DISASTER RELIEF

Reimbursements to 

the American Red 

Cross for Certain 2008 

Disaster Assistance

Report to Congressional Committees

September 2012

GAO-12-877

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-877, a report to 

congressional committees

September 2012

DISASTER RELIEF

Reimbursements to the American Red Cross for 

Certain 2008 Disaster Assistance

Why GAO Did This Study

In accordance with Public Law 110-

329, GAO is required to audit the use 

of funds reimbursed to the Red Cross 

for relief and recovery services 

provided in response to 77 disasters 

that occurred in 2008 and were 

declared by the President of the United 

States to be major disasters. These 

disasters were due to flooding, 

tornadoes, and severe storms, 

including three major hurricanes that 

made landfall in the United States 

(Dolly, Gustav, and Ike). The 

objectives of GAO’s audit were to 

determine if (1) FEMA established 

criteria and defined allowable 

expenditures to ensure that 

reimbursement claims paid to the Red 

Cross that met the requirements of the 

law, (2) funding had not been made 

available by other federal sources for 

reimbursements paid to the Red Cross, 

(3) reimbursements were paid only for 

Red Cross expenses related to 2008 

disasters declared by the President, 

(4) reimbursement claims were 

supported by sufficient documentation, 

and (5) administrative costs charged to 

the appropriation by FEMA were 

appropriate and did not exceed 

statutory monetary limits. 

To fulfill its audit responsibilities, GAO 

examined documentation supporting 

FEMA’s reimbursements to the Red 

Cross for 2008 disasters and verified 

that they were for costs incurred for 

purposes allowed by law, and that 

administrative costs incurred by FEMA 

were appropriate and within statutory 

monetary limits. 

GAO is not making any 

recommendations in this report.

What GAO Found

GAO’s review of the reimbursements the Federal Emergency Management 

Agency (FEMA) made to the American Red Cross (Red Cross) related to the 77 

presidentially declared major disasters in 2008 found 

• FEMA established criteria for the reimbursements that was consistent with 

the law, 

• no evidence that funding from other federal sources had been made 

available for the costs that FEMA reimbursed, 

• FEMA only reimbursed the Red Cross for the costs of disasters that occurred 

in 2008 and were declared by the President to be major disasters, 

• claims for reimbursement submitted by the Red Cross were supported by 

sufficient documentation, and 

• administrative costs charged to the appropriation by FEMA were for 

appropriate purposes and within the dollar limits permitted by law.

GAO’s review encompassed $78.8 million in claims for 2008 disaster-related 

direct costs the Red Cross submitted to FEMA for reimbursement from 2009 

through 2011. FEMA reviewed the documentation provided by the Red Cross to 

support its claims to determine if they related to presidentially declared 2008

major disasters, related to allowable expenses, and were supported by sufficient 

documentation. Based on the results of its review, FEMA determined that 

$61.6 million of the claims were valid and reimbursed the Red Cross. The 

remaining claims, totaling $17.2 million, were denied by FEMA either because 

the basis of the claim was not considered appropriate or supporting 

documentation was not considered to be sufficient. FEMA also reimbursed the 

Red Cross for $16.5 million in indirect overhead costs. 

Storm Paths of 2008 Hurricanes Dolly, Gustav, and Ike

Note: For NOAA hurricane tracks, see http://csc.noaa.gov/hurricanes/#. View GAO-12-877. For more information, 

contact Steven J. Sebastian at (202) 512-3406 

or sebastians@gao.gov
Page i GAO-12-877 Red Cross 2008 Disaster Assistance

Letter 1 

Background 3

FEMA’s Reimbursements of Red Cross’s Claims Were Proper 4

Administrative Costs Incurred by FEMA Were for Appropriate 

Purposes and within Authorized Limits 6

Agency Comments 6

Appendix I Audit Methodology 8

Abbreviations

DHS Department of Homeland Security

FEMA Federal Emergency Management Agency

OMB Office of Management and Budget

Contents

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Page 1 GAO-12-877 Red Cross 2008 Disaster Assistance

United States Government Accountability Office

Washington, DC 20548

September 14, 2012

The Honorable Mary Landrieu

Chairman

The Honorable Dan Coats

Ranking Member

Subcommittee on Homeland Security

Committee on Appropriations

United States Senate

The Honorable Robert B. Aderholt

Chairman

The Honorable David E. Price

Ranking Member

Subcommittee on Homeland Security

Committee on Appropriations

House of Representatives

The Disaster Relief and Recovery Supplemental Appropriations Act, 2008 

(2008 Act)1 provided up to $100 million of appropriated federal funds to 

the Secretary of Homeland Security for the purpose of reimbursing the 

American Red Cross (Red Cross) for disaster relief, recovery expenses, 

and emergency services associated with hurricanes, floods, and other 

natural disasters occurring in 2008 that the President declared to be 

major disasters under Title IV of the Robert T. Stafford Disaster Relief 

and Emergency Assistance Act of 1974 (Stafford Act).2

 

1

Pub. L. No. 110-329, div. B., § 10502, title I, 122 Stat 3574, 3593 (Sept. 30, 2008). 

The 2008 Act also 

(1) limited reimbursement to costs associated with those activities for 

which funding had not been made available by other federal sources and 

(2) limited administrative costs to 3 percent of the total appropriation, or 

$3 million. The Secretary delegated to the Federal Emergency 

Management Agency (FEMA) the authority to administer these funds.

2

42 U.S.C. Chapter 68, subchapter IV. The Stafford Act defines the conditions that 

constitute major disasters, as well as the process by which they are declared as such by 

the President of the United States. The Red Cross is a federally chartered instrumentality 

whose purposes include volunteering aid to the sick and wounded of the armed forces in 

time of war and carrying on a system of national and international relief in time of peace 

and apply that system in mitigating the suffering caused by pestilence, fire, famine, floods 

and other great national calamities.

 
Page 2 GAO-12-877 Red Cross 2008 Disaster Assistance

FEMA and the Red Cross entered into a memorandum of agreement 

specifying how the reimbursements were to be claimed, processed, and 

approved. The 2008 Act also mandated that GAO audit the use of these 

funds.

To fulfill our responsibilities, we audited FEMA’s review and 

reimbursement of Red Cross claims including related indirect overhead 

costs and the related costs FEMA incurred for administration. Our 

objectives were to determine whether (1) FEMA had established 

adequate criteria for determining whether the Red Cross expenses 

claimed were reimbursable, (2) any reimbursements to the Red Cross by 

FEMA were based on costs for which funding had not been made 

available by other federal sources, (3) FEMA reimbursed the Red Cross 

only for expenses it incurred in providing assistance related to disasters 

occurring in 2008 that had been declared to be major disasters by the 

President, (4) reimbursement claims submitted by the Red Cross to 

FEMA were supported by sufficient documentation, and (5) administrative 

costs charged to the appropriation by FEMA were for appropriate 

purposes and in total did not exceed 3 percent of the $100 million 

appropriation allowed by the 2008 Act.

The Red Cross submitted its claims for reimbursement from July 2009

through May 2011, each of which encompassed multiple individual 

expenses it incurred in providing assistance related to 2008 disasters 

declared by the President. Each claim was accompanied by the 

supporting documentation that the Red Cross considered to be 

appropriate. FEMA reviewed each claim and its supporting documents, 

and determined whether it was sufficient. In those cases where the 

support provided was considered to be insufficient, FEMA communicated 

its concerns to the Red Cross, which then, depending on the 

circumstances, either provided additional documentation or amended the 

claim. For any case in which the Red Cross was ultimately unable to 

provide sufficient supporting documentation, FEMA either reduced or 

denied the claim, as appropriate. To satisfy our objectives, we audited 

(1) the reimbursements approved and paid by FEMA to determine 

whether they were consistent with the terms of the memorandum of 

agreement, and (2) the administrative costs charged to the appropriation 

by FEMA to determine whether they were for appropriate purposes and 

within the dollar limitations of the 2008 Act.
Page 3 GAO-12-877 Red Cross 2008 Disaster Assistance

We conducted this performance audit from July 2010 to September 2012 

in accordance with generally accepted government auditing standards.3

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. Additional details concerning 

our audit methodology are included in the appendix I. 

For calendar year 2008, the President of the United States declared 77 

major disasters. These disasters included flooding, severe storms such 

as tornadoes, and three major hurricanes (Gustav, Dolly, and Ike) that 

made landfall in the United States. The 2008 Act provided up to $100 

million that was to remain available until September 30, 2009. 

Accordingly, the Department of Homeland Security (DHS) obligated $100 

million in June 2009, $98 million of which was available for payments to 

the Red Cross upon submission of sufficient documentation to support 

claims for allowable costs, and $2 million of which was for FEMA’s 

administration of the reimbursements. Under the Secretary of Homeland 

Security’s general grant authority4

FEMA and the Red Cross also established criteria for determining the 

validity of claims for reimbursement and incorporated it into the 

memorandum of agreement. In addition to identifying the specific 

disasters for which costs could be reimbursed, the agreement 

(1) established criteria for the Red Cross to be reimbursed for allowable 

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

in June 2009 DHS awarded a grant to 

the Red Cross that provided up to $98 million for reimbursement to the 

Red Cross for eligible 2008 disaster relief and recovery expenses 

incurred.

 

3

The audit’s duration was affected by a substantive change in audit approach. We initiated 

work planning to rely on the most recent audit of the Red Cross conducted under the 

Single Audit Act as amended (Single Audit Act), and implementing guidance in Office of 

Management and Budget (OMB) Circular No. A-133, Audits of States, Local 

Governments, and Non-Profit Organizations (revised June 26, 2007). However, FEMA 

elected not to rely on the Single Audit Act work but rather, to directly validate the claims 

for reimbursement from the Red Cross. We suspended the audit for a period of time until 

FEMA had completed its reviews and reimbursed the Red Cross and we then resumed 

and completed our work.

4

6 U.S.C. § 112(b)(2).

Background 
Page 4 GAO-12-877 Red Cross 2008 Disaster Assistance

2008 disaster assistance; (2) defined the types of direct expenses that 

were eligible for reimbursement and how reimbursable indirect overhead 

costs5 would be calculated; and (3) established the procedures to be 

used by FEMA to process the claims and make the reimbursements, 

including specifying that consistent with the law, expenses for which 

funding had been made available by other federal sources were not 

eligible for reimbursement. FEMA also established standard operating 

procedures and internal review guidance for its processing of 

reimbursements of Red Cross claims in accordance with the agreement. 

The Red Cross submitted claims to FEMA for the direct costs it incurred 

when providing assistance related to these disasters. FEMA then 

reviewed each claim and its accompanying documentation to determine 

whether it was reimbursable, consistent with the requirements of the 

memorandum of agreement. FEMA reimbursed the Red Cross for the 

amount of those claims it determined to be in conformance with the terms 

of the memorandum of agreement. FEMA also reimbursed the Red Cross 

for related indirect overhead costs. 

The Red Cross submitted claims totaling about $78.8 million to FEMA for 

direct costs related to disasters occurring in 2008 and declared by the 

President to be major disasters. Based on its review of these claims and 

the supporting documentation the Red Cross provided, FEMA reimbursed 

the Red Cross for claims totaling $61.6 million. FEMA denied the 

remaining $17.2 million claimed, either because the basis of the claim 

was not considered appropriate or supporting documentation was not 

considered to be sufficient. In addition to these direct costs, FEMA 

reimbursed the Red Cross for about $16.5 million in related indirect 

overhead costs. Based on our audit, we found that the claims submitted 

by the Red Cross that were reimbursed by FEMA were proper and 

consistent with the 2008 Act. Specifically, we found the following.

• FEMA established criteria consistent with the law for the 

reimbursement of the Red Cross’s claims. The memorandum of 

agreement between FEMA and the Red Cross defined the types of 

direct expenses incurred by the Red Cross that would be eligible for 

 

5

Indirect overhead costs were calculated by FEMA and applied to the approved claims 

based on a rate specified in a separate agreement between the Red Cross and the 

Department of Health and Human Services, acting in its capacity as cognizant agency 

under the Single Audit Act and OMB Circular No. A-133. 

FEMA’s 

Reimbursements of 

Red Cross’s Claims 

Were Proper
Page 5 GAO-12-877 Red Cross 2008 Disaster Assistance

reimbursement by FEMA, listed the 77 disasters declared by the 

President that occurred in 2008, and specified that reimbursable 

indirect overhead expenses would be calculated at the rate specified 

in the agreement between the Red Cross and the Department of 

Health and Human Services and added to the amounts reimbursed for 

approved claims. The FEMA/Red Cross agreement also established 

FEMA’s procedures for processing and reimbursement of the Red 

Cross’s claims. In addition, the Red Cross agreed to not seek 

reimbursement for any expenses for which funding from other federal 

sources had been made available. Prior to beginning the review 

process, FEMA established standard operating procedures and 

guidance for its staff to use in processing the Red Cross’s 

reimbursement claims in accordance with the agreement. These 

procedures specified that a Red Cross claim would have to meet all 

five of the following criteria in order to be reimbursed by FEMA: 

(1) allowability (used for an authorized purpose), (2) allocability 

(associated with assistance related to presidentially declared 2008 

disasters), (3) proof of payment, (4) proof of expense, and (5) proof of 

consumption/use. To the extent that any of these five criteria were not 

met, FEMA would either reduce or disallow the related amount for the 

claim, as appropriate. We reviewed the criteria established by FEMA 

and found them to be consistent with the law. 

• No evidence that FEMA’s reimbursements to the Red Cross were 

for costs for which funding had been made available from other 

federal sources. FEMA’s review of Red Cross claims prior to 

reimbursement did not identify any instances in which funding had 

previously been made available by other federal funding sources. 

During our audit, we verified that FEMA took appropriate steps to 

determine whether claims submitted by the Red Cross were based on 

costs for which funding by other federal sources had been made

available. Based on our work, we found no evidence that other federal 

funding sources had been made available to cover the costs 

associated with the Red Cross claims that FEMA reimbursed.

• Reimbursements were paid only for expenses related to 

disasters occurring in 2008 and declared by the President to be 

major disasters. Prior to reimbursing the Red Cross for claims it 

submitted, FEMA reviewed supporting documentation to verify that 

the expenses claimed were incurred only for those disasters occurring 

in 2008 and declared by the President to be major disasters. We 

audited the Red Cross claims that FEMA actually reimbursed and 

concluded that they were appropriately related to authorized 

disasters.
Page 6 GAO-12-877 Red Cross 2008 Disaster Assistance

• Red Cross claims reimbursed by FEMA were supported by 

sufficient documentation. In providing disaster assistance, the Red 

Cross incurred a variety of expenses for which it claimed 

reimbursement from FEMA. We classified these expenses into 19 

categories by type, which included such expenses as food, lodging, 

air travel, security services, purchase cards, client assistance cards, 

and car rentals. For 15 of these expense categories, we combined the 

transactions into a single population, from which we selected a 

monetary unit sample. We found no significant reimbursements in this 

population that were not supported by sufficient documentation.6 We 

also tested 100 percent of approved claims related to the remaining 

expense categories. We found that the reimbursements for these 

expense categories were also supported by sufficient documentation.

We audited FEMA records supporting the costs it charged to the 

appropriation to administer the Red Cross claims and reimbursements 

and found that they were incurred for appropriate purposes; supported by 

sufficient documentation; and in total, did not exceed 3 percent of the 

$100 million appropriation authorized by the 2008 Act. FEMA’s records 

reflected that about $232 thousand in total administrative costs were 

charged to the appropriation to process the Red Cross’s claims and 

associated reimbursements.

In responding to a draft of this report, the Department of Homeland 

Security’s Audit Liaison stated that the department did not have any 

comments. 

We are sending copies of this report to the Secretary of Homeland 

Security, the Administrator of the Federal Emergency Management 

Agency, the Acting Director of the Office of Management and Budget, and 

the Chief Financial Officer of the American Red Cross. In addition, the

report is available at no charge on the GAO website at 

http://www.gao.gov. 

 

6

We selected a sample of 155 reimbursements totaling $6.3 million from a population of 

170,343 approved claims totaling $55.6 million. We found claims totaling $1,631 that were 

not sufficiently supported. Based on this result, we projected the most likely total amount 

that was not sufficiently supported to be about $4,735. We concluded with 95 percent 

confidence that of the total expenses encompassed by these 15 expense categories, no 

more than $1.1 million may not have been sufficiently supported. 

Administrative Costs 

Incurred by FEMA 

Were for Appropriate 

Purposes and within 

Authorized Limits

Agency Comments
Page 7 GAO-12-877 Red Cross 2008 Disaster Assistance

If you or your staffs have any questions about this report, please contact 

me at (202) 512-3406 or sebastians@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. Key contributors to this report were Charles R. 

Fox, Assistant Director; Roger R. Stoltz, Assistant Director; Sharon Byrd, 

Assistant Director; Jacquelyn Hamilton, Deputy Assistant General 

Counsel; Tory E. Wudtke; Christie Pugnetti; and Tulsi Bhojwani.

Steven J. Sebastian

Managing Director

Financial Management and Assurance
Page 8 GAO-12-877 Red Cross 2008 Disaster Assistance

To determine whether criteria consistent with the law were established for 

reimbursing American Red Cross (Red Cross) claims, we reviewed the

memorandum of agreement between the Federal Emergency 

Management Agency (FEMA) and the Red Cross that was signed by both 

parties in May 2009. This agreement laid out the responsibilities, 

procedures, and eligibility requirements for federal reimbursement of Red 

Cross disaster relief, emergency services, and recovery expenditures. We 

also reviewed the indirect cost rate agreement between the Red Cross 

and the Department of Health and Human Services that set the rate to be 

used in calculating indirect overhead costs on grants received from the 

federal government, and recalculated FEMA’s application of this rate in 

determining related amounts to reimburse.

To determine whether reimbursements paid to the Red Cross were for 

costs for which funding had been made available by other federal 

sources, we reviewed the FEMA and Red Cross agreement, which 

provided that the Red Cross would not request reimbursement for any 

costs for which funding had been made available by other federal 

sources. We also reviewed FEMA’s procedures and other documentation 

provided to ensure that the agreement was followed. In addition, the Red 

Cross represented to FEMA that the claims it submitted had not been 

previously funded from other federal sources.

To determine whether reimbursable claims were paid only for Red Cross 

expenses incurred for disasters occurring in 2008 and declared to be 

major disasters by the President, we verified that 2008 federal disaster 

information published by FEMA and the 2008 disasters listed in the FEMA 

and Red Cross memorandum of agreement signed in May 2009 were 

consistent concerning which specific 2008 disasters were eligible for 

related reimbursement. Through review of supporting documentation, we 

verified that each Red Cross claim FEMA reimbursed was for costs 

incurred in providing assistance related to a qualified 2008 disaster.

To determine whether claims for reimbursement were for expenses 

incurred to provide allowable services, and whether those claims were 

supported by sufficient documentation, we audited the claims paid for 

each expense category and verified that it was consistent with the terms 

of the memorandum of agreement. Prior to reimbursing claims submitted 

by the Red Cross, FEMA performed procedures to verify that each claim 

was supported by sufficient documentation, which demonstrated that the 

amount, purpose, and timing of the claim were appropriate as defined by 

the agreement. The nature of the supporting documentation that the Red 

Cross provided to FEMA varied depending upon the expense category. 

Appendix I: Audit Methodology
Page 9 GAO-12-877 Red Cross 2008 Disaster Assistance

However, the support generally consisted of some combination of 

invoices, bank statements, summary schedules of expenditures, and 

screen shots taken from an internal Red Cross financial system 

demonstrating that the funds for the expenses had been paid. FEMA 

management, acting in consultation with FEMA’s Office of Chief Counsel, 

determined that collectively these documents constituted sufficient 

support for these claims and accordingly, the Red Cross was reimbursed 

on this basis. Our approach to auditing these reimbursements varied 

depending upon the nature of the expense category and related 

documentation. For 15 expense categories, we selected a statistical 

sample (monetary unit) of reimbursements from the universe of the claims 

reimbursed for 2008, and reviewed the documentation the Red Cross had 

provided to FEMA. For the other expense categories, we examined 

documentation supporting 100 percent of the claims submitted and 

reviewed FEMA’s calculations and methodology for determining the 

appropriate reimbursement amount, including its determination of related 

indirect overhead costs.

To determine whether administrative costs FEMA charged to the 

appropriation were only for appropriate purposes and within limits 

authorized by the Disaster Relief and Recovery Supplemental 

Appropriations Act, 2008, we examined 100 percent of the documentary 

support for all of the administrative costs FEMA charged to the 

appropriation to process the claims, which were limited by law to 3 

percent of the total $100 million appropriation ($3 million). Documentation 

for these costs consisted of items such as payroll records and travel 

vouchers.

(196226)
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