FEMA: Action Needed to Improve Administration of the National Flood Insurance Program
Published: 2011-06-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The National Flood Insurance Program (NFIP) has been on GAO's high-risk list since March 2006 because of concerns about its long-term financial solvency and related operational issues. Significant management challenges also affect the Federal Emergency Management Agency's (FEMA) ability to administer NFIP. This report examines (1) the extent to which FEMA's management practices affect the administration of NFIP; (2) lessons learned from the cancellation of FEMA's attempt to modernize NFIP's insurance management system; and (3) limitations on FEMA's authority that could affect NFIP's financial stability. To do this work, GAO reviewed internal control standards and best practices, analyzed agency documentation, reviewed previous work, and interviewed relevant agency officials.
section_title: What GAO Found
paragraphs: FEMA faces significant management challenges in areas that affect NFIP, including strategic and human capital planning; collaboration among offices; and records, financial, and acquisition management. For example, because FEMA has not developed goals, objectives, or performance measures for NFIP, it needs a strategic focus for ensuring program effectiveness. FEMA also faces human capital challenges, including high turnover and weaknesses in overseeing its many contractors. Further, FEMA needs a plan that would ensure consistent day-to-day operations when it deploys staff to federal disasters. FEMA has also faced challenges in collaboration between program and support offices. Finally, FEMA lacks a comprehensive set of processes and systems to guide its operations, in particular a records management policy and an electronic document management system. FEMA has begun to address some of these challenges, including acquisition management, but the results of its efforts remain to be seen. Unless it takes further steps to address these management challenges, FEMA will be limited in its ability to manage NFIP's operations or better ensure program effectiveness. FEMA also faces challenges modernizing NFIP's insurance policy and claims management system. After 7 years and $40 million, FEMA ultimately canceled its latest effort (NextGen) in November 2009 because the system did not meet user expectations. As a result, the agency continues to rely on an ineffective and inefficient 30-year old system. A number of acquisition management weaknesses led to NextGen's failure and cancellation, and as FEMA begins a new effort to modernize the existing legacy system, it plans to apply lessons learned from its NextGen experience. While FEMA has begun implementing some changes to its acquisition management practices, it remains to be seen if they will help FEMA avoid some of the problems that led to NextGen's failure. Developing appropriate acquisitions processes and applying lessons learned from the NextGen failure are essential if FEMA is to develop an effective policies and claims processing system for NFIP. Finally, NFIP's operating environment limits FEMA's ability to keep the program financially sound. NFIP assumes all risks for its policies, must accept virtually all applicants for insurance, and cannot deny coverage for high-risk properties. Moreover, additional external factors--including lapses in NFIP's authorization, the role of state and local governments, fluctuations in premium income, and structural and organizational changes--complicate FEMA's administration of NFIP. As GAO has previously reported, NFIP also faces external challenges that threaten the program's long-term health. These include statutorily required subsidized premium rates, a lack of authority to include long-term erosion in flood maps, and limitations on FEMA's authority to encourage owners of repetitive loss properties to mitigate. Until these issues are addressed, NFIP's long-term financial solvency will remain in doubt.
section_title: What GAO Recommends
paragraphs: GAO makes 10 recommendations to improve the effectiveness of FEMA's planning and oversight efforts for NFIP; improve FEMA's policies and procedures for achieving NFIP's goals; and increase the usefulness and reliability of NFIP's flood insurance policy and claims processing system. GAO also presents three matters for congressional consideration to improve NFIP's financial stability. DHS concurred with all of GAO's recommendations.

section_title: Letter
paragraphs: The National Flood Insurance Program (NFIP), which is administered by  the Federal Emergency Management Agency (FEMA) within the  Department of Homeland Security (DHS), is a key component of the  federal government’s efforts to minimize the damage and financial impact  of floods and is the only source of insurance against flood damage for  most residents of flood-prone areas. Until 2004, NFIP was able to cover  most of its claims with premiums it collected and occasional loans from  the Department of the Treasury (Treasury) that were repaid. However,  after the 2005 hurricanes—primarily Hurricane Katrina—the program  borrowed $16.8 billion from Treasury to cover the unprecedented number  of claims. NFIP has subsequently borrowed additional funds from  Treasury to make interest payments on this debt and, as of March 2011,  owed approximately $17.8 billion. Because of structural weaknesses in the  way the program is funded and operated, NFIP is unlikely to be able to  repay this debt in the near future, if ever.
As a result of the program’s importance, level of indebtedness, and  potential for future losses, we placed NFIP on our high-risk list in March  2006. In earlier reports, we identified a number of operational challenges  that hindered FEMA’s ability to effectively administer NFIP and  contributed to NFIP’s placement on the list. For example, we found  internal control weaknesses in FEMA’s oversight of the write-your-own  (WYO) insurers that are key to NFIP operations and that have received  payments representing one-third to two-thirds of the premiums collected.  We also found problems with the oversight of contractors responsible for  performing key NFIP functions such as collecting NFIP data and  marketing the program.
Because of the risks and challenges facing NFIP and the financial and  operational weaknesses we had identified, we undertook a review to look  for potential underlying management weaknesses that, if addressed, might  improve the operation and functioning of the program. Specifically, our  objectives were to (1) analyze the extent to which FEMA’s key  management practices—including strategic planning, human capital  planning, intra-agency collaboration, records management, financial  management, and acquisition management—affect the agency’s ability to  administer NFIP; (2) identify lessons to be learned from the cancellation of  its most recent attempt to modernize NFIP’s flood insurance policy and  claims processing system, including to what extent key acquisition  management processes were followed; and (3) describe factors that are  relevant to NFIP operations and analyze limitations on FEMA’s authority  that could affect its financial stability.
To address these objectives, we collected available data from FEMA and  conducted over 80 interviews with representatives from FEMA and their  relevant bureaus or divisions. We also interviewed representatives of  DHS’s Office of the Inspector General, the National Association of Public  Administration (NAPA), and KPMG LLP. These interviews allowed us to  gather further insights into management challenges that affect NFIP. In  addition, we analyzed planning documents, policies, directives, materials,  and data related to program, human capital, records, acquisition, and  financial management. In the areas of human capital and financial  management, we assessed the data provided to us and found it to be  sufficiently reliable for the purposes of our report. The remaining audit  work did not require a data assessment. Further, we reviewed relevant  legislation, internal control standards, best practices, and external studies  of FEMA’s management challenges. We compared the information we  obtained on NFIP’s policies and procedures to relevant criteria developed  by GAO and others. To determine the lessons to be learned from the  NextGeneration Flood Insurance Management System (NextGen)  program’s cancellation and to what extent key acquisition management  processes were followed on NextGen, we analyzed a range of program  documentation and interviewed cognizant program and contractor  officials relevant to the following acquisition management disciplines:  requirements development and management, test management, risk  management, program oversight, and human capital management. For  each discipline, we compared key program documentation, such as the  concept of operations document; test plans for functional, regression, and  usability testing; and NextGen application summary test reports, and risk  management and program management plans. To identify external factors  that affect NFIP’s ability to carry out its mission, we reviewed our  previous reports that analyzed various aspects of NFIP’s policies,  practices, and organizational structure, identifying factors that affected  NFIP’s operations but over which NFIP did not have control. To determine  whether and to what extent the factors identified in these reports were  still affecting NFIP’s operations, and to identify any additional factors, we  interviewed knowledgeable FEMA representatives and reviewed relevant  testimony of FEMA officials before Congress. Appendix I provides  additional details about our scope and methodology.
We conducted this performance audit from July 2009 to June 2011 in  accordance with generally accepted government auditing standards. 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. The evidence we obtained  provides a reasonable basis for our findings and conclusions based on our  audit objectives.
subsections: section_title: Background
subsections: section_title: Overview of the National Flood Insurance Program
paragraphs: The National Flood Insurance Act of 1968 established NFIP as an  alternative to providing direct disaster relief after floods. NFIP, which  makes federally backed flood insurance available to homeowners and  businesses, was intended to reduce the federal government’s escalating  costs for repairing flood damage after disasters. Floods are the most  common and destructive natural disaster in the United States. In fact,  according to NFIP statistics, 90 percent of all national disasters in the  United States have involved flooding. However, flooding is generally  excluded from homeowners’ policies that typically cover damages from  other losses, such as wind, fire, and theft. Because of the catastrophic  nature of flooding and the inability to adequately predict flood risks,  historically, private insurance companies have largely been unwilling to  underwrite and bear the risk that results from providing primary flood  insurance coverage. Under NFIP, the federal government assumes the  liability for the insurance coverage and sets rates and coverage limitations,  among other responsibilities, while the private insurance industry sells the  policies and administers the claims for a fee determined by FEMA.
As of January 2011, 21,361 communities across the United States and its  territories participated in NFIP by adopting and agreeing to enforce state  and community floodplain management regulations to reduce future flood  damage. In exchange, NFIP makes federally backed flood insurance  available to homeowners and other property owners in these  communities. Homeowners with mortgages from federally regulated  lenders on property in communities identified to be in high-risk special  flood hazard areas (SFHA) are required to purchase flood insurance on  their dwellings for at least the outstanding mortgage amount. Optional  lower-cost coverage is also available under NFIP to protect homes in areas  of low to moderate risk. To insure furniture and other personal property  items against flood damage, homeowners may purchase separate NFIP  personal property coverage. Although premium amounts vary according to  the amount of coverage purchased and the location and characteristics of  the insured property, the average yearly premium was around $620 as of  October 2010.
NFIP is designed to pay operating expenses and flood insurance claims  with premiums collected on flood insurance policies rather than with tax  dollars. However, FEMA has statutory authority to borrow funds from  Treasury to keep NFIP solvent in years when losses are high. NFIP, by  design, is not actuarially sound because Congress authorized subsidized  insurance rates to be made available for policies covering certain  structures to encourage communities to join the program. As a result,  NFIP is not able to build reserves to cover losses that exceed the historic  averages.
section_title: Management of the National Flood Insurance Program
paragraphs: NFIP is managed by FEMA’s Federal Insurance and Mitigation  Administration (FIMA), with administrative support from FEMA’s Mission  Support Bureau (see fig. 1). DHS provides management direction by  issuing guidance and working to integrate its various management  processes, systems, and staff within and across its management areas.  Around 350 FEMA employees, assisted by contractor employees, manage  and oversee NFIP and the National Flood Insurance Fund, into which  premiums are deposited and from which claims and expenses are paid.  Their management responsibilities include establishing and updating NFIP  regulations, analyzing data to determine flood insurance rates, and  offering training to insurance agents and adjusters. In addition, FIMA and  its program contractors are responsible for monitoring and overseeing the  performance of the WYO insurance companies to help ensure that NFIP is  administered properly.
FIMA receives administrative and management support as well as  direction on program operations from FEMA’s Mission Support Bureau  offices, including the Office of the Chief Administrative Officer (OCAO),  Office of the Chief Component Human Capital Officer (OCCHCO), Office  of the Chief Financial Officer (OCFO), Office of the Chief Information  Officer (OCIO), and Office of the Chief Procurement Officer (OCPO). In  addition, FEMA’s Office of Policy and Program Analysis (OPPA) serves a  collaborative support role to provide leadership, analysis, coordination,  and decision-making support on agency policies, plans, programs, and key  initiatives. While Mission Support and OPPA provide important services to  FIMA, their responsibilities do not include comprehensive oversight of  FIMA or NFIP.
section_title: Opportunities Exist to Improve FEMA’s Management of NFIP
paragraphs: We found a number of management practices that could be improved to  help FEMA more effectively administer NFIP. First, FEMA has not  provided FIMA with strategic direction and guidance for administering  NFIP and therefore lacks the starting point necessary to develop  performance measures for assessing the program’s effectiveness. Second,  FEMA faces a number of human capital challenges, including developing a  strategic human capital plan that addresses mitigating high turnover,  hiring, and overseeing contractors that play a key role in NFIP. Moreover,  it has yet to adequately address managing the day-to-day operations when  deploying staff to respond to federal disasters. Third, collaboration among  offices within FEMA that are responsible for administering NFIP has at  times been ineffective, leading to challenges in effectively carrying out  some key functions. In particular, FIMA, the office that administers NFIP,  and FEMA Mission Support, which provides mission-critical functions  such as information technology (IT), acquisition, and financial  management, have had difficulties collaborating on these functions.  Finally, FEMA does not have a comprehensive set of policies, procedures,  and systems to guide its operations. Specifically, it lacks an updated  records management policy, procedures to effectively manage  unliquidated obligations, and a fully developed and implemented  documentation of its business processes. FEMA has begun taking steps to  improve its acquisition management and document some of its business  processes, but as they were recently implemented or still in progress, the  results of these efforts have yet to be realized. Unless it takes further steps  to address these management challenges, FEMA will be limited in its  ability to manage NFIP’s operations or ensure program effectiveness.
subsections: section_title: A More Comprehensive Strategic Framework Would Improve FEMA’s Administration of NFIP
paragraphs: FEMA published its most recent agencywide strategic plan in February  2011, but the plan did not clearly lay out how and where NFIP’s mission  and activities fit within FEMA’s own goals and objectives. The  Government Performance and Results Act of 1993 (GPRA) requires  agencies to submit a strategic plan containing a number of components,  including a comprehensive mission statement, long-term goals and  objectives for major operations, and strategies for achieving these goals  and objectives. Further, we have reported that an agency’s strategic  planning effort is the most important element in results-oriented  management and serves as the foundation for defining what the agency  seeks to accomplish, identifying strategies to achieve desired results, and  determining how well it succeeds in reaching its goals and objectives.  Leading results-oriented organizations focus on the dynamic and inclusive  process of strategic planning, rather than on a strategic planning  document, to provide a foundation for day-to-day activities and foster  communication between the organization and its stakeholders. Moreover,  the committee report accompanying GPRA stated that clear and precise  goals enable an organization to maintain a consistent sense of direction  regardless of the leadership changes that can occur frequently across the  federal government.
NFIP is a major operation with $1.2 trillion in coverage and $17.8 billion in  debt that has remained on GAO’s high-risk list since 2006. FEMA officials  told us that FEMA chose not to prescribe goals and objectives for specific  programs in its strategic plan as required by GPRA. They said that the  agency chose a different strategic approach that would allow for more  flexibility, something that was needed because FEMA must respond to  emergencies as they occur. While FEMA may require flexibility in its  operating environment, as a federal insurance program NFIP requires a  more structured framework to help ensure that its operations are properly  managed and allow for the development of effective performance  measures. Unless FEMA provides FIMA with strategic direction and  guidance for administering NFIP, the program risks not having a strategic  focus that is aligned with agency goals and objectives or effective  performance measures.
FIMA officials told us they were in the process of developing a strategy for  mitigation and insurance but did not provide a specific timeline for  completing or implementing it and did not provide details of what it might  include. FIMA officials said they began developing the strategy in June  2010 and had created a steering committee with about 15 members  representing various areas within FIMA. The committee held a summit  with a number of stakeholders in November 2010 to validate the proposed  mission, goals, and objectives of the organization before entering the  drafting process and expect to eventually publish the final strategy in the  summer of 2011. Because these efforts have not yet been completed,  whether the strategy will include adequate goals and objectives for  administering and managing NFIP remains to be seen. Without goals and  objectives and a firm timeline for completing them, NFIP will continue to  lack a strategic direction.
FIMA officials said they had relied on other documents for strategic  guidance, including FEMA- and DHS-level guidance and the agency’s  general mission—managing risks from all natural hazards to help free  America from the burden of such disasters. However, without specific  agency- or program-level goals, FIMA cannot ensure that any performance  measures it develops for NFIP properly and adequately measure the  program’s success. According to GPRA, agencies should establish  performance indicators to be used in measuring and assessing the relevant  outputs, service levels, and outcomes of each program activity. Moreover,  GAO’s Standards for Internal Control in the Federal Government states  that management should ensure that agencies establish and review  performance measures and indicators. As we have reported, performance  goals and measures that successfully address important and varied aspects  of program performance are key to a results-oriented work environment.  Measuring performance allows organizations to track the progress they  are making toward their goals and gives managers critical information on  which to base decisions for improving their programs. We have also  reported that successful performance measures are, among other things,  linked to core program activities.
FIMA officials said that in recent years they had generally relied on five  performance measures for NFIP that they reviewed quarterly:    Percentage of the U.S. population (excluding territories) covered by  local hazard mitigation plans that had been approved or were pending  adoption.
Percentage of the national population whose safety had been improved  through the availability of flood risk data in Geospatial Information  System (GIS) format.
Number of communities taking or increasing actions to reduce their  risk from natural disasters.
Potential property losses, disasters, and other costs avoided.
NFIP premium income per $100 dollars of combined operating expense  and historical losses paid.
However, FIMA recently revised its operating plan, which FIMA officials  said aligns resources to major activities and provides transparency to  FIMA’s performance. In this revision, FIMA replaced the five measures  with 11 new performance measures aligned with DHS’s mission and  relevant DHS goals. FIMA said that these measures are still under  development but that it began testing these measures in fiscal year 2011  and plans to officially require and report them in fiscal year 2012. They are  grouped into three levels—strategic, management, and activity—indicating  how they are expected to be used and which units will be gathering and  reporting information in support of these performance measures. The  measures relate to a range of FIMA’s activities including mitigation  effectiveness, mapping progress, and NFIP operating efficiency.
However, FIMA has not had a set of strategic goals and objectives to guide  its administration of NFIP. FIMA officials plan to include long-term goals  and objectives in its upcoming strategic plan, but until this plan is  complete and effectively implemented, FIMA will continue to be  challenged by a lack of strategic focus and direction. Further, FIMA  officials will be limited in their ability to understand and assess their  effectiveness in administering NFIP and properly allocate its resources.  Further, without a strategic plan specific to FIMA that incorporates  specific goals and objectives for NFIP, determining whether FIMA’s  performance measures are aligned with and appropriately support FEMA’s  goals for NFIP is not possible. Without a robust set of goals and  performance measures that are aligned and appropriately supported, FIMA  is limited in its ability to monitor and hold management and staff  accountable for program performance and take corrective actions as  needed.
section_title: FEMA Lacks a Strategic Human Capital Plan That Meets Statutory Requirements and Addresses the Agency’s Human Capital Challenges, Including Those Affecting NFIP
paragraphs: The Post-Katrina Emergency Management Reform Act of 2006 (PKEMRA)  required FEMA to develop a strategic human capital plan that included an  assessment of the critical skills and competencies required for its  workforce. While FEMA developed a 2008-2012 Strategic Human Capital  Plan, we found that the plan did not meet PKEMRA’s requirements.  PKEMRA required that the plan include an assessment of (1) the critical  skills and competencies that would be needed in the workforce during the  10-year period after the law was enacted; (2) the skills and competencies  of the FEMA workforce and projected trends in that workforce based on  the expected losses due to retirement and other attrition; and (3) staffing  levels for each category of employee and gaps that should be addressed to  ensure that FEMA has continued access to the necessary critical skills and  competencies. In addition, PKEMRA requires FEMA to develop a “Plan of  Action” to address gaps in critical skills and competencies, including:    specific goals and objectives for recruiting and retaining employees,  such as recruitment and retention bonuses;    specific strategies and program objectives to develop, train, deploy,  compensate, motivate, and retain employees;    specific strategies for recruiting staff with experience serving in  multiple state agencies responsible for emergency management; and    specific strategies to develop, train, and rapidly deploy a surge capacity  force.
FEMA’s plan—including a 2010 Human Capital Operational Plan—did not  address all PKEMRA requirements. For example, it did not define the  critical skills and competencies that FEMA would need in the coming  years or provide specific strategies and program objectives to motivate,  deploy, and retain employees, among other things. In an October 2009  report, NAPA also stated that FEMA’s plan did not meet certain PKEMRA  requirements, which the report described as being focused on  understanding and planning for the current and future workforce. NAPA  also recommended that FEMA strengthen its human capital planning.  One NAPA official noted that the 2008-2012 Strategic Human Capital Plan  is essentially a “plan to develop a workforce plan.”
We have noted in previous work that agencies should develop human  capital strategies—including succession planning, training, and staff  development—to eliminate gaps between current skills and competencies  needed for mission success. FEMA’s human capital plan does not have  strategies to address retention challenges or contractors, among other  things. For example, FEMA experiences frequent turnover in key positions  and divisions that can result in lost productivity, a decline in institutional  knowledge, and a lack of continuity for remaining staff. Within the past  several years, key leadership has also changed within several key FEMA  offices that support FIMA in some NFIP activities. For example OCCHCO  has hired its third chief in the last 2 years. Further, FEMA has experienced  turnover in several of the offices that provide critical mission support  services to NFIP. For example, OCPO, which had 88 permanent full-time  (PFT) staff at the beginning of FY 2007, had lost 59 employees as of August  2010. FEMA staff told us the high turnover had resulted in the loss of  institutional knowledge, specialized skills, and management continuity and  efficiency.
FEMA also faces challenges in hiring, which has been a major focus of its  workforce operations. As of the third quarter of fiscal year 2010,  approximately 876 of FEMA’s 4,916 funded positions were unfilled.  Further, both FEMA program officials and OCCHCO, which screens  candidates, said that OCCHCO often sent candidates without the requisite  skills forward to the program offices that typically make the final hiring  decisions. OCCHCO officials told us that in several instances program  offices had not properly aligned announcements and position descriptions,  so that candidates appearing to meet the requirements of the position  description did not meet the actual requirements of the position. OCCHCO  officials added they were working to improve the situation.
FEMA also lacks accurate data on its current staffing levels, largely  because of IT issues, exacerbating the difficulties of workforce planning.  In a 2009 review of OCCHCO, NAPA found that frequent shifting of  organizational resources over the previous 6 years, the lack of a single  system to track and account for the workforce, complexities associated  with tracking multiple workforce categories, and problems with FEMA’s  human resource management system had hindered efforts to obtain  complete and accurate human capital data for review. According to  NAPA, these shortcomings had significant consequences in 2009, when  FEMA established an informal hiring freeze because the number of staff  hired exceeded authorized levels. In 2010, the Homeland Security Studies  and Analysis Institute also found a discrepancy of around 700 filled  positions between FEMA’s manpower database and National Finance  Center data. The institute found that the two most common discrepancies  in employee data were errors involving on the employees’ work unit and  activities. OCCHCO officials said they had also experienced difficulties  with human resource management systems. Most recently, in 2010 DHS  deployed the Talent Link system to manage its human resource needs, but  the system was found to be incompatible with government human  resource systems and processes. As a result, a few months after Talent  Link was deployed DHS phased it out and moved FEMA to the USA  Staffing system.
In addition, in spite of the importance of the work of contractors to NFIP’s  activities, FEMA does not centrally track the number of contractors or the  type of work they do. For example, FIMA staff estimated that one of its  divisions had as many as 10 contractors per FIMA staff member, and other  FEMA staff said that they were unable to estimate the number of  contractors. According to a FEMA Workforce Baseline Assessment  conducted by the Homeland Security Studies and Analysis Institute,  examining the federal workforce alone cannot fully assess FEMA’s full  human capital capability. The assessment went on to note that contract  support must be considered in any discussion of FEMA staffing because  contractors do not just supplement staff efforts but perform a substantial  amount of FEMA’s work. Unless FEMA tracks its contractors, it is severely  limited in its ability to assess the total workforce and their respective roles  and to plan for future staffing needs. However, pursuant to the  Consolidated Appropriations Act of 2010, the head of DHS, which includes  FEMA, is now required to prepare an annual inventory of service contracts  it awards or extends through the exercise of an option. The initial  inventory was due not later than December 31, 2010, and annually  thereafter. As part of the inventory, DHS must include the number and  work location of contractor and subcontractor employees expressed as  full-time equivalents for direct labor, compensated under the contract.
FEMA told us it had begun developing an initial workforce assessment  that it planned to complete in 2012, but the agency is uncertain whether it  will include contractors in this study. According to FEMA staff, a new  strategic human capital plan is also under review, and therefore, FEMA  could not provide us with a copy. As a result, we were unable to determine  whether it addressed PKEMRA’s requirements and the human capital  challenges that NFIP faces. Without a human capital plan that, at a  minimum, meets PKEMRA’s requirements, includes a comprehensive  workforce assessment that identifies staffing and skills requirements,  addresses turnover and staff vacancies, and analyzes the use of  contractors, FEMA will continue to have difficulty hiring and retaining  staff and managing its contractors.
section_title: Neither FEMA nor FIMA Has a Plan to Ensure That Key NFIP Operations Are Maintained When Staff Are Deployed During a Disaster
paragraphs: As we have previously reported, neither FEMA nor FIMA has a plan to  help ensure that agency operations, including NFIP’s, are maintained when  a federal disaster is declared and staff are required to respond to it.  Without such a plan, FEMA faces the risk that some critical day-to-day  functions may not be performed while staff are deployed, limiting the  agency’s ability to provide the necessary support for disaster relief  missions. In addition to their responsibilities for day-to-day operations,  FEMA employees are also expected to be on call during disasters for  potential assignment to disaster-related activities, including deployment to  field operations. FEMA staff told us that neither FIMA nor FEMA had a  program-specific or agencywide plan that covered all of its staff and  functions, including NFIP. According to a FEMA official, while program  offices have some ability to make decisions about how many mission- critical staff to deploy to the field during a disaster and how many to keep  in their office positions, the current administrator has made it clear that  when a disaster hits, the priority is to deploy staff to the field.
As was the case with Hurricane Katrina, FEMA staff can be deployed for  weeks or months and, during that time, are often performing duties in the  field that take them away from their day-to-day responsibilities. According  to a recent study by the Homeland Security Studies and Analysis Institute,  FEMA staff found that operating normally during and immediately after a  disaster was problematic due to staff deployment and an increased  workload due to the disaster. For this reason, planning for business  continuity management and deployment planning are particularly  important for the agency. We previously reported that FEMA did not have  guidelines on what constitutes a mission-critical position, had not  conducted an assessment of the minimum level of support that would be  necessary to keep the agency fully operational, and thus had limited  guidelines for deciding who should be deployed. In addition, the report  found that nearly 57 percent of FEMA’s permanent employees who are  deployable do not have assigned deployment job titles or roles that would  facilitate deployment during a disaster. Without a plan for deploying staff  during a disaster, FEMA faces the risk that critical functions, such as  managing NFIP operations, may not be performed while staff are deployed  to the field during a natural disaster, increasing the likelihood that the  agency will be unable to provide the necessary support for disaster relief  missions.
section_title: Instances of Ineffective Collaboration between FIMA and Mission Support Have Complicated FEMA’s Administration of NFIP
paragraphs: FIMA relies on Mission Support for a variety of mission-critical functions,  including IT, acquisition, and financial management, but FIMA and Mission  Support have faced challenges in collaborating with one another. In our  prior work, we have identified eight practices that agencies can use to  enhance and sustain their collaborative efforts:    Define and articulate a common outcome.
Establish mutually reinforcing or joint strategies.
Identify and address needs by leveraging resources.
Agree on roles and responsibilities.
Establish compatible policies, procedures, and other means to operate  across agency boundaries.
Develop mechanisms to monitor, evaluate, and report on results.
Reinforce agency accountability for collaborative efforts through  agency plans and reports.
Reinforce individual accountability for collaborative efforts through  performance management systems.
While these practices were originally developed for collaboration among  federal agencies, they can apply to collaboration between FIMA and the  offices that support it.
subsections: section_title: Information Technology Systems Were Developed without Full Collaboration between FIMA and the Office of the Chief Information Officer
paragraphs: OCIO’s stated function is to assist FEMA offices in IT development and to  help ensure they follow the agency’s established processes for IT system  implementation. However, FIMA and OCIO faced challenges in agreeing  on roles and responsibilities and establishing mutually reinforcing or joint  strategies. For example, FIMA officials said they had experienced  difficulty in the past getting timely approvals from OCIO for IT programs  and contracts for NFIP and had sought ways to streamline the process,  including using contractors rather than OCIO staff. FIMA officials also said  that OCIO’s certification and accreditation (C&A) process—which  determines whether systems are certified to become operational—could  be lengthy. They said they had to wait months for C&A approval for at  least two mission-critical systems, one of which had been held up for  about 9 months as of February 2010. One official said this problem had  arisen because the C&A process lacked a formalized structure and  communication between FIMA and OCIO was inadequate. OCIO officials  acknowledged that some communication problems existed and said they  were aware of FIMA’s concerns. OCIO’s primary concern, however, was  that at times FIMA would perform IT functions independently from OCIO  and believed that involving OCIO would help streamline IT development.  For example, an OCIO official said that assessing and approving a $1  million investment would require 30 to 45 days.
OCIO officials also said that 95 percent of FEMA’s known systems were  certified but noted that other systems, including some of FIMA’s that  affect NFIP, might have been developed independently of OCIO and thus  lacked its approval. For example, in the past year OCIO discovered five  FEMA human resources programs that were developed without its  knowledge or involvement. OCIO now requires that all systems on FEMA’s  network complete the C&A process and be approved by the CIO, because  undocumented systems can create risks that are difficult to correct. In  accordance with the Federal Information Security Management Act of  2002 (FISMA), OCIO is creating an inventory of IT systems for each of  FEMA’s offices. OCIO officials said that once the portfolio lists had been  verified, OCIO would address the backlog of pending C&As. FEMA also  developed an Acquisition Review Board (ARB) to help ensure that IT  systems within the agency are developed with the CIO’s involvement,  because the acquisition system requires the CIO’s approval at key points in  the IT development process.
OCIO is also taking steps to improve collaboration with FEMA’s program  offices, but it is too early to determine if the issues with FIMA have been  fully addressed. For example, in January 2008 OCIO began assigning a  customer advocate to each program office to help it better understand the  IT needs of FEMA’s program offices and to act as liaisons. The customer  advocates are responsible for understanding all of the systems that are  needed to support their assigned program offices and for regularly  updating the CIO. FIMA’s customer advocate said he met frequently with  FIMA officials to resolve IT issues that arose and he was aware of only one  major issue—the need to replace the legacy policy and claims processing  system. While FIMA officials have mentioned a number of processes that  could benefit from greater automation, including document management  and budget formulation, it is unclear whether they have communicated  these needs to their customer advocate. Until cooperation between FIMA  and OCIO improves, FEMA will be unable to ensure that FIMA’s and  NFIP’s IT needs are adequately met.
section_title: FIMA and the Office of the Chief Procurement Officer Have Differed on Implementing a Policy for Small Business Contracts
paragraphs: FEMA has exceeded its goals for awarding contracts to small businesses,  but FIMA and OCPO have differed on the question of how the policy for  setting aside these contracts should be implemented. The federal  government’s goal for participation by small business concerns is at least  23 percent of the total dollar value of all prime contract awards for each  fiscal year. By comparison, FEMA’s fiscal year 2010 goal of 31.9 percent  was higher because, according to OCPO officials, DHS noticed that FEMA  was exceeding its previous targets and wanted to provide incentives for  continuing to exceed them. In general, before setting aside a contract for  competition among small businesses, an agency must conduct market  research to determine whether there is a reasonable expectation of  obtaining offers from at least two small businesses that could meet the  contract’s requirements. OCPO officials make this determination within  FEMA. If the program office objects to the decision, OCPO generally asks  the office to support its position. If a disagreement persists, the Head of  Contracting Activity has traditionally resolved the disagreement  informally. No formal process exists for resolving these disagreements or  appealing decisions.
FIMA officials said that in several instances the use of small business  contracts has caused inefficiencies for NFIP. According to these officials,  flood insurance work is better suited to large businesses. For instance, in  2007 OCPO decided to split one of FIMA’s contracts—which covered many  areas of NFIP, including marketing, training, and data management—into  five smaller contracts that were more conducive to small business  involvement. According to FIMA officials, OCPO did not involve FIMA  sufficiently in this decision and did not sufficiently consider how it would  affect FIMA, which would need additional staff to monitor the contractors  and would lose experienced contractors. OCPO officials disagreed, noting,  among other things, that the requirements for each contractor were  outlined in the contract’s solicitation and only contractors that could meet  the requirements were considered. No formal process exists for resolving  the disagreement, and whether OCPO effectively communicated to FIMA  how it could justify its position is unclear. Such disagreements indicate a  need for those involved to improve their collaboration by establishing  mutually reinforcing or joint strategies to achieve common outcomes.
According to FIMA officials, these disagreements have created  inefficiencies that have required extra work to resolve—for instance,  lengthening the time required to complete certain processes. Recognizing  that it needed to improve its relationship with program offices, OCPO  management appointed an individual to reach out to and help them  recognize the value of OCPO’s services. OCPO officials said that program  offices now understand they must work with OCPO, and OCPO hopes to  improve the relationship and help the program offices to better  understand how beneficial the procurement office can be. OCPO officials  said that the office now acts as an advocate for the program offices to DHS  and helps improve communication by explaining to program offices the  reasoning behind DHS’s various requirements. Without further  improvements in this area, however, FEMA cannot fully ensure that NFIP’s  acquisition needs are being met.
section_title: Coordination between the Office of the Chief Financial Officer and FIMA on Budgetary Needs Was Limited
paragraphs: FIMA and OCFO have not fully coordinated solutions to FIMA’s budget  formulation process. FIMA officials said they could benefit from greater  automation of the budget formulation process, which currently relies on  FEMA’s Integrated Financial Management Information System (IFMIS). In  particular, FIMA officials have said they need a system for building their  budget, a process that involves estimating expected policy fee revenue and  identifying and allocating funds from six appropriations. OCFO currently  provides FIMA with spreadsheets for formulating the budget that contain  templates for the spending plans detailing the resources required to  execute programs, projects, and activities. OCFO officials acknowledged  that the current process was more time consuming and prone to data entry  errors than an automated system would be. FIMA officials noted that using  these spreadsheets was particularly challenging because of fluctuations in  NFIP premium revenues.
To address some of these concerns, OCFO developed an automated  budget formulation tool and is customizing it to meet the agency’s needs.  OCFO expects that the new tool will act as an interface with its current  systems and ease budget formulation by eliminating the use of  spreadsheets and allowing FIMA and other program offices to develop  spend plans directly in the system. The tool became operational within  OCFO in March 2011, and OCFO plans to implement it FEMA-wide on a  rolling basis throughout fiscal year 2011 to allow time to train staff.  However, both OCIO and FIMA said they did not have adequate input into  the development of the new system, and the extent to which OCFO ever  defined and documented system needs and requirements is unclear. In  particular, FIMA officials said that OCFO may not have fully understood  FIMA’s needs regarding formulation and execution of NFIP’s budget and  the challenges created by fluctuating premium revenues.
Officials from KPMG, the auditor retained by DHS, also said they had  noticed communication challenges within FEMA, particularly between  FIMA and OCFO. For instance, KPMG found that FIMA had changed its  method for estimating its deferred revenue, and as DHS reported in 2008,  had not communicated this change to OCFO. While KPMG reports that  this condition was corrected in fiscal year 2009, to prevent future  problems the auditor recommended that FEMA develop better methods of  communicating such changes. KPMG also found that FEMA had not  completed its documentation of formal business policies and procedures  for several of the roles, responsibilities, processes, and functions  performed within FEMA. Without better collaboration and  communication between FIMA and OCFO, FEMA will be unable to fully  ensure that NFIP’s financial and budgetary needs are being met.
section_title: FEMA Lacks Electronic Systems and Related Policies That Could Improve Its Administration of NFIP
paragraphs: FEMA is a paper-based agency and has no centralized electronic  document management system that would allow its administrative,  regional, and program offices—including FIMA—to easily access and store  documents. According to the National Archives and Records  Administration (NARA), a record enters the document life cycle at its  creation and remains in the system through its use, maintenance, and  disposition. Records enable and support an agency’s ability to fulfill its  mission, and because records contain information, taking a systematic  approach to managing them is essential. According to NARA, effective  records management helps deliver services in a consistent and equitable  manner; facilitates effective performance throughout an agency; protects  the rights of the agency, its employees, and its customers; and provides  continuity in the event of a disaster. According to NARA, from a strategic  perspective, agencies lacking effective records management policies and  procedures can hinder their ability to respond swiftly to opportunities,  events, incoming requests, and investigations, and to effectively implement  policy. From an operational perspective, such agencies may waste internal  resources searching for or recreating records, while at the same time  incurring storage costs for records that are not properly purged. From a  regulatory standpoint, such agencies can face fines, sanctions, and  convictions from noncompliance with federal statutes, rules, and  regulations. Finally, from a legal perspective, such agencies can use  excessive time, costs, and resources during discovery in order to retrieve  needed materials from poorly organized records.
According to a FEMA official, while there is broad consensus on the need  for a centralized electronic document management system, currently no  such system is in use. According to FEMA staff, FIMA has electronic  systems in place for claims processing and correspondence  recordkeeping, and FIMA’s Risk Insurance Division has a system in place  that is used for document archiving for its division. FEMA’s Records  Management Division told us it had instructed program offices needing a  records management system immediately to continue the use of existing  document management systems until DHS implements such a system.  However, the agency has no policies or procedures in place for  implementing such electronic systems. FEMA officials told us they had not  implemented an agencywide system, even on an interim basis, because  they were waiting for a decision from DHS on a centralized system.
Further, FEMA lacks effective and systematic procedures to fully ensure  that it appropriately retains and manages its records. While DHS has an  overall records management directive, FEMA’s agency-specific guidance is  outdated. For example, the guidance does not provide clear direction on  electronic recordkeeping but does contain direction on file cabinet sizes  and the use of candles in file rooms. FEMA Records Management officials  were unable to tell us when an updated directive would be forthcoming.  FEMA officials also said they had a plan for annually updating file plans  that staff were supposed to follow but did not have processes in place to  ensure that the plans actually were updated.
As result of this lack of updated policy and guidance, FEMA’s  recordkeeping practices, which apply to NFIP, may not conform with the  requirements of federal records management laws and regulations and  may not adhere to Standards for Internal Controls in the Federal  Government, which state that management should ensure that relevant,  reliable, and timely information is available for decision making and  external reporting. For example, in our review, FEMA staff told us they  were storing documents using a system of file rooms, personal file  cabinets, and document-sharing software with limited staff access.  According to FIMA staff, documents can be difficult to locate and at times  have been lost or thrown away when staff separate from the agency.  FEMA staff also told us they had faced decreased productivity due to lost  packages, delays in budget execution and policy decisions, destroyed  documents, and duplicated efforts. In addition, because FEMA staff are  currently spread across several different locations in the Washington, D.C.,  area and 10 field offices across the country, progress in meeting NFIP  goals can be slowed by staff’s inability to locate, transfer, and archive  documents across all of these locations.
FEMA has taken two actions that could help to ensure that its current  paper-based records are effectively managed. First, in fiscal year 2010 DHS  required all staff to take records management training on their individual  responsibilities for maintaining agency records. FEMA officials told us this  training was the first of its kind that the agency had offered. Second,  FEMA has begun identifying staff to act as records liaison officers in each  program office. Records liaison officers are responsible for helping ensure  that records are kept in accordance with the agency’s file plan. Agency  officials told us they relied heavily on records liaison officers to provide  oversight in these areas. However, FEMA has not yet identified records  liaison officers for each section of the agency and has not yet conducted a  review or audit to fully ensure that records were being systematically  retained and managed. Until FEMA addresses the agency’s immediate  need for a centralized document management system and develops  effective policies guiding the use of electronic systems, staff will continue  to face challenges maintaining records, affecting FEMA’s ability to make  effective decisions and report accurately on its finances and operations.
section_title: FEMA’s Outdated Financial Management Systems and Processes Have Created Challenges and Left Unliquidated Obligations Unresolved
paragraphs: Our review of FEMA’s financial management found that staff faced  multiple challenges in their day-to-day operations due to limitations in the  systems they must use to perform these operations. OCFO staff told us  that one of the greatest challenges they faced in carrying out their financial  management responsibilities was using unautomated and often disparate  systems. For example, they said that some of their systems for invoicing,  travel management, and debt collection did not interface with FEMA’s  financial management system and, as a result, they had to manually enter  data in FEMA’s system. In addition, OCFO staff said that because their  current travel management system was difficult and time consuming to  use, they employed a paper-based process for staff travel. While FEMA has  plans to implement a new system, a FEMA official told us the new system  would also be time consuming to use—for example, it would not allow  staff to process multiple travel orders in a short period of time, as would  be required during emergency deployment. Finally, OCFO staff said that  both the current debt collection and Department of Justice grant systems  for nondisaster grants required that grant obligations be entered manually.  According to FEMA officials, DHS is currently in the process of developing  a DHS-wide grants management system; however, they estimated the  system would take roughly a few more years to fully develop and  implement.
The lack of automated systems for budget formulation and execution  helped to make these tasks two of its biggest challenges. As we have seen,  FIMA currently uses a system of spreadsheets to formulate fiscal year  budgets and to track overall budget expenditure and specific line-item  expenses. According to FIMA officials, spreadsheets can be corrupted and  data are prone to errors because staff work on multiple versions. In  addition, FIMA staff also told us they faced challenges with the paper- based tracking of requisition orders, which are sent between departments.  In order to determine what was approved or not approved in the system  on a daily basis, staff must manually track requisition packages through  various offices. An agency official told us that the risks associated with  this paper-based process were high and there had been instances in which  packages were lost or signed for by unauthorized staff. These issues have  been raised in past audits by the DHS’s Office of the Inspector General  (OIG). While FIMA has begun to implement an automated tracking  system, according to FEMA staff, the process was delayed due to IT  challenges.
We have previously reported on weaknesses in FEMA’s financial  management processes. For example, we reported that internal control  weaknesses had impaired FEMA’s ability to maintain transaction-level  accountability; that FEMA’s broader oversight structures such as WYO  company audits, the triennial operational reviews of WYOs, and FEMA’s  claims reinspection program were limited in their effectiveness; and that  FEMA’s initiative to improve specific internal control weaknesses and the  overall NFIP environment has done little to address many of the NFIP  financial data deficiencies highlighted by the 2005 Gulf Coast hurricanes.  In addition, we reported that the design of FEMA’s financial reporting  process increased the risk of inaccurate or incomplete data because it did  not include transaction-level data and places an over reliance on manual  data entry. Furthermore, our testing of transactions from the Bureau and  Statistical Agent database found that many transactions either lacked or  had incomplete insured names, addresses, or policy effective dates. As a  result, we were unable to test the accuracy of reported insured premium  amounts or whether policy premium information was complete.
Recent external audits of DHS’s financial statements, performed by KPMG,  have also identified material weaknesses in the area of unliquidated  obligations. As of March 2011, FEMA had a total of $3.3 million in  unliquidated obligations for NFIP-related funds that had been inactive for  at least 5 years. According to a FEMA official, around $3.0 million of these  funds could potentially be deobligated and used for new obligations  consistent with the purposes for which the funds were appropriated.  According to GAO’s Standards for Internal Control in the Federal  Government, transactions should be promptly recorded to maintain their  relevance and value to management in controlling operations and making  decisions. This applies to the entire process or life cycle of a transaction o event from the initiation and authorization through its final classification  in summary records.” Further, “control activities help to ensure that all  transactions are completely and accurately recorded.” In addition,  “internal control and all transactions and other significant events need to  be clearly documented, and the documentation should be readily avai for examination.” All documentation and records should be properly  managed and maintained.
KPMG cited the unliquidated obligations issue as a material weakness i 2008 and as a significant deficiency in the 2009 and 2010 Consolidated  DHS Audits. According to a FEMA official, in 2009 the agency issued an  interim directive and procedures for addressing the unliquidated  obligations issue. For example, it has started to verify the age of  obligations older than 365 days and is working with points of contacts in  program offices to certify that the unliquidated accounts are still open.  However, OCFO told us that staff had sent memos to FIMA regarding this  issue but that FIMA staff responded they were unaware of the amount of  the unliquidated obligations and the potential amount that might be  returned to FIMA. Unless FEMA implements processes to better monitor  unliquidated obligations, including within FIMA, it could lead to inaccurate  financial statements and affect DHS’s overall budget.
section_title: FEMA Has Begun to Implement Changes in Its Acquisition Management Activities but Needs to Complete Key Steps
paragraphs: FEMA has also identified a number of weaknesses in its oversight and  management of acquisitions, and DHS and FEMA have taken a number of steps to improve these functions. However, because many of these steps  have either been recently implemented or are still under developmen extent to which they will improve FEMA’s acquisition management  remains to be seen. FEMA’s acquisition management has traditiona guided by DHS’s investment review process, which had four main  objectives:  Identify investments that perform poorly, are behind schedule or o budget, or lack capability, so officials can identify and implement  corrective actions.
Integrate capital planning and investmen allocation and investment management.
Ensure that investment spending directly supp orts DHS’s mission and  identify duplicative efforts for consolidation.
Ensure that DHS conducts required management, oversight, control,  reporting, and review for all major investments.
FEMA performs three types of acquisition activities: (1) acquisition  programs, which typically provide a tangible capital asset; (2) enterprise  service contracts, which provide a service with a direct impact on FEMA’s  ability to carry out its mission; and (3) nonenterprise service contracts,  which provide a service but do not have a direct impact on FEMA’s ability  to carry out its mission. Historically, some FEMA investments have been  funded despite not receiving adequate review or oversight. Most notably,  the NextGen system went forward without the necessary reviews and  failed after 7 years and an investment of $40 million. Further, the $1  billion Risk Mapping Assessment and Planning (RiskMAP) program, which  is an effort to modernize flood hazard mapping, was funded without  receiving approval from the review board. OCPO officials said that this  former DHS review board did not sufficiently meet the department’s  acquisition oversight needs, leading DHS to issue an interim acquisition  directive in November 2008 and a final directive in January 2010. The  directive provides an overall policy and structure for acquisition  management within DHS describing the Acquisition Life Cycle  Framework, Acquisition Review Process, and ARB, and outlines  management procedures and responsibilities related to various aspects of  acquisition.
Because the DHS acquisition directive allows its component agencies to  set internal acquisition processes and procedures as long as they are  consistent with the DHS directive, in August 2010 OCPO began drafting its  own acquisition directive and a handbook explaining how to implement it.  FEMA had circulated its directive, for comments, and OCPO officials  expect it will be completed within 30 days after comments have been  collected and incorporated.
One important component of acquisition management is reviewing  programs through an ARB. FEMA created its ARB in July 2009 and had  held four meetings as of January 2011. FEMA’s ARB includes two co-chairs  (the Deputy Administrator and the Component Acquisition Executive),  representatives from FEMA’s various program offices, heads of Mission  Support’s various offices, and others. While FEMA can choose to review  any acquisition activity, it requires that certain items be presented to the  ARB, including all acquisition programs with life cycle costs of more than  $50 million and enterprise service contracts with annual expenditures  greater than $20 million. As of January 2011, DHS recognized nine FEMA  programs requiring FEMA ARB review. Seven of these—including the $1  billion RiskMAP program—had gone through the FEMA ARB as of January  2011, and FEMA plans to review the other two, as well as others, in fiscal  year 2011. As it continues to review its portfolio of programs, it expects to  add additional programs to this list. In particular, OCPO is examining  FIMA’s acquisition activities and considering adding NFIP operations to its  ARB list.
FEMA has also faced challenges in the acquisition and oversight of its  contractors, which are critical to NFIP. Both OCPO and FIMA officials  said there had been communication challenges between contracting  officers who were part of OCPO and Contracting Officer’s Technical  Representatives (COTR) who report to the contracting officers but also  work in the program offices. OCPO officials said that many COTRs were  loyal to their program office and communicated with contracting officers  only when a problem arose. FIMA officials said that contracting officers  had at times been unresponsive to them, particularly when reporting  contractor discrepancies. Moreover, both we and KPMG previously noted  weaknesses in FEMA’s oversight of contractors. For example, we reported  that a lack of monitoring records, an inconsistent application of  procedures, and a lack of coordination diminished the effectiveness of  FEMA’s monitoring of NFIP-related contracts. Further, KPMG officials  said that FIMA did not provide sufficient oversight of its contractors,  something that is of particular concern because FIMA has a relatively high  proportion of contractor staff. Moreover, DHS’s OIG found that acquisition  personnel could not locate a number of contract files that were part of its  review including one for a $3 million flood risk assessment contract. The  report said that missing contract files created uncertainties, including  whether proper contracting procedures were followed, contractors were  held accountable for goods and services, and tax dollars were  appropriately spent.
To correct some of its acquisition challenges, FEMA issued a directive in  September 2009 to clarify the roles, responsibilities, and requirements of  COTRs in contract administration. This directive includes, among other  things, a COTR Tiered Certification Program consisting of credentialing  and compliance, and FEMA plans to train all of its COTRs to their  appropriate certification levels by March 2011. Providing further guidance,  FEMA also issued a COTR handbook in February 2009. Among other  things, the handbook includes training requirements, duties, monitoring  and surveillance procedures, and documentation requirements. In May  2010, OCPO began a technical review of COTRs’ Contract Administration  Files to better ensure that COTRs were adequately documenting their  contracts. OCPO officials also said that, realizing the importance of  outreach to FEMA’s program offices, they had developed and funded a  “How to Work with Us” training course and held the agency’s first annual  program management seminar. Moreover, officials from FIMA’s Risk  Insurance Division said they had changed their process for monitoring  contractors, including requiring the contractors to submit monthly  monitoring reports. As we have seen, most of these actions are relatively  new, and some have not been fully implemented. While these steps need to  be taken, the extent to which they will ensure effective oversight of  FEMA’s acquisition activities remains to be seen. Unless FEMA sets a firm  timeline for implementing these actions, the agency will continue to have  difficulty determining whether its acquisition processes are cost-effective,  particularly those involving contractors.
section_title: FEMA’s Emergency Response Culture May Make Implementing New Processes a Challenge, but Efforts to Improve Business Processes, including within FIMA, Have Been Initiated
paragraphs: Several FEMA officials and staff told us that the emergency response  culture within the agency could create resistance to implementing formal  business processes, many of which involve NFIP. For example, several  staff suggested that difficulties in following business processes were in  part linked to FEMA’s emergency response culture—that is, its  commitment to responding to disasters rather than strategically planning  how its response could be improved by implementing more efficient office  systems, policies, and processes. Further, agency officials told us that  FEMA staff generally believed that formal or bureaucratic processes could  impede their progress. Officials suggested that these cultural issues had  led to both a general unwillingness to follow business processes at the  staff level and limited commitment to planning and oversight at the  management level. One FEMA official said that while FEMA’s culture was  part of the challenge, the agency had expanded after September 11 and has  doubled in size since the 2005 Gulf Coast Hurricanes without  commensurate adjustments in processes and systems. FEMA staff also  told us that because many of FEMA’s processes were manual, FEMA’s  culture had become dependent on people, with staff relying on personal  relationships to accomplish tasks.
However, FEMA’s Mission Support Bureau told us it had begun a business  process improvement effort in early 2009 that involved mapping the  current processes, analyzing them, and determining what changes and  improvements were needed. FEMA officials stated that the business  process issues arose because FEMA expanded significantly after  September 11, 2011, and the agency added new processes to existing ones  without making necessary adjustments to ensure that the new processes  were efficient. For example, the process for staff who were separating  from the agency was mapped as having 117 steps and was streamlined to  88 steps. The bureau also determined that personnel actions for the  regions were done differently than they were for FEMA headquarters.  Mission Support officials said that as of July 2010 they had completed  process maps and new internal control frameworks that affect NFIP.
FEMA staff stated that Mission Support had completed several processes  in areas such as COTR appointment and reappointment, printing, Freedom  of Information Act requests for contract-related records, personnel  actions, access control to headquarters facilities, hiring and separating for  headquarters employees, workers compensation, annual property  inventory, and the 40-1 requisition process. A FEMA official told us that  staff had discovered numerous processes that either they did not realize  they had, were different than those previously assessed, or were needed  but did not exist. Mission Support staff said they had also found many  work-around processes and processes that were poorly documented or  duplicated at different places in the agency. FEMA officials told us they  had tentative plans to roll out the initial changes to processes throughout  relevant mission teams in 2011. In addition, FIMA officials told us they had  plans to undertake a separate effort to map seven other business  processes, including those for requisitions, hiring, congressional  correspondence, and salaries and benefits. Until these mapping processes  are complete and related internal control processes are developed, a risk  exists that certain functions will be inconsistently or incompletely carried  out and adversely affect FEMA’s management of NFIP.
section_title: Acquisition Management Weaknesses Led to Cancellation of NFIP’s System Modernization Project and Offer Lessons for Future Modernization Efforts
paragraphs: An important example of weaknesses in NFIP’s acquisition management  activities is the cancelled development of the Next Generation Flood  Insurance Management System (NextGen). Despite investing roughly 7  years and $40 million, FEMA cancelled this project in November 2009  because it failed to meet user expectations. As a result, NFIP must now  continue to rely on a 30-year old flood insurance management system that  does not fully support NFIP’s mission needs and is costly to maintain and  operate. A number of acquisition management weaknesses contributed to  the project’s failure and cancellation, and as FEMA begins anew to  modernize the existing legacy system, it plans to apply lessons learned  from its NextGen experience. As mentioned earlier in this report, FEMA  has already implemented some changes to its acquisition management  practices. However, whether these changes will better enable FEMA to  avoid the problems that derailed the development and implementation of  the NextGen system remains to be seen.
subsections: section_title: FEMA Cancelled Its NextGen Project in November 2009 and Continues to Rely on Outdated Existing System
paragraphs: NFIP currently uses a flood insurance policy and claims processing system  that was developed 30 years ago. The system is designed to (1) collect data  to determine flood insurance premium rates for specific properties, (2)  collect data on claims made on properties that have had flood-related  damage, (3) track the progress of policies and claims, and (4) prepare  legislatively mandated reports for Congress. According to FEMA officials,  this system is neither efficient nor effective and does not adequately  support the program’s mission needs. For example:    Staff must manually input data, potentially increasing the possibility of  data errors that can take as long as 6 months to correct.
The system provides limited access to data needed to manage the  program, including policy and claims data provided by WYO insurers,  which currently requires time-consuming and laborious steps to view  and change a given file.
The system employs 1980s mainframe technology and uses  programming languages that were current in the 1960s but are not  widely used today. As a result, the system is costly and difficult to  maintain.
The system can enforce restrictions on policies or claims only at the  end of each processing cycle. As a result, the number of errors that  occur during policy or claim processing is higher than it would be if  such restrictions were enforced earlier. Correcting these errors can add  as much as 2 to 3 months to the processing cycle.
NFIP’s attempts to modernize the existing system date back to at least the  mid-1990s, when NFIP tried to move the system’s applications and data  onto a more modern hardware and software infrastructure. However, this  effort was not successful and was cancelled in the late 1990s. According to  NFIP officials, the effort failed in part because system users were not  sufficiently involved in the design process and project management  capabilities were inadequate.
In 2002, NFIP awarded a contract for the development of the NextGen  system, which was to be deployed and operational by April 2007.  According to program plans, NextGen was to employ modern technology  and reengineered business processes to, among other things, improve the  accuracy and completeness of policy and claims data and provide 24-hour- a-day transaction processing and customer service. To meet these goals,  five system applications were to be developed, all of which were to be  supported by a new centralized database.  1.  Transaction Record Reporting Process (TRRP), which was to  collect data from the WYO insurers and flood insurance vendors on  policies and claims, conduct front-end balancing of financial data,  perform checks for errors in issued policies and processed claims, and  develop financial and statistical reports.  2.  Simple and Quick Access Net (SQANet), which was to permit  standardized and customized reporting of NFIP data.  3.  Flood Rating Engine Environment (FREE), which was to generate  online flood insurance rates and quotes.  4.  Flood Financial Management (F2M), which was to provide an  interface for NFIP financial stakeholders (NFIP bureaus, WYO  companies, and vendors) to enter, update, submit, and process  monthly financial data.  5.  ezClaims, which was to provide an interface for authenticated  claimants to view, edit, and process disaster and claims data.
To deliver the system, the contractor adopted a spiral development  methodology, which involves the development of prototype applications  that are tested and assessed by users and refined accordingly. Between  2004 and 2007, the five NextGen system applications and the supporting  centralized database were prototyped, pilot tested, and modified. In May  2008, a production version of NextGen was placed into operational use.  Shortly thereafter, however, users began reporting serious problems with  the system’s performance, such as inaccurate calculations and erroneous  data. For example, the system showed no claims received or processed for  the entire state of Alaska, despite the fact that the legacy system showed  numerous claims.
Shortly thereafter, NFIP decided to revert to its legacy system, and as a  result was forced to extend this system’s operations and maintenance  contract. At the same time, NFIP decided to conduct user testing on  NextGen in late 2008 and early 2009. During this testing, system users  identified additional problems, causing FEMA leadership to establish an  Executive Steering Committee to decide how best to proceed. The  committee included FEMA’s Director for Acquisition Management, Chief  Information Officer (CIO), Assistant Administrator for Mitigation, and  other senior-level executives. To support the steering committee, two  assessments were performed: one by the DHS Emergency Management  Inspector General that focused on FIMA’s management and oversight of  both the legacy system contractor and the NextGen contractor; and one by  OCIO that focused on what could be salvaged from NextGen. In November  2009, based on interim results from the assessments, FEMA leadership  decided to cancel NextGen.
In June 2010, FEMA leadership transferred responsibility for modernizing  NFIP’s legacy system to OCIO. According to the CIO, the next attempt to  modernize NFIP’s legacy system will begin with a determination of the  “degree of fit” between the NextGen applications and NFIP’s business  requirements. To meet this goal, OCIO intends to first develop a clear  understanding of NFIP’s business requirements. Next, it will test the  NextGen software applications against these requirements to determine  what gaps exist. During this time, OCIO also intends to establish a project  office capable of managing the effort. As of March 2011, OCIO has hired a  new project executive and project manager and is in the process of  developing project management documentation, such as a mission needs  statement and capability development plan.
NFIP will now have to rely on its legacy system for an unspecified period  of time. As a result, NFIP’s ability to manage its flood insurance operations  will continue to be hampered by this system’s limitations. In addition,  NFIP will have to continue to invest in the operations and maintenance of  this system, which between June 2009 and June 2010 cost approximately  $9.35 million to operate and maintain. According to the FEMA Acting  Assistant Administrator for Mitigation, NFIP is currently in the process of  negotiating a 2-year contract extension for operating and maintaining the  legacy system.
section_title: Acquisition Management Weaknesses Led to the Cancellation of NextGen
paragraphs: Weaknesses in several key system acquisition areas led to NextGen’s  failure and cancellation. Specifically, business and functional requirements  were not sufficiently defined; system users did not actively participate in  determining the requirements for the development of system prototypes or  in pilot testing activities; test planning and project risks were not  adequately managed; and project management office staffing was limited.  These weaknesses can, in turn, be attributed in large part to a general lack  of executive-level oversight and attention to the project’s status.
subsections: section_title: NextGen Requirements Were Not Well Defined
paragraphs: Well-defined requirements are a cornerstone of effective system  acquisition. According to recognized guidance, documenting and  implementing a disciplined process for developing and defining  requirements can help reduce the risk of developing a system that does not  perform as intended and does not meet user needs. Such a process  includes, among other things, (1) establishing a complete and  unambiguous set of high-level requirements that can form the basis for  defining the more detailed requirements that guide system development,  and (2) involving users throughout the development process. For  NextGen, neither of these conditions were met.
According to industry practices, high-level system requirements become  the basis for the development of more detailed requirements that, in turn,  can be used to develop specific software. Without complete and clear  high-level requirements, sufficiently defining the more detailed  requirements will be unlikely, in turn creating the risk that the resulting  system will not meet users’ needs. While NFIP did conduct activities  intended to elicit NextGen requirements, these requirements—which NFIP  refers to as “business requirements”—were neither complete nor clear.  Specifically, NFIP established five working groups to review and refine  business processes and provided the NextGen system developer with  NFIP operational manuals. These five groups, which were associated with  five business areas—claims, marketing, financial management,  underwriting, and information technology—were each expected to  produce a set of recommended business requirements. However, FEMA  officials described the groups’ efforts as largely based on oral  communications, resulting in misunderstandings and poorly documented  requirements. For example, one working group produced four different  models of business processes, all of which were provided to the system  developer as a basis for defining more detailed system requirements.  According to the system developer, reconciling differences in these  models contributed to the challenges in defining the requirements for  NextGen.
NFIP also provided the system developer with its operational manuals  (e.g., flood insurance manuals, specific rating guidelines, and transaction  reporting process manuals). However, none of these manuals were  current and complete, according to NFIP officials. For example, officials  told us the manuals were constantly changing and did not fully reflect  actual flood insurance underwriting practices. According to these officials,  only the NFIP subject matter experts had sufficient knowledge about the  practices actually being employed. However, the subject matter experts  were not sufficiently involved in defining business requirements. As a  result of this inadequate information, the system developer had to  interpret the business requirements, leading to the development of more  detailed requirements that were later found to be incomplete and  inaccurate. Specifically, an assessment done by FEMA’s CIO found that  NextGen’s business and functional requirements were not sufficiently  complete or decipherable and were otherwise not captured in accordance  with industry standards.
Further, users were not sufficiently involved in defining requirements.  Best practices for defining and managing system requirements also include  eliciting user needs and involving users throughout the development  process. Continued user involvement is particularly essential to a project  for which high-level operational or business requirements have not been  well defined, as was the case with NextGen. Recognizing the limitations in  the business requirements, and consistent with practices associated with  the spiral development methodology employed on NextGen, the system  developer conducted a series of application prototyping and pilot testing  activities between 2004 and 2006. According to officials from both FIMA  and its contractor, these activities were intended to, among other things,  discover new system requirements and clarify existing requirements by  having groups of users interact with the system developers on early  versions of the applications.
However, according to FIMA and the contractor, key subject matter  experts did not participate in these prototyping and piloting efforts,  particularly in the area of NFIP’s underwriting process. Instead, user  participation was largely confined to the WYO insurance companies and  flood insurance agents that participated in NFIP. To increase user  participation, NFIP established the NextGen Executive Decision Group in  January 2006. However, minutes of the group’s meetings during 2006 and  2007 indicate that limited involvement of key NFIP internal users  continued to hinder efforts to define NextGen system requirements.  Moreover, the CIO assessment found that stakeholders were not  adequately engaged in efforts to develop requirements. In particular, the  assessment found that NFIP stakeholders’ needs and concerns had not  been adequately solicited and their approval of and commitment to  requirements were not obtained.
section_title: NextGen Testing Was Not Effectively Managed
paragraphs: Effective testing of a system like NextGen is essential to ensuring that the  system functions as intended and meets mission needs and user  expectations. As we have previously reported, an overarching test plan or  strategy is critical for effective system testing. Among other things, this  overall test management plan should    define the type and timing of the developmental and operational test    allow for detailed test planning and execution and ensure that the  progress of the tests can be tracked and results reported and  addressed;    define the roles and responsibilities of the various groups that are  responsible for the test events; and    provide a high-level schedule for planned events and activities.
Without such a plan, a risk exists that system testing will occur in an ad  hoc and undisciplined fashion and that problems will not be discovered  until late in the system’s development cycle, when they are more difficult  and costly to correct.
NFIP did not develop an overall NextGen test management plan or create  a high-level schedule of the testing activities that would be performed.  Instead, NFIP allowed its system development contractor to determine  which tests to perform and how and when they would take place.  According to the NextGen COTR, the types of testing events that were  actually performed by the contractor were application prototyping and  pilot tests between 2004 and 2006, followed by functional, regression, and  system usability testing in 2006 and 2007. NextGen testing also included  user testing conducted by NFIP in 2008 and 2009.
section_title: Individual Test Events Were Not Well Planned
paragraphs: Along with an overarching plan, specific, well-defined test plans are  necessary if testing is to be effective. According to relevant guidance, test  plans should specify each of the following key elements:    Roles and responsibilities: Identifies individuals or groups that are  to perform each aspect of the specific test event, such as test operators  and witnesses, and the functions or activities they are to perform.
Environment and infrastructure: Identifies the physical facilities,  hardware, software, support tools, test data, personnel, and anything  else necessary to support the test event.
Tested items and approach: Identifies the object of testing (such as  specific software or hardware attributes or interfaces) and describes  the method used to ensure each feature of these objects is tested in  sufficient detail.
Traceability matrix: Consists of a list of the requirements that are  being tested and maps each requirement to its corresponding test  cases, and vice versa.
Risk and mitigation strategies: Identifies issues that may adversely  affect successful completion of testing, the potential impact of each  issue, and contingency plans for mitigating or avoiding these issues.
Testing schedule: Specifies milestones, duration of testing tasks, and  the period of use for each testing resource (e.g., facilities, tools, and  staff).
Quality assurance procedures: Defines a process for ensuring the  quality of testing, including steps for recording anomalies or defects  that arise during testing and steps for making changes to approved  procedures.
Test plans were not developed or used for prototype and pilot testing  performed by the contractor between 2004 and 2006. According to the  NextGen COTR, formal system testing was not considered necessary  during prototyping and pilot efforts under the spiral system development  approach. While testing performed during such efforts is understandably  less formal, the absence of any test plan is not consistent with relevant  guidance. As we have previously reported, system pilots should be guided  by a documented test plan that includes, for example, the type and source  of data and the associated analysis necessary to determine the success of  the pilot test.
The contractor did develop test plans for the functional, regression, and  usability testing of the NextGen applications that occurred in 2007 and  2008. Specifically, the contractor prepared, and the COTR approved, test  plans for each test event for each application. However, none of these  plans had all of the key elements of effective test planning. In particular,  while most of the plans addressed roles and responsibilities, environment  and infrastructure, test items and approach, and quality assurance, only  two included a testing schedule, and none included a traceability matrix or  the risks to be mitigated (see table 1).
Roles and responsibilities: All of the test plans addressed roles and  responsibilities for each application. Specifically, they identified either  individuals or groups of individuals, such as the test lead or subject  matter experts that were to perform specific functions, such as  reviewing test results, providing detailed test findings, and allocating  testing resources.
Environment and infrastructure: All of the test plans addressed  environment and infrastructure. Specifically, they described the types  of environments, such as a lab or the pilot program environment, as  well as the hardware, software, and support tools needed for testing.  Further, test data and personnel were also identified in each plan.
Tested Items and approach: Four out of the five test plans identified  the objects to be tested and described the methods used to ensure that  each feature of these objects was tested in sufficient detail. For  example, the FREE test plan included the test scripts, test cases, and  sample test result log that would be used to test the application and  record the results.
Traceability matrix: None of the test plans listed the specific  requirements that were being tested or mapped those requirements to  the corresponding test cases. Rather, the test plans cited a single  overarching requirement. For example, the SQANet test plan cited the  requirement that NextGen provide NFIP reporting capabilities.  However, this requirement was not broken down into subordinate  requirements or mapped to corresponding test cases.
Risk and mitigation strategies: None of the test plans identified  issues that might adversely affect successful completion of testing.  Although the TRRP test plan identified assumptions and constraints— for example that the subject matter experts would be available to  provide documentation and rationale for identified discrepancies—the  plan did not identify any assumptions or constraints as risks or provide  plans for mitigating or avoiding their impacts.
Testing schedule: Two of the five test plans (TRRP and F2M)  included a detailed testing schedule. For example, both test plans cited  the test name, tasks, timeframes, and durations (estimated number of  hours). The other test plans referred to the NextGen project  management plan and the project schedule for a testing schedule.  However, neither of these project-level documents contained detailed  information about these test events.
Quality assurance procedures: All of the test plans included quality  assurance procedures. Specifically, the plans described a process,  including steps, for identifying and documenting issues or defects that  arise during testing and for making changes to approved procedures.  For example, the SQANet test plan defined a process for identifying  and documenting test anomalies that included explaining each  defect/issue found, capturing screenshots depicting the defect/issue,  describing the testing environment or special testing method used to  identify the defect/issue, and reviewing and resolving the defect/issue.
According to the NextGen COTR, risk mitigation strategies were not  included in the test plans because they had already been addressed in a  risk list that the contractor developed and maintained, and test schedules  were not included because they were already in the NextGen project  management plan. However, the contractor did not effectively implement  the risk management activities, and as we have seen, the NextGen project  management plan did not include a schedule that detailed specific test  activities. The COTR also told us that traceability matrices were not  included because DHS did not require them at the time the test plans were  developed and executed. But according to industry best practices,  traceability matrices are essential to helping ensure that the scope of test  activities is adequate.
In addition, no user acceptance test plans were developed for the user  testing that NFIP conducted in 2008. Instead, the program’s branch chiefs  selected eight NFIP subject matter experts to separately and individually  test the system using system queries (test cases and procedures) of their  own choosing based on their respective knowledge. In doing so, they were  also told to compare their respective query results with results of similar  queries of the legacy system. According to the NextGen COTR, user  acceptance test plans were not developed because the tests performed by  the subject matter experts were considered to be sufficiently specific and  limited, focusing on finding the few “glitches” remaining after the initial  deployment. As a result, user test plans were considered at the time to be  unnecessary. Without well-defined test plans, however, the effectiveness  of the testing performed could not be determined.
section_title: Problems Found During User Acceptance Testing Were Not Effectively Managed
paragraphs: Effective test management includes not only capturing, prioritizing,  tracking, and resolving any problems identified during testing, but also  disclosing to stakeholders when and how problems are resolved.  According to relevant guidance and best practices, this element of test  management should be governed by a defined process and should ensure  that those who are responsible for correcting the problems understand the  full scope of system problems and the status of their resolution.
The problems identified during NFIP’s user acceptance testing of NextGen  in 2008 were not governed by a defined and disciplined process for  capturing, prioritizing, tracking, and resolving these problems.  Specifically:    The NextGen contractor was tasked with maintaining a list of problems  identified. However, users participating in the testing told us they were  not required to capture problems using a standard format and that the  NFIP project office did not centrally merge and transmit the problems  they identified to the contractor. Instead, these users said they  separately and individually communicated the problems they each  found either orally in meetings or via emails. However, NFIP officials  also told us the NextGen contractor did not attend all of these meetings  and the issues raised in these meetings were not always documented or  provided to the contractor. As a result, NFIP and contractor officials  agreed that the contractor’s list of problems requiring resolution was  incomplete.
The NextGen project office did not maintain its own centralized list of  problems requiring resolution. As a result, the project office did not  know the universe of problems requiring resolution and could not track  the status of each problem’s resolution.
Users participating in the system testing told us they were not told  whether the problems they had identified were ever resolved or when  and how resolution of those that were resolved took place. They said  that this lack of communication regarding the resolution of system  problems ultimately resulted in their rejection of the NextGen system.
Because of these weaknesses in how NFIP managed the resolution of  problems identified during user acceptance testing, the NextGen project  office was unable to demonstrate to the FEMA Acting Assistant  Administrator that NextGen met NFIP mission needs and user  requirements. This inability, in combination with the other acquisition  management weaknesses, contributed to NextGen’s cancellation.
section_title: FEMA Could Have More Effectively Managed NextGen Risks
paragraphs: According to federal guidance, proactively managing project risks can  increase the chances of delivering promised system capabilities and  benefits on time and within budget. We have reported that effective risk  management, among other things, includes defining and implementing a  process that identifies, analyzes, and mitigates risks and periodically  examines the status of the identified risks and mitigation steps. NFIP did  not define and implement its own risk management process for its  NextGen acquisition but instead delegated risk management to the  NextGen system development contractor. NFIP officials said they did not  conduct their own risk management activities because the NextGen  project office was not staffed to do so. They said they expected the  contractor to manage all project risks and believed they did not need to  duplicate these efforts.
The contractor did follow a process of identifying and analyzing risks and  developing plans for implementing them that involved actions on the part  of both NFIP and the contractor. However, not all of these plans were  effectively implemented, in some instances because NFIP did not take the  appropriate action, and in others because the contractor did not receive  devoted resources to implement the action.
In total, the contractor’s risk management efforts identified 72 risks over  the life of the project, of which 47 (about 65 percent) remained open at the  time the project ended. Of these 47 open risks, 36 (about 77 percent)  related to the contractor’s inability to gain access to NFIP staff or obtain  information from NFIP staff or the legacy contractor. Specifically, 11 risks,  the first of which was identified in July 2003, were associated with the lack  of participation by NFIP subject matter experts in the prototyping and  piloting of system applications. While FEMA established an executive-level  decision group in 2006 to address this category of risks, risk related to lack  of participation by subject matter experts continued to be identified and  remained open at the time the project was cancelled.
Twenty-five risks were related to a lack of timely delivery of information  from NFIP to the development contractor. For example, NFIP did not  provide timely delivery of comments on deliverables and the legacy system  that NextGen was to replace. According to the contractor’s risk  management documentation, these delays affected the development and  pilot testing of key applications and thus the entire NextGen schedule.  However, this documentation also shows that little or no action was taken  by NFIP to address the risks.
The NextGen project also faced risks beyond those identified by the  NextGen contractor. However, some of these risks were never captured  and mitigated because they were outside the contractor’s control. For  example, documentation shows that NFIP officials were aware that  representatives from both the NFIP NextGen office and the legacy  contractor resisted NFIP’s earlier attempt to move the NFIP system onto a  new platform. However, the risk that this resistance posed to the new  system was not included in the NextGen contractors’ risk list, and steps to  mitigate this risk were not taken. Later in the development of NextGen,  this ongoing resistance was cited as having impaired NFIP’s ability to  develop the NextGen system. Specifically, the DHS Emergency  Management IG reported that 14 NFIP staff in key positions relative to  approving NextGen favored the legacy contractor and helped to promote a  divisive atmosphere that limited NFIP’s ability to develop NextGen.
section_title: The NextGen Project Office Would Have Benefited from Additional Staff
paragraphs: As we have previously reported, having sufficient project office staff with  the requisite capabilities is essential to effectively managing a system  acquisition like NextGen. Establishing such an office requires, among  other things, an assessment of the core competencies and associated  knowledge, skills, and abilities needed to perform key project  management functions. It also requires an understanding of the  knowledge, skills, and abilities of those assigned to the project, so that any  gaps can be identified and a plan for filling those gaps can be developed  and executed.
The NextGen project office was not adequately staffed, having only one  full-time government employee, the COTR, assigned from 2006 to the  project’s cancellation. No project management staff were assigned to  perform such critical system acquisition management functions as  developing and managing system requirements, managing system testing,  and managing risk. Instead, NFIP relied almost exclusively on the NextGen  contractor to perform these and other project management functions.
According to a FEMA official, the NextGen project office requested  additional staff in 2006, but the Acting Assistant Administrator for  Mitigation denied the request because of resource constraints. Moreover,  the request was for only one part-time person and was not based on a  project management human capital assessment, which generally should  include an analysis of needs and existing capabilities, the associated gap,  and a plan for addressing identified gaps.
section_title: NextGen Needed More Effective Executive Oversight
paragraphs: As we have previously reported, successfully acquiring IT systems requires  the oversight and informed decision making of a senior-level investment  review board. Among other things, such a board is responsible for  selecting among competing IT investments and overseeing those  investments throughout their respective life cycles to help ensure that  project cost, schedule, and performance commitments are met, benefit  expectations are realized, risks are minimized, and project managers are  held accountable for results. DHS has recognized the need for such a  system investment oversight body. Specifically, DHS established a  department-wide investment review board in 2003. In November 2008,  DHS revised its acquisition review process to include updating this board,  which became the ARB, as the department’s highest review body and  charging it with reviewing and approving all investments with life cycle  costs above $300 million. In addition, it established working groups and  other boards, such as the Enterprise Architecture Board and the Program  Review Board, to provide subject matter expertise to the ARB, and the  Joint Requirements Council to validate the results of the strategic  requirements planning process. Further, DHS required each of its  component organizations, including FEMA, to establish and operate  review boards to oversee their respective investments.
However, neither FEMA nor DHS provided effective executive-level  oversight of NextGen. Specifically, no FEMA review board or executive  office, such as the CIO and Chief Financial Officer (CFO), ever held an  oversight or milestone-decision review for NextGen. The DHS review  board’s last oversight of NextGen occurred in 2007. At that time, the ARB  conditionally approved NextGen and delegated future oversight of the  project to FEMA. However, FEMA did not have a review board in place at  the time of the ARB’s decision, having recently disbanded it because the  demands of Hurricane Katrina made attendance at board meetings a low  priority for members. The current FEMA CIO stated that OCIO and OCFO  had not been more involved in NextGen because FIMA was not responsive  to their requests for information about the project.
section_title: NFIP’s Operating Environment and External Factors Complicate Administration of the Program, and FEMA Lacks Authority in Areas Critical to Its Long-term Financial Health
paragraphs: NFIP’s operating environment differs from that of traditional insurers and  limits FEMA’s ability to keep the program financially sound. In particular,  NFIP assumes and retains all of the risks for the policies it sells, is  required to accept virtually all applicants for insurance, and cannot deny  coverage for potentially high-risk properties. Moreover, additional external  factors continue to complicate the administration of NFIP and affect its  financial stability. These include lapses in NFIP’s authorization, the role of  state and local governments, fluctuations in premium income, and  structural and organizational changes that have been made. Finally, as  noted in past GAO reports, NFIP also faces external challenges that will  continue to threaten the program’s long-term financial health if they are  not addressed. These include statutory requirements that NFIP charge  subsidized premium rates for many properties, a lack of authority to  include long-term erosion in the flood maps used to determine rates, and  limitations on FEMA’s ability to take action when some owners of  repetitive loss properties refuse to mitigate or accept FEMA’s mitigation  offers.
subsections: section_title: NFIP’s Operations Differ from Those of Private Insurers
paragraphs: Any discussion of the challenges that FEMA faces in administering NFIP  must take into account important differences between the government’s  flood insurance program and private insurers. For example, by design  NFIP does not operate like a private insurer but must instead meet a  public policy goal—to provide flood insurance in flood-prone areas to  property owners who otherwise would not be able to obtain it. At the  same time, it is expected to cover its claims losses and operating expenses  with the premiums it collects, much like private insurers. In years when  flooding has not been catastrophic, NFIP has generally managed to meet  these competing goals. But in years of catastrophic flooding, such as 2005,  it has not. During those years, it has exercised its authority to borrow from  Treasury to pay claims and, as of April 2011, NFIP owed approximately  $17.8 billion to Treasury, mostly for the 2005 hurricane season. NFIP will  likely not be able to meet its interest payments in all years, causing the  debt to grow in certain years as FEMA may need to borrow to meet the  interest payments in some years and potential future flood losses in  others. This arrangement results in much of the financial risk of flooding  being transferred to the U.S. Treasury and ultimately the taxpayer.
Further, NFIP is also required to accept virtually all applications for  insurance and cannot deny coverage or increase premium rates based on  the frequency of losses. Private insurers, on the other hand, may reject  applicants or increase rates if they believe the risk of loss is too high. As a  result, NFIP is less able to offset the effects of adverse selection—the  phenomenon that those who are most likely to purchase insurance are  also the most likely to experience losses. Adverse selection may also lead  to a concentration of policyholders in the riskiest areas. This problem is  further compounded by the fact that those at greatest risk are required to  purchase insurance from NFIP if they have a mortgage from a federally  regulated or insured lender.
Finally, by law, FEMA is prevented from raising rates on each flood zone  by more than 10 percent each year. While most states regulate premium  prices for private insurance companies for other lines of insurance, they  generally do not set limits on premium rate increases, instead focusing on  whether the projected losses and expenses justify them.
section_title: A Variety of External Factors Complicate FEMA’s Administration of NFIP
paragraphs: As previously reported, FEMA also faces a number of external factors that  are not necessarily within its control but that also must be considered  when discussing the administration of the program. First, FEMA relies on  private insurers to sell and service policies and adjust claims under the  Write-Your-Own (WYO) Program, but multiple lapses in program  authorization in recent years have strained NFIP’s relationship with WYO  insurers. In particular, NFIP’s legal authorization has lapsed multiple times  since it expired in 2008, leaving FEMA and WYO insurers unable to renew  policies that expired during these lapses. Recent reauthorizations of the  program have been for periods of time as short as 5 days. FIMA officials  said these lapses in reauthorization created a significant burden for WYO  insurers. For example, the insurers were forced to reallocate resources to  communicate with agents and customers about how program lapses would  affect them. In part for this reason, the largest WYO insurer left the  program, and NFIP is transitioning the 840,000 policies that the insurer  had been selling and servicing to NFIP’s Direct Servicing Agent.
Second, like some other federal programs, FEMA relies on state and local  governments and communities to implement parts of the program, which  can limit the effectiveness of some of FEMA’s efforts. For example,  communities enforce building codes and other floodplain management  regulations in an effort to reduce the flood risk that insured structures  face, but some communities may not have sufficient resources to enforce  existing regulations. FEMA also relies on communities to administer grant  funds that are intended to mitigate high-risk properties. However certain  types of mitigation, such as relocation or demolition, might be met with  resistance by communities that rely on those properties for tax revenues,  such as coastal communities with significant development in areas prone  to flooding. Finally, communities and individuals have sometimes  mounted challenges to and resisted flood map revisions that place homes  in higher-risk flood zones and would thus raise premium rates.
Third, the financial resources that NFIP uses to fund much of its  operations have fluctuated in recent years. NFIP divides the premiums  paid by policyholders into “mandatory” and “discretionary” dollars. Most  premium dollars are considered mandatory and are used to pay flood  claims and other budget items such as WYO fees and advertising. The  remaining premium dollars are allocated to discretionary uses and are  used to fund NFIP operations. FIMA staff have noted that lower-than- expected policy fee income in recent years has forced them to cut back on  certain functions, including contract and WYO oversight, field office  management, and community outreach. For example, FEMA officials said  that in 2009 FEMA based NFIP’s budget on expectations that the program  would collect $156 million in policy fees, $107 million of which the  President’s budget required to be spent on mapping. By the end of the  fiscal year, NFIP had collected only $144 million in policy fees, leaving  NFIP with only $37 million, instead of the expected $49 million, to pay  salaries and other operating expenses. NFIP received approval from  Congress to redirect $4.9 million in mandatory funds from the advertising  budget into the discretionary budget to pay for these expenses, and it  compensated for the remaining $7.1 million shortfall with spending cuts,  largely from staff attrition and a hiring freeze.
Finally, both FEMA and FIMA have faced many significant changes to their  organizational structures and responsibilities since 2001, creating  challenges in implementing consistent and effective business processes.  FEMA underwent several organizational changes in 2001 and 2002, but the  most significant change occurred in 2003, when FEMA transitioned from  an independent agency to a component of the newly created DHS. At that  time, FEMA became part of DHS’s Emergency Preparedness and Response  Directorate, and some of its functions were moved to other organizations  within DHS. In addition, functions that had formerly been part of other  agencies were incorporated into the new Emergency Preparedness and  Response organization. From 2003 through 2005, over $1.3 billion in new  or significantly expanded programs came into FEMA, while programs with  funding of nearly $1.5 billion were transferred out. Although these changes  nearly balance in dollar terms and the number of employees remained the  same, they created considerable disruption to FEMA’s operations and  uncertainty about the availability of resources. After the 2005 hurricanes  and the widespread perception that FEMA had failed to effectively meet  its mission, the agency faced changes that created further uncertainty and  affected employee morale. In 2007, PKEMRA expanded FEMA’s mission  by integrating preparedness with protection, recovery, response, and  mitigation to address all hazards. FEMA was reorganized again in 2009 at  the direction of a new FEMA Administrator. At the same time, FIMA has  also faced considerable organizational changes—both through the overall  FEMA reorganizations and additional reorganizations that occurred with  successive FIMA administrators, most significantly in 2006. Policies and  processes are often specific to the organizational and oversight structures  that are in place when they are created, and when those structures change,  the policies and processes may no longer be relevant or complete.
section_title: FEMA Lacks Authority in Areas Critical to Its Long- term Financial Health
subsections: section_title: FEMA Lacks Authority to Charge Full-Risk Rates on Many Properties and Is under Pressure to Allow Grandfathered Rates on Others
paragraphs: As we have pointed out in previous reports, FEMA is required by law to  charge many policyholders less than full-risk rates, otherwise known as  subsidized rates. These rates are intended to encourage property owners  to purchase flood insurance, and today nearly one out of four NFIP  policies are based on a subsidized rate. These rates allow policyholders  with structures that were built before floodplain management regulations  were established in their communities to pay premiums that represent  about 40 percent to 45 percent of the actual risk premium. Moreover,  FEMA estimates that properties covered by policies with subsidized rates  experience as much as five times more flood damage than compliant new  structures that are charged full-risk rates. One difficulty in analyzing the  effect of subsidized premium rates is that, while they affect the overall  financial stability of NFIP and can potentially increase borrowing from the  Treasury, the subsidy is not recognized in FEMA’s budget. As we have  reported in the past, the cost of federal insurance programs is often not  accurately reflected in agencies’ budgets. As a result, Congress may not  have adequate information about the potential claims on the federal  budget when it establishes or reviews federal insurance programs. This  lack of information may be especially problematic in the case of NFIP  because of the continued growth in the subsidy. As we have pointed out,  the number of policies receiving subsidized rates has grown steadily in  recent years, and without changes to the program, will likely continue to  grow, increasing the potential for future NFIP operating deficits.
In addition, NFIP may “grandfather” properties when new flood maps  place them in higher-risk zones. Unlike private insurers that charge risk- based rates, FEMA made a policy decision to allow certain properties  remapped into riskier flood zones to keep their previous lower rates.  While FEMA is not statutorily required to grandfather these policies,  FEMA officials told us that they made the decision because of resistance  to rate increases and based on considerations of equity, ease of  administration, and goals of promoting floodplain management. However,  homeowners who are remapped into high-risk areas and do not currently  have flood insurance may be required to purchase it at the full-risk rate.  Further, FEMA recently introduced a new rating option called the  Preferred Risk Policy (PRP) Eligibility Extension that is, in effect, a  temporary grandfathering of premium rates. While PRPs traditionally  would have to be converted to more expensive standard-rated policies  when they were renewed, FEMA extended PRP eligibility to 2 years after a  new flood map’s effective date or January 1, 2011, whichever is later.  FEMA made the decision to offer these lower rates in response to  significant community resistance to remapping and the resulting increased  rates as well as concern expressed by Congress. As we have reported, to  the extent that NFIP charges less than full-risk rates on many properties, it  adds to the risk that the program will need to borrow from Treasury to pay  claims.
section_title: FEMA Is Not Authorized to Account for Long-term Erosion in Developing Flood Maps
paragraphs: While FEMA is in the process of updating the flood maps used to set  premium rates for NFIP, it is not authorized to account for long-term  erosion in developing these maps. The purpose of these maps is to  accurately estimate the likelihood of flooding in specific areas given  certain characteristics including elevation and topography. Despite these  modernization efforts, some maps can quickly become inaccurate because  of changes from long-term erosion, particularly in coastal areas. However,  FEMA is not authorized to map for these changes—that is, it is not allowed  to take into account situations in which long-term erosion might increase  the risk of flooding in certain areas. Not accurately reflecting the actual  risk of flooding increases the likelihood that even full-risk premiums will  not cover future losses and adds to concerns about NFIP’s financial  stability.
section_title: FEMA Is Limited in Its Ability to Encourage Property Owners to Undertake Mitigation Efforts
paragraphs: In reforming NFIP in 2004, Congress noted that repetitive loss  properties—generally, those that FEMA defines as having had two or more  flood insurance claims payments of $1,000 or more over 10 years— constituted a significant drain on NFIP resources. While Congress has  made efforts to address this issue through mitigation activities, repetitive  loss properties continue to be a drain on NFIP. Many of these properties  are part of the subsidized property inventory, and thus receive subsidized  rates, further contributing to NFIP’s financial instability. This situation  exposes the federal government and ultimately taxpayers to greater risks  and is not consistent with several of the public policy goals (e.g., limiting  exposure to the federal government and the taxpayer) that we have  previously identified for disaster programs. As previously reported,  FEMA will offer premium discounts for efforts to mitigate high-risk  structures including raising the elevation of, relocating, or demolishing a  property, but these efforts are for the most part voluntary. FEMA does  have some authority to raise premium rates for property owners who  refuse mitigation offers made by local authorities, such as an offer to  elevate the property, in connection with the severe repetitive loss pilot  program. Specifically, if a property owner refuses a mitigation offer, FEMA  can increase premiums to up to 150 percent of their current amount and  by a similar amount later on if the property owner is paid a claim of  greater than $1,500. However, FEMA is prohibited from charging more  than the current full rate and as a result cannot increase premiums on  property owners are paying the full rate but who refuse a mitigation offer.  In addition, FEMA is not allowed to discontinue coverage for those who  refuse mitigation offers. As a result, FEMA has some limitations on its  ability to compel owners of properties with repetitive losses to undertake  flood mitigation efforts. Further, while Congress has made efforts to  reduce the number of repetitive loss properties, their number has grown,  making them an ongoing challenge to NFIP’s financial stability.  Specifically, these properties account for about 1 percent of all policies  but are estimated to account for up to 30 percent of all NFIP losses. Unless  FEMA is able to effectively encourage owners of severe repetitive loss  properties to undertake mitigation efforts, the potential losses associated  with such properties continues to threaten the financial stability of the  NFIP.
Recognizing that NFIP faces a variety of structural challenges that need to  be reformed, FIMA began a three-phase effort to develop  recommendations to reform the program by addressing some of the  program’s external challenges. The process began with a listening session  in November 2009 to capture concerns and recommendations from about  200 stakeholder participants and to better understand the need for NFIP  reform. The second phase included adopting a policy analysis framework,  analyzing existing stakeholder input, developing and agreeing on guiding  principles to direct the NFIP reform effort, and creating evaluation criteria  to be used in scoring each of the proposed policy alternatives. The final  phase, which began in June 2010 and includes evaluating the policy  alternatives, will result in a reform proposal package that FIMA will  submit to FEMA leadership. To inform this phase, FIMA conducted two  additional stakeholder meetings in December 2010. This process may  provide some helpful ideas to address some of the major challenges facing  FEMA in its administration of NFIP. But as we have noted in earlier  reports, comprehensive legislative reform will be needed to stabilize its  financial condition.
section_title: Conclusions
paragraphs: While FEMA has begun to take steps to address its issues, it faces  significant management challenges in areas that affect NFIP, including  strategic planning, human capital planning, collaboration among offices,  records management, financial management, acquisition management, and  business processes. Effectively addressing these challenges would require  program improvements at all levels within FIMA, FEMA, and DHS and  would not only help improve the administration of NFIP but also help to  more effectively deal with financial and operational challenges that NFIP  faces—challenges over which FEMA often has limited direct control.  While FEMA has not yet addressed many of these issues, in part because  of the demands of its key mission of responding to emergencies, it is  beginning to take certain steps to address its challenges. While some  efforts are under way, FEMA has much work ahead of it in beginning to  plan and execute the day-to-day activities necessary to effectively manage  both the agency and NFIP and to ensure effective collaboration between  program and support offices. As we have seen, for example:    FEMA has not provided FIMA with strategic direction and guidance for  administering NFIP, and FIMA has not developed a comprehensive  strategy with goals and objectives for the program. GPRA states that  strategic plans should include such guidance and strategies for major  programs like NFIP. Without this direction, NFIP lacks a strategic  focus, and the agency is limited in its ability to develop effective  performance measures to measure NFIP’s progress. Without a robust  set of performance measures and an established process for  management to regularly review them, the agency cannot monitor and  hold accountable management and staff involved in the program.
FEMA lacks a strategic human capital plan (as required by PKEMRA)  that addresses the critical competencies required for its workforce.  Such a plan is critical for FEMA because of its heavy reliance on  contractors. Without such a plan, FEMA is limited in its ability to  assess its staffing and workforce needs, manage turnover, fill  vacancies, and oversee its contractor workforce.
FEMA lacks a plan to ensure that agency operations are maintained  when federal disasters are declared and staff are deployed to respond.  Without such a plan, FEMA faces the risk that some critical day-to-day  functions may not be performed while staff are deployed, limiting the  agency’s ability to provide the necessary support for disaster relief  missions.
FIMA relies on Mission Support for a variety of mission-critical  functions, including IT, acquisition, and financial management, but  FIMA and Mission Support have faced challenges in collaborating with  one another. For example, FIMA and OCFO have had limited  communication regarding FIMA’s budget formulation needs. Without  better collaboration and communication between FIMA and Mission  Support’s various offices, FEMA will be unable to fully ensure that  NFIP’s IT, acquisition, and financial and budgetary needs are being  met.
Further, FEMA still lacks comprehensive systems, policies, and processes  that would help ensure sound records, financial, and acquisition  management as they relate to NFIP. In particular:    FEMA has no centralized electronic document management system  that would allow its various offices to easily access and store  documents. As a result, the offices have faced problems with lost or  destroyed documents, decreased productivity, and duplicated effort.  While there is broad consensus for the need for a centralized electronic  document management system, FEMA is currently awaiting an overall  DHS decision on a system to be used for this process. However, until  such a system is provided, FEMA will continue to face document  management challenges that impede program effectiveness.
In previous audits, KPMG found weaknesses within FEMA’s  management of unliquidated obligations. The agency has issued an  interim directive for addressing the issue, but FIMA staff said they did  not know the amount of these obligations and the extent to which they  have been inactive. Until FEMA reviews FIMA’s unliquidated  obligations, FIMA may be foregoing funds that could otherwise be  returned and used for other program needs.
Recognizing a number of weaknesses in its oversight and management  of acquisitions, FEMA has taken steps to improve these functions,  including drafting an acquisition directive and a handbook explaining  how to implement it. However, most of these actions have either been  recently implemented or are still under development. While they are  the kinds of steps that need to be taken, the extent to which they will  ensure effective oversight of FEMA’s acquisition activities remains to  be seen.
FEMA Mission Support staff told us that in early 2009 they began a  business process improvement effort that involved mapping current  processes, analyzing them, and determining how they could be  improved. Until this mapping process is complete and related internal  control processes are developed, a high risk exists that certain  functions will be inconsistently or incompletely carried out.
In addition, FEMA has spent about 7 years and $40 million in its latest  attempt to modernize NFIP’s insurance policy and claims management  system. FEMA ultimately canceled the effort in November 2009 because it  failed to meet user expectations, forcing the agency to continue relying on  an outdated system that is neither effective nor efficient. Any further  attempts to modernize the program’s existing system must recognize the  root causes of NextGen’s failure, which include:    FEMA’s and DHS’s failure to provide sufficient oversight of the project  and to allow these acquisition weaknesses to go unchecked for years.  Without sufficient management oversight, FEMA will be limited in its  ability to ensure that future modernization attempts are completed  efficiently and effectively.
Weaknesses in several key system acquisition areas that led to  NextGen’s cancellation, including poorly defined and managed  requirements, poorly planned and executed system testing,  insufficiently mitigated program risks, and an inadequately staffed  program office. Unless FEMA learns from these mistakes, future  modernization attempts could face the same fate.
In addition to management challenges, FEMA still faces challenges related  to its financial operations and rate structure. The hurricanes of 2005  required a massive response from FEMA as it worked to help thousands of  individuals recover from sometimes devastating damage to their property.  The scope of the damages and total claims paid, which were unparalleled  in NFIP’s history, highlighted challenges with the program’s financial  structure. These challenges, along with the debt incurred by NFIP as a  result of the 2005 hurricanes, remain today.
As we have indicated in previous reports, FEMA can take some actions to  improve NFIP’s financial stability, such as ensuring that NFIP’s full-risk  premium rates accurately reflect the risk of loss and ensuring that WYO  insurers justify and document their claims for payment. However, fully  addressing other challenges to the long-term financial stability of the  program will require congressional action. For example, as we have  pointed out, congressional action to allow NFIP to charge full-risk  premium rates to all property owners would decrease the potential for  future NFIP operating losses. Authorizing the inclusion of long-term  erosion in future rate maps and providing FEMA with the authority to  require owners of repetitive loss properties to mitigate or impose penalties  for not doing so would also reduce the risks of future NFIP losses. We  recognize that these potential changes involve tradeoffs. Increasing  premium rates and requiring homeowners to mitigate flood-prone  properties could, for example, reduce participation and create hardship  for some property owners. Nevertheless, until these and related issues are  resolved, the program will continue to present a significant financial risk  to the government and taxpayers.
section_title: Recommendations for Executive Action
paragraphs: To improve strategic planning, performance management, and program  oversight within and related to NFIP, we recommend that the Secretary of  DHS direct the FEMA Administrator to take the following four actions:    Provide strategic direction and guidance to the process for developing  a comprehensive strategy for FIMA operations; establish a firm  timeframe for and complete the development of this strategy; and take  steps to ensure that this strategy has appropriate performance goals  and measures to track NFIP’s progress.
Develop a comprehensive workforce plan according to PKEMRA that  identifies agency staffing and skills requirements, addresses turnover  and staff vacancies, and analyzes FEMA’s use of contractors.
Direct the FEMA Administrator to develop guidance for continuing  operations when staff are deployed to respond to federal disasters and  direct FIMA Acting Assistant Administrator to develop such a plan.
Direct the FIMA Acting Assistant Administrator and the FEMA Mission  Support Associate Administrator to develop protocols to encourage  and monitor collaboration between FIMA and relevant support offices,  including those for information technology, acquisition management,  and financial management.
To improve FEMA’s policies, procedures, and systems for achieving  NFIP’s program goals, we recommend that the Secretary of DHS direct the  FEMA Administrator to take the following four actions:    While waiting for DHS to implement an agencywide electronic  document management system, consider the costs and benefits of  implementing an interim system for FEMA and updating its document  management policies and procedures.
Ensure that FEMA regularly reviews unliquidated obligations within  NFIP-related funds.
Establish timelines for and complete the development and  implementation of FEMA’s revised acquisition process, in line with the  DHS Acquisition Directive 102-01, including a rollout process with staff  training and a mechanism to better ensure that all acquisitions undergo  the necessary reviews.
Ensure that FEMA Mission Support’s business process improvement  efforts are expeditiously completed.
To improve the usefulness and reliability of NFIP’s flood insurance policy  and claims processing system, we recommend that the Secretary of DHS  take the following two actions:    Direct the DHS Deputy Secretary, as the Chair of DHS’s ARB, to  provide regular oversight of FEMA’s next attempt to modernize this  system.
Direct the FEMA Administrator to ensure that FEMA’s CIO applies  lessons learned from the NextGen experience to the next  modernization attempt. At a minimum, this effort should ensure that  (1) all levels of system requirements are complete and clear and that  key stakeholders are adequately involved in requirements development  and management, (2) key test events are effectively planned and  executed and problems identified during testing effectively managed,  (3) project risks are proactively identified and mitigated, and (4)  project office staffing needs are properly assessed and met.
section_title: Matters for Congressional Consideration
paragraphs: As Congress considers NFIP reforms and reauthorization, it should  consider ways to better ensure the long-term financial stability of the  program, such as 1) allowing NFIP to charge full-risk premium rates to all  property owners and providing assistance to some categories of owners to  pay those premiums; 2) authorizing NFIP to account for long-term flood  erosion in its flood maps; and 3) clarifying and expanding FEMA’s ability  to increase premiums or discontinue coverage for owners of repetitive loss  properties who do not mitigate their properties or refuse FEMA’s  mitigation offers.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided the Secretary of Homeland Security with a draft of this report  for review and comment. DHS provided written comments that we  summarize below. DHS’s letter is reproduced in Appendix II. FEMA also  provided us with technical comments, which we have incorporated as  appropriate.
DHS concurred with all of our 10 recommendations and identified actions  taken or plans made to implement them. Specifically, DHS agreed with our  recommendations to:    Provide strategic direction and guidance to the process for developing  a comprehensive strategy for FIMA operations; establish a firm  timeframe for and complete the development of this strategy; and take  steps to ensure that this strategy has appropriate performance goals  and measures to track NFIP’s progress. DHS stated that FEMA had  recently released its strategic plan for fiscal years 2011-2014 and had  begun requiring its directorates and offices to submit annual operating  plans with goals, measures to track the goals, and links to FEMA’s plan.  However, until such a plan and accompanying performance measures  are complete and fully implemented, whether such a plan will provide  the necessary strategic framework for managing NFIP remains to be  seen.
Develop a comprehensive workforce plan according to PKEMRA. DHS  noted that FEMA had obtained a contractor to conduct a workforce  assessment and had completed Phase I of the process. However, when  the entire workforce plan will be completed given the challenges FEMA  faces in identifying the number and categories of FEMA staff positions  and contractors as cited in the Phase I study is unclear. In addition, as  we cited in the report, the Strategic Human Capital Plan that FEMA  developed in response to PKEMRA did not fulfill the requirements of  the mandate. These requirements include:    specific goals and objectives for recruiting and retaining employees,  such as recruitment and retention bonuses;    specific strategies and program objectives to develop, train, deploy,  compensate, motivate, and retain employees;    specific strategies for recruiting staff with experience serving in  multiple state agencies responsible for emergency management; and    specific strategies to develop, train, and rapidly deploy a Surge  Capacity Force.
Develop a plan for continuing NFIP operations when staff are deployed  to respond to federal disasters. DHS stated that it agreed to provide  guidance to FEMA and its components for developing such a plan,  however it does not identify time frames for providing such guidance.
Develop protocols for collaboration between program and support  offices. DHS noted that Mission Support had begun some such  efforts, including holding listening sessions and responding to  problems that surface.
Consider the costs and benefits of implementing an interim  electronic records management system while awaiting an overall  DHS system and update its document management policies and  procedures to ensure records are being adequately managed. DHS  indicated that they have been providing interim policies and  guidance to program offices; however, the policies and procedures  they provided us during our review had not been updated.
Have FEMA regularly review unliquidated obligations within NFIP- related funds. DHS stated that FEMA had published an interim  directive in 2009 that applied to open FEMA obligations including  those within FIMA. While this directive provides useful criteria, our  recommendation is that FEMA follow this guidance and better  ensure that regular reviews are completed.
Establish timelines for and complete the development of FEMA’s  revised acquisition process. DHS listed a number of ongoing efforts  in this area including training, certification, and recruitment, among  others. While we are encouraged by the steps taken, establishing  timelines and completing these efforts are critical to establishing a  well functioning contract and acquisition management program.
Ensure that Mission Support’s business process reengineering plans  are expeditiously completed. DHS stated that Mission Support had  begun the process of incorporating lessons learned into its day-to- day operations. However, we recommend that the plans be fully and  expeditiously implemented, given their importance to helping  FEMA’s improve its overall procedures.
Finally, DHS concurred with our last two recommendations for improving  NFIP’s flood insurance policy and claims processing system. Specifically,  DHS stated it was preparing to elevate NFIP’s status and ensure that the  program was designated for regular oversight by DHS’s ARB. DHS restated  its commitment to ensuring that FEMA applies lessons learned from the  NextGen experience to its efforts to replace its current system.
We are providing copies to the Chairman and Ranking Member, Senate  Committee on Banking, Housing and Urban Affairs; the Chairman and  Ranking Member, House Committee on Financial Services; and other  interested committees. We are also sending a copy of this report to the  Secretary of Homeland Security and other interested parties. In addition,  the report will available at no charge on our Web site at  http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-8678 or williamso@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix III.
section_title: Appendix I: Objective, Scope, and Methodology
paragraphs: Significant management challenges affect the Federal Emergency  Management Agency’s (FEMA) ability to administer the National Flood  Insurance Program (NFIP). GAO undertook this current review to identify  root causes of these deficiencies and to clarify how to address them. Our  objectives were to (1) analyze the extent to which FEMA’s key  management practices—including strategic planning, human capital  planning, records management, financial management, acquisition  management, and intra-agency collaboration—affect the agency’s ability to  administer NFIP; (2) identify lessons to be learned from the Next  Generation Flood Insurance Management System (NextGen) program’s  cancellation, including to what extent key acquisition management  processes were followed on NextGen; and (3) describe factors that are  relevant to NFIP operations and analyze limitations on FEMA’s authority  that could affect its financial stability.
To determine the extent to which FEMA’s management practices affected  its ability to meet its program goals as well as congressional goals for  NFIP, we collected available data from FEMA and conducted over 80  interviews with representatives from FEMA’s Federal Insurance and  Mitigation Administration (FIMA), Office of Policy and Programs Analysis  (OPPA), and the Mission Support Bureau’s offices for administration,  finance, human capital, information, and procurement. We also  interviewed representatives of the Department of Homeland Security’s  (DHS) Office of the Inspector General (OIG), the National Association of  Public Administration (NAPA), and KPMG LLP. In addition, we analyzed  FEMA planning documents, policies, directives, materials, and data related  to key aspects of program management: strategic planning, human capital  planning, records management, acquisition management, and financial  management. Due to the nature of the audit work in these areas, we  conducted a data reliability assessment in the areas of human capital and  financial management. Both were found to be sufficiently reliable for the  purposes of our report. Further, we reviewed relevant legislation, internal  control standards, best practices, and external studies of FEMA’s  management challenges. More specifically:    Strategic planning: To assess FEMA’s strategic plans and  performance measures, we obtained and analyzed materials and  documents including FEMA’s 2008 strategic plan and FIMA  performance measures. We assessed these documents against our past  reports on the Government Performance and Results Act of 1993  (GPRA) and the Standards for Internal Controls in the Federal  Government. To further understand the strategic planning process and  assessment of performance measures, we met with key FIMA and  OPPA officials to discuss FEMA’s and FIMA’s past and future strategic  planning efforts.
Human capital: To assess FEMA’s workforce planning efforts, we  reviewed the 2008-2012 Strategic Human Capital Plan and compared it  with the requirements in the Post-Katrina Emergency Management  Reform Act of 2006. We also evaluated FEMA’s efforts based on  guidelines on workforce planning from the National Aeronautics and  Space Administration, our past reports on key principles for workforce  planning, and written responses provided by FEMA’s human capital  office to questions we submitted. In addition, we analyzed the  Consolidated Appropriations Act of 2010 to assess its contractor  tracking requirements for December 2010. To determine turnover in  key positions, we interviewed key FEMA staff regarding turnover in  their departments and obtained and analyzed attrition data from the  human capital office. To assess challenges in hiring, we reviewed  documentation and interviewed human capital and other FEMA staff.  In order to understand the information technology (IT) issues that the  human capital office faces, we interviewed key human capital staff and  analyzed reports and documents by the DHS OIG and NAPA. We also  reviewed standards for continuity of operations plans and past GAO  reports on business continuity plans.
Collaboration: To assess FEMA’s efforts to encourage coordination  between FIMA and the Mission Support offices, we compared the  practices of these two offices to key practices that we identified in  previous work for enhancing and sustaining a collaborative  relationship among federal agencies.
Records management: To assess FEMA’s records management  efforts, we reviewed the National Archives and Records Administration  standards, the Federal Records Act, the Paperwork Reduction Act, and  the Standards for Internal Controls in the Federal Government. We  reviewed FEMA and FIMA records management procedural  documents, training materials, FEMA’s previous records management  policy, DHS’s records management policy, and DHS OIG reports. We  met with the Office of the Chief Administrative Officer, staff from the  Records Management Division, and other relevant FEMA staff to  further understand records management efforts.
Financial management: To assess FEMA’s financial management  processes for NFIP, we reviewed policy documents, training materials,  reference materials, spreadsheets used in budget formulation, data  information on past audits, and data on unliquidated obligations and  compared them to findings in past KPMG LLC audits, DHS OIG reports,  and our past reports on FEMA’s financial management. We interviewed  relevant staff from FIMA’s and FEMA’s financial offices to further  understand financial management processes and efforts.
Acquisition: In order to assess FEMA’s acquisition efforts, we  obtained and analyzed FEMA’s guidance for acquisition management  and contractor oversight and compared them to the Federal  Acquisition Regulation and to findings in the DHS OIG reports and our  previous reports related to FEMA’s acquisition efforts. We interviewed  FEMA’s Chief Procurement Officer and other relevant FEMA staff to  assess acquisition efforts. We also attended contractor oversight  meetings to better understand day-to-day contractor oversight  activities.
In addition, we worked at a FEMA audit site in its Arlington, Virginia,  offices from January to April 2010. During that time, we held meetings  with FIMA staff, obtained relevant documents, and attended day-to-day  operational and contractor oversight review sessions. In order to gather  additional information about NFIP reform efforts, we attended the NFIP  Listening Session in November 2009 and the NFIP Reform Public Meeting  in December 2010, both of which were held in Washington, D.C.
To determine the extent to which the NextGen program’s acquisition was  effectively managed and overseen, we focused on the following acquisition  management areas: (1) requirements development and management, (2)  test management, (3) risk management, (4) human capital planning, and  (5) program oversight. In doing so, we analyzed a range of program  documentation, such as requirements documentation, test plans and  reports, risk documentation, program management plan, and related  documentation, and interviewed relevant program and contractor officials.
To determine the extent to which the program had effectively  implemented requirements development and management, we  reviewed relevant program documentation, such as the concept of  operations document, NFIP operational manuals, requirements and  design documents on NextGen applications, joint working group  recommendation reports, change request forms, and the program  management plan, and evaluated them against relevant guidance.  Moreover, we reviewed briefing slides and meeting minutes from the  NextGen Executive Decision Group. In addition, we interviewed  program and development contractor officials to discuss the  requirements development and management process.
To determine the extent to which the program effectively implemented  test management activities we reviewed test plans for functional,  regression, and usability testing and NextGen application summary test  reports and compared them with best practices to determine whether  test activities had been adequately documented and implemented. In  addition, we interviewed program and contractor officials to discuss  the test management process.
To determine the extent to which NextGen risks were effectively  managed, we reviewed the most current NextGen risk management  plan, risk lists, and monthly program status report. We also interviewed  program and development contractor officials to discuss the risk  management process.
To evaluate whether FEMA was adequately providing for the NextGen  program office’s human capital needs, we compared the program’s  efforts against relevant guidance. We also interviewed key officials to  discuss workforce analysis and human capital planning efforts.
To determine the level of oversight given over NextGen we reviewed  DHS’s acquisition directive and guidebook and met with officials  responsible for NextGen executive-level oversight to determine if  oversight was effectively provided.
To identify external factors that affected NFIP’s ability to carry out its  mission, we reviewed previous GAO reports that analyzed various aspects  of NFIP’s policies, practices, and organizational structure, identifying  factors that affected NFIP’s operations but over which NFIP did not have  control. For example, we reviewed our reports on the oversight of the  Write-Your-Own program, the financial impact of subsidized premium  rates, and the rate-setting process for flood insurance premiums. To  determine whether and to what extent the factors identified in these  reports were still affecting NFIP’s operations and to identify any additional  factors, we interviewed FEMA representatives and reviewed relevant  testimony of officials from FEMA and several interested associations  before Congress.
We conducted this performance audit from July 2009 to June 2011 in  accordance with generally accepted government auditing standards. 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.
section_title: Appendix II: Comments from the Department of Homeland Security
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Orice Williams Brown, (202) 512-8678 or williamso@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Randy Hite (retired), Director;  William Woods, Director; Patrick Ward, Assistant Director; Tonia Johnson,  Assistant Director (in memoriam); Nima Patel Edwards; Christopher  Forys; Elena Epps; and Emily Chalmers made significant contributions to  this report. Other contributors included Tania Calhoun; William R.  Chatlos; Jim Crimmer; Marc Molino; Freda Paintsil; Karl Seifert; and  Christy Tyson.
section_title: Related GAO Products
paragraphs: Flood Insurance: Public Policy Goals Provide a Framework for Reform.  GAO-11-429T. Washington, D.C.: March 11, 2011.
FEMA Flood Maps: Some Standards and Processes in Place to Promote  Map Accuracy and Outreach, but Opportunities Exist to Address  Implementation Challenges. GAO-11-17. Washington, D.C.: December 2,  2010.
National Flood Insurance Program: Continued Actions Needed to  Address Financial and Operational Issues. GAO-10-1063T. Washington,  D.C.: September 22, 2010.
Homeland Security: US-VISIT Pilot Evaluations Offer Limited  Understanding of Air Exit Options. GAO-10-860. Washington, D.C.:  August 10, 2010.
Department of Homeland Security: Assessments of Selected Complex  Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010.
National Flood Insurance Program: Continued Actions Needed to  Address Financial and Operational Issues. GAO-10-631T. Washington,  D.C.: April 21, 2010.
Financial Management: Improvements Needed in National Flood  Insurance Program’s Financial Controls and Oversight. GAO-10-66.  Washington, D.C.: December 22, 2009.
Homeland Security: Despite Progress, DHS Continues to Be Challenged  in Managing Its Multi-Billion Dollar Annual Investment in Large-Scale  Information Technology Systems. GAO-09-1002T. Washington, D.C.:  September 15, 2009.
Flood Insurance: Opportunities Exist to Improve Oversight of the WYO  Program. GAO-09-455. Washington, D.C.: August 21, 2009.
Results-Oriented Management: Strengthening Key Practices at FEMA  and Interior Could Promote Greater Use of Performance Information.  GAO-09-676. Washington, D.C.: August 17, 2009.
Information on Proposed Changes to the National Flood Insurance  Program. GAO-09-420R. Washington, D.C.: February 27, 2009.
High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January  2009.
Homeland Security: U.S. Visitor and Immigrant Status Indicator  Technology Program Planning and Execution Improvements Needed.  GAO-09-96. Washington, D.C.: December 12, 2008.
Department of Homeland Security: A Strategic Approach Is Needed to  Better Ensure the Acquisition Workforce Can Meet Mission Needs.  GAO-09-30. Washington, D.C.: November 19, 2008.
Department of Homeland Security: Billions Invested in Major Programs  Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18,  2008.
Flood Insurance: Options for Addressing the Financial Impact of  Subsidized Premium Rates on the National Flood Insurance Program.  GAO-09-20. Washington, D.C.: November 14, 2008.
Tax Administration: IRS Needs to Strengthen Its Approach for  Evaluating the SRFMI Data-Sharing Pilot Program. GAO-09-45.  Washington, D.C.: November 7, 2008.
Flood Insurance: FEMA’s Rate-Setting Process Warrants Attention.  GAO-09-12. Washington, D.C.: October 31, 2008.
Secure Border Initiative: DHS Needs to Address Significant Risks in  Delivering Key Technology Investment. GAO-08-1086. Washington, D.C.:  September 22, 2008.
National Flood Insurance Program: Financial Challenges Underscore  Need for Improved Oversight of Mitigation Programs and Key Contracts.  GAO-08-437. Washington, D.C.: June 16, 2008.
Natural Catastrophe Insurance: Analysis of a Proposed Combined  Federal Flood and Wind Insurance Program. GAO-08-504. Washington,  D.C.: April 25, 2008.
National Flood Insurance Program: Greater Transparency and  Oversight of Wind and Flood Damage Determinations Are Needed.  GAO-08-28. Washington, D.C.: December 28, 2007.
National Disasters: Public Policy Options for Changing the Federal Role  in Natural Catastrophe Insurance. GAO-08-7. Washington, D.C.:  November 26, 2007.
Business Systems Modernization: Department of the Navy Needs to  Establish Management Structure and Fully Define Policies and  Procedures for Institutionally Managing Investments. GAO-08-53.  Washington, D.C.: October 31, 2007.
Federal Emergency Management Agency: Ongoing Challenges Facing the  National Flood Insurance Program. GAO-08-118T. Washington, D.C.:  October 2, 2007.
National Flood Insurance Program: FEMA’s Management and Oversight  of Payments for Insurance Company Services Should Be Improved.  GAO-07-1078. Washington, D.C.: September 5, 2007.
Information Technology: FBI Following a Number of Key Acquisition  Practices on New Case Management System, but Improvements Still  Needed. GAO-07-912. Washington, D.C.: July 30, 2007.
National Flood Insurance Program: Preliminary Views on FEMA’s  Ability to Ensure Accurate Payments on Hurricane-Damaged  Properties. GAO-07-991T. Washington, D.C.: June 12, 2007.
Coastal Barrier Resources System: Status of Development That Has  Occurred and Financial Assistance Provided by Federal Agencies.  GAO-07-356. Washington, D.C.: March 19, 2007.
Budget Issues: FEMA Needs Adequate Data, Plans, and Systems to  Effectively Manage Resources for Day-to-Day Operations. GAO-07-139.  Washington, D.C.: January 19, 2007.
National Flood Insurance Program: New Processes Aided Hurricane  Katrina Claims Handling, but FEMA’s Oversight Should Be Improved.  GAO-07-169. Washington, D.C.: December 15, 2006.
Enterprise Architecture: Leadership Remains Key to Establishing and  Leveraging Architectures for Organizational Transformation.  GAO-06-831. Washington, D.C.: August 14, 2006.
Information Technology: Customs Has Made Progress on Automated  Commercial Environment System, but It Faces Long-Standing  Management Challenges and New Risks. GAO-06-580. Washington, D.C.:  May 31, 2006.
Homeland Security: Progress Continues, but Challenges Remain on  Department’s Management of Information Technology. GAO-06-598T.  Washington, D.C.: March 29, 2006.
GAO’s High-Risk Program. GAO-06-497T. Washington, D.C.: March 15,  2006.
Federal Emergency Management Agency: Challenges for the National  Flood Insurance Program. GAO-06-335T. Washington, D.C.: January 25,  2006.
Results-Oriented Government: Practices That Can Help Enhance and  Sustain Collaboration among Federal Agencies. GAO-06-15. Washington,  D.C.: October 21, 2005.
Federal Emergency Management Agency: Improvements Needed to  Enhance Oversight and Management of the National Flood Insurance  Program. GAO-06-119. Washington, D.C.: October 18, 2005.
Framework for Assessing the Acquisition Function at Federal Agencies.  GAO-05-218G. Washington, D.C.: September 2005.
Information Technology Investment Management: A Framework for  Assessing and Improving Process Maturity. GAO-04-394G. Washington,  D.C.: March 2004.
Human Capital: Key Principles for Effective Strategic Workforce  Planning. GAO-04-39. Washington, D.C.: December 11, 2003.
Information Technology: A Framework for Assessing and Improving  Enterprise Architecture Management (Version 1.1). GAO-03-584G.  Washington, D.C.: April 2003.
Tax Administration: IRS Needs to Further Refine Its Tax Filing Season  Performance Measures. GAO-03-143. Washington, D.C.: November 22,  2002.
Internal Control Management and Evaluation Tool. GAO-01-1008G.  Washington, D.C.: August 2001.
Determining Performance and Accountability Challenges and High  Risks. GAO-01-159SP. Washington, D.C.: November 2000.
Standards for Internal Control in the Federal Government.  GAO/AIMD-00-21.3.1. Washington, D.C.: November 1999.
Budget Issues: Budgeting for Federal Insurance Programs.  GAO/T-AIMD-98-147. Washington, D.C.: April 23, 1998.
Budget Issues: Budgeting for Federal Insurance Programs.  GAO/AIMD-97-16. Washington, D.C.: September 30, 1997.
Agencies’ Strategic Plans under GPRA: Key Questions to Facilitate  Congressional Review. GAO/GGD-10.1.16. Washington, D.C.: May 1997.