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FEMA trailers in transit 

AP/Wide World photo
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Chapter 28

FEMA Waste and Fraud

Poor Controls and Decisions in FEMA Spending

Besides overwhelming many government emergency-response capabilities, Hurricane 

Katrina severely aff ected the government’s ability to purchase goods and services 

and properly track and verify its costs when it contracted for them.

It takes money to prepare, respond, and recover from a disaster. As of March 8, 2006, the 

federal government has committed $88 billion to the response, recovery, and rebuilding 

eff orts for Katrina.1

 Unfortunately, not all of this money has been wisely spent. Precious 

taxpayer dollars have been lost to fraud, waste, and abuse.

Th e Committee did not specifi cally include pre- and post-Hurricane Katrina spending by 

FEMA and other federal agencies as part of its investigation. However, almost from the time 

Katrina hit, the Committee was aware of wasteful, and sometimes fraudulent and abusive, 

spending practices and fi scal decision making. Th e Committee carefully followed reports of 

wasteful spending, conducting a number of oversight activities to understand how funds were 

being spent and to encourage measures to prevent wasteful spending. Th e full Committee held 

two hearings on Hurricane Katrina spending by FEMA, and its Federal Financial Management, Government Information, and International Security Subcommittee held another.2

Wasteful Spending: Nothing New

What is particularly troubling about the wasteful practices in the wake of Katrina is the 

similarity to wasteful spending examined by this Committee in a May 18, 2005, hearing, 

“FEMA’s Response to the 2004 Florida Hurricanes: A Disaster for Taxpayers?”3

In the span of just six weeks in August and September 2004, Florida was hit by four powerful hurricanes: Charley, Frances, Ivan, and Jeanne. Parts of Florida suff ered tremendous 

devastation. More than 10 percent of the state’s housing stock was damaged or destroyed by 

the hurricanes, aff ecting more than 700,000 residents. Property damage exceeded $21 billion and 117 Floridians lost their lives. A disaster of this scale required a rapid and substantial response. FEMA distributed more than $2 billion in immediate relief to Floridians as 

they rebuilt their battered state.4

In the wake of these hurricanes, however, it became clear to the Committee that FEMA’s 

provision of assistance was marred by payments for fraudulent claims, wasteful spending, and ineff ective internal and management controls. When scarce resources are wasted, 

fraudulent claims are paid, and safeguards are ignored, there are new victims – the taxpayers. Th en Under Secretary for Emergency Preparedness and Response and Director of 

FEMA, Michael Brown, said:

Among the many challenges we face when responding to disasters, the most diffi cult oft en 

involves balancing the tradeoff between ensuring a timely and eff ective response to those in 

need, and the responsibility to protect the fi scal integrity of the program. It is a classic competing tension between the provision of immediate disaster assistance and administrative 

perfection. As you move closer to one, you move farther away from the other.5

Th e Committee rejects this argument. Saying that government cannot protect taxpayers 

while responding eff ectively to the urgent needs of disaster victims is a false dichotomy.
Chapter 28

578

Subsequent to the May 18, 2005, hearing, the Chairman and the Ranking Member of the 

Committee, Senator Collins and Senator Lieberman, sent a letter to Brown, urging FEMA to 

address some of the serious issues revealed by the 2004 Florida hurricanes.6

 In his response, 

Brown wrote, “FEMA is always seeking to improve upon its successes as well as improve 

upon other practices to best serve our stakeholders.”7

 Th is echoed his statement at the 

hearing that “We take the opportunity aft er every major disaster to review and analyze our 

performance so we can institutionalize best practices, identify issues and concerns, and correct problems, all to face the next disaster better prepared.”8

 Unfortunately, the response to 

Katrina showed that FEMA was still inadequately prepared to exercise good stewardship of 

taxpayer dollars while carrying out its mission of assisting disaster victims.

Hurricane Katrina: Same Story

On February 13, 2006, the Committee held a hearing, “Hurricane Katrina: Waste, Fraud, 

and Abuse Worsen the Disaster.”9

 Like the May 18, 2005, hearing, this one revealed that 

taxpayer dollars intended to help hurricane victims were once again being lost to waste, 

fraud, and abuse.

Th e U.S. Government Accountability Offi ce (GAO) testifi ed about its preliminary review 

of some Hurricane Katrina expenditures, recognizing that it will be many months, and 

perhaps years, before a complete assessment can be conducted. However, GAO concluded 

from its initial work that weak controls in the Individuals and Households Program (IHP) 

that provides temporary help with housing and fi nancial aid for other needs, left FEMA 

vulnerable to waste, fraud, and abuse. 

GAO testifi ed that there were fl aws, including weaknesses or outright failures of controls 

and safeguards, in the process of registering those receiving assistance under the IHP. For 

instance, GAO found that when applying for benefi ts over the Internet, applicants were 

screened by checking for valid Social Security numbers before benefi ts were approved. 

When people applied by telephone, however, FEMA did not perform this screening before 

paying initial IHP benefi ts, which allowed thousands of false and fraudulent applications. 

Of the more than 2.5 million registrations recorded in FEMA’s database, 60 percent (more 

than 1.5 million) were not subject to identity verifi cation because they were submitted via 

the telephone; some of these registrations were found to be fraudulent. 

GAO outlined several other examples of fraud, abuse, or poor management, including the 

following:

• FEMA made expedited-assistance payments to tens of thousands of individuals whose registrations contained false or duplicative information, including 

Social Security numbers that had never been issued, or had been issued to another individual, or to an individual since deceased. It is important to note that 

not all duplicate information was submitted fraudulently. GAO is continuing 

to investigate both payments resulting from individuals intentionally trying to 

defraud the government and those resulting from errors in FEMA’s system or 

registration process.

• GAO found thousands of Social Security numbers that were used on more 

than one registration associated with the same disaster. A Social Security 

number is a unique number assigned to an individual. Because individuals are 

eligible to receive disaster relief only on their primary residence, the same 

Social Security Number should not be used more than once to receive assistance for the same disaster. 
579

FEMA Waste and Fraud

• GAO found that $10 million in duplicate payments were made when 5,000 

registrants received both a debit card and a check worth $2,000 each, when 

they should have received either a debit card or a check.10

Th e Inspector General of the Department of Homeland Security (DHS IG) has conducted 

oversight of Katrina response and recovery activities, and testifi ed about some specifi c examples of wasteful spending by FEMA. One of the most egregious examples presented, 

as discussed more fully below, is the purchase of approximately 25,000 manufactured homes 

that are virtually useless to Katrina victims because FEMA’s own regulations prohibit their 

installation in a fl ood plain. At the time of the hearing, at least 10,000 of these homes were 

sitting unused in Hope, AK.11 Making one bad decision aft er another, FEMA decided to 

make sure that no home had better amenities than others, so they removed some equipment, 

including microwaves and televisions. Th e DHS IG indicated that in the immediate aft ermath of Katrina, decision making was mostly reactive, lacking planning or coordination.12

Another area of waste occurred in temporarily housing evacuees in hotels. As evacuees were 

moved out of shelters, FEMA instructed hotels across the country to allow anyone with a 

driver’s license from the aff ected areas to check in and then send FEMA the bill. Th ere were 

virtually no controls in place. Th e DHS IG found hotels charging for empty rooms, individuals holding multiple rooms, hotel rooms being used as storage units for personal goods, 

individuals staying at resorts, and hotels charging rates above even the “rack rate” (the 

maximum or full price the hotel will charge for the room) – at times costing taxpayers up to 

$400 per night.13

Th e DHS IG indicated that his investigators had seen more waste in contracts than actual 

fraud at that point, but attributed this partly to the fact that FEMA was in the very early 

stages of the major contracting activity. At the time of the February 13, 2006, hearing, DHS 

had reported awarding contracts valued at over $5 billion, with other federal agencies reporting an additional $4.2 billion. Th e DHS IG indicated that the federal Inspectors General 

will continue their oversight activities through the life of these contracts.

As government agencies rushed to meet requirements in the immediate aft ermath of Katrina, they used expedited contracting methods authorized by the Federal Acquisition Regulations. Th e DHS IG found cases in which procurement personnel authorized contractors 

to begin work without a defi nitive statement of work, sometimes on a sole-source basis with 

no attempt to independently estimate costs. Some of the contractors performed the work 

effi ciently and in good faith, but some did not. Under some of the most questionable contracts, the government may have little legal recourse to recoup payments made to contractors who did not perform required work or who overcharged for work they did perform.14

On September 8, 2005, the Department of Justice established the Hurricane Katrina Fraud 

Task Force to deter, investigate, and prosecute hurricane-related fraud in the wake of Hurricane Katrina, stating “Th e message of our collective eff ort is clear: we will not tolerate this 

kind of behavior in our compassionate society. Fraud will not go unpunished.”15 U.S. Attorneys have never before implemented a “zero tolerance” policy with respect to disaster-related assistance and contracting fraud. Th e chair of the Task Force indicated that this policy 

did have an impact. She reported that individuals returned payments to FEMA or requested 

to arrange repayment plans, coincident with publicized arrests for fraud.16
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580

The Odyssey of the Ice

In the immediate aft ermath of a disaster, some of the commodities most in demand include 

water, food, and ice. FEMA’s problems in moving commodities are well known. In the case 

of ice, plenty of movement occurred – but not always to places one would expect.

FEMA ordered 182 million pounds of ice to respond to Hurricane Katrina. Aft er a typical 

hurricane, evacuees soon return to their homes, but may be without electric power for some 

time. Ice helps keep food and medicine cold until power is restored. Aft er Katrina, however, 

hundreds of thousands of evacuees were sent to shelters across the country and did not 

return home for days and weeks aft er the storm. Th us, the household need for ice was much 

lower in some areas than anticipated.17 While there was a severe shortage of ice in some 

aff ected areas, and many hurricane victims who remained in the area did not have access to 

ice,18 in the end FEMA had excess ice and used less than 50 percent of what it had ordered.19

Some of the ice ended up in Portland, ME – 1,600 miles from the disaster area. Th e cost of 

handling and storing the 200-plus truckloads of ice that went to Portland was approximately $275,000.20 More ice went to other distant locations around the country because FEMA 

decided it made more sense to move the ice to cold-storage facilities for use in new disasters 

than to let it melt.21 It is not clear that this was the most cost-eff ective choice, given the lack 

of planning that resulted in trucks being rerouted multiple times, and sometimes sitting idle 

for days, while costs to the government were mounting. 

On September 16, NBC News reported that it had found trucks full of ice in locations such 

as Maryland, Missouri, Georgia, and Tennessee. Some of the trucks had been driving and/or 

sitting idle with their full loads for two weeks. One truck driver reported that he had begun his 

trip in Oshkosh, Wisconsin, traveled to Louisiana, then was sent to Georgia, but was rerouted 

to South Carolina, before being sent to Cumberland, MD.22 NBC News later reported that the 

truck was then sent to Iowa, where the ice was put into cold storage.23 Th e driver reported that 

this cost taxpayers at least an extra $9,000.24 When multiplied by hundreds of truckloads that 

also took circuitous routes to cold storage, the wasted taxpayer dollars begin to add up.

Some of the ice shipped to cold-storage facilities around the country has already been used for 

other disasters. But one truckload ended up at the Reid Park Zoo in Tucson, AZ, to be enjoyed 

by the polar bears and other animals. Th e truck driver who donated the ice to the zoo did so 

aft er traveling through 22 states without delivering a single bag of ice to hurricane victims.25

No-Bid Contracts

FEMA typically has a contingency Individual Assistance Technical Assistance Contract 

(IATAC) in place to assist when disaster strikes. When Katrina hit, FEMA was “competing” 

this contract – bids had been solicited and evaluated, and contract negotiations had begun, 

but the process was not complete, so no competitively awarded IATAC was in place. Faced 

with an overwhelming demand for technical assistance, FEMA contracted with four major 

engineering fi rms to provide technical assistance to the Individual Assistance Program, 

the scope of which included “supporting staging areas for housing units (travel trailers and 

mobile homes), installation of housing units, maintenance and upkeep, site inspections and 

preparations, site restoration, group site design, group site construction, site assessments, 

property and facility management, as well as housing unit deactivation and rehabilitation.”26

One of the contracts was awarded on the basis of competition (Fluor had won, but the contract had not yet been negotiated), and the other three contracts (awarded to Shaw Group, 

Bechtel, and CH2M Hill) were awarded as letter-contracts based on FEMA’s critical need 
FEMA Waste and Fraud

581

for expedited assistance.27 Essentially, these were sole-source contracts. Each had an original 

ceiling value of $100 million, but this was raised to $500 million late in 2005.28 Th e ceiling 

on two of the contracts was raised again in early 2006.29

On October 6, 2005, Acting FEMA Director R. David Paulison pledged in a Committee 

hearing to “compete” the requirements covered by the contracts,30 holding an open competition, as normally required by federal contracting regulations, where all companies can 

compete for the work. It is generally accepted that only through full and open competition 

is the government assured of getting the best price for supplies and services. Th e Committee was disappointed that this was not done. FEMA did compete a subset of the requirements for future work, such as maintenance and deactivation of the travel trailers, but these 

awards were not made until April 2006.31 FEMA decided to allow the four contractors to 

continue work under the sole-source contracts. To respond to future disasters, FEMA offi cials have said the agency intends to competitively award a number of national IATACs 

before the 2006 hurricane season. 

Unusable Manufactured Housing

As part of its Individual Assistance Program, FEMA typically provides travel-trailers to 

house individuals whose homes have been badly damaged or destroyed while they rebuild 

or fi nd alternative housing. When Hurricane Katrina hit and FEMA realized the scope of 

temporary-housing needs, the agency began buying all of the travel trailers it could fi nd. 

Unfortunately, in this buying frenzy, FEMA purchased approximately $900 million worth 

of manufactured homes and modular homes that could not be used because FEMA’s own 

regulations do not allow for these types of homes to be placed in fl ood plains. Further, some 

of the homes purchased did not fi t FEMA’s size standards.32

Th e Committee held a hearing on the manufactured housing in Hope, Arkansas, on April 

21, 2006, and learned more about FEMA’s poor decision making and wasteful spending. 

FEMA purchased 24,967 manufactured homes and 1,295 modular homes in response to the 

need for transitional housing to assist displaced evacuees.33 However, FEMA seemingly had 

no plans for how the homes would be used when the purchases were made. FEMA issued 

a mission assignment to the U.S. Forest Service to set up eight emergency storage sites, including one in Hope, Arkansas.34 To house some of the manufactured and modular homes, 

FEMA leased a staging area at the Hope Municipal Airport at a cost of $25,000 per month

– equivalent to a rent of $300,000 per year. Th e Committee learned that prior to the lease 

with FEMA, the City of Hope had rented the same site to a hay farmer for $5,000 per year.35

As of the April hearing, there were 15,603 manufactured and modular homes as well as 

7,229 travel trailers staged at the eight emergency housing sites. While FEMA was able to 

use some of the homes in other disasters, and had plans to use more, they still had no plan 

for thousands of manufactured and modular homes. Th e Committee learned that FEMA 

had already hired sales staff to sell the homes as surplus property if they are not eventually 

used,36 but typically this type of sale recoups only pennies on the dollar.37 Th e manufactured 

and modular homes purchased represent some of the most serious waste discovered to date.

Conclusion

Th e Committee is not the only organization looking into the fraud, waste, and abuse issues 

related to Katrina. Th e DHS IG, GAO, and other federal Inspectors General are investigating these issues as well. It may well be years before the full scope of taxpayer dollars lost 
Chapter 28

582

to waste, fraud, and abuse is determined, but the preliminary fi ndings should be noted as 

the more expensive recovery and rebuilding phases proceed. New natural or man-made 

disasters are inevitable, but they need not also become fi scal disasters where taxpayer funds 

meant to provide speedy, eff ective relief are lost to fraud, waste, and abuse.

1 Th e White House, “Fact Sheet: Gulf Coast Update: Hurricane Relief, Recovery, and Rebuilding Continues,” press 

release, Mar. 8, 2006. http://www.whitehouse.gov/news/releases/2006/03/20060308-8.html. Accessed on Apr. 21, 2006. 

2 U.S. Senate, Committee on Homeland Security and Governmental Aff airs, hearing on Hurricane Katrina: Waste, Fraud, and 

Abuse Worsen the Disaster, Feb. 13, 2006; U.S. Senate, Committee on Homeland Security and Governmental Aff airs, hearing 

on FEMA’s Manufactured Housing Program: Haste Makes Waste, Apr. 21, 2006; U.S. Senate, Committee on Homeland Security and Governmental Aff airs, Subcommittee on Federal Financial Management, Government Information, and International 

Security, hearing on Katrina and Contracting: Blue Roof, Debris Removal, Travel Trailer Case Studies, Apr. 10, 2006. 

3 U.S. Senate, Committee on Homeland Security and Governmental Aff airs, hearing on FEMA’s Response to the 2004 

Florida Hurricanes: A Disaster for Taxpayers?, May 18, 2005.

4 Written Statement of Sen. Susan M. Collins, for the U.S. Senate, Committee on Homeland Security and Governmental 

Aff airs, hearing on FEMA’s Response to the 2004 Florida Hurricanes: A Disaster for Taxpayers?, May 18, 2005.

5 Written Statement of Michael Brown, then-Director, Federal Emergency Management Agency (FEMA), for the U.S. 

Senate, Committee on Homeland Security and Governmental Aff airs, hearing on FEMA’s Response to the 2004 Florida 

Hurricanes: A Disaster for Taxpayers?, May 18, 2005, pp. 5-6.

6 Senators Susan M. Collins and Joseph I. Lieberman, letter to Michael Brown, July 8, 2005.

7 Michael Brown, letter to Chairman Susan M. Collins and Senator Joseph I. Lieberman, Aug. 4, 2005, p. 1.

8 Written Statement of Brown, Senate Committee hearing, May 18, 2005, p. 7.

9 U.S. Senate, Committee on Homeland Security and Governmental Aff airs, hearing on Hurricane Katrina: Waste, 

Fraud, and Abuse Worsen the Disaster, Feb. 13, 2006.

10 Written statement of Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations, U. S. Government Accountability Offi ce, for the U.S. Senate, Homeland Security and Governmental Aff airs Committee, hearing on 

Hurricane Katrina: Waste, Fraud, and Abuse Worsen the Disaster, Feb. 13, 2006.

11 Written Statement of Richard L. Skinner, Inspector General, U.S. Department of Homeland Security, for the U.S. 

Senate, Homeland Security and Governmental Aff airs Committee, hearing on Hurricane Katrina: Waste, Fraud, and 

Abuse Worsen the Disaster, Feb. 13, 2006, p. 7. 

12 Written Statement of Skinner, Senate Committee hearing, Feb. 13, 2006.

13 U.S. Department of Homeland Security, Offi ce of the Inspector General, briefi ng by Richard L. Skinner, Inspector 

General, U.S. Department of Homeland Security, given to Committee staff , Jan. 31, 2006. 

14 Written Statement of Skinner, Senate Committee hearing, Feb. 13, 2006.

15 Alberto R. Gonzales, “Remarks at the Hurricane Katrina Fraud Task Force Conference,” Oct. 20, 2005. http://www.

usdoj.gov/ag/speeches/2005/ag_speech_0510201.html. Accessed on Apr. 21, 2006. 

16 Written Statement of Alice S. Fisher, Assistant Attorney General, Criminal Division, Chairman, Hurricane Katrina 

Fraud Task Force, U.S. Department of Justice, for the U.S. Senate, Homeland Security and Governmental Aff airs Committee, hearing on Hurricane Katrina: Waste, Fraud, and Abuse Worsen the Disaster, Feb. 13, 2006.

17 “FEMA Responds to Ice Issues,” MSNBC, Oct. 11, 2005. http://www.msnbc.msn.com/id/9665486/from/RL.1. Accessed on Apr. 19, 2006.

18 Matthew Brown, “Th e Ice Trucks Cometh to the Relief of Many; For Th ose in Th eir Homes, the Cubes are 

‘Like Gold’,” New Orleans Times-Picayune, Sept. 6, 2006, p. A06; Arnold Lindsay, “Firms Work to Relieve Scarcity 

of Ice,” Th e Clarion-Ledger, Sept. 2, 2006. http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20050902/

NEWS0110/509020352/1260. Accessed on May 25, 2006. 

19 “FEMA Responds to Ice Issues,” MSNBC, Oct. 11, 2005. http://www.msnbc.msn.com/id/9665486/from/RL.1. Accessed on Apr. 19, 2006.

20 Michael W. Lowder, letter to Senator Susan M. Collins, Nov. 4, 2005, p. 1.

21 “FEMA Responds to Ice Issues,” MSNBC, Oct. 11, 2005. http://www.msnbc.msn.com/id/9665486/from/RL.1. Accessed on Apr. 19, 2006.

22 Lisa Myers and the NBC Investigative Unit, NBC News, “Th e FEMA Ice Follies: How come ice can’t effi ciently reach 

those in need?” Sept. 16, 2005. http://www.msnbc.msn.com/id/9369937/print/1/displaymode/1098. Accessed on Apr. 19, 

2006.

23 Lisa Myers and the NBC Investigative Unit, NBC News, “Th e FEMA Ice Follies Revisited: Agency Opts to store millions of pounds for next disaster,” Oct. 11, 2005. http://www.msnbc.msn.com/id/9665434/print/1/displaymode/1098. 
FEMA Waste and Fraud

583

Accessed on Apr. 19, 2006.

24 Lisa Myers and the NBC Investigative Unit, NBC News, “Th e FEMA Ice Follies: How come ice can’t effi ciently reach 

those in need?” Sept. 16, 2005. http://www.msnbc.msn.com/id/9369937/print/1/displaymode/1098. Accessed on Apr. 19, 

2006.

25 Lisa Myers and the NBC Investigative Unit, NBC News, “Th e FEMA Ice Follies Revisited: Agency Opts to store millions of pounds for next disaster,” Oct. 11, 2005. http://www.msnbc.msn.com/id/9665434/print/1/displaymode/1098. 

Accessed on Apr. 19, 2006.

26 Written Statement of Skinner, Senate Committee hearing, Feb. 13, 2006, p. 12

27 Written Statement of Skinner, Senate Committee hearing, Feb. 13, 2006, p. 12

28 Committee staff interview of Elaine Duke, Chief Procurement Offi cer, U.S. Department of Homeland Security, conducted on Feb. 24, 2006 (untranscribed).

29 Duke interview, Feb. 24, 2006.

30 Testimony of R. David Paulison, Acting Undersecretary of Homeland Security for Emergency Preparedness and 

Response and Acting Director, FEMA, before the U.S. Senate, Committee on Homeland Security and Governmental 

Aff airs, hearing on FEMA Status Report on Recovery Eff orts in the Gulf States, Oct. 6, 2005.

31 U.S. Department of Homeland Security, “FEMA, Small Business Administration Work Together to Award Hurricane 

Katrina Recovery Contracts to Small and Minority-Owned Businesses,” press release, Mar. 31, 2006. http://www.fema.

gov/news/newsrelease.fema?id=24682. Accessed on May 9, 2006.

32 Skinner, Senate Committee hearing, Feb. 13, 2006.

33 Testimony of Richard L. Skinner, Inspector General, U.S. Department of Homeland Security, before the U.S. Senate, 

Committee on Homeland Security and Governmental Aff airs, hearing on FEMA’s Manufactured Housing Program: 

Haste Makes Waste, Apr. 21, 2006.

34 Skinner, Senate Committee hearing, Apr. 21, 2006.

35 Committee staff interview of Mayor Dennis Ramsey, City of Hope, AR, conducted on Apr. 6, 2006 (untranscribed); 

Andy Davis, “Hope Airport to See 5,000 Homes Go, Rest Stay: FEMA Has Long-Term Emergency Supply Plans for Site,” 

Arkansas Democrat-Gazette, Mar. 22, 2006. Accessed on LexisNexis.

36 Written Statement of Skinner, Senate Committee hearing, Apr. 21, 2006, p. 5.

37 Skinner, Senate Committee hearing, Feb. 13, 2006.
584