Actions Needed to Address Deployment and Staff Development Challenges. GAO-20-360. Washington, D.C.: May 4, 2020. National Preparedness: Additional Actions Needed to Address Gaps in the Nation’s Emergency Management Capabilities. GAO-20-297. Washington, D.C.: May 4, 2020. Emergency Alerting: Agencies Need to Address Pending Applications and Monitor Industry Progress on System Improvements. GAO-20-294. Washington, D.C.: February 6, 2020. Puerto Rico Disaster Recovery: FEMA Actions Needed to Strengthen Project Cost Estimation and Awareness of Program Guidance. GAO-20-221. Washington, D.C.: February 5, 2020. Recuperación de Desastres en Puerto Rico: Acciones de FEMA son Necesarias para Fortalecer la Calculación de Costos de Proyectos y el Conocimiento de las Directrices del Programa. GAO-20-381. Washington, D.C.: February 5, 2020. Wildland Fire: Federal Agencies’ Efforts to Reduce Wildland Fuels and Lower Risk to Communities and Ecosystems. GAO-20-52. Washington, D.C.: December 19, 2019. U.S. Virgin Islands Recovery: Additional Actions Could Strengthen FEMA’s Key Disaster Recovery Efforts. GAO-20-54. Washington, D.C.: November 19, 2019. Emergency Transportation Relief: Federal Transit Administration and FEMA Took Actions to Coordinate, But Steps Are needed to Address Risk of Duplicate Funding. GAO-20-85. Washington, D.C.: November 13, 2019. Disaster Resilience Framework: Principles for Analyzing Federal Efforts to Facilitate and Promote Resilience to Natural Disasters. GAO-20-100SP. Washington, D.C.: October 23, 2019. Disaster Recovery: Recent Disasters Highlight Progress and Challenges. GAO-20-183T. Washington, D.C.: October 22, 2019.

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GAO Related Products

Highway Emergency Relief: Federal Highway Administration Should Enhance Accountability over Project Decisions. GAO-20-32. Washington, D.C.: October 17, 2019. Wildfire Disasters: FEMA Could Take Additional Actions to Address Unique Response and Recovery Challenges. GAO-20-5. Washington, D.C.: October 9, 2019. Puerto Rico Electricity Grid Recovery: Better Information and Enhanced Coordination Is Needed to Address Challenges. GAO-20-141. Washington, D.C.: October 8, 2019. Disaster Response: HHS Should Address Deficiencies Highlighted by Recent Hurricanes in the U.S. Virgin Islands and Puerto Rico. GAO-19-592. Washington, D.C.: September 20, 2019. Disaster Response: FEMA and the American Red Cross Need to Ensure Key Mass Care Organizations are Included in Coordination and Planning. GAO-19-526. Washington, D.C.: September 19, 2019. Disaster Response: Federal Assistance and Selected States and Territory Efforts to Identify Deaths from 2017 Hurricanes. GAO-19-486. Washington, D.C.: September 13, 2019. Emergency Management: FEMA’s Disaster Recovery Efforts in Puerto Rico and the U.S. Virgin Islands. GAO-19-662T. Washington, D.C.: July 11, 2019. 2017 Disaster Relief Oversight: Strategy Needed to Ensure Agencies’ Internal Control Plans Provide Sufficient Information. GAO-19-479. Washington, D.C.: June 28, 2019. Emergency Management: FEMA Has Made Progress, but Challenges and Future Risks Highlight Imperative for Further Improvements, GAO-19-617T. Washington, D.C.: June 25, 2019. Emergency Management: FEMA Has Made Progress, but Challenges and Future Risks Highlight the Imperative for Further Improvements, GAO-19-594T. Washington, D.C.: June 12, 2019. Disaster Assistance: FEMA Action Needed to Better Support Individuals Who Are Older or Have Disabilities. GAO-19-318. Washington, D.C.: May 14, 2019.

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GAO Related Products

Disaster Contracting: Actions Needed to Improve the Use of PostDisaster Contracts to Support Response and Recovery. GAO-19-281. Washington, D.C.: April 24, 2019. 2017 Hurricane Season: Federal Support for Electricity Grid Restoration in the U.S. Virgin Islands and Puerto Rico. GAO-19-296. Washington, D.C.: April 18, 2019. FEMA Grants Modernization: Improvements Needed to Strengthen Program Management and Cybersecurity. GAO-19-164. Washington, D.C.: April 9, 2019. Disaster Recovery: Better Monitoring of Block Grant Funds Is Needed. GAO-19-232. Washington, D.C.: March 25, 2019. Puerto Rico Hurricanes: Status of FEMA Funding, Oversight, and Recovery Challenges. GAO-19-256. Washington, D.C.: March 14, 2019. Huracanes de Puerto Rico: Estado de Financiamiento de FEMA, Supervisión y Desafíos de Recuperación. GAO-19-331. Washington, D.C.: March 14, 2019. High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas. GAO-19-157SP. Washington, D.C.: March 6, 2019. U.S. Virgin Islands Recovery: Status of FEMA Public Assistance Funding and Implementation. GAO-19-253. Washington, D.C.: February 25, 2019. 2017 Disaster Contracting: Action Needed to Better Ensure More Effective Use and Management of Advance Contracts. GAO-19-93. Washington, D.C.: December 6, 2018. Continuity of Operations: Actions Needed to Strengthen FEMA’s Oversight and Coordination of Executive Branch Readiness. GAO-19-18SU. Washington, D.C.: November 26, 2018. Homeland Security Grant Program: Additional Actions Could Further Enhance FEMA’s Risk-Based Grant Assessment Model. GAO-18-354. Washington, D.C.: September 6, 2018.

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GAO Related Products

2017 Hurricanes and Wildfires: Initial Observations on the Federal Response and Key Recovery Challenges. GAO-18-472. Washington, D.C.: September 4, 2018. Federal Disaster Assistance: Individual Assistance Requests Often Granted but FEMA Could Better Document Factors Considered. GAO-18-366. Washington, D.C.: May 31, 2018. 2017 Disaster Contracting: Observations on Federal Contracting for Response and Recovery Efforts. GAO-18-335. Washington, D.C.: February 28, 2018. Disaster Recovery: Additional Actions Would Improve Data Quality and Timeliness of FEMA’s Public Assistance Appeals Processing. GAO-18-143. Washington, D.C.: December 15, 2017. Disaster Assistance: Opportunities to Enhance Implementation of the Redesigned Public Assistance Grant Program. GAO-18-30. Washington, D.C.: November 8, 2017. Climate Change: Information on Potential Economic Effects Could Help Guide Federal Efforts to Reduce Fiscal Exposure. GAO-17-720. Washington, D.C.: September 28, 2017. Federal Disaster Assistance: Federal Departments and Agencies Obligated at Least $277.6 Billion during Fiscal Years 2005 through 2014. GAO-16-797. Washington, D.C.: September 22, 2016. Disaster Recovery: FEMA Needs to Assess Its Effectiveness in Implementing the National Disaster Recovery Framework. GAO-16-476. Washington, D.C.: May 26, 2016. Disaster Response: FEMA Has Made Progress Implementing Key Programs, but Opportunities for Improvement Exist. GAO-16-87. Washington, D.C.: February 5, 2016. Hurricane Sandy: An Investment Strategy Could Help the Federal Government Enhance National Resilience for Future Disasters. GAO-15-515. Washington, D.C.: July 30, 2015. Budgeting for Disasters: Approaches to Budgeting for Disasters in Selected States. GAO-15-424. Washington, D.C.: March 26, 2015.

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GAO Related Products

High-Risk Series: An Update. GAO-15-290. Washington, D.C.: February 11, 2015. Emergency Preparedness: Opportunities Exist to Strengthen Interagency Assessments and Accountability for Closing Capability Gaps. GAO-15-20. Washington, D.C.: December 4, 2014. Fiscal Exposures: Improving Cost Recognition in the Federal Budget. GAO-14-28. Washington, D.C.: October 29, 2013. Federal Disaster Assistance: Improved Criteria Needed to Assess a Jurisdiction’s Capability to Respond and Recover on Its Own. GAO-12-838. Washington, D.C.: September 12, 2012. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011.

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