Department of Homeland Security 

Office of Inspector General 

Federal Emergency Management 
 


Agency’s Management Letter for FY 2010 
 


DHS Consolidated Financial Statements Audit
 
 

OIG-11-75 April 2011 
Office ofInspector General 

U.S. Department of Homeland Security 

Washington, DC 20528 

Homeland 

Security 

APR 13 2011 

Preface 

The Department of Homeland Security (DHS) Office ofInspector General (OIG) was 

established by the Homeland Security Act of2002 (Public Law 107-296) by amendment 

to the Inspector General Act of1978. This is one of a series of audit, inspection, and 

special reports prepared as part of our oversight responsibilities to promote economy, 

efficiency, and effectiveness within the department. 

This report presents the Federal Emergency Management Agency's Management Letter 

for FY 2010 DHS Consolidated Financial Statements Audit. It contains observations 

related to internal control that were not required to be reported in the financial statements 

audit report. The independent public accounting firm KPMG LLP (KPMG) performed 

the integrated audit ofDHS' FY 2010 financial statements and internal control over 

financial reporting and prepared this management letter. KPMG is responsible for the 

attached management letter dated March 14,2011, and the conclusions expressed in it. 

We do not express opinions on DRS' financial statements or internal control or provide 

conclusions on compliance with laws and regulations. 

The observations herein have been discussed in draft with those responsible for 

implementation. We trust this report will result in more effective, efficient, and 

economical operations. We express our appreciation to all of those who contributed to 

the preparation of this report. 

Anne L. Richards 

Assistant Inspector General for Audits 
 

 

 

KPMG LLP 

2001 M Street, NW 

Washington, DC 20036-3389 

March 14, 2011 

Office of Inspector General 

U.S. Department of Homeland Security, and 

Chief Financial Officer 

U.S. Department of Homeland Security Federal Emergency Management Agency 

Washington, DC 

Ladies and Gentlemen: 

We were engaged to audit the balance sheet of the U.S. Department of Homeland Security (DHS 

or Department) as of September 30, 2010 and the related statement of custodial activity for the 

year then ended (referred to herein as “financial statements”). We were also engaged to examine 

the Department’s internal control over financial reporting of the balance sheet as of September 30, 

2010, and the statement of custodial activity for the year then ended. We were not engaged to 

audit the accompanying statements of net cost, changes in net position, and budgetary resources 

for the year ended September 30, 2010 (referred to herein as other fiscal year (FY) 2010 financial 

statements), or to examine internal control over financial reporting over the other FY 2010 

financial statements. 

Because of matters discussed in our Independent Auditors’ Report, dated November 12, 2010, the 

scope of our work was not sufficient to enable us to express, and we did not express, an opinion 

on the FY 2010 financial statements, and we were unable to perform procedures necessary to 

form an opinion on DHS’ internal control over financial reporting of the balance sheet as of 

September 30, 2010 and the related statement of custodial activity for the year then ended. 

The Federal Emergency Management Agency (FEMA) is a component of DHS. We noted certain 

matters involving internal control and other operational matters, related to FEMA that are 

summarized in the Table of Financial Management Comments on the following pages, and 

presented for your consideration in Section I of this letter. These comments and 

recommendations, all of which have been discussed with the appropriate members of 

management, are intended to improve internal control or result in other operating efficiencies. 

These comments are in addition to the significant deficiencies presented in our Independent 

Auditors’ Report, dated November 12, 2010, included in the FY 2010 DHS Annual Financial 

Report. A description of each internal control finding, not related to information technology, and 

its disposition as either a significant deficiency or a financial management comment is provided 

in Appendix A. Our findings related to information technology systems security have been 

presented in a separate letter to the Office of Inspector General and the FEMA Chief Financial 

Officer and Chief Information Officer. 

KPMG LLP is a Delaware limited liability partnership, 

the U.S. member firm of KPMG International Cooperative 

(“KPMG International”), a Swiss entity. 
 

As described above, the scope of our work was not sufficient to express an opinion on the balance 

sheet as of September 30, 2010 or the statement of custodial activity of DHS for the year then 

ended, and we were not engaged to audit the statements of net cost, changes in net position, and 

budgetary resources for the year ended September 30, 2010. Accordingly, other internal control 

matters may have been identified and reported had we been able to perform all procedures 

necessary to express an opinion on the FY 2010 financial statements and had we been engaged to 

audit the other FY 2010 financial statements. We aim, however, to use our knowledge of DHS’ 

organization gained during our work to make comments and suggestions that we hope will be 

useful to you. 

FEMA’s written response to our comments and recommendations, presented in Appendix C, has 

not been subjected to auditing procedures and, accordingly, we express no opinion on it. 

We would be pleased to discuss these comments and recommendations with you at any time. 

This report is intended for the information and use of DHS’ and FEMA’s management, the DHS 

Office of Inspector General, the U.S. Office of Management and Budget, the U.S. Congress, and 

the Government Accountability Office, and is not intended to be and should not be used by 

anyone other than these specified parties. 

Very truly yours, 
TABLE OF FINANCIAL MANAGEMENT COMMENTS (FMC) 

Comment 

Reference Subject Page(s) 

FMC 10-01 Internal Control Deficiencies over Claims Paid at Selected Insurance Companies that 2 

Participate in FEMA’s National Flood Insurance Program (NFIP) 

FMC 10-02 Inaccuracy of Claims’ Loss Reserves at Selected Insurance Companies that Participate 3-4 

in FEMA’s NFIP 

FMC 10-03 Internal Control Deficiencies over Premiums Written at Selected Insurance Companies 4 

that Participate in FEMA’s NFIP 

FMC 10-04 Deficiencies in the Budget Execution Report Preparation Process 5 

FMC 10-05 Deficiencies in the Development and Application of Policies Related to the Non­ 5-6 

Grant, Non-Mission Assignment, and Non-System Generated Accounts Payable (A/P) 

Accrual 

FMC 10-06 Control Deficiencies and Underlying Data Deficiencies Related to the Non-Grant, 6-8 

Non-Mission Assignment, and Non-System Generated A/P Accrual 

FMC 10-07 Insufficient Office of the Chief Financial Officer Review of FEMA’s Legal Liability 8 

and Related Disclosure 

FMC 10-08 Deficiencies in the Development of Mission Assignment (MA) Policies and 9 

Procedures 

FMC 10-09 Improvements Needed in Review and Recording of Year-end MA Accrual 9 

FMC 10-10 Lack of Certain Documentation Related to Compliance with the Improper Payments 10 

Information Act of 2002, as amended 

FMC 10-11 Inability to Link Systems to Significant Grant Programs 10 

FMC 10-12 Failure to Identify and Assess Accounting Policies/Practices Not in Accordance with 10-11 

Generally Accepted Accounting Principles (Non-GAAP) 

FMC 10-13 Deficiency Identified Related to the Preparation and Review of the Retrospective 11 

Reserve Analysis 

FMC 10-14 Lack of Supporting Documentation for Prompt Payment Sample Item 11 

FMC 10-15 Deficiency in the Methodology Used to Calculate the Non-Current Portion of the 12 

Insurance Liability Estimate 

FMC 10-16 Failure to Close Assistance to Firefighter Grants Timely 12 

APPENDIX 

Appendix Subject Page(s) 

A 

B 

Crosswalk – Financial Management Comments to Active Notices of Findings and 

Recommendation (NFRs) 

Status of Prior Year NFRs 

13-14 

15-17 

C Management Response 18-20 

Federal Emergency Management Agency 

Table of Financial Management Comments 

September 30, 2010 

1
 
 
Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

FMC 10-01 – Internal Control Deficiencies over Claims Paid at Selected Insurance Companies that 

Participate in Federal Emergency Management Agency’s (FEMA) National Flood Insurance 

Program (NFIP) (NFR Nos. 10-01 and 10-01a) 

We selected 10 insurance companies and tested a sample of 300 claim payments across those 

companies covering October 1, 2009 to March 31, 2010. During this testing, we noted the 

following errors at the respective insurance companies: 

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For one sample item, we noted that evidence of the claim examiner’s review of the increased 

cost of compliance (ICC) report and claim file prior to claim payment was not available and 

included in the claim file. 

For one sample item, we noted that the claim file was not appropriately reviewed prior to the 

claim payment to the policyholder based on the claim examiner’s payment authority limit. 

For 19 sample items, we noted that based on the claim file, the loss reserve was not updated 

in the appropriate accounting month for subsequent preliminary/final reports received from 

the adjustor and/or payments made to the policyholder. 

For one sample item, we noted that a loss reserve was not established upon the insurance 

company receiving the notice of loss. 

For one sample item, we noted that the loss reserve was not closed in the month that the final 

payment was made. 

For one sample item, we noted that the loss reserve was closed before the month of final 

payment. 

For six sample items, we noted that the Loss Adjustment Expense (LAE) payment was 

incorrect based on supporting documentation in the claim file and the NFIP LAE Schedule. 

For one sample item, we noted an underpayment of claim payments to the insured based on 

the adjuster’s final report and other supporting documentation in the claim file. 

We selected 10 insurance companies and tested a sample of 250 claim payments across those 

companies covering April 1, 2010 to June 30, 2010. During this testing, we noted the following 

errors at the respective insurance companies: 

�	 

�	 

For one sample item, we noted an LAE overpayment based on supporting documentation in 

the claim file and the NFIP LAE Schedule. 

For two sample items, we noted an overpayment/underpayment of claim payments to the 

insured based on the adjuster’s final report and other supporting documentation in the claim 

file. 

Recommendations: 

We recommend that FEMA: 

�	 

�	 

Follow-up with each of the insurance companies to determine that appropriate corrective 

action has been implemented to address the exceptions noted. 

Provide increased oversight to insurance companies participating in the NFIP to ensure claims 

files are being processed and reviewed in accordance with NFIP guidelines before approval 

and issuance of claim payments and to ensure the specific and consistent establishment and 

reporting of loss reserves and subsequent adjustments to the loss reserves. 

2
 
 
 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

FMC 10-02 – Inaccuracy of Claims’ Loss Reserves at Selected Insurance Companies that 

Participate in FEMA’s NFIP (NFR Nos. 10-02 and 10-02a) 

We selected 10 insurance companies and tested a sample of 587 loss reserves reported by these 

companies as of January 31, 2010. During this testing, we noted the following errors at the 

respective insurance companies: 

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�	 

�	 

�	 

�	 

�	 

�	 

�	 

�	 

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For two sample items, the recorded date of loss was not accurate based on the supporting 

documentation in the claims files. 

For three sample items, the loss reserve amount was incorrectly adjusted by the claims 

examiner based on the claims file supporting documentation. 

For 17 sample items, the loss reserve was not adjusted for partial and/or advance payments 

made to the policyholder. 

For three sample items, the insurance company attempted to correct an attribute related to the 

claims file in the claims system; however, this reset the loss reserve to the default system 

amount. Therefore, claim payments made prior to January 31, 2010 did not reduce the loss 

reserve balance as of that date. 

For eight sample items, the loss reserve was not adjusted for subsequent adjuster reports 

and/or the final denial letter. 

For one sample item, the preliminary report indicated a loss reserve for both building and 

contents; however, a loss reserve was not established for the contents portion by the claims 

examiner. 

For three sample items, the loss reserve was not closed in a timely manner after full payment 

of the claim was made to the policyholder. 

For four sample items, the loss reserve was not appropriately established/adjusted due to a 

claims examiner clerical error. 

For one sample item, the loss reserve was converted from a previous insurance company 

vendor and did not reflect the activity identified in the claim file supporting documentation. 

For 17 sample items, the claims file supporting documentation did not support the loss 

reserve recorded in the insurance company NFIP claims system. 

We selected 10 insurance companies and tested a sample of 612 loss reserves reported by these 

companies as of June 30, 2010. During this testing, we noted the following errors at the 

respective insurance companies: 

�	 

�	 

�	 

For 58 sample items, we noted that the loss reserves were not accurately recorded in the 

general ledger based on documentation in the claim file (e.g., Final Report, Preliminary 

Report, and payments to date). 

For one sample item, we noted that a claim was opened with an incorrect date of loss and 

remained open when a new claim was opened with the correct date of loss, resulting in a 

duplicate claim. 

For one sample item, the Company did not provide the file for the claim. 

Recommendations: 

We recommend that FEMA 

�	 Follow-up with each of the insurance companies to determine that appropriate corrective 

action has been implemented to address the exceptions noted. 

3
 
 
 

 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

�	 Provide increased oversight to ensure specific and consistent documentation of the 

established loss reserve and subsequent adjustment to the loss reserve per claim at the 

insurance companies participating in the NFIP is maintained. 

FMC 10-03 – Internal Control Deficiencies over Premiums Written at Selected Insurance 

Companies that Participate in FEMA’s NFIP (NFR Nos. FEMA 10-05 and 10-05a) 

We selected 10 insurance companies and tested a sample of 284 written premium transactions 

across those companies covering October 1, 2009 to March 31, 2010. During this testing, we 

noted the following errors at the respective insurance companies: 

�	 

�	 

�	 

�	 

For one sample item, we noted that the designated flood zone per the policy declaration page 

did not agree to the FEMA flood maps for the insured property address. Based on the 

incorrect flood zone used, we noted that the policy premium was calculated incorrectly. For 

another sample item, an incorrect property address was used. 

For two sample items, we noted that the policy declaration page indicated that the premium 

should be calculated using pre-firm construction rates, but the policy premium was calculated 

using post-firm rates. Per the NFIP Manual, elevated pre-firm premiums may be calculated 

using post-firm rates if an elevation certificate is completed. However, we were unable to 

obtain the elevation certificates to support the use of post-firm rates for those policies. 

For one sample item, we noted that the premium was calculated using a basement and above 

contents rate. However, the application indicated that contents should be calculated using 

lower floor only – above ground level rates. 

For one sample item, we noted that the premium was calculated based on a preferred risk 

policy without basement or enclosure rates. However, the application indicated that the 

property had a finished basement below the building. 

We selected 10 insurance companies and tested a sample of 50 written premium transactions 

across those companies covering the period July 1, 2010 to August 31, 2010. During this testing, 

we identified the following error at one insurance company: 

�	 For one sample item, we noted that the designated flood zone per the policy declaration 

page did not agree to the FEMA flood maps for the insured property address. Based on 

the incorrect flood zone used, we noted that the policy premium was calculated 

incorrectly. 

Recommendations: 

We recommend that FEMA: 

�	 

�	 

Follow-up with each of the insurance companies to determine that they have implemented 

the appropriate corrective action to address the exceptions identified. 

Provide increased oversight to insurance companies participating in the NFIP to ensure they 

process and review underwriting files in accordance with NFIP guidelines. 

4
 
 
 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

FMC 10-04 – Deficiencies in the Budget Execution Report Preparation Process (NFR No. FEMA 

10-06) 

Based on our testwork performed over the Budget Execution Report as of March 31, 2010, we 

noted the process to prepare the Budget Execution Report is not properly designed. Specifically: 

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�	 

The Budget Execution Report “Spend Plan Amount” is not consistently reported by the 

Budget Planning and Analysis Division (BPAD) budget analysts. The reporting process is 

not standardized throughout the BPAD and, as such, the reconciliation is not programmed to 

accurately capture the original budget and subsequent allocations to each FEMA 

office/directorate. Further, BPAD management does not formally review the Budget 

Execution Report spend plan data for accuracy. 

The “Spending to Date” balances do not agree to external financial reports, such as FEMA’s 

financial statements or Office Management and Budget (OMB) budget reports (e.g., the SF132, Apportionment and Reapportionment Schedule, and the SF-133, Report on Budget 

Execution and Budgetary Resources). The Budget Execution Report “Spending to Date” 

activity is obtained from the Integrated Financial Management Information System (IFMIS) 

cost-posting module funds disposition report, which differs from data recorded in the general 

ledger because the report excludes journal vouchers (JVs). Therefore, the reconciliation data 

does not provide a true representation of FEMA’s budget and fiscal year spending for 

monitoring purposes. 

Recommendations: 

We recommend that FEMA: 

�	 

�	 

Develop and implement standard operating procedures (SOP), including appropriate internal 

controls, over the preparation and review of the Budget Execution Report to ensure that a 

consistent process is established throughout the BPAD and proper review of the report is 

performed by management prior to report distribution. 

Develop and implement enhancements to the data gathering process, including appropriate 

internal controls, to ensure that the Budget Execution Report “Spending to Date” data reflects 

FEMA’s fiscal year spending, including JVs, and agrees to external financial reports. 

FMC 10-05 – Deficiencies in the Development and Application of Policies Related to the Non-Grant, 

Non-Mission Assignment, and Non-System Generated Accounts Payable (A/P) Accrual (NFR No. 

FEMA 10-07) 

Our review of the A/P accrual model methodology as of December 31, 2009 revealed the 

following conditions: 

�	 An A/P accrual was not generated for the following fund codes (FCs) and budget object 

codes (BOCs): 

�	 

�	 

�	 

FCs 79, 87-89, 8C, 9B, 9C (all related to limited and no-year funds for the Chemical 

Stockpile Emergency Preparedness Program - CSEPP). 

FCs H7 (related to State and Local Programs Fund - Public Safety Interoperable 

Communications – PSIC). 

BOCs 2503 (Delegation of Authority – Disaster Unemployment Assistance) and 2504 

(Delegation of Authority – Crisis Counseling Assistance). 

5
 
 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

Due to the nature of the funds and BOCs, we noted a separate accrual approach from the A/P 

accrual model is required. Subsequent to our testwork as of December 31, 2009, FEMA 

drafted an Intergovernmental Accrual Process. However, the policy does not specifically 

identify the FCs and BOCs noted above. 

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�	 

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The A/P accrual model used an improper United States Standard General Ledger (USSGL) 

account to limit the A/P accrual balance to the available undelivered order (UDO). UDO 

balances within the model are comprised of USSGL accounts 4801, 4802, 4871, and 4881. 

However, USSGL account 4802, Undelivered Orders – Obligations, Prepaid/Advance, 

represents UDOs that were previously paid; accordingly, USSGL account 4802 has no 

applicable A/P and should not be considered in the A/P accrual limit determination. 

The A/P accrual methodology does not consider the impact of balances within USSGL 

account 1410, Advances and Prepayments, including whether any advances should be 

liquidated prior to recording an A/P balance. 

The A/P model methodology tolerates an exceptionally high validation error rate: +/- 30% of 

the total model-calculated accrual. 

Recommendations: 

We recommend that FEMA: 

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Update the Intergovernmental Accrual Process SOP to provide clearer documentation of the 

accrual processes in place over the BOCs and FCs noted above. 

Limit the UDO balance to the unpaid amount for A/P accrual limitation purposes by 

excluding USSGL account 4802, Undelivered Orders – Obligations, Prepaid/Advanced from 

he Automated Accounts Payable Model. 

Perform a documented review of USSGL account 1410, Advances and Prepayments, to 

determine whether material non-governmental advances exist and require liquidation prior to 

booking the quarterly A/P accrual. 

Re-evaluate the target error rate for the A/P accrual model validation to provide management 

with more reasonable assurance that the A/P accrual estimates recorded are not materially 

misstated. 

FMC 10-06 – Control Deficiencies and Underlying Data Deficiencies Related to the Non-Grant, 

Non-Mission Assignment, and Non-System Generated A/P Accrual (NFR No. FEMA 10-08) 

Based on our review of the December 31, 2009 A/P accrual model, we noted the following 

control deficiencies: 

�	 The A/P accrual model process lacks sufficiently documented review controls. The A/P 

accrual methodology provides for additional documentation in the event the model 

reconciliation or validation exceeds tolerable thresholds; however, the methodology does not 

require documented review controls throughout the model, as follows: 

�	 

�	 

Reconciliation of the underlying invoice and UDO data to the general ledger - we noted 

no documentary evidence exists to support the model reconciliation review. 

BOCs and A-11 codes (object classification codes defined in OMB Circular No. A-11, 

Section 83) included in the model - we noted no documentary evidence exists to support 

FEMA’s review of the BOCs and A-11 codes used in the model or a study of 

additional/new BOCs and FCs that may impact the model in FY 2010. As a result, our 

review of the December 31, 2009 A/P accrual model identified three BOCs improperly 

included in the model: BOC 2115, Rental/Lease of Vehicles from Government Motor 

6
 
 

 

 

 

 

 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

Pools; BOC 2310, Rental Payments to the General Services Administration (GSA); and 

BOC 2589, Interagency Agreements. BOC 2589 (A-11 code 25.3) was excluded from 

core IFMIS data but was not excluded from grants and training (G&T) data as of 

December 31, 2009. As a result, the model underlying data included one G&T invoice 

within BOC 2589. BOCs 2115, 2310, and 2589 relate to intragovernmental transactions; 

however, all A/P resulting from the A/P accrual model is allocated and accrued to nongovernmental A/P. 

�	 

�	 

�	 

Model parameters and thresholds, including the JV materiality threshold and the moving 

average length - per discussion with FEMA personnel, FEMA reviewed the model 

parameters and thresholds used in the December 31, 2009 A/P accrual model. However, 

we were unable to obtain documentation supporting FEMA’s review and assessment of 

the parameters in FY 2010. 

Model calculations and outputs - we noted the JV reviewer reviewed the model JV list 

(model output) as supporting documentation for the A/P accrual JVs. However, we noted 

no documentary evidence exists to support an additional review of the A/P accrual model, 

including the model calculations and the model output. 

Accrual estimate validation - the accrual estimate validation is not formally documented. 

Per the A/P accrual methodology and FEMA personnel, FEMA may draft a memorandum 

if the validation error rate exceeds the target error rate. However, the validation review is 

not documented if the validation error rate falls below the target error rate. 

�	 The model does not operate effectively to limit the A/P accrual allocation to the UDO balance 

for the applicable fund, budget fiscal year (BFY), and BOC combination within the model. 

Specifically, we noted the following exceptions: 

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�	 

In three instances, the model UDO data contained insufficient UDO balances within the 

fund, BFY, and BOC combinations, and the corresponding accrual allocations were not 

properly limited. The model populated estimated accruals for the corresponding fund, 

BFY, and BOC combinations that exceeded the model UDO balances. 

In three instances, the model utilized UDO data within the incorrect A-11 codes for the 

accrual allocation limit. G&T funds use A-11 codes 21 and 31; core funds use A-11 

codes 21.0 and 31.0. The A/P accrual model was designed to capture UDO data within A11 codes 21.0 and 31.0; as a result, G&T fund UDO balances within A-11 codes 21 and 

31 were not properly captured by the model allocation limit functionality. As such, per 

the A/P accrual model, no available UDO balance exists for the G&T entries. However, 

the model did not limit the JVs to the UDO balance per the JV Limit tab. 

�	 Based on our review of 50 A/P accrual model underlying data invoices as of December 31, 

2009, we noted the following underlying data discrepancies: 

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�	 

Two travel vouchers were paid incorrectly based on supporting documentation. 

One invoice was included in the incorrect period of performance quarter-end based on 

supporting documentation. Per the invoice, we noted the period of performance was 

June 23, 2009 to September 25, 2009. However, the invoice was included within the 

period of performance for the quarter-ended December 31, 2009. 

7
 
 
 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

Recommendations: 

We recommend that FEMA: 

�	 

�	 

�	 

Revise the current A/P accrual methodology to require formal, documented review controls 

throughout the Automated Accounts Payable Model execution process, including annual 

review and reconciliation of BOCs/A-11 codes; annual review of model parameters and JV 

materiality thresholds; quarterly reconciliation of underlying data utilized within the model; 

and quarterly review of the model calculations, outputs, and estimate validation. 

Perform a thorough review of the A/P accrual model, including A-11 codes, subsequent to 

any changes to ensure consistency in the model data and functionality. 

Ensure accounting technicians undergo sufficient training to understand how to properly 

populate the vendor invoice data fields within IFMIS. In addition, reinforce existing 

procedures to ensure underlying data transactions undergo sufficient review to validate the 

accuracy of the transactions. 

FMC 10-07 – Insufficient Office of the Chief Financial Officer (OCFO) Review of FEMA’s Legal 

Liability and Related Disclosure (NFR No. FEMA 10-12) 

We noted that the FEMA OCFO did not perform an adequate review of its legal liability and 

related financial statement disclosures as of June 30, 2010. Specifically, the FEMA OCFO did 

not: 

�	 

�	 

�	 

Evaluate the reasonableness of responses from the FEMA Office of Chief Counsel (OCC) 

attorneys related to the likelihood of an unfavorable outcome. 

Review the reasonableness of the amounts of potential loss related to reasonably possible 

cases that are disclosed and probable cases that are accrued as contingent liabilities. 

Perform look-back analyses on the estimate of the amount or range of potential losses. The 

OCFO did not compare what was actually awarded to the plaintiff to the estimated amount of 

potential losses to assess the accuracy of the estimation process. 

Subsequent to our notification to the FEMA OCFO of the condition above, the FEMA OCFO 

documented the FEMA OCC methodology for identifying reasonably possible and probable 

ranges. 

Recommendations: 

We recommend that FEMA OCFO implement a documented review process over the legal 

liability and related financial statement disclosures which encompass the following: 

�	 

�	 

�	 

Assessment of the reasonableness of FEMA OCC attorneys’ responses as to likelihood of an 

unfavorable outcome. 

Assessment of the reasonableness of the amount of potential loss related to reasonably 

possible cases that are disclosed and probable cases that are accrued as contingent liabilities. 

Look-back analyses to determine the accuracy of the estimate of the amount or range of 

potential losses. 

8
 
 
 

 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

FMC 10-08 – Deficiencies in the Development of Mission Assignment (MA) Policies and Procedures 

(NFR No. FEMA 10-15) 

Under SOP Number 2600-007, Financial Reporting of Mission Assignments, FEMA requires 

MA-related UDO balances to be validated annually as of June 30th of each year. In the event an 

Other Federal Agency (OFA) is non-responsive to the validation request, FEMA will set a 

specific response deadline prior to closing the MA. However, the closeout process initiated by 

the validation contains deadlines that may not be completed by the fiscal year end, 

September 30th. The policy calls for UDOs to be reviewed but not validated at other times 

throughout the year. 

Recommendations: 

We recommend that FEMA: 

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�	 

�	 

Continue to refine its process for the annual MA UDO validation and work closely with 

OFAs to receive timely responses. 

Continue to work closely with the regional offices to coordinate any necessary 

de-obligation/close out actions prior to fiscal year end. 

Evaluate instituting a process in which a JV would be entered to effectively record the deobligation of MA UDOs that have been identified as invalid/closed by an OFA, but not yet 

de-obligated by the regional offices prior to September 30. 

FMC 10-09 – Improvements Needed in Review and Recording of Year-end MA Accrual (NFR No. 

FEMA 10-17) 

FEMA attempted to perform a validation of the estimated September 30, 2009 MA A/P accrual to 

determine the accuracy and reliability of the estimate. However, during our review of the 

validation, we noted that the validation was not effective as FEMA compared all reimbursement 

requests received in the 1st quarter of FY 2010 to the accrual balance as of September 30, 2009. 

For comparison purposes, the reimbursement requests received in FY 2010 used to validate the 

accrual should only include the requests received for services and/or expenses incurred prior to 

October 1, 2009. 

In addition, FEMA did not review and analyze the accrual by agency prior to recording the 

accrual to ensure that validity and reasonableness of each accrual. 

Recommendations: 

We recommend that FEMA: 

�	 

�	 

Develop and implement procedures to compare the MA A/P accrual estimates to the actual 

expenses incurred, communicate with OFAs on discrepancies noted to make estimation 

improvements in the future, and reassess the process to develop the estimate as necessary. 

The verification and validation should be documented and properly reviewed. 

Thoroughly review MA A/P accrual supporting documentation for reasonableness prior to 

recording amounts reported by OFAs, and communicate timely with OFAs on any 

discrepancies noted to prevent an intragovernmental reconciliation problem. 

9
 
 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

FMC 10-10 – Lack of Certain Documentation Related to Compliance with the Improper Payments 

Information Act of 2002, as amended (IPIA) (NFR No. FEMA 10-20) 

We reviewed FEMA’s risk assessment approach and test plan for each of the eight programs that 

were determined to be of significant risk for improper payments. Based on our review, we 

determined that FEMA used multi-year sampling for the Homeland Security Grant Program and 

the Transit Security Grant Program given the large size of the programs. Because this approach 

was used, FEMA was unable to extrapolate the sample results over the entire population and 

could not provide results within the required 2.5 percent precision level. For this approach to be 

considered compliant with IPIA and OMB Circular No. A-123, FEMA must obtain approval from 

the OMB. FEMA did not obtain official written approval until after our audit request in late 

October. 

Recommendations: 

We recommend that FEMA obtain OMB written approval prior to utilizing a multi-year sampling 

approach for its IPIA testing. 

FMC 10-11 – Inability to Link Systems to Significant Grant Programs (NFR No. FEMA 10-22) 

We requested that FEMA provide an analysis to demonstrate the amount of UDOs flowing 

through each grant system during fiscal year (FY) 2010. We asked that the analysis include a 

listing of which system FEMA was using to obligate and pay each specific grant program. FEMA 

provided a listing of systems; however, FEMA was not able to provide specific information to 

show what grants were being managed within each system and the volume of those grants. 

Recommendations: 

We recommend that FEMA: 

�	 

�	 

�	 

Develop a crosswalk of agency grant programs to the appropriate systems used to process 

obligations and payments. 

Develop and implement a method of determining the accounting string used to identify each 

individual grant program. 

Develop and implement a monitoring control to ensure that the crosswalk and accounting 

string information are updated and kept current. 

FMC 10-12 – Failure to Identify and Assess Accounting Policies/Practices Not in Accordance with 

Generally Accepted Accounting Principles (Non-GAAP) (NFR No. FEMA 10-23) 

We inquired of FEMA OCFO personnel regarding the existence of any non-GAAP policies or 

procedures in FY 2010 and obtained a response stating that FEMA did not follow any non-GAAP 

policies or practices in FY 2010. However, based on testwork performed in FY 2010, we noted 

the following non-GAAP policies/practices: 

�	 

�	 

FEMA’s A/P model accrued expenses based on the use of thresholds. 

FEMA evaluated current and future litigation claims using a threshold of $3 million for 

individual cases and $6 million for aggregate cases. This policy was adopted by management 

and acts as an internal materiality threshold when evaluating litigation. 

10
 
Current Financial 

Subsequent Current O/S IBNR Total Reserves Statement Redundancy / 

Loss Paid Case Reserve Reserve Retrospectively Reserves (Deficiency) 

FEMA $82,779,557 $90,716,321 $129,274,906 $ 256,851,160 $334,758,959 $77, 907,799 * 

KPMG $82,779,557 $90,716,321 $129,274,906 $ 302,770,784 $334,758,959 $31,988,175 

Difference $45,919,624 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

Recommendation: 

We recommend that FEMA develop and implement procedures to evaluate new and existing 

policies for compliance with GAAP. FEMA should track those policies determined to not be in 

compliance with GAAP and periodically assess the impact of the non-GAAP policies on its 

financial information. 

FMC 10-13 – Deficiency Identified Related to the Preparation and Review of the Retrospective 

Reserve Analysis (NFR No. FEMA 10-25) 

We identified that the monthly Retrospective Reserve Analysis over the insurance liability 

estimate for July 31, 2010 prepared by the third-party service provider’s actuary contained 

discrepancies in the calculation of “total reserves retrospectively” and the reserve 

“redundancy/deficiency” amount for the month of July 2010. We noted the subsequent losses 

paid, current outstanding case reserve (O/S), and current incurred but not reported (IBNR) reserve 

for the Direct Servicing Agent were improperly excluded from the “total reserves 

retrospectively,” which resulted in the calculation of the “redundancy” being misstated by 

$45,919,624. 

* The documented “redundancy/deficiency” in the Retrospective Reserve Analysis was 

$23,477,443 because of a formula error. Based on the documented “total reserves 

retrospectively” and “financial statement reserves,” the amount that should have been shown as 

the “redundancy/deficiency” was $77,907,799. 

Recommendation: 

We recommend that FEMA enhance the Chief Actuary’s Retrospective Reserve Analysis review 

procedures to include a review of the accuracy of the amounts and calculations in the analysis. 

FMC 10-14 – Lack of Supporting Documentation for Prompt Payment Sample Item (NFR No. 

FEMA 10-28) 

During test work over compliance with the Prompt Payment Act as of September 30, 2010, 

FEMA was unable to provide documentation for 1 of 58 payments selected. 

Recommendation: 

We recommend that FEMA develop a monitoring control to ensure proper adherence to existing 

document retention policies and procedures for all payment activities. 

11
 
 
 

 

 

 

Section I 

Federal Emergency Management Agency 

Financial Management Comments 

September 30, 2010 

FMC 10-15 – Deficiency in the Methodology Used to Calculate the Non-Current Portion of the 

Insurance Liability Estimate (NFR No. FEMA 10-29) 

We noted the following conditions relate to the calculation of the current and non-current portions 

of the insurance liability estimate: 

�	 

�	 

In FY 2009, the OCFO calculated the current and non-current portions of the insurance 

liability estimate using a 33 percent and 67 percent split, respectively. In FY 2010, the thirdparty service provider’s actuary was asked to determine the percentage and calculated the 

current and non-current portions of the insurance liability as 85 percent and 15 percent, 

respectively. FEMA did not provide rationale for the large change in percentages used for the 

current and non-current portions of the insurance liability from FY 2009 to FY 2010, explain 

the methodology used last year, or provide rationale for the change in methodology from the 

prior year to the current year. 

In FY 2010, the methodology used by FEMA to calculate the current and non-current 

portions of the insurance liability estimate, developed by the third-party service provider’s 

actuary, utilized the assumption that non-current liabilities represented estimated losses for 

accident months September 2009 and earlier. FEMA explained that, absent any major 

disasters, it would expect that a similar percentage of claims would have accident months 

older than one year at 9/30 each year. FEMA’s reasoning provided for the current and noncurrent portions of the insurance liability calculation is not consistent with Statement of 

Federal Financial Accounting Standards (SFFAS) No. 1 and is not supported by actual FY 

2010 claim payment data. The non-current portion of the liability should represent the 

insurance claims that will not be paid within the next year, not insurance claims with an 

accident month older than one year. 

Recommendation: 

We recommend that FEMA document, approve, and develop procedures to periodically reassess a 

methodology for calculating the current and non-current portions of the insurance liability 

estimate that is in compliance with the applicable accounting standards. 

FMC 10-16 – Failure to Close Assistance to Firefighter Grants (AFG) Timely (NFR No. FEMA 

10-30) 

During our testwork performed over AFG grants, we noted that no grant closeouts had been 

processed in the AFG System for the period October 1, 2009 to September 30, 2010. Per 

discussion with the Grant Programs Directorate (GPD), the implementation of the SF 425, 

Federal Financial Report, to comply with the Office of Management and Budget use of standard 

forms created a problem within the AFG System which prevented GPD from closing grants within 

the system. Because no manual closeout process exists, GPD has not been able to closeout any 

AFG grants since October 1, 2009. 

Recommendation: 

We recommend that FEMA develop and implement an alternate manual process to timely 

closeout AFG grants until the system is updated and to use if the system were to fail again in the 

future. 

12
 
 
Disposition1 

IAR FMC 

NFR No. Description MW SD NC No. 

Internal Control Deficiencies over Claims Paid at Selected Insurance 

10-01 Companies that Participate in FEMA’s National Flood Insurance 

Program (NFIP) 

10-01 

10-01a Internal Control Deficiencies over Claims Paid at Selected Insurance 

Companies that Participate in FEMA’s NFIP 10-01 

10-02 Inaccuracy of Claims’ Loss Reserves at Selected Insurance 

Companies that Participate in FEMA’s NFIP 10-02 

10-02a Inaccuracy of Claims’ Loss Reserves at Selected Write Your Own 

(WYO) Insurance Companies that Participate in FEMA’s NFIP 10-02 

10-03 Lack of Formal Policies and Procedures in Various Areas G 

10-04 Non-Compliance with 5 CFR Part 2638 and 5 CFR Part 2638 Related 

to Ethical Requirements G 

10-05 Internal Control Deficiencies Identified Over Premiums Written at 

Selected Insurance Companies that Participate in FEMA’s NFIP 10-03 

10-05a Internal Control Deficiencies Identified Over Premiums Written at 

Selected Insurance Companies that Participate in FEMA’s NFIP 10-03 

10-06 Deficiencies in the Budget Execution Report Preparation Process 10-04 

10-07 

Deficiencies in Development and Application of Policies Related to 

the Non-Grant, Non-Mission Assignment, Non-System-Generated 

Accounts Payable (A/P) Accrual 

10-05 

10-08 

Control Deficiencies and Underlying Data Deficiencies Related to the 

Non-Grant, Non-Mission Assignment, Non-System-Generated A/P 

Accrual 

10-06 

10-09 

Deficiencies in the Preparation and Review of the Government 

Accountability Office (GAO) Financial Audit Manual (FAM) 2010 – 

Checklist for Federal Accounting 

A 

10-10 

Inherited Problems in Legacy Grants & Training’s (G&T’s) 

Integrated Financial Management Information System (IFMIS)

Other Issues Noted in the Treasury Information Executive Repo

(TIER) to IFMIS Reconciliation as of June 30, 2010 

 and 

sitory A 

10-11 Control Deficiencies Noted in the Financial Reporting Environment 

as of 3/31/10 A 

10-12 Insufficient Office of the Chief Financial Officer (OCFO) Review of 

FEMA’s Legal Liability and Related Disclosure 10-07 

10-13 Deficiencies Identified in the IFMIS Chart of Accounts and 

Transaction Codes J 

10-14 Ineffective Controls Over Processing Obligations F 

10-15 Deficiencies in Development of Mission Assignment (MA) Policies 

and Procedures 10-08 

10-16 Ineffective Controls Over Processing and Monitoring MA F 

10-17 Improvements Needed in Review and Recording of Year-End MA 

Accrual 10-09 

10-18 Financial Monitoring of Grants by the Former Office of G&T E 

10-19 Ineffective Controls Over Grants Management E 

10-20 Lack of Certain Documentation Related to Compliance with the 

Improper Payments Information Act of 2002, as amended 10-10 

10-21 Budgetary Accounting Issues Identified Journal Voucher (JV) 

Testwork through June 30, 2010 F 

Appendix A 

Federal Emergency Management Agency 

Crosswalk - Financial Management Comments to NFRs 

September 30, 2010 

13
 
 
Disposition1 

IAR FMC 

NFR No. Description MW SD NC No. 

10-21a Budgetary Accounting Issues Identified JV Testwork from July 1, 

2010 through September 30, 2010 F 

10-22 Inability to Link Systems to Significant Grant Programs 10-11 

10-23 

Failure to Identify and Assess Accounting Policies / Practices Not In 

Accordance with Generally Accepted Accounting Principles (NonGAAP) 

10-12 

10-24 Improvements Needed in Management’s Review of Grant Data and 

Automated Reconciliations in Grant Accrual Models A 

10-25 Deficiency Identified Related to the Preparation and Review of the 

Retrospective Reserve Analysis 10-13 

10-26 Issues Deficiencies Identified in JV Testwork through June 30, 2010 A 

10-26a Issues Deficiencies Identified in JV Testwork from July 1, 2010 

through September 30, 2010 A 

10-27 

Monitoring of Audit Findings in Accordance with Office of 

Management and Budget (OMB) Circular No. A-133 and No. A-50, 

and Related Compliance Matters 

E K 

10-28 Lack of Supporting Documentation for Prompt Payment Sample Item 10-14 

10-29 Deficiency in the Methodology Used to Calculate the Non-Current 

Portion of the Insurance Liability Estimate 10-15 

10-30 Failure to Close Assistance to Firefighter Grants Timely 10-16 

10-31 Deficiencies over NFIP TIER JV Adjustments A 

10-32 Untimely De-Obligation of UDOs and Accounting for Public 

Assistance Grant Arbitration Cases in FY 2010 F 

Appendix A 

Federal Emergency Management Agency 

Crosswalk - Financial Management Comments to NFRs 

September 30, 2010 

1

Disposition Legend: 

IAR	 	 Independent Auditors’ Report dated November 12, 2010 

FMC	 	 Financial Management Comment 

MW	 	 Contributed to a Material Weakness at the Department level when combined with the results of all other components 

SD	 Contributed to a Significant Deficiency at the Department level when combined with the results of all other 

components 

NC	 Contributed to Noncompliance with laws, regulations, contracts, and grant agreements at the Department level when 

combined with the results of all other components 

NFR	 	 Notice of Finding and Recommendation 

Cross-reference to the applicable sections of the IAR: 

A	 	 Financial Management and Reporting 

B	 	 Information Technology Controls and System Functionality 

C	 	 Fund Balance with Treasury 

D	 	 Property, Plant, and Equipment 

E	 	 Actuarial and Other Liabilities 

F	 	 Budgetary Accounting 

G	 	 Other Entity-Level Controls 

H	 	 Custodial Revenue and Drawback 

I	 	 Federal Managers’ Financial Integrity Act of 1982 (FMFIA), and Laws and Regulations Supporting OMB Circular 

No. A-50, Audit Followup, as revised 

J	 	 Federal Financial Management Improvement Act of 1996 (FFMIA) 

K	 	 Single Audit Act Amendments of 1996 

L	 	 Chief Financial Officers Act of 1990 (CFO Act) 

M	 	 Antideficiency Act, as amended (ADA) 

N	 	 Government Performance and Results Act of 1993 (GPRA) 

14
 
 

 

Appendix B 

Federal Emergency Management Agency 

Status of Prior Year NFRs 

September 30, 2010 

Disposition1 

NFR No. Description Closed2 Repeat (2010 NFR No.) 

09-01 Number not used Not applicable 

09-02 Financial Monitoring of Grants by the Former Office of G&T FEMA 10-18 

09-03 Number not used Not applicable 

09-04 Non-Grant Related Unliquidated Obligations within the Former 

G&T Not Adequately Supported and De-obligated Timely FEMA 10-32 

09-05 Number not used Not applicable 

09-06 Number not used Not applicable 

09-07 Lack of Current Antideficiency Act Policies and Procedures X 

09-08 Ineffective Controls over Processing MA Payments FEMA 10-16 

09-09 Untimely De-obligation of MAs and Delegations of Authority, and 

Control Deficiencies Related to Quarterly Review of MAs 

Combined into 

FEMA 10-32 

09-10 Number not used Not applicable 

09-11 Number not used Not applicable 

09-12 Lack of Supporting Documentation for the Reporting of Internal 

Use Software and Internal Use Software In Development X 

09-13 Non-compliance with Ethics Requirements FEMA 10-04 

09-14 Number not used Not applicable 

09-15 Number not used Not applicable 

09-16 Number not used Not applicable 

09-17 Unavailability of Supporting Documentation for Certain Entity 

Level Controls X 

09-18 Number not used Not applicable 

09-19 Lack of Formal Policies and Procedures in Various Areas FEMA 10-03 

09-20 Monitoring of Audit Findings in Accordance with OMB Circular 

Nos. A-133 and A-50, and Related Compliance Matters FEMA 10-27 

09-21 Number not used Not applicable 

09-22 Number not used Not applicable 

09-23 Number not used Not applicable 

09-24 Number not used Not applicable 

09-25 Number not used Not applicable 

09-26 Number not used Not applicable 

09-27 Number not used Not applicable 

09-28 Temporary Adjustments of Fund Balance with Treasury 

Reconciling Differences X 

09-29 Number not used Not applicable 

09-30 Number not used Not applicable 

09-31 Number not used Not applicable 

09-32 Inherited Problems in Legacy Grants & Training IFMIS and Other 

Issues Noted In the IFMIS to TIER Reconciliations FEMA 10-10 

09-33 Number not used Not applicable 

09-34 Number not used Not applicable 

09-35 Number not used Not applicable 

15
 
 
 

 

 

 

 

 

Appendix B 

Federal Emergency Management Agency 

Status of Prior Year NFRs 

September 30, 2010 

Disposition1 

NFR No. Description Closed2 Repeat (2010 NFR No.) 

09-36 Internal Control Deficiencies over Claims Paid at Selected 

Insurance Companies that Participate in FEMA’s NFIP 

FEMA 10-01, 

10-01a 

09-37 Inaccuracy of Claims’ Loss Reserves at Selected WYO Insurance 

Companies that Participate in FEMA’s NFIP 

FEMA 10-02, 

10-02a 

09-38 Number not used Not applicable 

09-39 

Insufficient FEMA Oversight of the NFIP Service Provider’s 

Methodology Used to Calculate Estimates Reported in the FEMA 

Financial Statements 

X 

09-40 Number not used Not applicable 

09-41 Deficiencies in the Submit for Rate Program and Claims 

Reinspection Program X 

09-42 

Lack of Consistent Policies and Procedures Over and Timely 

Documentation of the Initial Response Resources Inventory (IRR) 

Reconciliation Process 

X 

09-43 Lack of Consistent Policies and Procedures Involving the Monthly 

IRR Inventory Rollforward Process X 

09-44 Insufficient Resources in the Risk Management & Compliance 

Branch X 

09-45 Monitoring and Communication of Significant Financial-Related 

Matters in the NFIP X 

09-46 Number not used Not applicable 

09-47 Number not used Not applicable 

09-48 Number not used Not applicable 

09-49 Number not used Not applicable 

09-50 Improvements Needed in Review and Recording of Year-end MA 

Accrual FEMA 10-17 

09-51 

Internal Control Deficiencies over the NFIP Restricted Bank 

Account Reconciliations at Selected Insurance Companies that 

Participate in FEMA’s NFIP 

X 

09-52 Issues identified in JV Testwork Relating to DHS TIER File 

Adjustments and IFMIS Abnormal Balances 

FEMA 10-26, 

10-26a 

09-53 Internal Control Deficiencies over NFIP TIER JV Adjustments FEMA 10-31 

09-54 

Deficiencies in Development and Application of Policy and Lack of 

Controls Related to the Non-Grant, Non-System-Generated A/P 

Accrual 

FEMA 10-07 

09-55 Deficiencies in Development and Application of MA Policies FEMA 10-15 

09-56 Ineffective Review Controls over the Accounts Receivable Process X 

09-57 Lack of Supporting Documentation for Disaster Fund (Fund 6) 

UDOs 

Combined into 

FEMA 10-32 

09-58 Lack of Supporting Documentation for Non-Fund 6 UDOs Combined into 

FEMA 10-32 

09-59 Improvements Needed in Management’s Review of Grant Data and 

Automated Reconciliations in Grant Accrual Models FEMA 10-24 

09-60 Improper Accounting for Budgetary Entries in Treasury 

Appropriation Fund Symbol (TAFS) 709/00561 X 

1 KPMG was engaged to perform an audit over the DHS balance sheet and statement of custodial activity as of and 

for the year ended September 30, 2010, and was not engaged to perform an audit over the statement of net cost, 

statement of changes in net position, and statement of budgetary resources for the year ended September 30, 2010. 

In addition, we were engaged to follow up on the status of all active NFRs that supported significant deficiencies 

16 
 

Appendix B 

Federal Emergency Management Agency 

Status of Prior Year NFRs 

September 30, 2010 

reported in KPMG’s Independent Auditors’ Report dated November 13, 2009. 

2 NFRs were closed either through remediation of the findings or that we were not engaged to follow up on active 

NFRs that did not support significant deficiencies reported in KPMG’s Independent Auditors’ Report dated 

November 13, 2009. 

17
 
 
lJ. '. u..!UMoL< -In-io.M s.-riIY 'W~rx;mll

II1II 11 2llt1 FEMA

MEMORANOUM FOR,

FROM:

SClliECT:

Anne L. Richards

Assistant Inspector GenemJ for Audits

~~~~~~oifiJ v0' "

Federal Emergency M~emenl Agency

Response to Draft Repon ··Fetkra/ Emergency Manag~menl Ag~ncy

Managemenr utt~rfiN FY 20/0 DHS Consolidated Ffrrancial

SU:llelPKnI Audit"

This memon:ndl:::1 provides a response to the Federal Emergency Management Agency's

m:ommmdatiOM cited in FY 1010 DHS COIlJolidated Financial Statemenl Audit I am responding

to the draft I'eJXln cited above.

FMC 10·01 -lllttl'1lal CHtrol Ddkieac::in onl' Claims Paid at Selected wanutee CompaDia

tllat Panicipate In Fedenl Em~c:y Mu.8le.tat Aaeacy's (FEMA) Natioa.al Flood

InsuJ"UKe Progr..t (NflP) (NEll Nos. lUI otl}U}tI)

~tconcurs with the audit report recommendation. NFIP Management initiated follow-up

with the WYO companies on the excc:ptiOllS noted. The NFlP will conunue to review '¥.'YO

company claims handling as part ofthe ongoing claims operation reviev.'$lo cnsure compliance with

1\'FlP guidelines and consistent establishment and reponing ofloss rese"'es and subsequtnt

adjustments. Manaaement does not believe that claims loss reserves mlllerial to !he 10"

reserving process.

FMC 10-01- Inaccuracy ofClaims' Lo.. Reserves at SelKttd las.ranee Comp~that

P....-tttipate ill FEMA', r;np (NFR Nos. JO-Q2 tuullO-Ola)

Management concurs with the audit repon recommendation. NFlP Management has initiated

follo",·up with the WYO compames on the exceptions DOted and will continue 10 review \\'YO

company claims loss reserving as part oftbe onaoina claims opeBtion reviews to ensure consistent

establishment and reportina ofloss reserves and subsequent adjustments Management does not

believe that claims loss reserves are mmcriaIlO the loss reserving process..

FMC 10-03 - [unrwa! Co.trol DnJcinlcies over Prcmi.., Wrtnn .t Sd«ted [lUuruee

Compuies that Participate ill FEMA'I ""FlP (NFIt Nos. FEMA JfJ-(JS uti JU5aj

Management concun: with the audit report recommendation. NFIP Manaaemen1 has initiated

follow.up with the WYO companies on the exceptions noted and ","ill continue to rt.... iev. WYO

company wtderwriling proccsse.s as part oftbt: ongoioj, underwriting operalion reviews.

Appendix C 

Federal Emergency Management Agency 

Management Response to the
 
 

Management Letter
 
 

18
 
 
FMC 10-G4 - De:6ciudes i.D. the Budzd EuntioD Rt'pon Prepanttoa Proctfl (NFR No.

FEMA 1f..tJd)

Management concurs with the audit report recommendation. OCFO bas a dedicated rr:rncxiillion

dfort lJZlder,1,..y to mnoiiee this issue.

FMC 10-45 - Ddidr:ada i.D. tIte Devdop..eat ud ApplitatioD or Pelida Related 10 the NODGraot, ~.a-Mialioll Auipmqt, aod Noa-SyakDI Gcatrated ACCOwaB rayable (AlP) Atxnlal

(HF. No.. FEMA 1(7)

Management concurs with the: audit repon m;:onuncndation. OCFO has a dedicated remedialion

effort UDdaway to rc:mecbzte thU issue.

FMC 10-06 - Coafrol Ddicimc:ies _d UaderlyiDc Datil Ddicieaclts Related 10 tbe Noo-Grut.,

NOD-Millton Aaipllleat, and N'oa-System Gneraled AttOUDlJ Payable: Attrual (lfFR No.

FEAtA 1fUJ')

Manaaement concUI$ with the audit report recommendation_ OCFO has • dediated remediation

clfon tmderway to remedia1e this issue.

FMC I"" - laJ.trkieat Office of tIIa Cilief FiuDdaJ Oftker (OCfO) Rniew of FEMA's

Lep.I LiJlbilily ADd R,Nted Disdosaft (NFR No.. FEMA. 1~11)

Management conc~ with the audit report n:corrunendation OCFO is workin~ towards remediation

ofthis issue.

FMC 10-08 - Deficieacla in the De,·eIop..eal of Miaioo AlligDmut (MA) Polides aad

P'ro£edurn (NER No. FEMA 10-1S)

Management eoncurs with the audit report RCommendation. OCFO is working towards remediation

of lhis issue.

FMC 10-09 - lmpro"emeDts Needed In Review aad Recordia& of Year-ead Mission

AuipmcDI Accrual (HFR No. FEMA J(J-17)

:\{anagemem concurs with the audit report recommendation. OCFO is worlcing towards remediation

of Ihi:s issue.

fMC It-l0 - u.ck of Ccrtaia DocumentlldoD Related to Compliaaai with tile Improper

PaymClltsl.formatioD Act of2002, u ame.ded (lP1A) (NFll No. FEMA 10-20J

ManagetDQ1t concun with lbc: aud..il repon recommeodation. OCFO is workini towards remediation

ofthis issue.

FMC 10-11 - lability to Li.a.k Sy.taaI to Sipifieaol Graul Proanas (NF. No. FEMA 10-11)

Manageme:nl conc:l.IJ"S whh the audit report recommendation. OCFO is W.:l!"kin& towards rernediaIl()n

ofthis issue.

Page 2 of]

Appendix C 

Federal Emergency Management Agency 

Management Response to the
 
 

Management Letter
 
 

19
 
 
FMC 1()..12 - Failure to IdstUy ud AIMII AttOutiDl PoliriellPradica l'\ol ia AcconhDc:c

with GsuaJly Accepted AceoutiDl Principles (l'\o•...cAAP) (HFR No. FEMA J~l1)

Man.agemc:rrt concun with the alldn report rcc:ommc:odation. OCFO is working tov.'atds remediation

oftbis issue

FMC 10-13- Ddidmcy Jd~1ified Relalnllo lbe PnparattoD and R.e\iew ofille Retrolpective

Reserve ADalysu (NFR No. FEMA 10-25)

Managemenl conCl1n with the audit report ~mmendation. The ChiefAc.:tuary has enhanced the

retruspective reserved analysis review process to include a review of the ac:uracy ofthe amounts

and the calculations in the analysis.

FMC 11-14 - Lau. or S.pporting D«..eotatiOD for Prompt PaymeDI Sample Item (/!t'FR No.

UMA 10-26)

Mar..agement concurs with the audit report m:ommeDdation. OCFO is worhfl& towards remediation

ofmis i5Sl.lC.

FMC l~lS - Ddic:ieoq io tke MGodoIoc:r Used 10 Cakma~ the No..c.rTftll Portioa of the

luannce Liability f.atilllate: (NFR .'\'0. FEMA 18-29)

Managcrnm1 conCW'l with the audit report reeommeodation. FEMA's OCFO and the Mitigation

Directma1e are dc:vclopine procedW'eS to reassess periodically 11. metbodD:06Y for calculating lM

curTe!lt and non-cum:nt portions ofthe insurmec liability estimate that complies \\ith \be applicable

8Ca)llIItin,g staDdards.

FMC 10-16- FailW't to CleM Assistance to Firefilltle£ Grants (AFG) Timely (NFR No. FEMA

IO-JO)

Management concurs with the audit report rttOmmendauoo. OCFO is working towards remediation

ofthis issue.

Should you have My questions or concerns, pleMe contact Kathy Hill. Director, Risk Management

and Compliance at (202) 64&7057 or by e.maiJ at .......... _

Pq,e]orJ

Appendix C 

Federal Emergency Management Agency 

Management Response to the
 
 

Management Letter
 
 

20
 
 
 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretariat 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

Chief Financial Officer 

Chief Information Officer 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 
ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this report, please call the Office of Inspector General (OIG) at (202) 254-4100, 

fax your request to (202) 254-4305, or visit the OIG web site at www.dhs.gov/oig. 

OIG HOTLINE 

To report alleged fraud, waste, abuse or mismanagement, or any other kind of criminal or noncriminal 

misconduct relative to department programs or operations: 

• Call our Hotline at 1-800-323-8603; 

• Fax the complaint directly to us at (202) 254-4292; 

• Email us at DHSOIGHOTLINE@dhs.gov; or 

• Write to us at: 

DHS Office of Inspector General/MAIL STOP 2600, 

Attention: Office of Investigations - Hotline, 

245 Murray Drive, SW, Building 410, 

Washington, DC 20528. 

The OIG seeks to protect the identity of each writer and caller.