Wednesday's settlement states that the city falsely claimed a number of Department of Transportation vehicles were damaged by the 2012 storm.
Many of the vehicles had in fact been out of commission long before Sandy.
City officials acknowledged they signed off on the claims without actually inspecting the vehicles.
US Attorney Geoffrey Berman emphasised the government would always "take decisive enforcement action" to protect the Federal Emergency Management Agency's (Fema) money from "fraud, waste and abuse".
"When people lie to Fema about the cause of property damage in order to reap a windfall, it compromises Fema's ability to provide financial assistance to legitimate disaster victims in desperate need."
The New York City Department of Transportation (NYCDOT) had obtained the millions of dollars in Fema funds after claiming 132 vehicles were seriously damaged by the 29 October, 2012 storm.