FEMA denies it's auditing LIPA for Irene damages

The New York office of the Federal Emergency Management Agency is seeking to diffuse concern that its methodical scrutiny of LIPA's damaged grid from Tropical Storm Irene would dash the authority's hopes for a $100-million-plus reimbursement anytime soon.

In a statement to Newsday last week, FEMA described the intense review of LIPA's $170 million claim as part of its "normal procedure for verifying damages for any large project," and it insisted the effort was not an "audit."

In a meeting with LIPA trustees last month, top LIPA officials said FEMA had begun physical inspections of every mile of damaged grid, something they had neither experienced before nor believed other utilities had been subjected to, with the exception of in Puerto Rico.

"The process seems to have taken a curve, in that they [FEMA] are having people walk down every circuit to review the damage and the repairs to the damage," LIPA controller Kenneth Kane told trustees. "That's a lengthy process."

"They are doing a 100 percent field test audit," LIPA chief financial officer Michael Taunton added, after another finance staffer told trustees, "What they [FEMA] actually said was that the financial audit was complete," and that the field audit was next.

But Matthew Russell, a spokesman for FEMA, in a statement insisted there was no audit of LIPA's costs for Irene. "There is no audit taking place involving LIPA's application for federal disaster aid for Hurricane Irene under FEMA's Public Assistance program," Russell wrote.

U.S. and state lawmakers, and Gov. Andrew M. Cuomo's office have pressed FEMA over its scrutiny. Russell said the office had been bombarded with calls from lawmakers asking why an audit was taking place.

Rather than auditing, Russell said, FEMA is "inspecting" each element of LIPA's damaged infrastructure. As each is completed and approved, LIPA will receive reimbursement.

One expert said FEMA should do an audit, based on the recent history of expense irregularities related to LIPA storm costs. "Audits are always good things," said Martin Cantor, director at the Long Island Center for Socio-Economic Policy. "They bring in an outside set of eyes on an operation."

FEMA said the inspections at LIPA are aimed at ensuring that facilities damaged in the storm meet "all [reimbursement] eligibility criteria" and that costs are "error free." Every invoice submitted to LIPA is verified against work performed and equipment replaced.

Asked how that is different from an audit, the agency said all such audits are conducted by the Department of Homeland Security inspector general, not FEMA. And it noted that while LIPA has not yet been subject to one, "All large projects are potentially audited at a later date." With many summer operating bills coming due now, LIPA had banked on the full $110 million payment from FEMA in July. Officials said a planned bond offering could tide it over until all the FEMA money arrives. Now it appears the money could come in smaller amounts over months.

"The big issue is, we expected one check for $110 million," CFO Taunton told trustees. "We theoretically could get 100 checks for $1 million, and that's going be the problem in terms of management of the cash flow."

Earlier this month, LIPA received a check for $12.7 million. Russell said the size of LIPA's claim is part of the issue. "LIPA's is a substantial application, expected to total well over $100 million, and FEMA is exercising its usual diligence in reviewing and approving each project."

This story has been changed to correct the name of Matthew Russell, a spokesman for FEMA.