GAO

United States General Accounting Office

Report to the Subcommittee on VA, HUD,

and Independent Agencies, Committee on

Appropriations, U.S. Senate

August 2000 DISASTER RELIEF

FUND

FEMA’s Estimates of

Funding Requirements

Can Be Improved

GAO/RCED-00-182

Page 1 GAO/RCED-00-182 Disaster Relief Fund

United States General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-284058 Letr

August 29, 2000

The Honorable Christopher S. Bond

Chairman

The Honorable Barbara A. Mikulski

Ranking Minority Member

Subcommittee on VA, HUD, and

Independent Agencies

Committee on Appropriations

United States Senate

The Federal Emergency Management Agency’s (FEMA) Disaster Relief

Fund is the major source of federal disaster recovery assistance for state

and local governments when a disaster occurs. The Fund receives an

annual appropriation of up to $320 million. Amounts needed above the base

level generally have been provided as emergency supplemental

appropriations, usually in response to large disasters. The Fund received

about $3.4 billion in regular (nonemergency) appropriations for disaster

relief over the previous 10 years, whereas about $24 billion was provided

through emergency supplemental appropriations. Because appropriations

made to the Fund are available until spent, the Fund usually carries

balances that are obligated as needed for relief or recovery projects. The

balance in the Fund fluctuates continually as funds are obligated.

FEMA is required by the House and Senate Appropriations Committees to

report monthly on the Fund’s status. The reports are intended to enable the

Congress to better monitor the availability of funds and allow for the timely

preparation of requests for supplemental funds. The reports provide a

snapshot of the funds available, obligations to date, remaining costs from

past disasters,1 and the anticipated costs of disasters that might occur in

the remaining months of the fiscal year.

In early 1999, FEMA mistakenly projected that the Fund would have a

carryover of $700 million at the end of fiscal year 1999. A month later,

1

FEMA uses the term “remaining costs” to refer to estimates of the total federal projected

costs anticipated to fully fund a disaster’s damages minus obligations made to date for that

disaster. Because of the time it takes to identify and approve projects, remaining costs may

be outstanding for several years after a disaster occurs.
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FEMA revised its monthly report to indicate that the Fund faced a potential

funding shortfall and that it would run out of money before the end of the

fiscal year. Concerned about whether FEMA is providing the Congress with

accurate and timely information with which to make budget decisions, as

well as about the impact of recent FEMA initiatives to fund projects more

quickly, your Committee mandated that we, among other things, review

how FEMA determines current and future funding requirements for the

Disaster Relief Fund.

As agreed, this report addresses (1) the accuracy and timeliness of FEMA’s

estimates of remaining costs for past disasters, (2) the reasonableness of

FEMA’s approach to estimating the timing and cost of future disasters, and

(3) the impact of FEMA’s initiatives on the rate of obligating disaster relief

funds.

Results in Brief We found problems with both the accuracy and timeliness of the

information FEMA provides monthly to the Congress on estimated

remaining costs for past disasters. FEMA’s headquarters staff relies on data

provided by its regional offices to produce a monthly report to the

Congress on funding requirements for past disasters. However, as of the

end of August 1999, for a third of all past disasters, we found that staff from

headquarters and regional offices disagreed on the amount of funds

obligated to date. Collectively, differences in reported obligations between

headquarters and regional staff totaled nearly $250 million—with

headquarters reporting obligation amounts that were $18 million higher

than the regions reported obligations. Obligation amounts reported by

regional staff were both higher and lower than amounts reported by

headquarters staff, and FEMA officials could not tell us which amounts

were correct. When regional offices questioned the accuracy of the data,

FEMA headquarters staff responsible for reconciling discrepancies initially

failed to determine the cause and make the needed corrections. Instead,

FEMA used the inaccurate data to report on remaining costs for past

disasters. In addition, because of the time needed to assemble and analyze

the data, the information on remaining costs in the monthly report is based

on obligation data that are 4 to 6 weeks old. FEMA officials acknowledge

that data problems exist and have taken steps to correct them. For

example, FEMA is developing a new automated system to estimate

remaining disaster costs on a real-time basis. The new system is projected

to be operational in August 2000.
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FEMA can improve its approach for estimating the timing and cost of

disasters anticipated to occur during the remainder of the current fiscal

year and in the forthcoming fiscal year. We recognize that it is difficult to

estimate the number, severity, and timing of future disasters. However, in

estimating the timing and cost of future disasters, FEMA does not

adequately account for the timing of past disasters. FEMA uses the 5-year

annual average level of obligations for past disasters, adjusted for inflation,

as its estimate of the total cost of disasters anticipated to occur during the

current fiscal year. To estimate when during the year the disasters will

occur, FEMA simply allows the 5-year annual average to decline at a

constant rate (8 percent) each month during the fiscal year. Using this

approach, FEMA estimates that disasters costing about $500 million will

occur in August and September 2000. However, these months represent the

height of the hurricane season, and over the last 5 years, the average cost

for disasters to FEMA has been twice this amount. We believe a better way

of estimating the cost and timing of future disasters would be for FEMA to

use actual monthly data on the estimated total cost of disasters that have

occurred over the last 5 years. This report recommends ways for FEMA to

improve its methods for projecting the timing and cost of future disasters.

FEMA’s recent initiatives designed to expedite the closeout of its funding

activities for past disasters has had a significant impact on FEMA’s rate of

obligating disaster relief funds. In particular, the formation of three teams

of staff from FEMA’s Office of Financial Management, referred to as

“closeout teams,” to facilitate the closure of funding activity for disasters

occurring from fiscal years 1989 through 1997 increased FEMA’s

obligations and recoveries for past disasters considerably. At the end of

September 1997, 419 old disasters, with a projected remaining cost to

FEMA of over $3 billion, remained open. Over the next 2 years, FEMA

closed out its funding activities on 382 of the disasters that had occurred

from 1989 through 1997, obligating $2.9 billion in disaster relief funds. As a

result, the amount that FEMA records as remaining costs for these

disasters was reduced to approximately $296 million. It is less clear what

impact other FEMA initiatives, such as setting goals to provide disaster

funding more quickly, are having on the Fund’s requirements because

sufficient time has not elapsed to measure their effectiveness.

We provided FEMA with a draft of this report for its review and comment.

FEMA acknowledged that data inconsistencies have occurred in reporting

to the Congress on the status of the Disaster Relief Fund. It stated that it is

currently revamping its process for data collection and reporting and will

add controls to ensure that disaster data are updated and reported in a
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timely, accurate, and consistent manner. However, FEMA expressed

concern about three areas of the report that it believes needs further

clarification, including our recommendation aimed at improving how

FEMA projects the timing and cost of future disasters. We modified our

recommendation but did not modify the report in other areas. FEMA also

suggested technical clarifications, which we incorporated into the report as

appropriate.

Background FEMA’s Disaster Relief Fund supports a wide range of programs providing

grants to assist state and local governments and certain private nonprofit

organizations. Its largest funded program, the Public Assistance program,

is intended to help communities repair or replace roads, bridges, utilities,

and public buildings after a disaster occurs. Similarly, its Hazard Mitigation

Grant program assists communities in implementing long-term hazard

mitigation measures, such as the purchase of flood-prone buildings,

following a disaster. The Fund also provides people in disaster areas with

temporary housing assistance and, through its Individual and Family

Grants program, with grants to meet other needs.

While FEMA’s budget for a given fiscal year averages approximately $2.8

billion, the Congress caps the agency’s annual appropriation at $320 million

or at the President’s budget request, whichever is lower.2 The remainder

comes from emergency supplemental appropriations made by the

Congress, as needed to respond to large disasters when they occur. Annual

budget requests are based on current Fund balances and estimates of

funding requirements for past and future disasters. 3 Money is appropriated

to the Fund on a “no-year basis”; that is, the dollars remain available until

expended. It is difficult, however, to determine funding requirements

because of the uncertainties in forecasting the number, magnitude, and

types of disasters that will occur in any year. Once a disaster occurs and the

President officially declares that it is eligible for federal assistance, joint

FEMA and state teams visit the affected communities, survey damaged and

destroyed facilities, determine eligibility, and develop initial estimates of

damage costs. This information makes up the Project Worksheet (formally

2

Public Law 102-229, enacted in 1991, limits FEMA’s regular Disaster Relief Fund

appropriation to $320 million or the President’s budget request, whichever is lower.

3

For more information on federal funding for disasters, see Budgeting for Emergencies:

State Practices and Federal Implications (GAO/AIMD-99-250, Sept. 30, 1999).
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the Damage Survey Report). On the basis of those Project Worksheets,

FEMA obligates funds for approved projects; that is, funds are made

available to the state to begin repair and restoration work. However,

because the time required to identify and approve projects varies (some

require historical and environmental reviews, or the amount of required

funding is in dispute), as does the time required to contract and perform

the needed work, it is difficult to accurately forecast the fiscal years in

which payments will be made for projects related to specific disasters.

FEMA provides monthly reports to the House and Senate Appropriations

Committees on the status of the Fund. These reports contain information

on funds available for the current year, actual obligations to date,

remaining costs for disasters that have occurred to date, an estimate of

funding requirements for these disasters for the remainder of the fiscal

year, a projection of the costs of disasters that might occur in the remaining

months of the fiscal year, and an estimate of funding requirements for the

next fiscal year.

During fiscal years 1998 and 1999, FEMA implemented two program

initiatives that could affect how it estimates budget requirements in the

future. First, FEMA’s Director chartered three closeout teams in November

1997 to expedite the closeout of the agency’s funding activities for past

disasters—many dating back to 1989. The teams are composed of staff

from FEMA’s Office of Financial Management who focus on resolving

program issues and obligating funds for approved projects to close out

work on specific disasters. Second, in 1998, FEMA redesigned its Public

Assistance program to provide money to applicants more quickly and to

simplify the application process. For example, FEMA established a goal to

approve projects and obligate funds under the Public Assistance program

for 90 percent of disasters within 2 years of the date on which they are

officially declared disasters by the President.

FEMA Uses Inaccurate

Data to Compute

Remaining Costs for

Past Disasters

To produce estimates of the Disaster Relief Fund’s current requirements,

FEMA needs accurate information on the remaining costs for past

disasters. FEMA relies on its regional offices for these cost estimates. To

estimate the remaining costs for past disasters, staff from the regional

offices take their estimates of the total projected costs of past disasters and

subtract data provided by FEMA headquarters staff on the obligations to

date. Thus, the accuracy of the regions’ estimates of remaining costs is

dependent on the quality and timeliness of the obligation data FEMA

headquarters provides to the regions. We found that, largely because of a
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mistake in the process FEMA uses to extract data from its Integrated

Financial Management Information System (IFMIS), errors exist in the

obligation data that are provided to the regions. These errors, in turn,

contribute to errors in the regions’ data on remaining costs. In addition,

because of the time needed to complete this process, the cost estimates

produced by the regional offices for FEMA headquarters are based on

obligation data that are as much as 4 to 6 weeks old. These flawed data are

ultimately used by FEMA to prepare its monthly report to the Congress on

the projected obligations for the remainder of the year for past disasters.

FEMA has taken steps to correct the weaknesses identified in its data, such

as the development of a new automated database system to replace its

current system for tracking disaster costs.

FEMA Relies on Its Regional

Offices for Information on

Remaining Costs for Past

Disasters

FEMA relies on its regional offices to periodically update cost information

on past disasters. Consequently, staff in FEMA’s 10 regional offices

maintain a Disaster Financial Status Report on each disaster within their

areas of responsibility to develop this information when it is needed for

budgeting purposes.

Quarterly, FEMA’s headquarters asks regional office staff to update

estimated cost data, by program area, for each disaster in their database of

Disaster Financial Status Reports. To assist the regional offices with the

quarterly update, FEMA’s Office of Financial Management provides each

with a spreadsheet of obligations to date by disaster, extracted from its

IFMIS. IFMIS is FEMA’s official record of the Disaster Relief Fund’s budget,

obligation, and expenditure transactions. This system does not, however,

have the capability to produce standard reports on obligations by disaster

to date by individual programs (e.g., Public Assistance and Hazard

Mitigation Grant programs). Thus, FEMA uses a special process to extract

the obligation to date data from the IFMIS system.

Once updated, the regions forward the spreadsheets of updated cost data

to the Office of Financial Management, where they are consolidated into a

single national database that is subsequently used to develop FEMA’s

budget submissions and monthly reports to the Congress. To allow time for

the regional offices to prepare their quarterly reports, the extraction is

made from 4 to 6 weeks prior to the date of the monthly report. As a result,

regional staff often must forecast a disaster’s total estimated expenditures

based on obligation data that are at least a month old. Compounding this

timing problem, some obligation amounts are inaccurate because of an

error in the process FEMA uses to extract the data from IFMIS and because
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obligation amounts were either missing from or incorrectly recorded in

IFMIS.

During our review of Disaster Financial Status Report data provided by

FEMA, we found that the regions’ obligation amounts often differed from

the obligation amounts reported by IFMIS. Using data submitted for the

August 1999 Disaster Financial Status Report, we found that the regions

identified individual differences in over a third of the disasters, collectively

reaching nearly $250 million nationwide. No pattern in the differences

between the regions’ and headquarters’ obligation amounts was

distinguishable. Some of the differences in obligation amounts reported by

the regions were higher than the amounts provided by headquarters, and

some were lower. Obligations reported by headquarters were $18 million

higher than those reported by regional staff. FEMA officials were unable to

tell us which numbers were correct. According to FEMA officials, several

of the regional offices do not regularly update the data sent to them by

FEMA headquarters. If all of the regional offices updated the data, total

differences would likely have been larger. Although regional offices

questioned the accuracy of the obligation data, headquarters staff

responsible for reconciling data discrepancies initially failed to determine

the cause and make the needed corrections.

The fact that differences exist between regional data and IFMIS data raises

concern about the accuracy of the remaining cost estimates used by the

regions to produce quarterly Disaster Financial Status Reports. Any

difference in the data can contribute to incorrect cost estimates because

the total estimated cost of a disaster equals the obligations to date plus the

amount of the estimated remaining obligations. If the initial obligation

amounts were incorrect, the regional cost estimates FEMA uses to produce

its monthly reports on funding requirements for past disasters would also

be incorrect.

Inaccurate Data Have an

Impact on FEMA’s

Projection of Obligations for

the Remainder of the Fiscal

Year for Past Disasters

FEMA’s approach to projecting obligations for the remainder of the year for

past disasters appears to be reasonable. To produce the projection, FEMA

multiplies its estimate of the remaining costs for past disasters, as of the

beginning of the fiscal year, by an assumed obligation rate to arrive at total

obligations for the fiscal year. Actual obligations to date are then

subtracted from the current year estimate to obtain FEMA’s monthly

projection of obligations for the remainder of the year for past disasters.

Based on our work, we believe that this approach, if used with accurate

estimates of remaining costs for past disasters, would produce reasonable
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estimates of remaining obligations for these disasters. Most importantly,

the obligation rates currently used by FEMA are based on the most recent

data available and, in our opinion, are reasonable. However, in producing

its estimates of remaining obligations for past disasters, FEMA uses

estimates of remaining costs for past disasters that are provided by its

regional offices through its quarterly update process, as already discussed.

Because of the discrepancies in these estimates, the accuracy of FEMA’s

projections of obligations for the remainder of the fiscal year for past

disasters is questionable.

FEMA Is Taking Steps to

Correct the Weaknesses in

the Data Used to Estimate

Funding Requirements for

Past Disasters

FEMA, in researching the errors found during our review, identified two

possible problems. According to FEMA officials, the first involved a

systemic error in the computer program used to extract obligation data

from IFMIS. The second involved errors in the IFMIS database resulting

from obligation amounts that were missing, or incorrectly recorded, in the

system. FEMA is in the process of correcting those problems.

The first problem FEMA officials noted involved projects that ultimately

cost less than the amount FEMA initially approved. FEMA found that if a

state returned the unexpended funds for a particular disaster, the method

FEMA was using to extract data from IFMIS did not recognize and account

for the unexpended funds. According to FEMA officials, the computer

program has since been modified to recognize differences between

obligations and budgeted amounts and to look for the transaction crediting

the budget amount. If the credit transaction is found, the extraction

program deobligates that amount. According to FEMA officials, at the end

of March 2000, FEMA used the new extraction method and found that

collective differences between obligation amounts reported by its 10

regional offices and IFMIS obligation amounts had been reduced to about

$41 million. According to these officials, in April and May 2000,

headquarters staff worked with regional staff to resolve the remaining

differences. By June, FEMA had identified and corrected about $37 million

in errors—leaving a total of about $3 million in differences between the

obligation amounts reported by the regions and headquarters. We did not

independently verify these data. FEMA is continuing to research the

remaining differences.
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According to FEMA officials, of the $41 million in differences between the

regions’ and headquarters’ obligation amounts that existed after the new

extraction method was employed, about $36 million, or 90 percent, was due

to data errors in IFMIS.4 According to FEMA, for various reasons, valid

obligation amounts were either not recorded or were incorrectly recorded

in IFMIS. For example, FEMA officials stated that while researching the

cause of the differences between the regions’ and headquarters’ obligation

amounts, they found that some refunded payments were not recorded in

the IFMIS database. These involved cases in which states had made refund

payments directly to FEMA. When FEMA converted from its previous

financial system to the current system (IFMIS), the regional office staff

manually reconciled all data between the two systems as well as the system

FEMA uses for tracking the transfer of disaster funds to the states. Any

unmatched, and therefore unsupported, transactions were removed from

the IFMIS database.5 In researching the errors identified in our review,

FEMA staff determined that the removed transactions were actually valid

credit transactions representing state refunds submitted directly to FEMA,

thus bypassing the electronic funds transfer system. According to a FEMA

Office of Financial Management official, a review of the records in question

revealed that, at most, $1.4 million in transactions, covering disasters that

occurred between 1989 and 1996, was missing from the IFMIS database.

FEMA is in the process of verifying and reinstating the removed

transactions.

In an effort to develop more timely and accurate cost estimates for

disasters, FEMA is developing a new database system to replace its current

system for tracking disaster costs. The new system comprises individual

database tables for the Public Assistance, Individual and Family Grants,

and Hazard Mitigation Grant programs. The new system is expected to

provide complete cost information for a disaster. To ensure data integrity,

the new system is expected to restrict access to only those program

officials who are in the region where a disaster is managed and who have

responsibility in the program area. FEMA plans to have the new automated

4

According to FEMA’s Office of Inspector General, the $36 million would not materially

affect FEMA’s financial statements because the net change to IFMIS from correcting the

errors was about $490,000—some errors were higher and some were lower than the amount

that should have originally been recorded.

5

In reconciling the data, the staff found transactions in IFMIS that were not recorded in the

system FEMA uses to electronically transfer funds to the states (i.e., the “Smartlink”

system). The Department of Health and Human Services operates this system.
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monthly Disaster Financial Status Report system—in combination with the

new data extraction method—operational beginning in August 2000.

Improvements Are

Needed in the

Approach FEMA Uses

to Estimate the Timing

and Cost of Future

Disasters

Improvements are needed in the methodology FEMA uses to estimate the

timing and costs of future disasters. In its monthly report on the status of

the Fund, FEMA includes an estimate of the total costs of disasters

anticipated in the current and forthcoming fiscal year.6 Beginning with its

first monthly report in the fiscal year, FEMA allows the estimate of the total

cost of new disasters to decline each month by a constant rate—about 8

percent. This approach results in a constant decline over the course of the

year in the estimated costs for new disasters. However, August and

September represent the height of the hurricane season, and for the past 5

years, these months have been the most costly months, on average, for

FEMA. As a result, FEMA’s method for distributing costs for future

disasters does not adequately account for the timing and severity of

disasters.

Figure 1 compares, in 1999 constant dollars, the 5-year average cost of

disasters (from the month the disaster was declared to the end of the fiscal

year) with FEMA’s estimate of the cost of disasters to be declared during

the remainder of fiscal year 2000. As shown, FEMA’s estimate of the costs

of disasters to be declared from December 1999 through the end of fiscal

year 2000—representing the period covered by FEMA’s first monthly status

report for the fiscal year—is about $100 million higher than the 5-year

average. Both the 5-year historical average and FEMA’s estimate decline

over time because there is less time left in the year for disasters to occur.

However, beginning with the March 31, 2000, report, FEMA’s 8-percent rate

of decline causes its estimate of the cost of future disasters to become

increasingly lower than the 5-year average. This result is due to the fact that

FEMA’s approach fails to account for the historically high costs of disasters

occurring in the last quarter of the fiscal year. At the end of July, FEMA

estimates that disasters costing about $500 million will be declared during

August and September. However, the 5-year average cost for disasters

declared during this period is about $1 billion—twice as large as FEMA’s

estimate.

6

This estimate is based on the Disaster Relief Fund’s 5-year average level of obligations

(excluding the Northridge, California, earthquake), adjusted for inflation—$2.991 billion for

fiscal year 2000.
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Figure 1: Comparison of FEMA’s Estimates of the Costs of Disasters Declared

During Fiscal Year 2000 With the 5-Year Historical Costs for Disasters—From the

Month of the Declaration to the End of the Fiscal Year

Sources: GAO’s analysis of FEMA’s data on estimated total costs, as of January 31, 2000, for

disasters declared from fiscal year 1995 through fiscal year 1999 and FEMA’s monthly report on the

Disaster Relief Fund.

We believe a more accurate way to estimate the costs of future disasters

would be for FEMA to base its estimate on the inflation-adjusted 5-year

estimated average costs of disasters—as presented in figure 1. For each

monthly report to the Congress, FEMA could calculate the 5-year average

cost of disasters for the remaining months of the fiscal year. FEMA could

then estimate the required amount of funding for the remainder of the fiscal

year by simply multiplying the 5-year average by the assumed spend-out

rate for the remainder of the fiscal year.

1999 dollars in millions

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Oct-Sep

Nov-Sep

Dec-Sep

Jan-Sep

Feb-Sep

Mar-Sep

Apr-Sep

May-Sep

Jun-Sep

Jul-Sep

Aug-Sep

Sep

Given month to end of fiscal year

5-year average

FEMA’s FY 2000 estimates
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Recent FEMA

Initiatives Have Had

Considerable Impact

on FEMA’s Rate of

Obligating Disaster

Relief Funds

In early 1999, FEMA discovered that its rate of obligating disaster relief

funds had increased dramatically. According to FEMA officials, much of

the increase in the rate of obligations was the result of the FEMA Director’s

recent emphasis on expediting the closure of disasters,7 particularly older

disasters. FEMA officials also cited other recently implemented program

initiatives intended to identify and fund projects faster than in the past—

such as a more efficient grant delivery process—as another factor

contributing to the increase in the obligation rate. It is less clear, however,

what effect these more recent changes are having on FEMA’s obligation

rate because sufficient time has not elapsed to quantify their impact.

Closeout Teams Have Had

the Greatest Impact on the

Fund’s Obligation Rate

In November 1997, FEMA’s Director chartered three teams of Office of

Financial Management staff, referred to as closeout teams, and directed

them to assist FEMA regional office staff and state emergency management

personnel in closing out funding activities for all past disasters.8 The three

closeout teams focused on disasters that had remaining costs for public

assistance and hazard mitigation because projects under these programs

often require longer planning and approval periods. Primarily, the teams

collected grant information from the states and assembled the

documentation needed to facilitate the projects’ closure. According to a

FEMA Inspector General report, the teams focused on resolving longstanding issues and obligating funds for approved projects, thus reducing

the amount reported as remaining costs.9

The closeout teams, which were fully operational in January 1998,

originally focused on disasters declared between fiscal years 1989 and

1994. After completing the closeout of these disasters, the teams were

directed to assist in the closeout of disasters declared between 1995 and

1997. Their primary goal was to eliminate all remaining costs for these

disasters by the end of fiscal year 1999 by obligating or recovering the

funds. A total of 533 disasters were declared in fiscal years 1989 through

7

A disaster is considered “closed” when all of the funds for the disaster have been obligated,

thus reducing remaining costs to zero.

8

Originally there were three closeout teams (Eastern, Central, and Western) whose

“territories” were defined by regional boundaries. However, because of its reduced

workload, the Central Territorial Closeout team was disbanded in May 1999 and the Eastern

and Western Teams absorbed its workload.

9

Review of the Territorial Closeout Teams, FEMA OIG, Audit Report H-02-00 (Dec. 22, 1999).
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1997. When the teams began their work, almost 80 percent (419) of these

disasters remained “open,” representing over $3 billion in estimated

remaining costs. Although the closeout teams did not completely achieve

their goal of closing out all of the disasters, 382 of the 419 disasters were

closed by September 1999, representing 91 percent. This resulted in

reducing the estimated remaining costs for these past disasters by about

$2.9 billion—leaving approximately $296 million in remaining costs.

Another factor contributing to the reduction in the number of open

disasters was FEMA’s February 1999 policy that established separate

decision points for “programmatic disaster closure” and “financial closure.”

Under the new definitions, a disaster is “programmatically closed” when all

decisions on the eligibility and funding of the projects dealing with it have

been agreed on and the estimated costs are equal to the obligations for the

disaster, in other words, when all funds for the disaster have been

obligated. The “financial closure” decision point occurs when all funds are

disbursed and both FEMA and the state have reconciled their costs for the

disaster, which could be several years after the programmatic disaster

closure occurs.

According to FEMA officials, the closeout teams had a considerable impact

on the rate at which FEMA was obligating funds. The rate of obligations for

disasters declared between fiscal years 1989 and 1997 increased from 42

percent in fiscal year 1998 to 71 percent in fiscal year 1999. This increase in

the rate of obligations for past disasters contributed to FEMA’s March 1999

estimate of a potential $900 million shortfall in the Fund by the end of the

fiscal year.

The current appointments for the closeout teams will expire September 26,

2000. FEMA plans to replace the closeout teams with a Chief Financial

Officer’s Field Support Team, which would be operational for 2 years. The

role of this new team would be, among other things, to support the regions

in disaster closeout, Disaster Relief Fund reporting and financial

reconciliation, and disaster grant administration.

Too Early to Determine the

Impact of Other Recent

Program Initiatives

In addition to the establishment of closeout teams, in September 1997,

FEMA set a goal to close out the Public Assistance program for 90 percent

of all disasters within 2 years of their declaration date. Also, FEMA’s

Director approved a redesign of the Public Assistance program in October

1998. The goals of the new Public Assistance program are to obligate 50

percent of emergency work funding within 30 days of the declaration and
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to obligate 80 percent of permanent work funding within 180 days of the

declaration.

According to FEMA officials, these changes have also increased the rate at

which FEMA is obligating funds for new disasters. However, our

examination of available data failed to reveal any noticeable increase in

obligation rates for disasters declared since fiscal year 1996. This may be

due to the fact that sufficient time has not elapsed to measure the effects of

these changes. Over time, FEMA will need to assess the effectiveness of

these programmatic changes and make the necessary changes to ensure

that disasters continue to be closed out in a timely manner.

Conclusions To ensure that FEMA receives adequate resources to respond quickly when

disasters occur, the Congress needs accurate and timely information on the

Disaster Relief Fund’s current requirements and projected needs for future

disasters. We recognize that it is difficult to precisely predict when

disasters will occur or their severity. The methodology FEMA currently

uses to estimate the timing and cost of future disasters tends to

underestimate the cost of disasters that occur late in the fiscal year.

Through better use of historical data, FEMA could provide more

reasonable estimates of the timing and costs of future disasters.

Recommendation To improve the method for projecting the timing and cost of future

disasters, we recommend that the Director of FEMA base FEMA’s estimate

of the costs of disasters to be declared during the current and forthcoming

fiscal year on the inflation-adjusted 5-year average cost of declared

disasters. For each monthly report to the Congress, FEMA should use the 5-

year average cost of disasters, from the date of the report to the end of the

fiscal year, and should present a range of end-of-year balances based on

assumptions about the timing and cost of future disasters.

Agency Comments We provided FEMA with a draft of this report for its review and comment.

FEMA’s comments and our detailed responses are in appendix I. FEMA

acknowledged that some data inconsistencies have occurred in its

reporting to the Congress on the status of the Disaster Relief Fund. FEMA

stated that it is currently taking steps to revamp and streamline its process

for data collection and reporting and will add controls to ensure that

disaster data are updated and reported in a timely, accurate, and consistent
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manner. We support FEMA’s actions taken to improve data accuracy and

commend it for its quick response.

However, FEMA had three primary concerns with the report that it believes

need clarification. First, the agency believes that the report overstates the

magnitude of the data discrepancies and, by inference, the problems with

FEMA’s IFMIS database. Concerning the data discrepancies, FEMA took

issue with our reporting the absolute value of the discrepancies in

obligations, arguing that it is the net amount that affects the monthly

reports to the Congress. This is only true, however, if it is known which

numbers are correct. FEMA could not tell us which numbers were

correct—a fact it acknowledges in its response. Therefore, we believe it is

appropriate to report both sets of numbers, and we did not modify our

report.

Second, FEMA believes that the report implies that there are problems with

the official IFMIS database. We disagree. The report clearly states that the

data discrepancies or errors were due largely to the process FEMA used to

extract data—not the raw data in the IFMIS database.

Finally, FEMA took issue with our recommendation that it base its estimate

of the costs of disasters to be declared during the remaining months of a

fiscal year and the forthcoming fiscal year on the inflation-adjusted 5-year

average cost of declared disasters. We continue to believe that our

recommendation will help FEMA improve how it projects the timing and

cost of future disasters, and we did not revise our recommendation to

reflect this issue. FEMA offered an alternative recommendation that it be

required to present a range of available balances in its monthly report to

the Congress. We agree that it might be prudent to provide a range, as this

approach could better inform congressional budget decision-making, and

we modified a portion of our recommendation accordingly. FEMA also

provided technical clarifications, which we have incorporated into the

report as appropriate.

Scope and

Methodology

To address each of our objectives, we reviewed the appropriate laws and

regulations and FEMA’s policies and procedures. We also interviewed

officials in (1) FEMA’s Office of Financial Management, Response and

Recovery Directorate, and its Office of Inspector General; (2) FEMA’s

Disaster Finance Center in Berryville, Virginia; and (3) FEMA’s regional

office in Denton, Texas.
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To determine how accurate and timely FEMA’s estimates of funding

requirements for past and future disasters are, we (1) examined FEMA’s

methodology for accounting for past and future disasters and (2) analyzed

data from FEMA’s Integrated Financial Management Information System.

We interviewed officials in FEMA’s Office of Financial Management to

discuss their methodology and assumptions used for estimating funding

requirements. We also tested a sample of financial data for several disasters

to determine the accuracy of the obligation data that are ultimately used for

determining fund requirements. We did not, however, conduct a reliability

assessment of FEMA’s Integrated Financial Management Information

System because a recent assessment by FEMA’s Office of Inspector General

highlighted the strengths and weaknesses of the system.10

To determine what impact recent FEMA initiatives have had on the rate of

obligating disaster relief funds, we (1) reviewed summary reports prepared

by each of the closeout teams, (2) interviewed officials assigned to the

closeout teams to ascertain their methodology for assisting in the closeout

of old disasters, and (3) interviewed officials in FEMA’s Office of Financial

Management to identify changes in their assumptions used for determining

Disaster Relief Fund requirements. We reviewed FEMA’s guidance to its

field offices and state emergency management offices concerning recent

programmatic changes. We also obtained and analyzed data on the rate at

which FEMA incurred obligations.

We performed our work from August 1999 through July 2000 in accordance

with generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional

committees; the Honorable James L. Witt, Director of the Federal

Emergency Management Agency; and the Honorable Jacob J. Lew, Director

of the Office of Management and Budget. We will also make copies

available to others upon request.

10Review of FEMA’s Integrated Financial Management Information System (IFMIS), FEMA

OIG, H-10-99 (July 15, 1999) and Management Letter on FEMA’s Fiscal Year 1999 Financial

Statements, FEMA OIG, H-07-00 (June 5, 2000).
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Page 17 GAO/RCED-00-182 Disaster Relief Fund

If you have any questions about this report, please contact Pat Moore or me

at (202) 512-7631. Key contributors to this assignment were Pat Valentine,

Rick Smith, and Thom Barger.

Stanley J. Czerwinski

Associate Director, Housing and

Community Development Issues
Page 18 GAO/RCED-00-182 Disaster Relief Fund

Appendix I

Comments From the Federal Emergency Apendxies

Management Agency ApendxiI

Note: GAO's comments

supplementing those in the

report text appear at the end of

this appendix.
Appendix I

Comments From the Federal Emergency

Management Agency

Page 19 GAO/RCED-00-182 Disaster Relief Fund

Now on pp. 2, 7, 8, and 9.

Now on pp. 2 and 7.

See comment 4.

See comment 1.

Now on p. 9.

See comment 2.

See comment 3.
Appendix I

Comments From the Federal Emergency

Management Agency

Page 20 GAO/RCED-00-182 Disaster Relief Fund

See comment 6.

See comment 6.

See comment 5.

See comment 7.
Appendix I

Comments From the Federal Emergency

Management Agency

Page 21 GAO/RCED-00-182 Disaster Relief Fund
Appendix I

Comments From the Federal Emergency

Management Agency

Page 22 GAO/RCED-00-182 Disaster Relief Fund

GAO's Comments 1. We disagree with FEMA's statement that our report overstates the

magnitude of the data discrepancies we uncovered in the Disaster

Financial Status Reports database. The difference between our views and

FEMA's centers on the significance of reporting collective numbers to

indicate the absolute value (total dollar amount) of differences between

headquarters and regional offices. FEMA questions the significance of this

reporting, stating that collective numbers do not affect the reports to the

Congress. This is true only if the collective numbers are derived from

numbers that are correct. As we stated in our report, FEMA officials could

not tell us which amounts were correct, and the agency acknowledges this.

It is one of the reasons for reporting the collective differences. Another

reason is that we believe that it is important to give some perspective as to

the size of the total differences in obligations—differences that affect a

third of all past disasters and range from as little as $1 to almost $25

million.

As a result of our work, FEMA used a new data extraction technique at the

end of March 2000 to produce a new set of IFMIS obligation amounts, by

disaster. In April of 2000, we requested that FEMA provide us with two

Disaster Financial Status Reports, one using the old extraction method and

a second using the new extraction method. A comparison of obligation

amounts in each of the reports would have provided an indication of how

errors caused by the old extraction method affected the reports to the

Congress. FEMA declined to provide the reports.

2. We disagree with FEMA's statement that a footnote in the draft report

suggests that the reports to the Congress are not materially wrong. The

footnote refers to the $36 million in corrections to obligation errors in

IFMIS that were made after FEMA developed a new method for extracting

data from IFMIS. Once FEMA identified and corrected these errors, it was

determined that the net amount in error did not materially affect FEMA's

financial statements. However, as FEMA acknowledges, the majority of

errors we uncovered were caused by problems that existed in the original

method FEMA used to extract data from IFMIS. As noted above, we have

no way of knowing the total amount of errors caused by the old extraction

method, and FEMA declined to provide us with the information needed to

make this determination.

3. We agree with FEMA that it can be both labor-intensive and timeconsuming to resolve differences in amounts reported by regional and

headquarters staff, especially given the large number of disasters involved.
Appendix I

Comments From the Federal Emergency

Management Agency

Page 23 GAO/RCED-00-182 Disaster Relief Fund

However, FEMA's own guidelines for submission of the quarterly Disaster

Financial Status Report states that regions should work with FEMA's

Office of Financial Management and the respective Territorial Closeout

Office to ensure consistent reporting and to resolve any discrepancies in

data errors. The intent was to resolve the discrepancies in a timely manner.

We found that regional staff repeatedly reported many of these differences

to FEMA's Office of Financial Management, but no action was taken to

resolve them until we inquired about the discrepancies. If FEMA had

followed its guidelines and taken steps to correct the errors when they

were first reported, fewer differences would have been carried over from

prior Disaster Financial Status Reports, and the number of transactions

and records needing research would likely have been smaller.

4. As discussed in the report, we recognize that FEMA is developing a new

system for tracking disaster costs that is intended to reduce or eliminate

the types of discrepancies that occur in the current system.

5. We did not intend to imply, and did not state in our draft report, that there

are problems with standard IFMIS reports. Our report indicates that FEMA

determined in March 2000 that most of the differences in obligation

amounts were attributed to the extraction of data from IFMIS. The report

also discusses the fact that FEMA made $36 million in corrections to IFMIS

that were not, however, related to the extraction process. FEMA identified

the need for these corrections as a result of its use of a new extraction

method.

We disagree with FEMA's statement that “With the exception of the minor

discrepancies which related to refunds from States, which the report

references, the errors identified strictly relate to the previously-employed

logic behind the extraction of data from IFMIS for the DFSR.” As we state

in our report, the problem with the state refunds not being reported in

IFMIS, which totaled $1.4 million, was just one example of errors found in

the IFMIS data. The $36 million in errors in IFMIS—representing

differences between headquarters and regional data—have now been

corrected, according to FEMA.

6. FEMA provides two reasons for why it believes our recommendation for

improving the method for projecting the timing and cost of future disasters

would not necessarily result in better forecasts of the costs of future

disasters. First, FEMA believes that the timing and cost of disasters are so

unpredictable that there is no discernible pattern from year to year.

Second, FEMA believes that it is better to use the 5-year average of annual
Appendix I

Comments From the Federal Emergency

Management Agency

Page 24 GAO/RCED-00-182 Disaster Relief Fund

obligations, as opposed to the 5-year average of projected cost for disasters

as we recommend, because disaster cost data tend to fluctuate in the year

preceding the current one. While we agree that the timing and cost of

natural disasters are unpredictable, historically most hurricanes have

occurred during August and September. FEMA's methodology basically

assumes that no major hurricanes will occur in these months. This

approach does not seem reasonable when one considers that, as FEMA

points out, major hurricanes have occurred during this period in 5 of the

last 11 years and in 3 out of 4 years since 1995. We do not agree, however,

with FEMA's use of the 5-year average of annual obligations to estimate

future disaster costs. While total cost projections stabilize after the first

year, annual obligations are influenced by obligations occurring for

disasters that are as much as 10 years old. In addition, as pointed out in our

report, annual obligations for fiscal years 1998 and 1999 have been

significantly influenced by the recent activities of the closeout teams. The

teams focused on a large backlog of old disasters, which have now been

mostly closed out. However, the effect on FEMA's 5-year average of

obligations will be felt over the next 4 years. It is also important to point

out that FEMA consistently uses disaster cost projection data in producing

its monthly reports to the Congress.

7. We agree that, given the uncertainty about the timing and cost of natural

disasters, it may be prudent for FEMA to provide a range of available endof-year balances in its monthly reports. The balances would be based on

different assumptions about if and when a disaster may occur and how

costly it might be. This approach could better inform congressional budget

decision-making. We modified our recommendation to reflect this issue.

(385815) Letr
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