a

GAO

United States Government Accountability Office

Report to Congressional Committees

May 2006 DISASTER RELIEF

Reimbursement to 

American Red Cross 

for Hurricanes 

Charley, Frances, Ivan, 

and Jeanne

GAO-06-518
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 2006

DISASTER RELIEF

Reimbursement to American Red Cross 

for Hurricanes Charley, Frances, Ivan, 

and Jeanne 

Highlights of GAO-06-518, a report to 

congressional committees 

In accordance with Public Law 108-

324, GAO is required to audit the

reimbursement of up to $70 million 

of appropriated funds to the 

American Red Cross (Red Cross) 

for disaster relief associated with

2004 hurricanes Charley, Frances, 

Ivan, and Jeanne. The audit was 

performed to determine if (1) the 

Federal Emergency Management 

Agency (FEMA) established 

criteria and defined allowable

expenditures to ensure that

reimbursement claims paid to the 

Red Cross met the purposes of the 

law, (2) reimbursement funds paid

to the Red Cross did not duplicate 

funding by other federal sources, 

(3) reimbursed funds assisted only 

eligible states and territories for 

disaster relief, and 

(4) reimbursement claims were

supported by adequate 

documentation. 

The 2004 hurricane season was one 

of the most destructive in U.S.

history. Fifteen named storms 

resulted in 21 federal disaster

declarations. Four hurricanes 

affecting 19 states and 2 U.S. 

territories from August 13 through 

September 26, 2004, triggered the 

nation’s biggest natural-disaster 

response up to that time. Over 150

deaths and $45 billion of estimated 

property damage are attributed to 

hurricanes Charley, Frances, Ivan, 

and Jeanne in the United States 

alone. Through 2005, these four

storms rank among the seven 

costliest in U.S. history. 

GAO is not making any 

recommendations in this report. 

The signed agreement between FEMA and the Red Cross properly 

established criteria for the Red Cross to be reimbursed for allowable 

expenses for disaster relief, recovery, and emergency services related to 

hurricanes Charley, Frances, Ivan, and Jeanne. The Red Cross incurred 

$88.6 million of allowable expenses. 

Consistent with the law, the agreement explicitly provided that the Red 

Cross would not seek reimbursement for any expenses reimbursed by other 

federal funding sources. GAO identified $0.3 million of FEMA paid costs that 

the Red Cross properly deducted from its reimbursement requests, so as not 

to duplicate funding by other federal sources. The Red Cross also reduced its 

requested reimbursements by $60.2 million to reflect private donations for 

disaster relief for the four hurricanes, for a net reimbursement of 

28.1 million. 

Red Cross expenses were incurred in states and territories eligible for 

disaster relief associated with the four hurricanes in accordance with the 

FEMA/Red Cross agreement. The Red Cross requested reimbursement of 

$28.1 million for the period August 11, 2004, through June 30, 2005, for 

payment from federal appropriated funds under Public Law 108-324. 

After review and some retesting, GAO relied upon audit work conducted by 

the CPA firm of KPMG, LLP, which determined that most Red Cross 

expenses were incurred for eligible disaster services and were supported by

adequate documentation. However, KPMG identified six weaknesses in the 

Red Cross’s internal controls related to expenses incurred for the four 

hurricanes and reported $712,000 of known questioned costs, with which 

Red Cross concurred. The Red Cross also concurred with the content of the 

GAO report. 

Paths of 2004 Hurricanes Charley, Frances, Ivan, and Jeanne 

Source: NOAA.

Charley Frances Ivan Jeanne

Atlantic Ocean

Gulf of

Mexico

North America

=

www.gao.gov/cgi-bin/getrpt?GAO-06-518.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Steven J. 

Sebastian at (202) 512-3406 or 

sebastians@gao.gov. 

Note: For official hurricane tracks, see http://www.nhc.noaa.gov.
Page i GAO-06-518 Red Cross Reimbursement

Contents

Letter 1

Results in Brief 2

Background 5

Scope and Methodology 11

Criteria Were Established for Reimbursement 13

Controls Avoided Duplication of Expenses Reimbursed by Other 

Federal Funds 19

Expenses Were Incurred in Eligible States and Territories 19

Incurred Expenses Were Generally for Eligible Services and Were 

Adequately Supported 23

Agency Comments 31

Appendix

Appendix I: Comments from the American Red Cross 32

Tables Table 1: Red Cross Reported Expenses by State and U.S. 

Territory 22

Table 2: Reported Red Cross Expenses and Reimbursement 

Requests, August 11, 2004, through June 30, 2005 24

Table 3: KPMG Known and Likely Questioned Costs 30

Figures Figure 1: Paths of 2004 Hurricanes Charley, Frances, Ivan, and 

Jeanne 6

Figure 2: Tornadoes Spawned from Hurricanes 8

Figure 3: Red Cross Sheltering Efforts 14

Figure 4: Extensive Damage to Homes Caused by the 

Hurricanes 16

Figure 5: Emergency Response Vehicles Provide Disaster Relief 17

Figure 6: Red Cross Reported Expenses by Hurricane 21
Contents

Page ii GAO-06-518 Red Cross Reimbursement

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reproduce this material separately.

Abbreviations

DHS Department of Homeland Security

DO disbursing order

FEMA Federal Emergency Management Agency

mph miles-per-hour

NCDC National Climate Data Center

NOAA National Oceanic and Atmospheric Administration

OMB Office of Management and Budget
Page 1 GAO-06-518 Red Cross Reimbursement

United States Government Accountability Office

Washington, D.C. 20548

A

May 30, 2006 Letr

The Honorable Christopher Bond

Chairman

The Honorable Patty Murray

Ranking Member

Subcommittee on Transportation, Treasury, the Judiciary, 

Housing and Urban Development, and Related Agencies

Committee on Appropriations

United States Senate

The Honorable Joe Knollenberg

Chairman

The Honorable John W. Olver

Ranking Member

Subcommittee on Transportation, Treasury, and Housing and Urban 

Development, the Judiciary, District of Columbia, and Independent 

Agencies

Committee on Appropriations

House of Representatives

The 2004 hurricane season was one of the most destructive in U.S. history. 

Fifteen named storms resulted in 21 federal disaster declarations. Four 

hurricanes affected 19 states and 2 U.S. territories from August 13 through 

September 29, 2004, which triggered the nation’s largest natural-disaster 

response up to that time. Over 150 deaths1

 and $45 billion2 of estimated 

property damage are attributed to hurricanes Charley, Frances, Ivan, and 

Jeanne in the United States alone. The National Oceanic and Atmospheric 

Administration’s (NOAA) National Weather Service has ranked these four 

storms within the seven costliest hurricanes for property damage in U.S. 

history.3

 

1

 The American Red Cross reported 154 deaths and the National Oceanic and Atmospheric 

Administration, National Climatic Data Center, reported 152 deaths for these four 

hurricanes. 

2

 The insurance industry reported $22 billion in insured claims and estimated another 

$22 billion for uninsured losses. There was also an estimated $1 billion of damages to 

federal government property. 

3

 For hurricane property damage in nominal dollars from 1900 to 2005, Charley is ranked as 

third, Ivan as fourth, Frances as fifth, and Jeanne as seventh. Hurricane Katrina in 2005 

ranked first, Andrew in 1992 as second, and Hugo in 1989 as sixth. 
Page 2 GAO-06-518 Red Cross Reimbursement

The Military Construction Appropriations and Emergency Hurricane 

Supplemental Appropriations Act, 2005 (Public Law 108-324), enacted on 

October 13, 2004, provided up to $70 million of appropriated federal funds 

to reimburse the American Red Cross (Red Cross) for disaster relief, 

recovery expenses, and emergency services associated with the four 2004 

hurricanes. The reimbursement was only to the extent funds were not 

made available for eligible activities by other federal sources. The Office of 

Management and Budget (OMB) designated the Federal Emergency 

Management Agency (FEMA) to administer the appropriated funds. 

The Red Cross, founded by Clara Barton in May 1881, was issued a federal 

charter by an act of the U.S. Congress on January 5, 1905. Initially, its 

primary purpose was to furnish volunteer aid to the sick and wounded of 

the armed forces in time of war and to carry on a system of national and 

international relief in time of peace to mitigate the suffering caused by fire, 

famine, floods, and other great natural calamities. This mission has since 

expanded to help people prevent, prepare for, and respond to emergencies. 

The disaster and emergency relief effort is the flagship program of the Red 

Cross today. 

Public Law 108-324 required that we audit the Red Cross reimbursement. 

Our objectives were to determine whether (1) criteria were established for 

allowable reimbursable Red Cross expenses, (2) reimbursements did not 

duplicate funding by other federal sources, (3) reimbursements were paid 

only for services in states and territories eligible for disaster relief under 

the four hurricanes, and (4) reimbursements were for eligible services and 

supported by adequate documentation. We performed our work in 

accordance with generally accepted government auditing standards.

Results in Brief We found that FEMA and the Red Cross properly established criteria for 

Red Cross reimbursement requests through a signed agreement that 

included allowable categories for disaster relief, recovery, and emergency 

services associated with hurricanes Charley, Frances, Ivan, and Jeanne. 

This agreement also included definitions of eligibility, listed 18 states and 2 

territories where the Red Cross had incurred expenses related to the four 

hurricanes, and established administrative procedures for reimbursement 

requests and payment of appropriated funds.

The FEMA/Red Cross agreement also provided that the Red Cross would 

not seek reimbursement for any expenses reimbursed by other federal 

funding sources. We identified about $0.3 million of transient 
Page 3 GAO-06-518 Red Cross Reimbursement

accommodations and deployment expenses paid by FEMA that were 

properly deducted by the Red Cross from its reimbursement requests, so as 

not to duplicate funding by other federal sources. The Red Cross also 

deducted from the reimbursement requests $60.2 million of private 

donations designated for disaster relief related to the four hurricanes. 

The Red Cross incurred expenses of $88.6 million in states and territories 

eligible for disaster relief under the four hurricanes in accordance with the 

FEMA/Red Cross agreement. Twenty-one federal disaster declarations 

were made by the President and issued by FEMA for the four hurricanes 

that cumulatively covered federal disaster aid to 12 states and 2 territories. 

Federal disaster declarations were also issued for 4 additional states as a 

result of severe flooding caused by these hurricanes. However, the Red 

Cross, as a not-for-profit organization, funded primarily through private 

donations, is not limited by federal disaster declarations and can provide 

emergency assistance where it determines there is a need. As a result, the 

FEMA/Red Cross agreement included some hurricane-associated expenses 

incurred in states that were not covered by federal disaster declarations. 

Arkansas and Texas were used by the Red Cross as staging areas for 

emergency relief aid to the areas affected by the hurricanes, and Maryland 

was affected by flooding as a result of Hurricane Ivan. 

The Red Cross requested reimbursements of $28.1 million related to the 

four 2004 hurricanes for the period August 11, 2004, through June 30, 2005, 

that were included in a schedule of $50.0 million of federal funds from 

other programs operated by the Red Cross. For the fiscal year ended 

June 30, 2005, the Red Cross’s entitywide financial statements and schedule 

of expenditures of federal awards were audited by the public accounting 

firm of KPMG, LLP (KPMG) in accordance with OMB Circular No. A-133, 

Audits of States, Local Governments, and Non-Profit Organizations. So 

as not to duplicate audit effort as provided by the Single Audit Act, as 

amended,4

 we reviewed and tested the audit work of KPMG related to the 

$88.6 million of incurred Red Cross expenses associated with the four 2004 

hurricanes. In its audit, KPMG concluded that Red Cross expenses were 

generally incurred for eligible disaster services and supported by adequate 

documentation. We concurred with that determination. However, KPMG 

identified six weaknesses in the Red Cross’s internal controls related to the 

reimbursement of expenses associated with the four 2004 hurricanes that it 

4

 See 31 U.S.C. Chapter 75.
Page 4 GAO-06-518 Red Cross Reimbursement

considered to be reportable conditions.5 KPMG also considered one of 

these, related to debit cards for client assistance, to be a material 

weakness.6

In its report, KPMG made recommendations to Red Cross to strengthen 

internal controls related to these six reportable conditions, with which the 

Red Cross concurred. The report also identified about $712,000 of known 

questioned costs related to the federal share of the 2004 hurricane 

program. Known questioned costs were primarily caused by a bank 

reporting error of $657,000 on client assistance debit cards and $55,000 of 

missing or incomplete documentation to support incurred expenses. The 

Red Cross subsequently reduced its final request to FEMA for the 2004 

hurricane reimbursement to $28.1 million after adjusting for the amount of 

the bank reporting error. The Department of Health and Human Services, 

which serves as the cognizant federal agency for the Red Cross under the 

Single Audit Act audit process, will review the KPMG report and coordinate 

a management decision for KPMG findings and questioned costs. The 

awarding federal agency has 6 months from receipt of the report to issue 

management’s decision. Corrective action should also be initiated within 6 

months after receiving the audit report and proceed as rapidly as possible. 

We provided a draft copy of this report to the American Red Cross; FEMA; 

and the Department of Homeland Security (DHS), for which FEMA is a 

component agency. The Red Cross stated that it agreed with the report 

contents, including the six weaknesses identified by KPMG, and described 

steps it is taking to remedy the weaknesses in anticipation of the 2006 

Hurricane Season. The full Red Cross response is presented in appendix I. 

FEMA had no comments on the draft report.

5

 Reportable conditions represent significant deficiencies in the design or operation of 

internal control over compliance that, in the auditor’s judgment, could adversely affect the 

organization’s ability to administer a major federal program in accordance with the 

applicable requirements of laws, regulations, contracts, and grants.

6

 A material weakness is a reportable condition in which the design or operation of one or 

more of the internal control components does not reduce to a relatively low level the risk 

that noncompliance with the applicable requirements of laws, regulations, contracts, and 

grants caused by error or fraud that would be material to a major federal program being 

audited may occur and not be detected within a timely period by employees in the normal 

course of performing their assigned functions. 
Page 5 GAO-06-518 Red Cross Reimbursement

Background The terms hurricane and typhoon are regionally specific names for a strong 

tropical cyclone. These storms are referred to as tropical depressions when 

sustained winds are less than 39 miles-per-hour (mph) and are given a name 

as a tropical storm if sustained winds exceed gale force of 39 mph up to 74 

mph. Hurricanes are tropical cyclones with sustained winds that exceed 74 

mph, which circulate counterclockwise about their centers in the Northern 

Hemisphere. The Atlantic hurricane season runs from June 1 through 

November 30 each year. 

On August 13, 2004, the third storm of the 2004 hurricane season, named 

Hurricane Charley, made U.S. landfall as a category 4 hurricane near 

Charlotte Harbor on the Gulf of Mexico side of the Florida peninsula with 

sustained winds of 150 mph.7

 This hurricane was the strongest hurricane to 

hit the United States since the category 5 Hurricane Andrew in 1992. 

Hurricane Charley caused catastrophic wind damage across central 

Florida, with nine tornadoes reported on August 13 in association with the 

hurricane. As indicated in figure 1, the hurricane’s path moved northeast 

across central Florida, with the center passing near Orlando at 86 mph as it 

moved off the northeast coast near Daytona Beach and into the Atlantic 

Ocean.

7

 The Saffir-Simpson Hurricane Scale is a 1-5 rating based upon a hurricane’s present 

intensity of wind speed. A category 1 hurricane has winds of 74 to 95 mph; a category 2 

hurricane has winds of 96 to 110 mph; a category 3 hurricane has winds of 111 to 130 mph; a 

category 4 hurricane has winds of 131 to 155 mph; and a category 5 hurricane has winds 

over 155 mph.
Page 6 GAO-06-518 Red Cross Reimbursement

Figure 1: Paths of 2004 Hurricanes Charley, Frances, Ivan, and Jeanne

Note: For official hurricane tracks, see http://www.nhc.noaa.gov.

Charley then moved north along the South Carolina coast, making U.S. 

landfall again at North Myrtle Beach as a category 1 hurricane with 

sustained winds of 75 mph. The hurricane rapidly weakened to a tropical 

storm over North Carolina as it moved up the Atlantic coast. Hurricane 

Charley created rain, flooding, and seven tornadoes in North Carolina and 

Virginia, including category F1 tornado damage at Kitty Hawk, North 

Carolina.8

 On August 15, Charley merged with a frontal zone in 

southeastern Massachusetts that eventually moved into Canada. Hurricane 

Charley was cited in two federal disaster declarations for Florida and South 

Carolina. It was responsible for 33 U.S. deaths according to the Red Cross 

and 34 U.S. deaths according to NOAA’s National Climate Data Center 

8

 The Fujita Tornado Damage Scale is a 0-5 rating based upon a tornado’s intensity of wind 

speed and resulting damage. A category F1 tornado has estimated winds of 73 to 112 mph 

that cause moderate damage, such as peeling roof surfaces, pushing mobile homes off 

foundations or overturning them, and blowing automobiles off roads. 

Source: NOAA.

G Atlantic Ocean ulf of

Mexico

North America

Charley

Jeanne

Frances

Ivan

=
Page 7 GAO-06-518 Red Cross Reimbursement

(NCDC). The Property Claims Service and the Insurance Information 

Institute, both of which provide insurance damage information, estimated 

damage to insured property that averaged $7.2 billion and an equal amount 

for uninsured damages. With total damage estimated at about $15 billion, 

Charley became the third costliest hurricane in U.S. history through 2005. 

The sixth storm of the 2004 hurricane season, named Hurricane Frances, 

reached peak intensity as a category 4 hurricane with sustained winds of 

144 mph out in the Atlantic Ocean as it passed north of the U.S. Virgin 

Islands on August 31, 2004. Frances was downgraded to a category 2 

hurricane with sustained winds of around 100 mph by the time it made U.S. 

landfall near Sewall’s Point, 35 miles north of West Palm Beach on the east 

coast of Florida on September 5. As indicated in figure 1, Frances moved 

northwest across central Florida and became a tropical storm as it moved 

into the Gulf of Mexico near New Port Richey, Florida, on September 6. 

Later that day it again made U.S. landfall on the Florida panhandle and 

moved west into eastern Alabama and western Georgia. It weakened to a 

tropical depression on September 7, and moved into West Virginia early on 

September 9. Hurricane Frances produced gale force winds as it briefly 

accelerated northeast across New York and into northern New England 

until dissipating over the Gulf of St. Lawrence on September 10.

Frances caused widespread rains and flooding over much of the eastern 

United States and a total of 101 tornadoes were reported in association 

with this hurricane, with 56 occurring in the Carolinas on September 7. 

Hurricane Frances was cited in five federal disaster declarations for 

Florida, Georgia, North Carolina, Pennsylvania, and South Carolina. It was 

responsible for 45 U.S. deaths according to the Red Cross and 38 U.S. 

deaths according to NOAA/NCDC. The American Insurance Services 

Group, an insurance trade association, estimated damage to insured 

property at $4.43 billion and an equal amount for uninsured damages. With 

total damage estimated at $8.9 billion, Frances became the fifth costliest 

hurricane in U.S. history through 2005.

The ninth storm of the 2004 hurricane season, named Hurricane Ivan, 

reached category 5 strength three times in the course of its journey across 

the Atlantic into the Gulf of Mexico, with sustained winds as high as 167 

mph. From September 5 to 12, Ivan caused considerable property damage 

and loss of life primarily in Grenada and Jamaica as it passed through the 

Caribbean Sea. Ivan weakened to a category 3 hurricane with sustained 

winds of 121 mph when it made U.S. landfall just west of Gulf Shores, 

Alabama, on September 16. As indicated in figure 1, Ivan moved across 
Page 8 GAO-06-518 Red Cross Reimbursement

central Alabama where it weakened to a tropical storm and moved 

northeast as far as the Delmarva Peninsula9

 on September 18. However, 

even as a weak tropical storm, Ivan produced considerable rain and 

flooding, spawning 113 tornadoes across the southeastern United States, as 

depicted in figure 2. 

Figure 2: Tornadoes Spawned from Hurricanes

Note: The hurricanes generated numerous tornadoes, such as the one depicted here.

This included two category F2 tornadoes10 in Florida that resulted in five 

deaths, and 61 tornadoes reported on September 17. Ivan then ceased its 

northeast movement and over the next 3 days made a large loop and moved 

southwest along the eastern U.S. coast, crossing Florida back into the Gulf 

9

 The Delmarva Peninsula on the Chesapeake Bay is named for the portion of the three 

states it occupies: Delaware, Maryland, and Virginia. 

10 A category F2 tornado has estimated winds of 113 to 157 mph that cause considerable 

damage, such as tearing roofs off frame houses, demolishing mobile homes, overturning 

boxcars, uprooting large trees, generating objects as missiles, and lifting cars off the ground.

Source: NOAA photo library by Harald Richter.
Page 9 GAO-06-518 Red Cross Reimbursement

of Mexico on September 21. There Ivan completed its loop and became a 

tropical storm, making landfall in southwestern Louisiana on 

September 24. Later that day, it dissipated over the upper Texas coast after 

completing a storm track more than 5,600 miles long. Hurricane Ivan was 

cited in nine federal disaster declarations for Alabama, Florida, Georgia, 

Louisiana, Mississippi, New Jersey, New York, North Carolina, and 

Pennsylvania. It was responsible for 63 U.S. deaths according to the Red 

Cross and 52 U.S. deaths according to NOAA/NCDC. The American 

Insurance Services Group estimated insured property damage at 

$7.1 billion and an equal amount for uninsured damages. With total damage 

estimated at $14.2 billion, Ivan became the fourth costliest hurricane in U.S. 

history through 2005.

The 10th storm of the 2004 hurricane season, named Hurricane Jeanne, was 

a tropical storm as it moved over the U.S. Virgin Islands on September 14, 

2004, and produced heavy rain over Puerto Rico on September 15, with 

sustained winds of 69 mph. Jeanne became a category 1 hurricane over the 

Dominican Republic with sustained winds of 81 mph that resulted in an 

estimated 3,000 deaths in Haiti from torrential rainfall, mudslides, and 

flooding on September 17. Jeanne made U.S. landfall at Port St. Lucie on 

the east coast of Florida, very near where hurricane Frances made U.S. 

landfall on September 5, as a category 3 hurricane with sustained winds of 

121 mph on the morning of September 26.

As indicated in figure 1, Jeanne moved westward across central Florida but 

quickly became a tropical storm by the time it reached Tampa. It further 

weakened to a tropical depression as it moved northward, dumping heavy 

rains across central Georgia and into the Carolinas, Virginia, and the 

Delmarva Peninsula. On September 29, Jeanne merged with a frontal zone 

that dissipated eastward into the Atlantic. Hurricane Jeanne was cited in 

five federal disaster declarations for the U.S. Virgin Islands, Puerto Rico, 

Florida, Virginia, and Delaware. It was responsible for 13 U.S. deaths, 

according to the Red Cross, and 28 U.S. deaths, according to NOAA/NCDC. 

The American Insurance Services Group estimated damage to insured 

property at $3.44 billion and an equal amount for uninsured damages. With 

total damage estimated at $6.9 billion, Jeanne became the seventh costliest 

hurricane in U.S. history through 2005.

The Red Cross activated its preparedness and disaster relief operations 

before hurricane Charley made landfall, and remained on the ground 

providing critical emergency services through the three subsequent 

hurricanes. The Red Cross stated that this effort, through the 2004 
Page 10 GAO-06-518 Red Cross Reimbursement

hurricane season, resulted in the largest hurricane relief operation in its 

123-year history. From mid-August through mid-October 2004, the Red 

Cross reported that it had established over 1,800 shelters that housed 

almost 425,000 people displaced by the hurricanes, provided over 11 

million meals and snacks to hurricane victims and emergency workers, and 

provided more than 149,000 comfort kits and 113,000 cleanup kits. The Red 

Cross stated that this effort involved over 35,000 workers, of whom 90 

percent were volunteers, to set up shelters, provide transportation, support 

the sheltering and feeding effort, and distribute supplies.

As required by statute and regulation, the Red Cross receives an annual 

audit of its consolidated financial statements, including a schedule of 

expenditures of federal awards. The Red Cross is required to have its 

activities, including a complete, itemized report of all receipts and 

expenditures, audited by the Secretary of Defense through the U.S. Army 

Audit Agency pursuant to 36 U.S.C. 300110; Department of Defense 

Directive 1330.5; and Army Regulation 930-5. The Red Cross is also subject 

to the audit requirements of the Single Audit Act11 and OMB Circular No. A133, Audits of States, Local Governments, and Non-Profit Organizations. 

The Red Cross contracted with an independent public accounting firm, 

KPMG, to conduct a financial audit of its consolidated financial statements, 

as well as an audit of its schedule of expenditures of federal awards, for the 

fiscal year ended June 30, 2005. To fulfill its audit responsibilities, avoid 

duplication and unnecessary expense, and make the most efficient use of 

available resources, the U.S. Army Audit Agency reviewed KPMG’s work 

and reports. According to its report of October 21, 2005, the U.S. Army 

Audit Agency found nothing during its review to indicate that KPMG’s 

unqualified opinion on the Red Cross’s 2005 consolidated financial 

statements was inappropriate or could not be relied on. 

For the Red Cross single audit, the Department of Health and Human 

Services serves as the cognizant federal agency on behalf of all 

participating federal agencies under the Single Audit Act audit process. The 

cognizant agency will review the audit report submitted by KPMG, 

determine if additional workpaper review is necessary, and coordinate a 

management decision for KPMG findings and questioned costs. The 

awarding federal agency has 6 months from receipt of the report to assess 

any audit findings and questioned costs and issue management’s decision. 

11 31 U.S.C. Chapter 75.
Page 11 GAO-06-518 Red Cross Reimbursement

Known questioned costs are those specifically identified by the auditor. 

Likely questioned costs are projected based upon an error rate of 

transactions tested. Resolution of questioned costs may be by repayment; 

financial adjustments; or other actions, such as changing procedures.

Scope and 

Methodology

The objectives of our audit were to determine whether (1) FEMA and the 

Red Cross established criteria for allowable reimbursable expenses related 

to hurricanes Charley, Frances, Ivan, and Jeanne; (2) Red Cross 

reimbursements did not duplicate funding paid by other federal programs; 

(3) Red Cross reimbursable claims were paid only for services in states and 

territories declared eligible for disaster relief; and (4) Red Cross 

reimbursable claims were paid only for allowable categories of services 

and support and were supported by adequate documentation.

To determine whether there were established criteria for allowable 

reimbursable Red Cross expenses, we initially reviewed a draft agreement 

between FEMA and the Red Cross in March 2005. This draft agreement 

outlined the operating definitions and the proposed approach for federal 

reimbursement of Red Cross disaster relief, emergency services, and 

recovery expenditures associated with hurricanes Charley, Frances, Ivan, 

and Jeanne. We then participated in a series of meetings with 

representatives of the Red Cross, FEMA, DHS’s Office of Inspector 

General, KPMG, and OMB. The purpose of these meetings was to refine the 

criteria to be consistent with FEMA and Red Cross policies and procedures 

for disaster relief and Public Law 108-324. The final agreement was signed 

by FEMA and Red Cross officials in May 2005. 

To ensure that Red Cross reimbursements did not duplicate funds paid by 

other federal programs, we examined the FEMA and Red Cross agreement 

that provided that the Red Cross would not request reimbursement for any 

expenses paid by other federal funding sources. As the primary federal 

funding source for disaster assistance, FEMA identified any payments it 

had made to the Red Cross and reconciled amounts to reimbursement 

requests to ensure that its federal funds were not duplicated. We reviewed 

this identification and reconciliation process, conducted discussions with 

FEMA and Red Cross officials, and reviewed for indications of other 

federal funding during our audit of Red Cross reimbursement requests.

To determine if Red Cross reimbursable claims were paid only for services 

in states and territories declared eligible for disaster relief, we reconciled 

21 federal disaster declarations for hurricanes Charley, Frances, Ivan, and 
Page 12 GAO-06-518 Red Cross Reimbursement

Jeanne to the FEMA and Red Cross agreement. We also identified states 

where federal disaster declarations were issued as a result of severe 

flooding caused by these four hurricanes. However, the Red Cross, as a notfor-profit organization, is not limited by federal disaster declarations and 

can provide emergency assistance where it determines there is a need. As a 

result, we identified several other states where Red Cross incurred some 

hurricane-associated expenses related to the four hurricanes that were part 

of the FEMA/Red Cross agreement.

To determine whether reimbursable claims were paid only for allowable 

categories of services and support, and whether those claims were 

supported by adequate documentation, we reviewed audit work performed 

by the public accounting firm of KPMG. The Red Cross hired KPMG to 

perform an entitywide audit of its consolidated financial statements, 

including all of its federal awards in accordance with OMB Circular No. A133, Audits of States, Local Governments, and Non-Profit Organizations. 

In order to avoid duplication of audit work, we reviewed KPMG’s Single 

Audit Act audit of the Red Cross for the fiscal year ended June 30, 2005, 

that contained $88.6 million of incurred expenses and $28.1 million of net 

reimbursements to be paid from federal funds that we were mandated to 

audit under Public Law 108-324. We relied on KPMG’s work on the Red 

Cross’s internal controls and tests of transactions, retested 10 percent of 

741 transactions sampled by KPMG, and performed other audit tests as we 

deemed necessary.

We performed our work from March 2005 through March 2006 in 

accordance with generally accepted government auditing standards. We 

suspended our work from October 2005 through February 2006 because 

KPMG was waiting for support from an expanded test of client assistance 

debit cards from Red Cross chapter offices in the Gulf States affected by 

hurricanes Katrina and Rita.

We provided a draft copy of this report to the American Red Cross and to 

FEMA for their review and comment on April 14, 2006, with a follow-up 

copy to DHS on May 11, 2006. We received written comments from Red 

Cross in a letter dated May 1, 2006, which is reprinted in its entirety in 

appendix I of this report. According to DHS, FEMA officials have been 

actively preparing for the 2006 Atlantic Hurricane Season and had no 

comments on the draft report. 
Page 13 GAO-06-518 Red Cross Reimbursement

Criteria Were 

Established for 

Reimbursement

We found that FEMA and the Red Cross had properly established criteria 

for Red Cross reimbursement requests through a May 2005 agreement that 

identified allowable categories for disaster relief, recovery, and emergency 

services associated with hurricanes Charley, Frances, Ivan, and Jeanne. 

This agreement also included definitions of eligibility, listed 18 states and 2 

territories where the Red Cross had incurred expenses associated with the 

four hurricanes, and established administrative procedures for Red Cross 

reimbursement requests and subsequent payment by federal appropriated 

funds. Allowable categories for disaster relief, recovery, and emergency 

services under the May 2005 FEMA/Red Cross agreement consisted of 

(1) mass care, (2) client personal living needs, (3) client housing needs, 

(4) client health needs, (5) direct service delivery support, and 

(6) operational support. These categories are discussed in more detail 

below.

Mass Care Mass care covered relief supplies and services provided for or distributed 

to disaster victims and emergency workers that included food, supplies, 

and expendable equipment to provide mass feeding and shelter operations. 

An example of Red Cross sheltering efforts is depicted in figure 3.
Page 14 GAO-06-518 Red Cross Reimbursement

Figure 3: Red Cross Sheltering Efforts

Note: People sought refuge in shelters established by the Red Cross in response to hurricanes 

Charley, Frances, Ivan, and Jeanne.

Mass care operations included

• clothing, medical and other supplies, and expendable equipment 

intended for bulk distribution or used in mass care activities, such as 

comfort kits, cleanup kits, blankets, lanterns, camp stoves, ice chests, 

and cots; 

• food, water, ice, fuel, and other consumable supplies for bulk 

distribution; 

• shipping and storage for safekeeping of household goods;

• sanitation projects, mass immunization, emergency first aid, and 

supplies used in shelters, first aid stations, service centers, or other Red 

Cross facilities; and

Source: American Red Cross photo by Bonnie Gillespie.
Page 15 GAO-06-518 Red Cross Reimbursement

• food, transportation, and other services provided to emergency 

workers. 

The Red Cross reported that from mid-August through mid-October 2004, it 

had established over 1,800 shelters that housed almost 425,000 people 

displaced by the hurricanes, provided over 11 million meals and snacks to 

hurricane victims and emergency workers,12 and provided more than 

149,000 comfort kits and 113,000 cleanup kits.

Client Personal Living and 

Housing Needs

Client personal living and housing needs covered relief supplies and service 

given to individuals and families to meet immediate living necessities or to 

operate households, such as

• living needs, including food, water, clothing, toilet articles, household 

supplies, laundry and dry cleaning, storage containers, bedding and 

linens, cribs and baby items, and coolers to store food, and

• housing needs, including accommodations in commercial facilities, rent 

and security deposits, utilities, and emergency repairs to make 

residences temporarily habitable. 

The Red Cross reported that more than 330,000 homes were damaged by 

hurricanes Charley, Frances, Ivan, and Jeanne, with more than 27,000 

homes completely destroyed, including the one shown in figure 4. 

12 The Red Cross reported over 16 million meals and snacks provided through December 31, 

2004.
Page 16 GAO-06-518 Red Cross Reimbursement

Figure 4: Extensive Damage to Homes Caused by the Hurricanes

Note: This home near the Alabama coast was destroyed, and the owners lost their business and farm 

as well.

From mid-August through mid-October 2004, the Red Cross stated that it 

had helped more than 73,000 individuals and families in determining their 

needs, developing recovery plans, and providing financial aid. 

Client Health Needs Client health needs covered relief supplies and services provided to 

disaster victims on an individual or family basis to provide for physical and 

mental health benefits, such as 

• medical professional fees;

• hospital, ambulance, X ray, and laboratory charges;

• eyeglasses, dentures, hearing aids, and artificial limbs;

• prescriptions, over-the-counter medication, and first aid supplies;

Source: American Red Cross photo by Bonnie Gillespie
Page 17 GAO-06-518 Red Cross Reimbursement

• special dietary, housing, or mobility devices;

• mental health services;

• blood and blood products; and

• burial or cremation expenses.

From mid-August through mid-October 2004, the Red Cross reported that 

volunteer nurses helped over 46,000 people with physical needs, and 

trained mental health professionals made over 78,000 contacts with people 

in need to begin the recovery process.

Direct Service Delivery 

Support

Direct service delivery support covered expenses associated with the 

delivery of disaster services to disaster victims and workers. Emergency 

response vehicles provided mobile relief sites to distribute hot meals, 

water, and snacks to hurricane victims, as depicted in figure 5.

Figure 5: Emergency Response Vehicles Provide Disaster Relief 

Note: Emergency response vehicles provide meals, water, and snacks to hurricane victims.

Source: American Red Cross photo by Bonnie Gillespie.
Page 18 GAO-06-518 Red Cross Reimbursement

Direct service delivery support included

• salaries, travel, and maintenance of disaster staff assigned to provide 

mass care, family living and housing, and client health services;

• purchase, rental, repair, and service of nonexpendable equipment and 

vehicles used to provide direct services and services in shelters and 

facilities;

• telephone and related communications equipment;

• rent, repair, and operating expenses of facilities used to provide direct 

services;

• shipping, freight, and handling expenses; and

• other miscellaneous expenses.

The Red Cross stated that over 35,000 workers, 90 percent of whom were 

volunteers, were involved in setting up shelters, providing transportation, 

supporting the sheltering and feeding effort, and distributing supplies.

Operational Support Operational support covered expenses of managing and administering a 

disaster relief operation that included

• salaries, travel, and maintenance of disaster staff assigned to functions 

that support direct service to disaster victims and workers such as 

administration, records and reports, accounting, public affairs, logistics, 

training, staffing, local disaster volunteers, communications, computer 

operations, and liaison functions with other entities;

• rental, repair, and service of nonexpendable equipment, computer 

equipment, and vehicles used to provide management and 

administration;

• telephone and related communications equipment for field, district, and 

administrative offices; 

• rent, repair, and operating expenses of facilities used to provide 

management and administration;
Page 19 GAO-06-518 Red Cross Reimbursement

• printing, copy, postage, and delivery expenses; and

• meeting expenses and activity expenses to recognize volunteer efforts.

Controls Avoided 

Duplication of 

Expenses Reimbursed 

by Other Federal 

Funds

Consistent with the law, the May 2005 FEMA/Red Cross agreement 

provided that the Red Cross would not seek reimbursement for any 

expenses reimbursed by other federal funding sources. We identified about 

$0.3 million of FEMA paid transient accommodations and deployment 

costs13 that were properly deducted by the Red Cross from its 

reimbursement requests, so as not to duplicate funding by other federal 

sources. The Red Cross also deducted from the reimbursements 

$60.2 million of private donations designated for disaster relief related to 

the four hurricanes. 

As the primary federal funding source for disaster assistance, FEMA 

established internal controls to identify any payments it made to the Red 

Cross. It subsequently reconciled these amounts to Red Cross requests for 

reimbursement to ensure that amounts were deducted so that federal funds 

were not used to reimburse Red Cross expenses more than once. During 

our audit, we reviewed this identification and reconciliation process and 

conducted discussions with FEMA and Red Cross officials. We did not 

identify any evidence of other federal funding during our audit of the Red 

Cross reimbursements.

Expenses Were 

Incurred in Eligible 

States and Territories

The Red Cross reported $88.6 million of incurred expenses in states and 

territories eligible for disaster relief under the four hurricanes in 

accordance with the FEMA/Red Cross agreement. This included 

$3.1 million for general relief for a call center, FEMA transient 

accommodations, and other recovery expenses not specifically identified 

with any particular one of the four hurricanes. Twenty-one federal disaster 

declarations were made by the President and issued by FEMA for 

hurricanes Charley (2), Frances (5), Ivan (9), and Jeanne (5), which 

cumulatively covered federal disaster aid to 12 states and 2 territories. 

Federal disaster declarations were also issued for four additional states—

13 Costs were incurred under the Department of Homeland Security, National Response 

Plan (2004) for Emergency Support Function Number 6, Mass Care, Housing and Human 

Services Annex, for which Red Cross serves as a primary organization in coordinating the 

use of federal mass care resources in incidents of national significance.
Page 20 GAO-06-518 Red Cross Reimbursement

Ohio, Tennessee, Vermont, and West Virginia—as a result of severe flooding 

caused by these hurricanes.

However, the Red Cross, as a not-for-profit organization funded primarily 

through private donations, is not limited by federal disaster declarations 

and can provide assistance where it determines there is a need. As a result, 

the FEMA/Red Cross agreement included some hurricane-associated 

expenses incurred in Arkansas and Texas that were used by Red Cross as 

staging areas for emergency relief aid to the areas affected by the four 

hurricanes. The agreement also included Red Cross assistance in Maryland, 

which was affected by flooding caused by Hurricane Ivan but was not 

covered by a federal disaster declaration. 

From August 11, 2004, through June 30, 2005, the Red Cross reported 

incurred expenses of $88.6 million in connection with hurricanes Charley, 

Frances, Ivan, and Jeanne. These expenses are presented by hurricane in 

figure 6. 
Page 21 GAO-06-518 Red Cross Reimbursement

Figure 6: Red Cross Reported Expenses by Hurricane

Notes: Red Cross combined expenses for hurricanes Frances and Jeanne of $31,283,711 were 

allocated 57 percent and 43 percent, respectively, based upon FEMA incurred expenses of $1.2 billion 

and $0.9 billion, respectively.

General relief includes call center, other recovery costs, and FEMA funding not specifically identified 

with any particular one of the four hurricanes.

The reported $88.6 million of Red Cross incurred expenses for the four 

hurricanes by state and U.S. territory are presented in table 1. 

Source: GAO analysis of Red Cross reimbursement information.

Hurricane Ivan

$25,537,882

Hurricane Charley

$28,669,281

Hurricane Frances

$17,831,715

3%

General Relief

$3,074,977

Hurricane Jeanne

$13,451,996

15%

20%

29%

33%
Page 22 GAO-06-518 Red Cross Reimbursement

Table 1: Red Cross Reported Expenses by State and U.S. Territory 

Source: GAO analysis of Red Cross reimbursement information.

a

Red Cross combined regional expenses for hurricane Ivan of $20,014,594 were allocated based upon 

assistance cases opened by state: Alabama, 20.64 percent; Florida, 74.88 percent; Georgia, 1.57 

percent; Mississippi, 2.66 percent; and Tennessee, 0.25 percent.

The May 2005 agreement signed by FEMA and the Red Cross identified 18 

states and 2 territories as eligible for reimbursement from the 2004 

hurricane appropriation. The agreement did not include Delaware, which 

was eligible for federal disaster assistance, because the Red Cross stated it 

incurred no expenses in the state. The 12 states and 2 territories presented 

in bold in table 1 were determined to be eligible for federal disaster relief in 

declarations by the President and FEMA that specifically cited hurricanes 

Charley, Frances, Ivan, or Jeanne. Another 4 states—Ohio, Tennessee, 

Vermont, and West Virginia—were declared eligible for federal disaster 

State or territory Reported expenses

Alabamaa $4,346,183

Arkansas 193,942

Floridaa 70,124,454

Delaware 0

Georgiaa 1,383,791

Louisiana 653,402

Maryland 11,109

Mississippia 532,388

New Jersey 58,459

New York 0

North Carolina 1,035,541

Ohio 168,329

Pennsylvania 2,031,663

Puerto Rico 3,272,864

South Carolina 42,823

Tennesseea 50,037

Texas 0

U.S. Virgin Islands 472

Vermont 0

Virginia 2,763

West Virginia 1,582,654

General relief 3,074,977

Total $88,565,851
Page 23 GAO-06-518 Red Cross Reimbursement

relief as a result of severe flooding caused by the four hurricanes, even 

though none of the hurricanes were specifically mentioned in the federal 

disaster declarations.

Arkansas and Texas were not declared eligible for federal disaster relief, 

but the Red Cross stated that it had incurred some staging expenses there, 

although its expenses in Texas were included with its expenses for 

Louisiana. Maryland was not declared eligible for federal disaster relief, but 

the Red Cross provided some assistance there when heavy rains generated 

by hurricane Ivan caused flooding of the Susquehanna River in Port 

Deposit, Maryland, in September 2004. The state of New York expenses 

incurred by the Red Cross were included as general relief, which included a 

centralized call center and other recovery costs not specifically identified 

with any particular one of the four hurricanes.

Incurred Expenses 

Were Generally for 

Eligible Services and 

Were Adequately 

Supported 

The Red Cross’s requested reimbursements of $28.1 million related to the 

four 2004 hurricanes were included in a schedule of $50.0 million of federal 

funds from other programs operated by the Red Cross for the fiscal year 

ended June 30, 2005. Since the Red Cross expends more than $500,000 

annually of federal awards, it is required by the Single Audit Act to obtain 

an annual audit.14 The Red Cross’s entitywide financial statements and a 

schedule of expenditures of federal awards for the fiscal year ended 

June 30, 2005, were audited by the public accounting firm of KPMG in 

accordance with OMB Circular No. A-133, Audits of States, Local 

Governments, and Non-Profit Organizations. In order to not duplicate 

audit efforts, we reviewed and tested the audit work of KPMG related to 

the reported $88.6 million of Red Cross incurred expenses for the four 2004 

hurricanes.

In its Single Audit Act audit, KPMG determined that Red Cross expenses 

were generally incurred for eligible disaster services and supported by 

adequate documentation. We concur with that determination. However, 

KPMG identified six weaknesses in the Red Cross’s internal controls 

related to the reimbursement for the four 2004 hurricanes that it 

considered to be reportable conditions. KPMG also considered one of 

these, related to debit cards for client assistance, to be a material 

weakness. In its report, KPMG made recommendations to the Red Cross to 

14 31 U.S.C. 7502.
Page 24 GAO-06-518 Red Cross Reimbursement

strengthen internal controls related to these six reportable conditions, with 

which the Red Cross concurred.

The report also identified about $712,000 of known questioned costs 

related to the federal share of the 2004 hurricane program identified 

through audit sampling that were caused by (1) a bank reporting error of 

$657,000 on client assistance debit cards and (2) missing or incomplete 

documentation of $55,000 to support incurred expenses. 

The Red Cross Reported 

$88.6 Million of Incurred 

Expenses

The Red Cross reported $88.6 million of incurred expenses related to the 

four 2004 hurricanes for the period August 11, 2004, through June 30, 2005. 

These expenses, less other federal funds and private donations received, 

were submitted to FEMA for reimbursement from federal appropriated 

funds provided under Public Law 108-324, as indicated in table 2.

Table 2: Reported Red Cross Expenses and Reimbursement Requests, August 11, 

2004, through June 30, 2005

Source: GAO analysis of Red Cross reimbursement information.

Expense category Amount

Personal living and housing needs $32,628,820

Mass care, shelter, and feeding 22,110,251

Health services 99,968

Operational support 42,518

Total victim financial assistance by Red Cross $54,881,557

Red Cross expenses

Travel 15,849,991

Equipment 7,532,683

Miscellaneous 7,649,457

Professional fees 1,148,339

Supplies 750,202

Building and occupancy 565,800

Program materials 187,822

Total expenses $88,565,851

Less: Other federal funds -294,266

Less: Private donations -60,161,105

Reimbursement request $28,110,480
Page 25 GAO-06-518 Red Cross Reimbursement

As indicated in table 2, the reported $88.6 million of Red Cross incurred 

expenses were reduced by $0.3 million of other federal funds and 

$60.2 million of private donations that resulted in a net reimbursement 

amount of $28.1 million.

Audit Identified Six 

Reportable Conditions in 

Internal Controls

We reviewed KPMG’s Single Audit Act audit work on the Red Cross’s 

internal controls and tests of transactions, and we retested 10 percent of its 

741 sample transactions of Red Cross expenses related to the four 2004 

hurricanes. We found that we could rely upon the KPMG audit work. In 

conducting its audit, KPMG identified six reportable conditions in internal 

controls, the first of which KPMG also determined to be a material 

weakness. These conditions are discussed in more detail below.

Client Assistance Debit Cards 

Were Missing Support and 

Approval Signatures, Had 

Occasional Loading Errors, and 

Were Not Reconciled

One method used by the Red Cross to provide financial assistance to 

disaster victims is the client assistance card, which is a MasterCard® 

branded debit card with client assistance amounts determined by on-site 

caseworkers. The cards were introduced on a large scale basis for the first 

time during the 2004 hurricane response in Florida. The cards are preferred 

by the Red Cross in part because of their acceptance by merchants, 

reduced paperwork, and the flexibility afforded to disaster clients. An 

internal authorizing approval document (Red Cross Form 1030) is used to 

issue a card to individual clients following initial casework. Individual card 

spending limits are determined by the caseworker’s assessment of the 

client’s immediate needs for housing, food, transportation, and other 

personal expenses, with a current maximum card balance of $5,000. Card 

spending limits can be restored after they are consumed if the caseworker 

determines additional client need exists. Most cards were “cash-enabled,” 

meaning they could be used to withdraw cash from any ATM. To limit 

certain risks of unauthorized card use, specific merchant codes are 

blocked by the card program’s bank administrator in order to prevent the 

card from being used at locations that principally sell goods such as alcohol 

and tobacco and at certain luxury retail outlets.

KPMG conducted a monetary unit statistical sample of 336 transactions on 

334 individual debit cards from a population of about 40,000 debit cards 

that generated $24.0 million of transactions. The Red Cross could not 

locate Form 1030s from local Red Cross chapters to support the debit card 

authorization for 23 of the 334 cards. An additional 17 Form 1030s did not 

have evidence of appropriate Red Cross approval signatures. For an 

additional 3 card transactions that KPMG tested outside the monetary unit 

sample, the Red Cross could not locate documentation to support the 
Page 26 GAO-06-518 Red Cross Reimbursement

transactions. As a result of these exceptions, KPMG identified questioned 

costs of $55,334 because of missing support or approval signatures related 

to these 43 transactions.

Various reports are available to the Red Cross from the bank issuing the 

client assistance debit cards to assist in monitoring the cards. These 

included reports showing amounts “loaded” for the authorized spending 

limit onto new and existing cards each month, as well as spending reports 

detailing amounts, dates, and merchants for all card charges. KPMG 

reported that the Red Cross did not have a procedure in place to reconcile 

the total amounts authorized by the casework process to the amounts 

actually loaded onto the cards. In one case identified in a Red Cross 

internal audit, the amount authorized by supporting casework was $41.26 

but a debit card was erroneously loaded with an authorized limit of 

$4,126.00, all of which was spent. KPMG questioned the excess difference 

of $4,085.

Additionally, while determining the population of client assistance card 

transactions for audit testing, KPMG identified an amount of $657,619 that 

the Red Cross could not initially resolve. This amount was the difference 

between detail amounts reported by the issuing bank based upon card 

transactions and summary amounts the bank reported to the Red Cross for 

the debit card program. The Red Cross used the amounts from the bank 

summary reports to record entries to its general ledger and to recognize 

debit card expenses for the 2004 hurricane program. No reconciliation 

between these two bank reports had been performed by the Red Cross 

following the 2004 hurricane season. The bank investigated the difference 

and discovered that its summary program reports were erroneously 

capturing duplicate cardholder information if a card was assigned to a 

cardholder more than one time. This caused an overstatement in the 

summary of debit card amounts, although the bank’s detail transaction 

reports on cards were correct. As a result of this bank error, KPMG 

identified questioned costs of $657,619. The Red Cross subsequently 

reduced its final request to FEMA for the 2004 hurricane reimbursement to 

$28.1 million after adjusting for the amount of the bank reporting error.

Client Assistance Debit Cards 

Were Not Being Adequately 

Monitored

Client assistance cards were introduced by the Red Cross shortly before 

the 2004 hurricane season. During the season, its Disaster Operations unit 

was responsible for monitoring transactions on client assistance cards 

issued by Red Cross headquarters in Washington, D.C. This unit was to 

review reports showing the amounts loaded onto cards for duplicate names 

and cards as well as for unusual balances. Any questionable transactions 
Page 27 GAO-06-518 Red Cross Reimbursement

were to be referred to the Family Services unit for further investigation. 

However, no standard procedures were developed for monitoring cards 

until May 2005, when a one-page procedure provided examples of 

questionable card activity that should be pursued. This included reviewing 

card usage that exceeded normal authorized dollar limits, investigating 

multiple cards issued to individuals with the same or similar names, and 

spot-checking for other unusual data. This guidance also did not specify 

how identified suspicious transactions will be referred to the compliance 

units within the Red Cross, or require that follow-up or other ultimate 

resolution of questionable card activity be documented.

The frequency and depth of Red Cross monitoring activities was unclear, 

and those activities were not routinely documented as to follow-up and 

resolution of any transactions referred to the Family Services unit. KPMG 

therefore considered this to be a reportable condition, with no questioned 

costs identified.

Disbursing Orders for Client 

Assistance Were Not Always 

Signed or Supported

Another method used by the Red Cross to provide financial assistance to 

disaster clients is the disbursing order (DO). A DO is a hard copy Red Cross 

form prepared by a caseworker that describes the specific goods or 

services to be provided to the disaster client, the name of the merchant to 

provide the goods or services, and the authorized dollar limit of the 

expenditure. The DO is first signed by both the caseworker and the disaster 

client. After providing the described goods or services to the client, the 

merchant submits the DO to the Red Cross for reimbursement. The DO is 

to be signed by both the merchant and the disaster client, who 

acknowledges receipt of the goods or services. 

KPMG judgmentally selected and tested 133 DOs from a population of 

$32.3 million that had been paid to merchants. KPMG found that 6 DOs 

were not signed by either the disaster client or the merchant and did not 

contain sufficient supporting documentation, such as an invoice or 

merchant receipt, which might provide alternative documentation that the 

goods were received by the intended client. KPMG accepted either 

signature as substantiation that the goods were delivered, though Red 

Cross procedure is to obtain both signatures. In addition, for another 2 DOs 

tested, each amount reimbursed to the merchant was equal to the DO’s 

authorized expenditure limit, which was greater than the actual expense 

requested by the merchant. As a result of these exceptions, KPMG 

identified questioned costs of $2,405 because of missing signatures and 

$4 because of excess merchant reimbursement.
Page 28 GAO-06-518 Red Cross Reimbursement

Disbursing Orders for Client 

Assistance Were Not Always 

Reconciled to Merchant 

Reimbursements

From August 2004 through March 2005, the Red Cross negotiated a master 

billing contract with a national retailer. The retailer was to centrally gather 

all DOs honored at its retail locations for reimbursement, and invoice the 

Red Cross for the sum of all such DOs on a monthly basis. Prior to payment 

to the merchant, the Red Cross reconciled the invoices to the underlying 

DOs, based on the information provided by the retailer. Approximately 

$2 million of financial assistance was provided to disaster clients through 

this individual merchant billing arrangement. The contract was 

discontinued in March 2005 after the bulk of client assistance had been 

provided.

During a test of the Red Cross reconciliation process, KPMG could not 

match charges of $85,588 reimbursed to the merchant to any supporting 

DOs. The Red Cross investigated these differences as they were identified 

by KPMG, but was unable to resolve them. These unsupported expenses 

were included in the pool of costs subject to reimbursement and appear to 

be the only unmatched charges under the master billing arrangement based 

on a review of a sample of other monthly invoices and related 

reconciliations. As a result of these unsupported differences, KPMG 

identified questioned costs of $85,588.

Expense Transactions Were 

Sometimes Missing Support

While providing disaster assistance, the Red Cross incurs other expenses 

related to managing the overall response effort, such as those for supplies, 

staff travel, and other logistics expenses. Most of these expenses for largescale disasters are procured and paid for through the Red Cross National 

Shared Services Center, while other expenses may be incurred at the Red 

Cross chapter level and subsequently reimbursed by Red Cross national 

headquarters.

KPMG judgmentally selected and tested 120 expense transactions incurred 

for other than client financial assistance from a population of $32.6 million. 

For 9 transactions primarily related to staff travel and other staff expenses, 

the Red Cross could not find supporting documents. As a result of these 

exceptions, KPMG identified questioned expenses of $21,526 because of 

missing support.

Client Case Files Were 

Sometimes Missing Support to 

Determine Eligibility 

Individuals and families requesting financial assistance are required to 

provide identification showing that they resided within the disasteraffected area at the time the disaster struck. During disaster response 

operations, Red Cross case workers interview affected clients to determine 

their eligibility and assess the type and level of assistance to best meet the 

clients’ need. For each client, a case file is opened, and a Red Cross 
Page 29 GAO-06-518 Red Cross Reimbursement

standard assistance Form 901 is completed by the caseworker to document 

eligibility. The form is then signed by the caseworker to indicate that he or 

she has concluded that the individual or family is eligible for a specified 

level of financial assistance. For the 2004 hurricane season, some, but not 

all, of the case files were entered after the fact into a Red Cross database 

known as the Client Assistance System.

KPMG judgmentally selected and tested 60 case files from the Client 

Assistance System. The Red Cross could not find 7 of the case files, 

although for 3 files, other records were found to corroborate eligibility. For 

2 other case files, there was no evidence of caseworker signature, and for 

another case file there was insufficient information to document eligibility. 

KPMG identified questioned costs of $2,415 because of the 4 missing case 

files and the 1 case file with insufficient documentation.

Known and Likely 

Questioned Costs

Based on its audit testing, KPMG identified about $712,000 of known 

questioned costs and $0.9 million of likely questioned costs related to the 

federal share of the 2004 hurricane program in its Single Audit Act audit of 

the Red Cross through June 30, 2005. These questioned costs are shown by 

reportable condition in table 3.
Page 30 GAO-06-518 Red Cross Reimbursement

Table 3: KPMG Known and Likely Questioned Costs

Source: GAO analysis of KPMG report.

Note: The nonfederal contribution of $60.2 million divided by $88.6 million of total incurred expenses 

results in a 68 percent nonfederal share.

a

After deduction of $657,619 for the reconciliation error that affected the entire federal reimbursement 

share, the remaining known questioned costs of $171,357 were reduced by the 68 percent nonfederal 

share, or $116,523.

b

Total likely questioned costs of $2,893,650 were reduced by the 68 percent nonfederal share, or 

$1,967,682.

In addition to known questioned costs that are specifically identified by the 

auditor, OMB Circular No. A-133 requires the auditor to consider the best 

estimate of total costs questioned (likely questioned costs). Based upon the 

percentage rate of known errors in the statistical monetary unit sample of 

client assistance cards, KPMG projected an error rate to the entire 

population of $24.0 million using a 96 percent confidence level and 

identified total likely questioned costs of about $2.9 million with 32 

percent, or about $926,000, related to the federal share, as indicated in table 

3. However, that projection is a statistical extrapolation and therefore is not 

supported by detailed exceptions within the total population. 

The Red Cross reduced its final request for FEMA reimbursement by the 

amount of the bank reporting error of $657,619, but did not reduce its 

reimbursement request for the other $171,000 of known questioned costs 

that included 32 percent, or about $55,000, related to the federal share. The 

Department of Health and Human Services, which serves as the cognizant 

Reportable 

condition KPMG test

Known 

questioned 

costs

Likely 

questioned 

costs

1 Support for client assistance cards $55,334 $2,893,650

1 Loading of client assistance cards 4,085 N/A

1 Reconciliation of client assistance cards 657,619 N/A

2 Monitoring of client assistance cards 0 N/A

3 Support for disbursing orders 2,409 N/A

4 Reconciliation of disbursing orders 85,588 N/A

5 Support for other expenses 21,526 N/A

6 Support for disaster client eligibility 2,415 N/A

Subtotal Total questioned costs $828,976 $2,893,650

Less amount related to nonfederal 

participation (116,523)a (1,967,682)b

Total Federal share of questioned costs $712,453 $925,968
Page 31 GAO-06-518 Red Cross Reimbursement

federal agency for the Red Cross under the Single Audit Act audit process, 

will review the KPMG report and coordinate a management decision for the 

auditor’s findings and questioned costs. The awarding federal agency has 6 

months from receipt of the report to assess any audit findings and 

questioned costs and issue management’s decision. Corrective action 

should also be initiated within 6 months after receiving the audit report and 

proceed as rapidly as possible.

Agency Comments We received written comments from the American Red Cross Executive 

Vice President and Chief Financial Officer on a draft of this report. The Red 

Cross agreed with the report content, including the six weaknesses 

identified by KPMG, and stated that it is taking steps to strengthen its 

policies, procedures, and practices to remedy these weaknesses. It also 

described steps being taken in anticipation of the 2006 Atlantic Hurricane 

Season, which runs from June 1 through November 1, 2006. We have 

reprinted the American Red Cross comments in their entirety in appendix I. 

FEMA had no comments on the draft report. 

We are sending copies of this report to Senate Committee on Homeland 

Security and Governmental Affairs and the House Committee on 

Government Reform. We are also sending copies of this report to the Under 

Secretary of Emergency Preparedness and Response in the Department of 

Homeland Security responsible for FEMA, the Inspector General for the 

Department of Homeland Security, the Director of OMB, and the Vice 

President of Finance at the American Red Cross. Copies of this report are 

available to other interested parties on request. This report will also be 

available at no charge on GAO’s Web site at http://www.gao.gov.

Should you or your staffs have any questions concerning this report, please 

contact me at (202) 512-3406 or by e-mail at sebastians@gao.gov. Contact 

points for our Offices of Congressional Relations and Public Affairs may be 

found on the last page of this report. Key contributors to this report were 

Roger R. Stoltz, Assistant Director; Patricia A. Summers; and Eric S. Huff.

Steven J. Sebastian

Director

Financial Management and Assurance
Page 32 GAO-06-518 Red Cross Reimbursement

Appendix I

Comments from the American Red Cross AAppenednxidexiIs
Appendix I

Comments from the American Red Cross

Page 33 GAO-06-518 Red Cross Reimbursement
Appendix I

Comments from the American Red Cross

(196067) Page 34 GAO-06-518 Red Cross Reimbursement
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