A Review of

Expenditures Related to Hurricane Ike at the
University of Texas Medical Branch at Galveston
John Keel, CPA
State Auditor

April 24, 2009
Members of the Legislative Audit Committee:
The University of Texas Medical Branch at Galveston (Medical Branch) was closed to students on
September 10, 2008, and patients were evacuated on September 11, 2008, in preparation for Hurricane Ike.
The storm surge flooded the Medical Branch on September 12, 2008. In addition to sustaining damage to
buildings and equipment, the Medical Branch also suffered business operating losses.
The Medical Branch’s Estimate of Losses

Background Information

The Medical Branch estimates that its losses from Hurricane
Ike will total $1.36 billion, which includes $831.8 million in
emergency work and permanent work costs, $438.0 million in
construction costs for a new hospital tower, and $93.2 million
in business operating losses before depreciation. It expects to
recover $899.3 million from external funding sources—$592.6
million from the Federal Emergency Management Agency
(FEMA), $106.7 million from insurance proceeds, and $200.0
million from the Sealy Smith Foundation—resulting in a
$463.8 million cost to the State.
However, these estimates are not the Medical Branch’s final
cost estimates; Medical Branch management stated that the
cost estimation process may not be complete until December
2009 (see text box for more information on the Medical
Branch’s process for estimating permanent work costs). The
Medical Branch has requested that the 81st Legislature
appropriate $300.0 million under House Bill 4586 to help pay
for losses that will not be reimbursed by external sources.
Included in that request is $150.0 million: $141.0 million to
help pay for the construction of the new hospital tower and
$9.0 million for repairs to the John Sealy Hospital.
Auditors’ Review of Estimated Losses

The University of Texas Medical Branch at Galveston
(Medical Branch) evacuated 469 patients in preparation
for Hurricane Ike. The 2,338 students enrolled at the
Medical Branch also had to evacuate as a result of the
hurricane, which flooded the campus on September 12,
2008.
The Medical Branch sustained hurricane damage
including:
ƒ

Wind damage to 110 buildings.

ƒ

Flood damage to 76 buildings, with 41 buildings
having more than 3 feet of floodwater.

The Medical Branch’s Process for Estimating
Permanent Work Costs
The Medical Branch based its estimates for permanent
work costs on estimates calculated by disaster recovery
consultants. The consultants based their cost
estimates on the insurance values of the buildings and
equipment damaged by Hurricane Ike. The Medical
Branch later adjusted some of these cost estimates
after Medical Branch employees and consultants
completed walk-throughs of each damaged building.
FEMA workers will conduct final walk-throughs of each
building and develop project worksheets describing the
damage and necessary repairs. After FEMA completes
project worksheets, the Medical Branch can begin work
to repair buildings and equipment based on actual
contracts. All FEMA reimbursements must be based on
actual expenditures. The Medical Branch expects
approximately 2,000 project worksheets to be
developed by December 2009 for damages related to
Hurricane Ike.

Auditors determined that the Medical Branch was unable to produce a completely reliable estimate of its
losses because of the large scale of damage caused by Hurricane Ike to its campus; of the Medical Branch’s
more than 180 buildings, an estimated 76 were flooded and 110 suffered wind damage. These same factors
prevented auditors from determining whether the Medical Branch’s estimate of total losses was accurate or
reasonable. In addition, the Medical Branch lacked sufficient data to support the estimated costs of
permanent work, which accounts for 52 percent of the Medical Branch’s estimated losses. The estimated
SAO Report No. 09-034
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Members of the Legislative Audit Committee
April 24, 2009
Page 2
cost for permanent work totals $709.8 million and includes repairs to equipment and buildings, including
some historical buildings. The total cost for permanent work does not include $438.0 million for the new
hospital tower. Auditors could not independently verify these cost estimates. (See the attachment to this
letter for a detailed list of estimated costs.)
The Medical Branch based its cost estimates for permanent work on (1) the insurance values of damaged
buildings and their contents and (2) subsequent adjustments to these values based on walk-throughs of the
damaged buildings. The Medical Branch’s methodology for estimating these costs could be improved.
Specifically:
ƒ

The Medical Branch based its estimates on buildings’ insurance values without adjusting for inflation.
After adjusting for inflation, construction costs in 2008 would be approximately 48 percent higher than
costs in 2005; this would increase the Medical Branch’s costs for permanent work by $117.8 million.

ƒ

The Medical Branch did not adjust cost estimates for buildings that are more than 50 years old, which
may increase restoration costs.

ƒ

The Medical Branch applied the same cost estimation factors to all flooded buildings even though the
flood levels varied among these buildings.

ƒ

The Medical Branch lacked sufficient documentation to support the quantity, type, and potential cost of
adjusted building damages determined during walk-throughs.

The cost of emergency work totaled an estimated $122.0 million, which accounts for 9 percent of the
Medical Branch’s total estimated losses. The Medical Branch based its estimates for those costs on several
sources, including actual costs and bids and estimates from contractors. In addition, the Medical Branch
estimates that it will cost $438.0 million to construct the new hospital tower, which would be designed to
replace the beds lost in modernization and mitigation modifications to another hospital building. Table 1
lists the total estimated losses from Hurricane Ike at the Medical Branch.
Table 1

The Medical Branch’s Total Estimated Losses for Recovery from Hurricane Ike
(In millions)
The Medical
Branch’s
Estimated
Losses

Description
Hurricane-related Incurred Costs
(Including Mitigation for Existing
Buildings)
Business Operating Loss Before
Depreciation
Capital Funds for Construction of
New Hospital Tower
Totals
a

Total Potential Funding from Non-state Sources
FEMA
Reimbursement

Potential Cost to
a
the State

Other Sources

$ 831.8

$592.6

$ 67.9

$ 75.0

$96.4

93.2

0

38.8

0

54.4

438.0

0

0

125.0

313.0

$1,363.0

$592.6

$106.7

$200.0

$463.8

Potential costs do not always sum precisely due to rounding.

Source: Medical Branch.

Insurance

Members of the Legislative Audit Committee
April 24, 2009
Page 3
As of January 22, 2009, the Medical Branch reported that it had made $64.5 million in hurricane-related
expenditures and had encumbered an additional $15.6 million for hurricane-related costs. Auditors tested
$8.5 million in Medical Branch expenditures and encumbrances for hurricane-related damage as of January
22, 2009, and determined that these expenditures and encumbrances were supported and documented.
Auditors identified no indications of fraud, waste, or abuse with respect to the Medical Branch’s hurricanerelated expenditures.
The Medical Branch plans to recoup some hurricane-related costs from FEMA and insurance proceeds. The
Medical Branch provided documentation that supports its estimates for insurance proceeds. In addition, the
Sealy Smith Foundation has offered the State $125.0 million toward the construction of a replacement
hospital facility and an additional $75.0 million toward the mitigation and repairs of the John Sealy
Hospital, subject to the State and the University of Texas System agreeing to certain terms.
We appreciate the Medical Branch’s cooperation during this review. If you have any questions, please
contact Ralph McClendon, Audit Manager, or me at (512) 936-9500.
Sincerely,

John Keel, CPA
State Auditor
Attachment
cc:

Members of the University of Texas System Board of Regents
Mr. James R. Huffines, Chairman
Mr. Paul Foster, Vice Chairman
Ms. Colleen McHugh, Vice Chairman
Mr. James D. Dannenbaum
Mr. Printice L. Gary
Mr. R. Steven Hicks
Ms. Janiece Longoria
Mr. Wm. Eugene Powell
Mr. Robert L. Stillwell
Mr. Benjamin L. Dower, Student Regent
Dr. Francisco G. Cigarroa, Chancellor, The University of Texas System
Dr. David L. Callender, President, The University of Texas Medical Branch at Galveston

This document is not copyrighted. Readers may make additional copies of this report as needed. In
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Attachment
Expenditures Related to Hurricane Ike at the University of Texas
Medical Branch at Galveston
Hurricane Ike hit Galveston on September 13, 2008. The University of Texas
Medical Branch at Galveston (Medical Branch) suffered losses due to the
storm surge and flooding on September 12, 2008. More than 1 million square
feet of first-floor space on the Medical Branch’s campus sustained damage
from saltwater flooding.
The Medical Branch estimates that its losses from Hurricane Ike will total
$1.36 billion, which includes $831.8 million in costs related to permanent and
emergency work, $438.0 million in construction costs for a new hospital
tower, and $93.2 million in business operating losses before depreciation.
Auditors determined that the Medical Branch was unable to produce a
completely reliable estimate of its losses because of the large scale of damage
caused by Hurricane Ike to its campus. Of the Medical Branch’s more than
180 buildings, an estimated 76 were flooded and 110 suffered wind damage.
These same factors prevented auditors from determining whether the Medical
Branch’s estimate of total losses was accurate or reasonable. In addition, the
Medical Branch’s estimates lacked sufficient data to support the estimated
costs for permanent work.
Below is a summary of the Medical Branch’s estimated costs and businessoperating losses related to Hurricane Ike.
Permanent Work (Buildings and Equipment, Infrastructure,
Utilities) - $709.8 million
The Medical Branch estimated it would incur $709.8 million in permanent
work costs as a result of damage done by Hurricane Ike. Auditors could not
independently verify this cost estimate. The Medical Branch is seeking
Federal Emergency Management Agency (FEMA) funding and could receive
reimbursement for 75 percent of the uninsured portion of these costs if all
costs are approved by FEMA.
The Medical Branch based its cost estimate on (1) the insurance values of
damaged buildings and their contents and (2) subsequent adjustments to these
values based on walk-throughs of the damaged buildings. As of January 22,
2009, the Medical Branch had spent or encumbered only $1.6 million for
permanent work. The Medical Branch relied heavily on consultants’ damage
estimates in its calculations. However, the Medical Branch’s methodology for
estimating these costs could be improved.

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 1

The Medical Branch did not adjust insurance values to reflect replacement
costs.

The Medical Branch based its estimated costs on insurance values, many of
which were set in 2005, for buildings and equipment damaged by the
hurricane; however, it did not adjust these values to reflect current
replacement costs. Specifically:
ƒ

The Medical Branch did not adjust the building insurance values for inflation. The
Medical Branch based its current cost estimates for permanent work on the
buildings’ insurance values; however, these values had not been adjusted
for inflation since 2005. As a result, these costs may be underestimated.
For example, the Medical Branch initially estimated that it would cost
approximately $247.0 million to repair flood damage to its facilities, based
on each building’s insurance value. However, according to the University
of Texas System Office of Facility Planning and Construction,
construction costs increased by an average of 11 percent each year from
2005 to 2007. They increased by 8 percent in 2008 and are expected to
increase by 5 percent in 2009. When adjusted for inflation, the original
estimate should have been $364.8 million, a 48 percent increase. As of
February 26, 2009, the Medical Branch increased its cost estimate to
$331.8 million based on the damage identified during walk-throughs of
the buildings. These adjusted estimates are based on the Medical Branch’s
initial estimate; as a result, they still may be underestimated.

ƒ

The Medical Branch did not adjust the insurance values for 37 buildings that are
more than 50 years old. Some or all of these buildings may have historical

significance, which could increase their restoration costs. For example,
the Ashbel Smith building, also known as “Old Red,” was built in 1889,
and the Medical Branch estimates that restoration costs will be $16.8
million, which is the building’s 2005 insurance value. However, under
FEMA guidelines, the restoration costs of historical buildings can be
increased by 1 to 7 percent of their repair costs.
ƒ

The Medical Branch used insurance values as the basis for its estimated costs for
equipment. The insurance value was the acquisition cost of the equipment,

rather than the replacement cost.
The Medical Branch used an across-the-board percentage to estimate repair
costs for flood- and wind-damaged buildings, regardless of the differing levels of
damage.

The Medical Branch determined that 76 buildings were flooded by Hurricane
Ike. To estimate the repair costs, the Medical Branch multiplied each
building’s insurance value by 90 percent, regardless of the level of flooding in
each building. The Medical Branch developed this ratio by comparing
standard renovation costs with insurance value unit costs on a single
dormitory hall. However, using site visit documentation provided by the

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 2

Medical Branch, auditors determined that there were significant differences in
the flood levels among the damaged buildings (see Table 2).
Table 2

Buildings Flooded by Hurricane Ike on the
Medical Branch Campus
Number of
Buildings

Flood Level

6

Under 1 foot

19

Between 1 foot and 3 feet

28

Over 3 feet

13

Fully flooded

10

Flood level not provided

Source: Medical Branch.

The Medical Branch estimated that 90 percent of all equipment on the
basement and/or ground floor of the flooded buildings needed to be replaced.
However, as discussed above, the flooding levels varied among the flooded
buildings, which could result in differing levels of equipment damage.
To estimate the cost of damage to buildings and equipment caused by the
hurricane’s winds, the Medical Branch initially calculated 5 percent of the
total insurance value of all buildings and equipment. According to Medical
Branch management, these figures were later adjusted after consultants and
Medical Branch employees determined during walk-throughs that the extent
of the wind damage was less severe than initially estimated.
The Medical Branch lacked adequate support for subsequent cost estimate
adjustments.

Medical Branch employees and disaster recovery consultants conducted joint
walk-throughs of the buildings on campus that were damaged by Hurricane
Ike. Based on the observations made during these walk-throughs, the Medical
Branch adjusted several of its initial cost estimates for permanent work
needed to repair the buildings and equipment. However, the Medical
Branch’s walk-through documentation does not specify the quantity, type, and
potential costs of the damage identified to support the adjustments. For
example, only two of nine walk-through worksheets auditors reviewed
specified that equipment was damaged; however, the Medical Branch
increased its initial estimates for equipment damage for all nine buildings.
According to the Medical Branch, it relied on its own and the consultants’
prior experience in rebuilding efforts to make these cost adjustments. The
adjustments increased the Medical Branch’s estimated costs for permanent
work by 6.6 percent, from an initial estimate of $666.0 million to a new
estimate of $709.8 million (see Table 3 on the next page). While the Medical
Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 3

Branch decreased its wind damage estimate by $76.0 million, it increased its
estimate of flood damage by $101.7 million. The Medical Branch increased
its estimates for equipment flood damage across the board by 11 percent for
66 of the 76 flooded buildings. However, as discussed previously, the
Medical Branch lacked sufficient documentation supporting these
adjustments.
Table 3

Comparison of the Medical Branch’s
Initial and Adjusted Cost Estimates for Permanent Work
(In millions)
Description of
Cost

Adjusted Estimate
(as of February 26, 2009)

Original Estimate

Building Repairs

$307.8

$350.8

82.7

83.5

Infrastructure
Repairs

100.0

100.0

Mitigation Efforts

126.0

126.0

Other Costs

6.5

6.5

Contingency
Adjustment

43.0

43.0

$666.0

$709.8

Equipment Repairs

Totals
Source: Medical Branch.

Infrastructure Costs - $100.0 million

The Medical Branch estimates that its infrastructure costs will total
$100.0 million, including repairs to chilled and steamed water systems,
elevators, and telecommunications. Auditors reviewed $34.1 million of
estimated infrastructure costs and determined they were supported. However,
as part of its $100.0 million cost estimate, the Medical Branch included
$12.4 million in costs to repair and/or replace elevators, which were also
included in the insurance value of the buildings and formed the basis for the
Medical Branch’s cost estimates for building repairs. As a result, some of
these costs may have been counted twice.
Mitigation Costs - $126.0 million

The Medical Branch estimates that it will cost $126.0 million to mitigate
buildings against future flooding. The Medical Branch calculated this
estimate by multiplying the insurance values for buildings and equipment by
30 percent; however, it lacks sufficient documentation to support those
estimates. To receive reimbursement for hurricane-related costs, FEMA may
require institutions to implement certain mitigation measures.
Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 4

It should be noted that there are some equipment and buildings for which the
Medical Branch will have difficulty mitigating the risk of flood damage. For
example, the Medical Branch has a cryo-electron microscope facility for
which it will pay $3.9 million to replace microscopes damaged by Hurricane
Ike. The microscopes are very sensitive to vibrations, which will make it
difficult to relocate them to a higher floor to reduce the risk of future flood
damage.
Contingency Adjustment – $43.0 million

The Medical Branch included a contingency adjustment of $43.0 million in its
total estimated costs for permanent work. This amount was based on an
approximate 7 percent inflation factor for two years.
Other Costs - $6.5 million

Other costs include costs related to site work and parking garages.
Emergency Work - $122.0 million
Debris Removal - $270,000

These expenditures were for the removal of debris from the campus. The total
amount of expenditures as of January 2009 was $262,453, which is 97 percent
of the estimated debris removal costs. This work was conducted by a
contractor that had a contract with the University of Texas System. It is likely
that the Medical Branch will be able to recover all of these costs from FEMA
because the disaster declaration affecting Galveston allows public entities to
be reimbursed for 100 percent of costs for clearing debris. However, the
Medical Branch must remove any remaining debris by April 27, 2009, to
claim full FEMA reimbursement.
Emergency Protective Measures - $121.7 million

These costs were mainly for emergency repairs, including structure drying and
dehumidification, stabilization measures, and generators. The Medical
Branch estimates that costs in this category will total $121.7 million. As of
January 2009, the Medical Branch had made $78.2 million in expenditures
and encumbrances for emergency protective measures. Of this amount,
auditors tested $8.5 million and determined that the Medical Branch had
adequate supporting documentation.
The Medical Branch may be able to recover 100 percent of these costs from
FEMA. However, the due date for incurring fully reimbursable costs in this
category was October 27, 2008. If the federal government does not amend the
disaster declarations, the Medical Branch may be reimbursed for a smaller
percentage of the costs incurred after October 27, 2008, which could limit the
Medical Branch’s reimbursement from FEMA for the $43.5 million in
estimated costs for which funds were not spent or encumbered as of January
2009.
Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 5

New Hospital Tower (Jennie Sealy Replacement Hospital) - $438.0
million
The Medical Branch estimates that it will cost $438.0 million to construct the
Jennie Sealy Replacement Hospital, which would replace 200 in-patient beds
expected to be lost during the modernization and mitigation of the existing
John Sealy Hospital. The Medical Branch has requested $141.0 million in
capital fund appropriations from the 81st Legislature and has received a
commitment of $125.0 million from the Sealy Smith Foundation to help pay
for these costs. The Medical Branch plans to issue debt for the difference (see
Revenue from Non-state Sources below), along with a minor land swap with
the Sealy Smith Foundation. However, it should be noted that the Medical
Branch’s 2007 Capital Improvement Plan already included the construction of
the Jennie Sealy Replacement Hospital for surgical care and supporting
services, which was to be partially funded by the Sealy Smith Foundation on
its land and leased to the Medical Branch.
Business Operating Losses Before Depreciation - $93.2 million
The Medical Branch estimated that it incurred $93.2 million in operating
losses before depreciation for fiscal year 2009 as a result of Hurricane Ike.
The Medical Branch calculated its operating losses based on its actual
revenues from the first quarter of fiscal year 2009, historical data from the
final nine months of fiscal year 2008, and a set of reasonable assumptions for
the remainder of fiscal year 2009.
The $93.2 million represents the Medical Branch’s business operating loss
before depreciation for fiscal year 2009. All three of the Medical Branch’s
functional areas—Institutional Support, Health Systems, and Academic
Enterprise—incurred operating losses. The Medical Branch provided auditors
sufficient documentation to support its estimated operating losses for fiscal
year 2009.
Examination of Expenditures
Auditors tested $8.5 million of $80.1 million that the Medical Branch had
spent or encumbered for hurricane-related expenditures as of January 22,
2009. All transactions tested were supported and documented. Auditors did
not identify any indications of fraud, waste, or abuse with respect to the
Medical Branch’s hurricane-related expenditures.
Revenue from Non-state Sources
The Medical Branch expects to recoup $899.3 million of its hurricane-related
costs from three sources: FEMA, insurance proceeds, and private donations.

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 6

FEMA - $592.6 million

Auditors estimate that the Medical Branch should be eligible to receive $592.6
million in FEMA reimbursements based on the Medical Branch’s total
estimated losses. The Medical Branch had received $72.7 million in
reimbursements related to emergency work from FEMA as of February 4,
2009. It continues to work with consultants and FEMA personnel to develop
project worksheets, which must be completed before the Medical Branch can
begin work on reimbursable repairs. As of February 4, 2009, FEMA had
assigned worksheet numbers with funding amounts to 49 of 2,000 projects.
The remaining projects were in varying stages of completion.
Insurance Proceeds - $106.7 million

The Medical Branch initially estimated that it would receive $100.0 million in
insurance proceeds. It increased this estimate to $106.7 million because it
(1) identified additional policies covering damage to selected buildings and
(2) will receive approximately $97.0 million from the proceeds of a
$100.0 million University of Texas System insurance policy. The Medical
Branch provided supporting documentation for the entire amount of its
estimated insurance proceeds.
The Medical Branch is working with FEMA to determine the permitted
allocation of insurance proceeds. The Medical Branch is requesting to
allocate 60 percent of the proceeds to capital improvements and 40 percent to
business operating losses. Applying insurance proceeds to business operating
losses will allow more FEMA funding to be applied to capital costs, resulting
in a lower overall cost to the State.
Other Sources - $200.0 million

The Sealy Smith Foundation has offered the State $125.0 million toward the
construction of a replacement hospital tower. It has also offered the State an
additional $75.0 million toward mitigation and repairs of the John Sealy
Hospital. Both of these grants would be subject to the State and the
University of Texas System agreeing to the following terms:
ƒ

The State and the University of Texas System must provide continued
operational support and maintenance of at least 500 in-patient beds and a
level 1 trauma center at the Medical Branch in Galveston.

ƒ

The new hospital tower will be named the Jennie Sealy Hospital and will
have a minimum of 200 in-patient beds.

ƒ

The Sealy Smith Foundation must acquire from the Medical Branch title
to the additional required land under the new hospital tower, and it must
execute a lease with the Medical Branch for 50 years with a clause
requiring that 200 in-patient beds be maintained in the new tower.

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 7

The Medical Branch does not anticipate receiving FEMA funding for the new
hospital tower; however, the Medical Branch may qualify for FEMA
reimbursement of some of the construction costs if the new hospital tower is
used to replace hospital functions lost in the mitigation of the John Sealy
Hospital.

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 8

Estimated Costs for the University of Texas Medical Branch at
Galveston’s Recovery from Hurricane Ike
Table 4 lists the estimated costs for the University of Texas Medical Branch at
Galveston (Medical Branch) recovery from Hurricane Ike. The Medical
Branch estimates that its losses from Hurricane Ike will total $1.36 billion.
This includes $831.8 million in emergency work and permanent work costs,
$438.0 million in construction costs for a new hospital tower, and $93.2
million in estimated business operating losses before depreciation for fiscal
year 2009. The Medical Branch expects to recover $592.6 million from the
Federal Emergency Management Agency (FEMA), $106.7 million from
insurance proceeds, and $200.0 million from the Sealy Smith Foundation. As
a result, the potential cost to the State totals $463.8 million. The Medical
Branch has requested that the 81st Legislature appropriate $300.0 million
under House Bill 4586 to help pay for losses that will not be reimbursed by
external sources. Included in that request is $150.0 million: $141.0 million to
help pay for the construction of the new hospital tower and $9.0 million for
repairs to the John Sealy Hospital.
Table 4

The Medical Branch’s Total Estimated Losses for Recovery from Hurricane Ike
(In millions)

Description

The Medical
Branch’s
Total
Estimated
Losses as of
February
26, 2009

Encumbrances
as of
January 22,
2009

Estimated
FEMA
Payments

Insurance
Proceeds

Other
a
Sources

Total
Non-state
Funding
Sources
as of
February
26, 2009

Possible Funding Sources
Expenditures
as of
January 22,
2009

Potential
Cost to the
State as of
February
26, 2009

Expenses
Permanent Work
$583.8

$1.4

$0.2

$387.0

$67.9

$75.0

$529.8

$54.0

Mitigation for
Existing Buildings

126.0

0.0

0.0

94.5

0.0

0.0

94.5

31.5

Total Permanent
Work

$709.8

$1.4

$0.2

$481.4

$67.9

$75.0

$624.3

$85.5

$ 0.0

$ 0.0

$

0.3

$ 0.0

$ 0.0

0.0

110.9

10.9

$ 0.0

$ 0.0

$111.1

$10.9

Water Control
Facilities, Buildings
b
and Equipment,
Utilities, and Other
Items

Emergency Work
Debris Removal
Emergency
Protective Measures
Total Emergency
Work

$

0.3

$ 0.3

$ 0.0

121.7

62.8

15.4

$122.0

$63.1

$15.4

$

0.3

110.9

c

$111.1

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 9

The Medical Branch’s Total Estimated Losses for Recovery from Hurricane Ike
(In millions)

Description
Total Expenses

The Medical
Branch’s
Total
Estimated
Losses as of
February
26, 2009

Other
a
Sources

Total
Non-state
Funding
Sources
as of
February
26, 2009

$75.0

$735.5

$96.4

$0.0

$38.8

$54.4

Possible Funding Sources
Expenditures
as of
January 22,
2009

$831.8

$64.5

Encumbrances
as of
January 22,
2009
$15.6

Estimated
FEMA
Payments
$592.6

Insurance
Proceeds
$67.9

d

Potential
Cost to the
State as of
February
26, 2009

Business Operating Loss Before Depreciation (as of March 11, 2009)
Business Operating
Losses Before
Depreciation (Fiscal
Year 2009)

$93.2

$0.0

$0.0

$0.0

Total Business
Operating Losses
Before Depreciation

$93.2

$0.0

$0.0

$0.0

$38.8

$0.0

$38.8

$54.4

$38.8

e

New Hospital Tower (House Bill 4856 Request)
Capital Funds for
Construction of New
Hospital Tower

$438.0

$0.0

$0.0

$0.0

$0.0

$125.0

$125.0

$313.0

Total Costs for New
Hospital Tower

$438.0

$0.0

$0.0

$0.0

$0.0

$125.0

$125.0

$313.0

$1,363.0

$64.5

$15.6

$592.6

$106.7

$200.0

$899.3

$463.8

Total Costs
Related to
f
Hurricane Ike
a

The Sealy Smith Foundation is expected to provide funding to help pay for the construction of a new hospital tower and for mitigation and repairs on the
John Sealy Hospital.
b
The Medical Branch did not include in its estimated costs (1) whether a building was more than 50 years old, which could increase renovation costs or (2)
inflation in building construction costs since 2005.
c
This estimate is based on a FEMA reimbursement rate of 100 percent for expenses incurred before October 27, 2008, and a 75 percent reimbursement rate
for expenses incurred after that date.
d
The Medical Branch stated it plans to apply 60 percent of $97 million in proceeds from a University of Texas System insurance policy and 100 percent of
$9.71 million in proceeds from another insurance policy to capital improvements.
e
The Medical Branch stated it plans to apply 40 percent of $97 million in proceeds from a University of Texas System insurance policy to business operating
losses.
f
Totals do not always sum precisely due to rounding.
Sources: Medical Branch and auditors’ analysis.

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 10

Objectives, Scope, and Methodology
The objectives of this review were to:
ƒ

Examine the University of Texas Medical Branch at Galveston’s (Medical
Branch) hurricane-related expenditures to determine whether the
expenditures were supported and documented.

ƒ

Examine the Medical Branch’s hurricane-related impact and costs to
determine whether they were developed using reasonable methodologies.

ƒ

Determine whether there are any indications of fraud, waste, or abuse with
respect to the Medical Branch’s hurricane-related expenditures.

ƒ

Identify the Medical Branch’s estimates for reimbursement by the Federal
Emergency Management Agency (FEMA) and other non-state funding
sources.

The scope for the review of expenditures was from September 13, 2008, to
January 22, 2009. Auditors examined the Medical Branch’s methodology to
calculate estimated damages as of February 26, 2009.
The methodology included collecting information and documentation;
performing selected tests and other procedures; analyzing and evaluating the
results of the tests; and conducting interviews with Medical Branch
management and staff.
Information collected and reviewed included the following:
ƒ

The Medical Branch’s estimated hurricane-related expenditures, including
estimated FEMA reimbursements.

ƒ

The Medical Branch’s accounting system reports and supporting
documentation.

ƒ

Initial damage estimates developed by the Medical Branch’s consultant.

ƒ

The Medical Branch’s insurance policies.

ƒ

The Medical Branch’s FEMA project worksheets.

ƒ

Interim Report to the 81st Texas Legislature, House Select Committee on
Hurricane Ike Devastation to the Texas Gulf Coast, January 2009.

ƒ

Inflation factors for construction projects.

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 11

Procedures and tests conducted included:
ƒ

Touring selected buildings on the Medical Branch campus on January 20,
2009, and observing damage and repairs completed as of that date.

ƒ

Testing Hurricane Ike-related expenditures and encumbrances to
determine whether these expenditures were supported and documented.
Auditors also reviewed for indications of waste, fraud, or abuse.

ƒ

Evaluating the reasonableness of the methodologies that the Medical
Branch used to develop business operating loss and cost estimates related
to Hurricane Ike.

ƒ

Evaluating the Medical Branch’s actual and estimated expenditures for
eligibility for FEMA reimbursement.

ƒ

Examining the Medical Branch’s insurance policies to determine potential
recovery amounts.

Criteria used included:
ƒ

Texas Disaster Recovery Manual, Division of Emergency Management,
Office of the Governor, March 24, 2006.

ƒ

FEMA disaster declarations FEMA-3294-EM and FEMA-1791-DR and
their amendments.

ƒ

Public Assistance Guide, FEMA 322, June 2007.

ƒ

FEMA’s Cost Estimating Format for Large Projects Instructional Guide,
November 1998.

ƒ

Governor Perry’s Emergency Disaster Proclamation and its amendments.

Project Information
Fieldwork for this review was conducted from January 2009 through March
2009. This project was a review; therefore, the information in this report was
not subjected to all the tests and confirmations that would be performed in an
audit. However, the information in this report was subject to certain quality
control procedures to help ensure accuracy.
The following members of the State Auditor’s staff performed the audit:
ƒ

Gregory Scott Adams, MPA, CPA, CGFM (Project Manager)

ƒ

Jennifer Wiederhold, CGAP (Assistant Project Manager)

ƒ

Michael Boehme, CIA, PHR

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 12

ƒ

Tessa Mlynar

ƒ

Anca Pinchas, MSC, MAcy, CPA

ƒ

Kemba Valentine

ƒ

Adam Wright

ƒ

Marlen Randy Kraemer, MBA, CISA, CGAP (Information Systems Audit
Team)

ƒ

Leslie P. Ashton, CPA (Quality Control Reviewer)

ƒ

Ralph McClendon, CCP, CISA, CISSP (Audit Manager)

Attachment
A Review of Expenditures Related to Hurricane Ike at the University of Texas Medical Branch at Galveston
SAO No. 09-034
April 2009
Page 13