NEW ORLEANS - Auditors say the Federal Emergency Management Agency should take back nearly all of $3.5 million in grants approved for a church-run school in coastal Mississippi after Hurricane Katrina, though a school official says it actually received $2.8 million.

The Department of Homeland Security inspector general's office says FEMA lacked adequate policies to prevent an "unaccredited and unlicensed non-public school" from getting federal money.

It says FEMA ignored a conflict of interest when Hope Academy in D'Iberville agreed to pay a company run by the board's chairman nearly $1.5 million for land in Gulfport.

Hope's board chairman, Martin Goldin, says a federal appeals board reviewed the purchase and reported no conflict of interest, but cut that grant to about $500,000.

He says the school was and is accredited and licensed.