Measure and place 24-inch interval pencil marks along the bottom of the block wall. These marks represent the center of each stick of lumber that will be placed on the wall. Measure to the right of each mark 1 3/4 inch and place a pencil mark. This mark represents the outside edge of a flat 2-by-4.
Place a 4-foot level on each offset mark and draw a plumb line up the wall 4 feet long. Have a helper hold the end of a chalkline on each offset mark, align the chalkline with the level line, pull the chalkline the full height of the wall and snap the chalkline. Repeat at each offset mark along the wall. When you are done, you should have a pencil mark, indicating the center of a flat 2-by-4 and a chalkline, representing the outside edge of the same 2-by-4.
Place a treated 8-foot 2-by-4 flat on the block wall, aligning the outside edge of the lumber with the chalkline. Drill through the bottom of the lumber, beginning 6 inches from the bottom, with a hammer drill fitted with a 1/4-inch concrete drill bit.
Attach the lumber with a 3/16-inch concrete screw, and make sure that the lumber is still aligned with the chalkline. Drill more holes through the lumber, spacing them 24 inches apart along the remainder of the 2-by-4. Insert screws in the holes, and repeat the process until the block wall is completed.
Cut 1/2-inch rigid insulation to fit between the lumber placed on the wall. Cut the insulation to fit with a razor knife, and slide three pieces into each slot--which equals the thickness of one 2-by-4.
Cover the block walls with green drywall, which is waterproof. Because subgrade block walls remain moist after installation, the green drywall must be used rather than normal gray drywall, which is not waterproof. Place the drywall vertically along the wall, centering it on the lumber strips. Attach the drywall with 1-inch drywall screws.