United States Government Accountability Office

GAO Testimony 

Before the Committee on Homeland 

Security and Governmental Affairs, 

U.S. Senate

HURRICANES KATRINA 

AND RITA DISASTER 

RELIEF 

Prevention Is the Key to 

Minimizing Fraud, Waste, 

and Abuse in Recovery 

Efforts 

Statement of Gregory Kutz, Managing Director

Forensic Audits and Special Investigations 

For Release on Delivery

Expected at 10:00 a.m. EST 

Monday, January 29, 2007 

 

GAO-07-418T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

January 29, 2007

HURRICANES KATRINA AND RITA 

DISASTER RELIEF 

Prevention Is the Key to Minimizing 

Fraud, Waste, and Abuse in Recovery 

Efforts 

Highlights of GAO-07-418T, a testimony 

before the Committee on Homeland 

Security and Governmental Affairs, U.S. 

Senate 

Hurricanes Katrina and Rita

destroyed homes and displaced

millions of individuals. While

federal and state governments 

continue to respond to this 

disaster, GAO has identified 

significant control weaknesses—

specifically in the Federal 

Emergency Management Agency

(FEMA)‘s Individuals and 

Households Program (IHP) and in 

Department of Homeland Security

(DHS)’s purchase card program—

resulting in significant fraud, waste, 

and abuse. In response to the 

numerous recommendations GAO 

made, DHS and FEMA have 

reported on numerous actions 

taken to address our 

recommendations. 

Lessons learned from GAO’s prior 

work can serve as a framework for 

an effective fraud prevention 

system for federal and state 

governments as they consider

spending billions more on disaster

recovery. These lessons are

particularly important because 

funding that is lost to fraud, waste,

and abuse reduces the amount of

money that could be delivered to

victims in need. 

Today’s testimony will 

(1) describe key findings from past 

GAO work and (2) use the results

from that work and GAO’s other 

experiences to discuss the 

importance of an effective fraud, 

waste and abuse prevention

program. 

Prior GAO audit and investigative work on FEMA’s controls over IHP 

payments and DHS’s controls over purchase cards emphasizes one 

fundamental concept—that fraud prevention is the most effective and 

efficient means of minimizing fraud, waste, and abuse. GAO estimates that 

FEMA made about 16 percent or almost $1 billion dollars in improper and 

potentially fraudulent IHP payments to registrants who applied using invalid 

information, illustrating what can happen when fraud prevention controls 

are ineffective. For example, GAO found that FEMA made payments based 

on bogus damaged addresses, false identities, and identities belonging to 

federal and state prisoners. These findings highlight the need for effective 

controls over all types of recovery disbursements. With effective planning, 

relief agencies should not have to make a choice between speedy delivery of 

disaster recovery assistance and effective fraud prevention. Finally, GAO’s 

findings of significant control weaknesses in DHS’s purchase card program 

leading to fraud, waste, and abuse further underline the need for an effective 

framework for fraud prevention, monitoring, and detection as shown below. 

Program Designed to Minimize Fraud, Waste, and Abuse 

Our work on disaster assistance programs in particular show that preventive 

controls should be designed to include, at a minimum, a requirement that 

data used in decision making is validated against other government or thirdparty sources to determine accuracy. Inspections and physical validation 

should also be conducted whenever possible to confirm information prior to 

payment. System edit checks should also be used to identify problems 

before payments are made. Finally, providing training on fraud awareness is

important in stopping fraud before it gets into any type of recovery program. 

Fraud detection and monitoring is also critical, although more costly and 

less effective than preventive controls. Key elements of detection include 

data mining for fraudulent information and performing reviews to establish 

the accountability of property and funds. The final element of a fraud 

prevention program is the collection of identified improper payments and 

the aggressive investigation and prosecution of individuals who commit 

fraud as a preventive measure for future disasters. These elements are most 

costly, and collecting money after it has been disbursed is far less effective 

than up front prevention—FEMA has collected only $7 million of the 

estimated $1 billion in potential improper and fraudulent IHP payments. 

www.gao.gov/cgi-bin/getrpt?GAO-07-418T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gregory Kutz at 

(202) 512-7455 or kutzg@gao.gov. 
Chairman and Members of the Committee: 

Thank you for the opportunity to discuss the fraud prevention lessons 

learned as a result of the fraud, waste, and abuse that occurred as part of 

the overall hurricanes Katrina and Rita recovery efforts. Making landfall in

August 2005, Hurricane Katrina was the costliest hurricane, and one of the 

deadliest, in U.S. history. In May 2006, this committee reported that 

Hurricane Katrina was responsible for over $150 billion in damages and 

over 1,500 deaths, with thousands more reported missing. Hurricane 

Katrina devastated much of the Gulf Coast; the storm surge caused major 

or catastrophic damage along the coastlines of Alabama, Louisiana, and 

Mississippi. About 80 percent of New Orleans was flooded when levees 

protecting the city broke, and ultimately Hurricane Katrina affected 90,000 

square miles. Hurricane Rita caused further devastation, making landfall

on the Gulf Coast in September 2005, causing an estimated $9.4 billion in 

damages and killing seven people. These two hurricanes posed numerous, 

unprecedented challenges for the federal government and state and local

governments in the Gulf Coast region. For example, the Federal 

Emergency Management Agency (FEMA) received far more applications

for housing and “other needs” assistance, and awarded more grant money 

in 2005–2006 for Hurricanes Katrina and Rita than for all of the hurricanes

that resulted in a disaster declaration in 2004 (Ivan, Charley, Frances, and 

Jeanne) and 2003 (Isabel and Claudette) combined.1

The recovery effort in the Gulf Coast region in response to the two 

hurricanes is unprecedented and will, over time, require an even more 

substantial amount of funding. Testimonies we delivered on February 13,

June 14, and December 6, 2006,2

 identified significant fraud, waste, and 

abuse in just one of the programs FEMA uses to provide disaster recovery 

assistance—the Individuals and Households Program (IHP). As of October 

2006, FEMA reported to Congress that it had delivered approximately 

 1

 GAO, Hurricanes Katrina and Rita: Unprecedented Challenges Exposed the Individuals 

and Households Program to Fraud and Abuse; Actions Needed to Reduce Such Problems

in Future, GAO-06-1013 (Washington, D.C.: Sept. 27, 2006). 

2

 GAO, Expedited Assistance for Victims of Hurricanes Katrina and Rita: FEMA’s

Control Weaknesses Exposed the Government to Significant Fraud and Abuse, 

GAO-06-403T (Washington, D.C.: Feb. 13, 2006); GAO, Hurricanes Katrina and Rita

Disaster Relief: Improper and Potentially Fraudulent Individual Assistance Payments 

Estimated to Be Between $600 Million and $1.4 Billion, GAO-06-844T (Washington, D.C.: 

June 14, 2006); GAO, Hurricanes Katrina and Rita Disaster Relief: Continued Findings

of Fraud, Waste, and Abuse, GAO-07-252T (Washington, D.C.: Dec. 6, 2006). 

Page 1 GAO-07-418T 
$7 billion in IHP aid for hurricanes Katrina and Rita. Areas we have 

highlighted related to FEMA’s IHP program included our estimate of $600 

million to $1.4 billion of payments FEMA disbursed based on invalid 

registrations made through February of 2006. These improper and 

potentially fraudulent payments arose from breakdowns in preventive 

controls that failed to identify bogus registrations made using information 

such as invalid Social Security numbers and bogus damaged addresses. 

Numerous other areas of internal control weaknesses resulted in 

additional fraud, waste, and abuse. For example, we have identified 

duplicate claims for hurricanes Katrina and Rita, payments to nonqualified 

aliens, improper use of the government purchase cards, and missing or 

stolen government computers, printers, and other items. Our testimony 

before this committee on July 19, 2006,3 identified additional examples of 

fraud, waste and abuse related to the use of Department of Homeland 

Security (DHS) purchase cards for response and recovery efforts. Based 

on these findings, we have made recommendations to FEMA and DHS to 

develop effective systems and controls to minimize fraud, waste, and 

abuse. In response to our recommendations FEMA and DHS have 

identified numerous actions they have taken to address our 

recommendations, and improve internal controls. 

Crucial internal controls and control weaknesses we identified during our

work on the IHP program, and requirements in the Comptroller General’s

Standards for Internal Control in the Federal Government,4

 are directly 

relatable to controls over disaster recovery assistance efforts. Lessons 

learned from our findings of fraud, waste, and abuse related to Katrina and 

Rita can serve as a lesson for federal and state governments as they 

consider spending substantial sums—estimated to be billions of additional

dollars—on Katrina and Rita recovery efforts and for future disaster 

recovery spending beyond Katrina and Rita. Identifying and adopting these 

lessons are crucial because disaster assistance and recovery funds that is 

lost to fraud, waste, and abuse reduce the amount of money that could be

delivered to alleviate the pain, suffering, and needs of legitimate victims of 

disasters. Further, fiscal challenges facing federal and state governments 

 3

 GAO, Purchase Cards: Control Weaknesses Leave DHS Highly Vulnerable to Fraudulent, 

Improper, and Abusive Activity, GAO-06-957T (Washington, D.C.: July 19, 2006). This 

work was performed jointly with the DHS Office of Inspector General. 

4

 The Federal Managers’ Financial Integrity Act of 1982 (FMFIA) required that GAO issue 

standards for internal control in government resulting in the issuance of Internal Control:

Standards for Internal Control in the Federal Government, GAO/AIMD-98-21.3.1

(Washington, D.C.: Nov. 1999). 

Page 2 GAO-07-418T 
only increase the need for pressure on agencies to best ensure that 

available disaster relief funding is spent as efficiently and effectively as 

possible. My testimony today will (1) summarize the key findings of fraud, 

waste, and abuse from our past work related to hurricanes Katrina and 

Rita recovery efforts and (2) use the results from that work and GAO’s 

other experiences to discuss the importance of an effective fraud, waste, 

and abuse prevention program. 

To address our objectives, we reviewed prior findings from GAO audits of 

hurricane Katrina and Rita relief efforts. We also reviewed applicable

guidance on internal control standards from the Comptroller General’s 

Standards for Internal Controls in the Federal Government.

5

 We 

conducted our audit work in accordance with generally accepted 

government auditing standards and conducted investigative work in 

accordance with standards prescribed by the President’s Council on 

Integrity and Efficiency.

Findings from our prior work on FEMA’s IHP payments and DHS’s 

purchase card program show that fraud, waste, and abuse related to 

hurricanes Katrina and Rita disaster assistance are significant. Due to the

need to provide assistance quickly and expedite purchases, programs 

without effective fraud prevention controls can end up losing millions or 

potentially billions of dollars to fraud, waste, and abuse. For example, for 

the FEMA IHP program alone, we estimate that through February 2006, 

FEMA made about 16 percent, or $1 billion, in improper and potentially 

fraudulent payments to registrants who used invalid information to apply 

for disaster assistance. Subsequent findings showed additional improper 

and potentially fraudulent payments for IHP and acquisitions made using 

DHS purchase cards. 

Summary 

The following are some examples from our work related to the hurricane 

Katrina and Rita recovery efforts that are symptomatic of an ineffective 

fraud, waste, and abuse prevention program. 

• Millions of dollars paid to individuals who used bogus damaged 

property addresses, invalid Social Security numbers, or duplicate 

registrations. 

 5 GAO/AIMD-98-21.3.1.

Page 3 GAO-07-418T 
• Millions of dollars in payments to thousands of registrants who used 

Social Security numbers that had never been issued or belonged to 

deceased individuals. 

• Millions of dollars paid on over 1,000 registrations containing the 

names and Social Security numbers of individuals incarcerated in 

federal or state prisons during the hurricanes. 

• FEMA provided thousands of registrants rental assistance money while 

at the same time providing rent-free housing in hotels, apartments, and 

FEMA trailers. 

• FEMA provided about $20 million dollars in potentially duplicate 

payments to individuals who registered and received assistance twice, 

for both hurricanes Katrina and Rita, using the same Social Security 

number and damaged address. 

• Several million dollars worth of IHP payments were made to ineligible 

nonqualified aliens. 

• Several payments made of fictitious registrations that GAO submitted 

using bogus identities and addresses. 

• A year after DHS used the purchase cards to pay for items intended to 

assist in providing disaster relief, 34 percent of these items could not 

be located and are presumed lost or stolen. 

These examples highlight lessons learned with respect to the importance 

of federal and state governments establishing effective prevention 

programs in order to minimize such fraud, waste, and abuse. An effective 

program would include fraud prevention controls, fraud detection, 

monitoring adherence to controls throughout the entire program life, 

collection of improper payments, and aggressive prosecution of 

individuals committing fraud. These controls are crucial whether dealing 

with programs to provide housing and other needs assistance, or other 

recovery efforts. With effective planning, relief agencies should not have to 

make a choice between speedy delivery of disaster recovery assistance 

and effective fraud prevention. 

The results of audit work on FEMA’s IHP payments and DHS purchase 

card controls serve to emphasize the fundamental concept that fraud 

prevention is the most effective and efficient means to minimize fraud, 

waste, and abuse. Preventive controls should be designed to include, at a 

Page 4 GAO-07-418T 
minimum, a requirement that application data be validated against other 

government or third-party sources to determine whether registrants 

provided accurate information on their identity and place of residence. 

Further, such preventive controls should include physical verification, edit

checks to identify problem registrants and claims (e.g., duplicates) before

payments are made, and training on fraud awareness and potential fraud 

schemes for all key government and contractor personnel. 

Although more costly and less effective than preventive controls, fraud 

detection and monitoring is also a necessary element of an effective 

overall fraud prevention program. Key elements of an effective detection

process include data-mining for fraudulent and suspicious registrants and 

reviews to establish the accountability of property and funds. Our 

investigations into lost or stolen items bought for relief efforts show the

importance of establishing and maintaining accountability over assets 

easily converted to personal use, such as laptop computers. Another 

element of an effective fraud prevention program is the collection of 

identified improper payments and the aggressive investigation and 

prosecution of individuals who committed fraud against the federal 

government. While our evidence shows that collection actions after money 

has gone out the door are far less effective than up front preventive 

controls, the deterrent value of prosecuting those who commit fraud sends 

the message that the government will not tolerate individuals stealing 

assistance money and serves as a preventive measure for future disasters. 

In addition, lessons learned from investigations and prosecutions should 

be used to improve up front fraud prevention controls as well. 

Audit work we performed on FEMA’s IHP payments and DHS’s purchase 

card program identified widespread fraud, waste, and abuse. Findings 

from these audits and our related investigations show the result of 

ineffective preventive controls. As shown by our IHP work, ineffective 

preventive controls can result in hundreds of millions or potentially 

billions of dollars in improper and fraudulent payments. In addition, our 

work on DHS purchase cards showed that control weaknesses in 

government purchasing programs can also result in fraud, waste, and 

abuse. 

Prior Findings of 

Fraud, Waste, and 

Abuse 

Between February and December 2006, we testified on three different 

occasions that potentially improper and fraudulent activities related to the 

Page 5 GAO-07-418T 
IHP program are significant. Our February 2006 testimony6

 focused on 

control weaknesses that resulted in FEMA making thousands of Expedited 

Assistance7

 (EA) payments that were based on bogus registration data. 

Specifically, we found that FEMA made millions of dollars in payments on 

registrations containing Social Security numbers that had never been 

issued or belonged to deceased individuals. In addition, we also found that 

numerous registrations we selected for investigation contained bogus 

damaged address. We also successfully submitted fictitious registrations 

and received payments using bogus identities and addresses. 

Our second testimony in June 20068

 discussed breakdowns in internal 

controls, in particular the lack of controls designed to prevent bogus 

registrations. These breakdowns resulted in an estimated 16 percent or $1 

billion in payments made through February 2006 based on invalid 

registrations. The statistical sample testing used to reach this estimate 

found payments made on registrations that contained invalid identities, 

bogus addresses, addresses which the registrant did not live in at the time 

of the disaster, and duplicate registrations. Our data mining also found 

that FEMA paid millions of dollars on over 1,000 registrations containing 

the names and Social Security numbers of individuals incarcerated in 

federal or state prisons during the hurricanes, and paid millions of dollars 

in IHP payments to individuals who claimed a Post Office box as their 

damaged physical address in order to receive assistance. 

In our December 2006 testimony9 we found additional instances of IHP 

fraud, waste, and abuse, including duplicate housing assistance provided 

to thousands of individuals living in FEMA-provided housing. Specifically 

FEMA paid registrants rental assistance money while at the same time 

providing rent-free housing in apartments and FEMA trailers. We also 

found that FEMA provided about $20 million dollars in potentially 

duplicate payments to individuals who registered and received assistance 

twice using the same Social Security number and damaged address. These 

 6 GAO-06-403T. 

7

 Because of the tremendous devastation caused by hurricanes Katrina and Rita, FEMA 

activated expedited assistance to provide fast track money—in the form of $2,000 in

expedited assistance payments—to eligible disaster victims to help with immediate, 

emergency needs for food, shelter, clothing, and personal necessities. 

8 GAO-06-844T. 

9 GAO-07-252T. 

Page 6 GAO-07-418T 
individuals registered once for Hurricane Katrina and then again for 

Hurricane Rita using the same Social Security number and damaged 

address. FEMA also paid several million more dollars worth of IHP 

payments to registrants who were ineligible nonqualified aliens. Based on 

data we received from several universities in the area, we identified that 

FEMA made IHP payments to more than 500 ineligible foreign students, 

despite receiving, in some cases, evidence clearly showing that they were 

not eligible for IHP benefits. The December 2006 testimony also pointed to

the small amount of money that FEMA had been able to collect from 

improper payments as of November 2006. Specifically, in contrast to the $1

billion in potentially improper and/or fraudulent payments we estimated 

through February 2006, FEMA had detected, as of November 2006, about 

$290 million in improper payments, and had collected only $7 million. 

Our work on DHS purchase card controls found weak accountability over 

FEMA computers, printers, Global Positioning System (GPS) units, and 

other items bought for hurricane relief efforts using government purchase 

cards. Thirty-four percent of items obtained with purchase cards that we 

investigated could not be located and are thus presumed lost or stolen. As 

of October 2006, more than 40 computers, 10 printers, 20 GPS units, and 2 

flat-bottom boats are missing. In addition, 18 other flat-bottom boats 

purchased by FEMA were in its possession, but FEMA did not own title to 

any of them. Based on these findings, and the findings on the IHP program, 

we have made recommendations to FEMA to develop effective systems 

and controls to minimize the opportunity for fraud, waste, and abuse in 

the future. FEMA has generally concurred with most of our 

recommendations and has reported on actions to improve prevention of 

fraud, waste, and abuse for the future. 

The results of our work serve to emphasize the overall lesson learned that 

fraud prevention is the most effective and efficient means to minimize 

fraud, waste, and abuse. It also demonstrates that the establishment of 

effective fraud prevention controls over the registration and payment 

process, fraud detection and monitoring adherence to those controls, and 

the aggressive pursuit and prosecution of individuals committing fraud are 

crucial elements of an effective fraud prevention program over any 

assistance programs with defined eligibility criteria, including disaster 

assistance programs. 

Framework for Fraud 

Prevention, Detection, 

and Prosecution 

The very nature of the government’s need to quickly provide assistance to 

individuals adversely affected by disasters makes assistance payments 

more vulnerable to applicants attempting to obtain benefits that they are 

Page 7 GAO-07-418T 
not entitled to receive. However, it is because of these known 

vulnerabilities that federal and state governments need to have effective 

controls in place to minimize the opportunities for individuals to defraud 

the government. Figure 1 provides an overview of how preventive controls

help to screen out the majority of fraud, waste, and abuse, and how 

detection controls and prosecution can help to further minimize the extent

to which a program is vulnerable to fraud. 

Figure 1: Program Designed to Minimize Fraud, Waste, and Abuse

The Importance of Fraud, 

Waste, and Abuse 

Prevention to Katrina and 

Rita Recovery Efforts 

Preventive controls are a key element on an effective fraud prevention 

program and are also described in the Standards for Internal Control in the 

Federal Government.10 The most crucial element of effective fraud 

prevention controls is a focus on substantially diminishing the opportunity

for fraudulent access into the system through front-end controls. 

Preventive controls should be designed to include, at a minimum, a 

requirement for data validation, system edit controls, and fraud awareness 

training. Finally, prior to implementing any new preventive controls, and 

well in advance of any disaster, agencies must adequately field test the 

new controls to ensure that controls are operating as intended and that 

legitimate victims are not denied benefits. 

Fraud prevention can be achieved by requiring that registrants provide 

information in a uniform format, and validating these data against other 

government or third-party sources to determine whether registrants 

 10 GAO/AIMD-98-21.3.1. 

Page 8 GAO-07-418T 
provided accurate information on their identity and place of residence. 

Effective fraud prevention controls require that agencies enter into datasharing arrangements with organizations to perform validation. In the 

current environment, agencies have at their disposal a large number of 

data sources that they can use to validate the identity and address of 

registrants. However, our work related to FEMA’s management of the IHP

program for hurricanes Katrina and Rita found that its limited—or 

sometimes nonexistent—use of a third-party validation process left 

disaster assistance programs vulnerable to substantial fraud. For example, 

FEMA’s failure to implement preventive controls to validate the identity of

individuals who applied using the telephone resulted in FEMA making 

millions of dollars in payments to individuals who used Social Security 

numbers that had never been issued or belonged to deceased individuals. 

Another method of data validation is through physical inspection of the 

disaster damage prior to payment. While physical inspections in a timely 

manner may not be possible to prevent all fraudulent and improper 

payments, our work found that FEMA continued to make payments 

without a valid physical inspection of our undercover registration’s bogus 

addresses, months after the hurricanes had occurred. 

System edit checks designed to identify problem registrants and claims 

(e.g., duplicates) before payments are made are also a crucial lesson 

learned with respect to ensuring that obviously false or duplicate 

information is not used to receive disaster relief payments. System edit 

checks are most effective if performed before distribution of a payment. 

Edit checks should include ensuring that (1) the same Social Security 

number was not used on multiple registrations and (2) the registrant 

provides a verifiable physical address on which the disaster damage is 

based. In the case of FEMA’s IHP program, ineffective edit checks resulted 

in millions paid to registrants who claimed the same damages twice, once 

for Hurricane Katrina and once for Hurricane Rita, and registrants who 

submitted multiple registrations using the same name, Social Security 

number, or address. Ineffective edit checks also resulted in payments 

being made based on obviously false data, including payments of millions 

of dollars to individuals who used a Post Office box as their damaged 

physical address in order to receive assistance. 

Beyond validation and edits, lessons learned show that other controls, 

including a well-trained work force that is aware of the potential for fraud, 

can help prevent fraud. Fraud awareness training with frontline 

personnel—specifically on the potential for fraud within the program and 

the likely types of fraud they could encounter—is crucial to stopping fraud 

before it gains access into the program. In addition, when implementing 

Page 9 GAO-07-418T 
any new controls, it is important to field test all systems prior to putting 

them in place. On top of reducing the risk of untested controls allowing 

substantial fraud, field testing also helps to ensure that new controls do 

not improperly deny benefits to valid registrants. A safety net for those 

registrants who are wrongly denied disaster relief due to preventive 

controls should always be in place to ensure they receive assistance. 

Detection and Monitoring 

Help Assure that Funds 

Are Used for Disaster 

Recovery 

Even with effective preventive controls, there is substantial residual risk 

that fraudulent and improper disaster relief payments can occur. Our work 

has shown that agencies must continue their efforts to monitor fraud and

improper payment vulnerabilities in the execution of disaster relief 

programs, even if these efforts are more costly and less effective than 

preventive controls. Detection and monitoring efforts are addressed in the 

Standards for Internal Control in the Federal Government and include 

data-mining for fraudulent and suspicious transactions and reviews to 

establish the accountability of funds. Also, control weaknesses identified 

through detection and monitoring should be used to make improvements 

to preventive controls to reduce the risk for fraud, waste, and abuse in the 

future. 

The data-mining we performed to search for anomalies in registrant data 

and purchase card transactions show how important constant monitoring

and detection can be. Through data-mining, we found rental assistance 

payments to individuals who were residing in FEMA-provided hotel 

rooms, trailers, and apartments and payments to ineligible, nonqualified 

aliens. We found examples of multiple registrations citing the same 

address or bank accounts, and numerous residents in a damaged 

apartment building all relocating to the same location, which may also 

suggest fraud. By comparing applicant data in FEMA’s own databases, we 

identified duplicate applications submitted for both Katrina and Rita, but 

intended to cover the same damage to the same residence. By comparing 

recipient data against federal and state prisoners’ databases, we identified 

instances where prisoners had fraudulently registered for and received 

disaster relief payments while incarcerated. Our examples illustrate that 

data-mining efforts should be done in a manner that uses creative 

solutions to search for potential fraud using all available data sources. To 

the extent that data-mining identifies systematic fraud, intelligence should 

be fed back into the fraud prevention process so that for future disasters 

the fraud is detected and prevented before money is disbursed. 

Depending on the type of assistance provided and the means in which the 

assistance was distributed, it can be important for an agency to monitor 

Page 10 GAO-07-418T 
the use of disaster relief funds. Our review of FEMA’s IHP program found 

that while the vast majority of debit card transactions that were not 

withdrawn as cash appeared to have been used for disaster-related needs, 

we did find a number of purchases for nondisaster items such as football

tickets, alcohol, massage parlor services, and adult videos. In addition, our 

review of items bought with DHS purchase cards found that many items 

bought for use in disaster relief were lost or stolen. By monitoring these 

types of uses, agencies may be able to ensure that disaster funds are used 

to help mitigate losses and not used for inappropriate items or services. 

Collection Efforts, 

Investigations, and 

Prosecutions Are Far Less 

Effective than Up Front 

Fraud Prevention 

Another element of a fraud prevention program is the collection of 

improper payments and the aggressive investigation and prosecution of 

individuals who committed fraud against the government. These back-end

controls are often the most costly and less effective means of reducing 

losses to fraud, waste, and abuse. However, the deterrent value of 

prosecuting those who commit fraud sends the message that the 

government will not tolerate individuals stealing assistance money, and 

thus serving as a preventive measure for future disasters. Our experience 

is that investigations and prosecutions are a necessary part of an overall

fraud prevention and deterrence program, but should be a last resort when

all other controls have failed. For hurricanes Katrina and Rita, the Justice 

Department has set up the Katrina Fraud Task Force, which has 

successfully investigated and prosecuted numerous individuals who 

received assistance fraudulently from FEMA. 

In December 2006, we testified to the difficulty of collecting on improper 

payments after they have been disbursed. Specifically, in contrast to the $1

billion we estimated to be improper and potentially fraudulent payments—

an estimate derived from statistical sampling—FEMA determined that it 

had overpaid nearly 60,000 registrants about $290 million as of November 

2006. These overpayments, which FEMA refers to as recoupments, 

represent the improper payments that FEMA reported it had detected and 

for which it had issued collection letters. Although FEMA had identified 

about $290 million in overpayments, as of late 2006, FEMA stated that it

had only collected nearly $7 million. The small amount of money that 

FEMA had collected on overpayments related to hurricanes Katrina and 

Rita further emphasizes the need for preventing fraud, waste, and abuse 

prior to payments going out the door. 

Lessons learned from our prior work show that, while investigations and 

prosecutions can be the most visible means to deal with individuals intent

on perpetrating fraud schemes, they are also the most costly and should 

Page 11 GAO-07-418T 
not be used in place of other more effective preventive controls. Still, by 

successfully prosecuting such individuals, agencies can deter others who 

are thinking of taking advantage of the inherent vulnerabilities in disaster 

relief programs. We have already referred thousands of cases we have 

identified as potentially improper and fraudulent to the Katrina Fraud 

Task force for further investigation and expect to refer others for 

additional investigation and possible prosecution. 

Our Katrina and Rita work to date has shown that there are at least tens of 

thousands of individuals that took advantage of the opportunity to commit 

fraud against the federal government. Our work shows that for one FEMA 

individual assistance program alone it is likely that over $1 billion has 

been lost to fraudulent and improper payments. With potentially billions of 

dollars of additional spending likely for Katrina and Rita recovery, state 

and federal agencies should implement lessons learned with respect to the 

importance of effective fraud, waste, and abuse prevention programs. With 

effective planning, relief agencies should not have to make a choice 

between speedy delivery of assistance and effective fraud prevention. 

Going forward, FEMA and other agencies involved in disaster recovery 

efforts must work hard to develop and institute effective controls that will 

ensure victims are provided assistance as quickly as possible while also 

minimizing fraud, waste, and abuse. 

Chairman and Members of the Committee, this concludes my statement. I 

would be pleased to answer any questions that you or other Members of 

the Committee have at this time. 

For further information about this testimony, please contact Gregory Kutz 

at (202) 512- 7455 or kutzg@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this testimony. 

Conclusions 

Contacts 

Page 12 GAO-07-418T (192244) 
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