Special Report: 

Lessons Learned from 

Previous Audit Reports on 

Insurance under the Public 

Assistance Program 

November 7, 2017 

OIG-18-12 
 

 

DHS OIG SPECIAL REPORT 

 Lessons Learned from Previous Audit Reports 

 on Insurance under the Public Assistance Program 

November 7, 2017 

Why We Did 

This Special 

Report 

We prepared this special 

report to address challenges 

FEMA, Texas, Florida, U.S. 

territories in the Caribbean, 

and California may face 

managing insurance under 

the Public Assistance 

program in the wake of 

Hurricanes Harvey, Irma, 

and Maria, and the October 

2017 California wildfires. 

This report describes 

lessons learned from 

findings and 

recommendations contained 

in our DHS OIG grant audit 

reports issued from fiscal 

years 2013–2017. 

What We 

Recommend 

This special report contains 

no recommendations and 

no response from FEMA is 

required. 

For Further Information: 

Contact our Office of Public Affairs at 

(202) 254-4100, or email us at 

DHS-OIG.OfficePublicAffairs@oig.dhs.gov 

What We Found 

If the Federal Emergency Management Agency 

(FEMA) does not address the recurring issues we 

identified in our previous reports, it will be at risk 

of violating the Robert T. Stafford Disaster Relief 

and Emergency Assistance Act and exposing 

billions of taxpayer dollars to fraud, waste, or 

mismanagement. 

During fiscal years 2013–2017, we issued 37 

Disaster Assistance grant audit reports that 

disclosed challenges with FEMA’s Public 

Assistance insurance process. The major 

recurring challenges we identified include: 

	 Duplicate benefits in which subrecipients 

claimed FEMA reimbursement for costs 

that were covered by insurance; 

	 Insufficient insurance in which 

subrecipients did not obtain and maintain 

sufficient insurance coverage required as a 

condition for receiving Federal disaster 

assistance; and 

	 Misapplied or misallocated insurance 

proceeds in which subrecipients received 

insurance proceeds, and misapplied or did 

not allocate those proceeds to FEMA

 projects. 

The reports included 40 recommendations for 

FEMA to address deficiencies or errors, totaling 

$322.1 million in questioned costs. 

FEMA will likely face similar challenges pertaining 

to insurance during recovery from Hurricanes 

Harvey, Irma, and Maria, and the October 2017 

California wildfires. 

www.oig.dhs.gov	 OIG-18-12 
 

 

 

 

 

 

 

 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Washington, DC 20528 / www.oig.dhs.gov 

November 7, 2017 

MEMORANDUM FOR: Jeffrey Byard 

Associate Administrator 

Office of Response and Recovery 

FROM: 

SUBJECT: Special Report: Lessons Learned from Previous Audit 

Reports on Insurance under the Public Assistance 

Program 

Attached is our final Special Report: Lessons Learned from Previous Audit 

Reports on Insurance under the Public Assistance Program. This report was 

prepared under the Inspector General Act of 1978, as amended, Section 2-2, to 

provide leadership, coordination, and guidance; promote economy, efficiency, 

and effectiveness; and prevent and detect fraud, waste, and mismanagement in 

FEMA’s programs and operations. 

This report describes lessons learned from previously issued Department of 

Homeland Security Office of Inspector General (DHS OIG) grant audit reports 

regarding the Federal Emergency Management Agency’s (FEMA) management 

of insurance under the Public Assistance program. We issued 37 reports 

during fiscal years 2013–2017 that included findings pertaining to insurance 

(see appendix B, table 3). We made 40 recommendations, totaling $322.1 

million in questioned costs, for FEMA to address issues such as duplicate 

benefits, insufficient insurance, and misapplied or misallocated insurance 

proceeds. 

We are providing this report to reemphasize to FEMA’s leadership the potential 

insurance-related challenges that will likely arise during the recovery phases of 

Hurricanes Harvey, Irma, and Maria, and the October 2017 California wildfires. 

Consistent with our responsibility under the Inspector General Act, we will 

provide copies of this report to appropriate congressional committees with 

oversight and appropriation responsibility over the Department of Homeland 

Security. We will post a version of the report on our website for public 

dissemination. 

Federal Emergency Management Agency 

John E. McCoy II 

Acting Assistant Inspector General for Audits 

www.oig.dhs.gov 
 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Background
 

Between August and October 2017, FEMA faced significant challenges when 

responding to and recovering from four catastrophic disasters. On the east 

coast, the landfall of three Category 4 hurricanes were historic events and 

caused major flooding and widespread destruction in Texas, Florida, and the 

U.S. territories in the Caribbean.1 For instance, rainfall from Hurricane Harvey 

exceeded 50 inches in some areas of Texas, and winds reached 130 miles per 

hour. 

Figure 1: View from FEMA's Urban Search and Rescue, 

Houston, Texas
 

Source: FEMA 

Hurricane Irma destroyed more than 25 percent of the homes in some 

communities in Florida. 

1 See table 1 in appendix B for more details. 

www.oig.dhs.gov 1 OIG-18-12 
 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Figure 2: Fort Myers, Florida, neighborhood after Hurricane Irma 

Source: FEMA 

As FEMA responded to three major hurricanes on the east coast, on the west, 

the most destructive wildfires in California’s history devastated northern 

California. During October 2017, wildfires that ignited in California destroyed 

more than 245,000 acres, an estimated 8,400 structures, and resulted in the 

loss of 42 lives. In response to the hurricanes and wildfires, the President 

signed seven major disaster declarations,2 providing Individual Assistance,3 

Public Assistance,4 and Hazard Mitigation to affected communities within the 

designated areas.5 

2 See table 2 in appendix B for more details of the disaster declarations. 

3 FEMA’s Individual Assistance program provides housing assistance and assistance for 

medical, funeral, and transportation expenses to eligible individuals who, because of a federally 

declared major disaster or emergency, have necessary expenses and serious needs that 

insurance or other means does not cover. 

4 FEMA’s Public Assistance program awards grants to state, local, and federally recognized 

tribal governments and certain private non-profit entities to assist them with the response to 

and recovery from federally declared disasters. 

5 Hazard mitigation is any sustained action taken to reduce or eliminate long-term risk to 

people and property from natural hazards and their effects. 

www.oig.dhs.gov 2 OIG-18-12 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Figure 3: Texas Designated Areas 

Source: FEMA 

Figure 4: Florida Designated Area 

Source: FEMA 

www.oig.dhs.gov 3 OIG-18-12 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Figure 5: Puerto Rico Designated Areas 

Source: FEMA 

Figure 6: U.S. Virgin Islands Designated Areas 

Source: FEMA 

www.oig.dhs.gov 4 OIG-18-12 
 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Figure 7: California Designated Areas 

Source: FEMA 

Under the authority of the Robert T. Stafford Disaster Relief and Emergency 

Assistance Act (Stafford Act), FEMA provides Public Assistance grant funding to 

states, tribal, and local governments, and certain types of private nonprofit 

organizations. However, according to Public Assistance insurance 

requirements, FEMA must deduct actual and anticipated insurance recoveries 

from eligible costs. The Stafford Act, section 312, Duplication of Benefits, 

stipulates that no entity will receive assistance for a loss for which it has 

received financial assistance from insurance. 

In addition, the 44 Code of Federal Regulations (CFR) 206.252(d) and 

206.253(b)(1) require subrecipients of Public Assistance to obtain and maintain 

insurance against future losses from the hazard that caused the damage to the 

property as a condition of receiving Federal aid. If subrecipients do not satisfy 

this requirement, similar damages to repaired insurable facilities from future 

declared disaster events are ineligible for Federal aid. The required “type and 

extent” 6 of insurance coverage should be reasonable and necessary to protect 

the property from any future losses. FEMA will not require greater types and 

amounts of insurance than are certified as reasonably available, adequate, or 

necessary by the appropriate state insurance commissioner. 

6 “Types of insurance” refers to the hazard(s) that caused the disaster-related damage and 

“extent” refers to the amount of insurance required (FEMA Recovery Policy FP-206-086-1). 

www.oig.dhs.gov 5 OIG-18-12 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Prior Findings and Recommendations 

From fiscal years 2013–2017, we issued 37 reports with 40 recommendations 

totaling $322.1 million in questioned costs for reportable issues pertaining to 

insurance. These issues included duplicate benefits, insufficient insurance, 

and misapplied or misallocated insurance proceeds.7 

Duplicate Benefits 

We reported 19 instances in which subrecipients claimed $182.4 million in 

project costs that duplicated benefits received from insurance. According to the 

Stafford Act, section 312, however, an entity cannot receive Federal financial 

assistance for any loss for which it has received financial assistance for the 

same purpose from any other program, insurance, or any other source. 

Duplicate benefits primarily occurred because FEMA’s insurance reviews were 

inadequate to ensure that approved project costs included required reductions 

for the maximum amount of insurance benefits available to subrecipients. As a 

result, FEMA funded $182.4 million in project costs that insurance should 

have covered. 

Advisement 

FEMA should improve its processes and procedures to ensure that approved 

project costs include required reductions for the maximum amount of 

anticipated or actual insurance proceeds. 

Insufficient Insurance 

We reported seven instances totaling $133.1 million in which subrecipients did 

not obtain or maintain sufficient insurance required as a condition for receiving 

Federal disaster assistance. Section 311 of the Stafford Act, requires 

subrecipients of disaster assistance to obtain and maintain such types of 

insurance “as may be reasonably available, adequate, and necessary, to protect 

against future loss” to “any property to be replaced, restored, repaired, or 

constructed with such assistance.” 

Additionally, FEMA’s Public Assistance Program and Policy Guide (FP 104-009-

2, April 2017, p. 88), indicates that subrecipients receiving Public Assistance 

funding for permanent work to replace, repair, reconstruct, or construct a 

facility must obtain and maintain insurance to protect the facility against 

future loss. The issue of insufficient insurance occurred primarily because 

7 See table 3 in appendix B for more details on the reports issued from fiscal years 2013–2017, 

the related insurance findings, and questioned costs. 

www.oig.dhs.gov 6 OIG-18-12 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

FEMA’s insurance specialists routinely waived the requirement to obtain and 

maintain insurance for future disasters. 

Advisement 

FEMA should improve its processes and procedures to ensure that 

subrecipients obtain and maintain insurance on insurable facilities and their 

contents with the “types and extent” of insurance that is reasonably available, 

adequate, and necessary to protect against future loss to the property. 

Misapplied or Misallocated Insurance Proceeds 

We reported 14 instances totaling $6.6 million in which subrecipients and 

FEMA did not correctly apply insurance proceeds. Federal regulations at 44 

CFR 206.253(a), require eligible costs be reduced by the actual amount of 

insurance proceeds relating to the eligible costs. This issue occurred primarily 

because FEMA did not always complete the required insurance reviews to 

determine estimated insured losses, although subrecipients are responsible for 

reporting actual collected insurance. Completing these reviews prevents FEMA 

from over obligating Federal funds that it could otherwise put to better use. 

Advisement 

FEMA should improve its processes and procedures to ensure that it correctly 

applies insurance proceeds to eligible project costs. 

Conclusion 

FEMA will be at risk of exposing billions of dollars of taxpayer funds to 

potential fraud, waste, or mismanagement if it does not conduct adequate and 

thorough insurance reviews during the project approval process and final 

project reviews. Close attention to the insurance reviews will help to ensure 

that subrecipients: 

x who received financial aid for previous disaster damages satisfy the 

requirement to obtain and maintain insurance; and 

x avoid duplicate benefits by deducting all anticipated and actual 

insurance proceeds from the cost of eligible facilities and property. 

In June 2017, we reported that FEMA was not fully addressing previously 

issued recommendations pertaining to insurance; these recommendations are 

critical to FEMA’s success in managing insurance requirements in accordance 

with Federal regulations.8 

8 OIG-17-50-VR, Verification Review: FEMA’s Lack of Process for Tracking Public Assistance 

Insurance Requirements Places Billions of Tax Dollars at Risk (June 9, 2017). 

www.oig.dhs.gov 7 OIG-18-12 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

FEMA emphasized the importance of the insurance reviews as part of the 

recovery process in a memorandum addressed to the FEMA Regional 

Administrators on September 10, 2017. To help maintain the integrity of 

Federal disaster assistance, FEMA highlighted specific insurance issues. FEMA 

also underscored the importance that subrecipients clearly understand 

regulations concerning duplication of benefits, as well as the requirements to 

obtain and maintain insurance for Public Assistance projects. 

The Office of Audits major contributors to this report are Humberto Melara, 

Director; Louis Ochoa, Audit Manager; Renee Gradin, Auditor-in-charge; Victor 

Du, Auditor; Daniel Flores, Auditor; Kevin Dolloson, Communications Analyst; 

and LaDana Smith, Independent Reference Reviewer. 

Please call me with any questions, or your staff may contact Paul Wood, Acting 

Deputy Assistant Inspector General for Audits, or Humberto Melara, Director, 

at (510) 637-1463. 

www.oig.dhs.gov 8 OIG-18-12 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix A 

Objective, Scope, and Methodology 

The purpose of this special review was to notify FEMA of the challenges it may 

face managing insurance under the Public Assistance program during the 

recovery from Hurricanes Harvey, Irma, and Maria, and the October 2017 

California wildfires. This report describes lessons learned regarding insurance 

findings and recommendations we made in previous audit reports. To 

accomplish our objective, we compiled and summarized reportable issues 

concerning insurance under the Public Assistance program from our reports 

issued in fiscal years 2013–2017; analyzed the insurance findings and 

recommendations in those reports; and quantified the financial significance of 

those findings. 

We conducted this special review in September 2017. This report was prepared 

under the Inspector General Act of 1978, as amended, Section 2-2, to provide 

leadership and coordination and recommend policies for activities designed to 

promote economy, efficiency, and effectiveness in the administration of, and to 

prevent and detect fraud and mismanagement in, such programs and 

operations. The work performed in this review does not constitute an audit in 

accordance with generally accepted government auditing standards. 

www.oig.dhs.gov 9 OIG-18-12 
 

 

 

 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix B 

Tables 

Table 1: 2017 Hurricanes Making Landfall in United States and U.S. 

Territories 

Hurricanes Landfall 

Dates Harvey Irma Maria 

Landfall 

Texas August 23 

U.S. Virgin Islands September 6 

Puerto Rico September 6 

Location Florida September 10 

U.S. Virgin Islands September 20 

Puerto Rico September 20 

Source: OIG analysis 

Table 2: Major Disaster Declarations 

States and 

Major Disaster Declarations 

(Hurricanes) Declaration 

Territory Dates Harvey Irma Maria 

Texas DR-4332 August 25 

U.S. Virgin Islands DR-4335 September 7 

Puerto Rico DR-4336 September 10 

Florida DR-4337 September 10 

Puerto Rico DR-4339 September 20 

U.S. Virgin Islands DR-4340 September 20 

State Major Disaster Declarations 

(Fires) 

Declaration 

Dates 

California DR-4344 October 8 

Source: FEMA 

www.oig.dhs.gov 10 OIG-18-12 
 

OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix B (Continued) 

Table 3: Fiscal Years 2013 to 2017 Subgrant Reports 

Fiscal Year 

Issued 

Report 

Number 

Duplicate 

Benefits 

Insufficient 

Insurance 

Misapplied 

or 

Misallocated 

Total 

Questioned 

Cost 

FY13 DA-13-04 $ 0 $ 0 $ 180,626 $ 180,626 

FY13 DA-13-08 21,289 21,289 

FY13 DA-13-10 949,378 949,378 

FY13 DA-13-16 45,372 45,372 

FY13 DA-13-19 63,214 63,214 

FY13 DA-13-20 20,105 20,105 

FY13 DA-13-22 277,596 277,596 

FY13 DA-13-23 189,638 189,638 

FY13 

FY13 

FY13 

FY13 

FY13 

FY14 

FY14 

FY14 

FY14 

FY14 

FY14 

FY14 

FY15 

DD-13-01 

DD-13-03 

DD-13-04 

DD-13-06 

DD-13-12 

OIG-14-07-D 

OIG-14-10-D 

OIG-14-49-D 

OIG-14-109-D 

OIG-14-114-D 

OIG-14-124-D 

OIG-14-127-D 

OIG-15-19-D 

61,958 

20,542 

25,000 

67,472 

177,178,950 

62,391,049 

13,958,266 

7,329,927 

33,072 

48,879,429 

1,714,845 

83,075 

1,238,599 

75,494 

557,943 

64,105,894 

13,958,266 

7,329,927 

83,075 

1,238,599 

108,566 

48,879,429 

61,958 

20,542 

25,000 

557,943 

67,472 

177,178,950 

FY15 OIG-15-37-D 87,208 87,208 

FY15 OIG-15-50-D 46,500 46,500 

FY15 OIG-15-90-D 45,721 45,721 

FY15 OIG-15-104-D 135,000 135,000 

FY15 OIG-15-127-D 109,773 109,773 

FY15 OIG-15-130-D 148,500 148,500 

FY15 OIG-15-132-D 226,601 226,601 

FY15 OIG-15-136-D 504,896 504,896 

FY15 OIG-15-151-D 431,507 431,507 

FY16 OIG-16-12-D 33,739 33,739 

FY16 OIG-16-21-D 46,478 1,195,876 1,242,354 

FY16 OIG-16-24-D 300,315 300,315 

FY16 OIG-16-60-D 140,088 140,088 

FY16 OIG-16-63-D 247,309 247,309 

FY16 OIG-16-140-D 405,158 405,158 

FY17 OIG-17-93-D 

Totals 

 Recommendations 

2,643,936 

$182,355,277 

19 

$133,143,117 

7 

$6,613,050 

14 

2,643,936 

$322,111,444

40 

See DHS OIG reports under the “Reports” tab at http://www.oig.dhs.gov/. 

www.oig.dhs.gov 11 OIG-18-12 
OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix C 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

General Counsel 

Executive Secretary 

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 

Federal Emergency Management Agency 

Administrator 

Chief of Staff 

Chief Financial Officer 

Chief Counsel 

Director, Risk Management and Compliance 

Chief Procurement Officer 

Regional Administrator, FEMA Region II 

Regional Administrator, FEMA Region IV 

Regional Administrator, FEMA Region VI 

Audit Liaison, FEMA (Job Code 17-119-EMO-FEMA) 

Audit Liaison, FEMA Region II 

Audit Liaison, FEMA Region IV 

Audit Liaison, FEMA Region VI 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees 

www.oig.dhs.gov 12 OIG-18-12 
Additional Information and Copies 

To view this and any of our other reports, please visit our website at: 

www.oig.dhs.gov. 

For further information or questions, please contact Office of Inspector General 

Public Affairs at: DHS-OIG.OfficePublicAffairs@oig.dhs.gov. 

Follow us on Twitter at: @dhsoig. 

OIG Hotline 

To report fraud, waste, or abuse, visit our website at www.oig.dhs.gov and click 

on the red "Hotline" tab. If you cannot access our website, call our hotline at 

(800) 323-8603, fax our hotline at (202) 254-4297, or write to us at: 

Department of Homeland Security 

Office of Inspector General, Mail Stop 0305 

Attention: Hotline 

245 Murray Drive, SW 

Washington, DC 20528-0305