Federal Emergency Management Agency: Opportunities Exist to Strengthen Oversight of Administrative Costs for Major Disasters
Published: 2014-12-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: FEMA leads federal efforts to respond to and recover from disasters, and provides grants to states and localities through the DRF. For each major disaster, funds can be obligated from the DRF to cover administrative costs—the costs of providing and managing disaster assistance—for FEMA, states, tribes, localities, and certain nonprofits, among others. GAO was asked to review these administrative costs along with FEMA policy changes.
This report addresses the extent to which DRF funds were obligated to cover (1) FEMA's administrative costs for major disasters during fiscal years 2004 through 2013, and the steps FEMA has taken to control these costs, and (2) Grantee and subgrantee administrative costs for PA grants, and the impact FEMA's 2007 policy changes had on PA program administrative costs reimbursements. GAO analyzed FEMA's administrative costs data and policies and PA guidance for administrative cost reimbursements; and interviewed FEMA, state, and local officials.
section_title: What GAO Found
paragraphs: The Federal Emergency Management Agency (FEMA) obligated $12.7 billion from the Disaster Relief Fund (DRF) for its administrative costs from fiscal years 2004 through 2013 and has taken some steps to reduce and better control these costs. This $12.7 billion represents 13 percent of the $95.2 billion obligated from the DRF for the 650 major disasters declared during this time frame. FEMA's average administrative cost percentages for major disasters during the 10 fiscal years 2004 to 2013 doubled the average during the 10 fiscal years 1989 to 1998. FEMA recognized that administrative costs have increased and has taken steps intended to better control and reduce these costs, such as setting a goal in its recent strategic plan to lower these costs, and creating administrative cost targets. However, FEMA does not require these targets be met, and GAO found that had FEMA met its targets, administrative costs could have been reduced by hundreds of millions of dollars. GAO also found that FEMA lacks an integrated plan with time frames and milestones to hold senior officials accountable for achieving its goals to reduce and more effectively control costs. Such a plan could help FEMA to better oversee and control these costs. In addition, GAO found that FEMA does not track administrative costs by major disaster program, such as Individual or Public Assistance, and has not assessed the costs versus the benefits of tracking such information. Doing so could provide FEMA with better information to manage these costs.
From fiscal years 2004 through 2013, FEMA obligated $1.7 billion to reimburse grantees (states) and subgrantees (localities) for administrative costs related to Public Assistance (PA) grants, and its 2007 policy change has led to additional complexity and workload for FEMA and its grantees. FEMA's 2007 rule was intended to simplify and clarify the method FEMA uses to reimburse grantees and subgrantees for certain costs incurred for administering PA grants. However, according to FEMA, the 2007 rule led to an unexpectedly high rate of claims for direct administrative costs. Grantee, subgrantee, and FEMA officials told GAO that FEMA policies and guidance do not adequately specify the requirements for determining reasonableness, eligibility, and supporting documentation to support reimbursement of direct administrative costs. Clarifying the agency's guidance and minimum documentation requirements would help grantees and subgrantees submit, and FEMA review requests for administrative costs reimbursement.
section_title: What GAO Recommends
paragraphs: GAO recommends that FEMA (1) develop an integrated plan to better control and reduce its administrative costs for major disasters, (2) assess the costs versus the benefits of tracking FEMA administrative costs by DRF program, and (3) clarify the agency's guidance and minimum documentation requirements for direct administrative costs. FEMA agreed with the report and its recommendations.

section_title: Letter
paragraphs: The growth in major disaster declarations has led to increased federal  expenditures, including increased administrative costs from the Federal  Emergency Management Agency’s (FEMA) Disaster Relief Fund (DRF).  During the 10 fiscal years from 2004 through 2013, Presidents declared  32 percent more major disasters than in the preceding 10 fiscal years. For  each major disaster, funds can be obligated from the DRF to cover the  administrative costs of FEMA, other federal agencies, states, tribes,  territories, local governments, and certain nonprofits, among others.  FEMA’s ability to fund administrative costs plays a key role in the wake of  a disaster, allowing FEMA to deliver disaster assistance, and state, tribal,  territorial, and local governments to manage federal disaster assistance  grants.
FEMA, a component of the Department of Homeland Security (DHS),  leads the federal effort to mitigate, respond to, and recover from  disasters, both natural and man-made. Major disaster declarations can  trigger a variety of federal response and recovery programs for  government and nongovernmental entities, households, and individuals.  FEMA’s disaster assistance programs include Individual Assistance,  which provides financial assistance directly to individuals, and Public  Assistance (PA), which provides financial assistance to state, tribal,  territorial, and local governments. FEMA’s DRF is the major source of  federal disaster recovery assistance when a disaster is declared. The  DRF is appropriated no-year funding, which allows FEMA to fund, direct,  coordinate, and manage response and recovery efforts—including certain  efforts by other federal agencies and state and local governments, among  others—associated with domestic disasters and emergencies.
FEMA obligates funds from the DRF to cover its administrative costs— that is, costs that support the delivery of disaster assistance. FEMA’s  administrative costs include salary and travel costs for the disaster  workforce, rent and security expenses for field operations, and supplies  and information technology for field staff, among other things.
In September 2012, we reported that from fiscal years 2004 through  2011, FEMA obligated $80.3 billion, or an average of about $10 billion a  year, from the DRF. We also conducted an analysis of FEMA’s  administrative costs for 539 major disasters declared during the same  period that showed administrative cost percentages frequently exceeded  FEMA’s targets, although FEMA did not require that the targets be met.  To help FEMA control its administrative costs, we recommended that  FEMA implement goals for administrative cost percentages and monitor  performance to achieve these goals. In August 2014, FEMA reiterated  that it partially concurred with our recommendation and that it continues  to develop and implement more systematic approaches that will either  directly or indirectly improve its ability to monitor administrative costs and  performance. FEMA has not yet implemented our recommendation and  plans to provide us a response by the end of second quarter of fiscal year  2015.
FEMA also obligates funds from the DRF to reimburse certain  administrative costs that state, tribal, territorial, and local governments  incur when administering PA grants. For example, local governments that  receive PA funding can be reimbursed for visiting, surveying, and  assessing disaster sites, or paying private contractors that help manage  these grants. In a November 2007 rule, FEMA implemented a new rate  and process for reimbursing grantees and subgrantees of the PA program  for administrative costs.
Given the increasing cost, complexity, and size of disasters, you asked us  to review these various administrative costs. Specifically, this report  addresses  1.  the extent to which DRF funds were obligated to cover FEMA’s  administrative costs for major disasters during fiscal years 2004  through 2013, and what steps, if any, has FEMA taken to control  these costs, and  2.  the extent to which DRF funds were obligated to cover grantee and  subgrantee administrative costs for PA grants and the impact, if any,  of FEMA’s November 2007 regulatory changes related to  administrative costs.
To address our first objective, we obtained and analyzed administrative  cost obligations data from FEMA’s Integrated Financial Management  Information System (IFMIS) for each major disaster declared by the  President during fiscal years 2004 through 2013. We focused on this time  frame because it contains the most current data for major disasters. It  also comprises the time period after FEMA was merged into the newly  created DHS, on March 1, 2003, and predates Hurricane Katrina in 2005.  We focused primarily on fiscal years 2004 through 2013; however, to  provide historical context and to compare results across similar periods,  we also reviewed obligations data during fiscal years 1989 through 2013.  We calculated the percentage of total federal assistance that was  obligated for administrative costs for all major disasters declared during  fiscal years 1989 through 2013. In addition, we determined whether these  percentages were above or below FEMA’s administrative cost targets— one of FEMA’s efforts to better control costs—and whether FEMA’s  administrative costs increased or decreased during the period. To  determine whether the IFMIS obligations data were reliable, we reviewed  the data that FEMA officials provided, discussed data quality control  procedures with relevant FEMA officials, and reviewed documentation  such as DHS audits that included IFMIS to ensure the integrity of the  data. We determined that the obligations data were sufficiently reliable for  the purposes of this report. In addition, we interviewed officials from  FEMA’s Office of Chief Financial Officer and the Office of Response and  Recovery, and obtained and analyzed documentation to determine what,  if any, steps FEMA has taken to control costs and whether FEMA  implemented administrative cost goals and tracks performance against  the goals. We also obtained and analyzed FEMA policies, procedures,  and guidance specific to administrative costs, such as FEMA’s guidance  to federal coordination officers (FCO), strategic plans, and its financial  management codes guide and evaluated them using Standards for  Internal Control in the Federal Government and project management  guidance.
To address our second objective, we obtained and analyzed data on DRF  obligations to state, tribal, territorial, and local governments for PA-related  administrative costs for major disasters declared during fiscal years 2004  through 2013. Specifically, we determined the amount FEMA obligated to state and local governments for each fiscal year during our scope. To  determine whether the data were reliable, we reviewed the data that  FEMA officials provided and discussed data quality control procedures to  ensure the integrity of the data. We determined that the PA data were  sufficiently reliable for the purposes of this report. We reviewed and  analyzed FEMA policies, procedures, and guidance specific to state and  local administrative costs, such as its Disaster Assistance Policy, and  evaluated them using practices for good guidance. To assess the impact  of FEMA’s 2007 interim final rule on administrative costs, we visited  three FEMA regional offices, including Region II, located in New York,  New York; Region IV, located in Atlanta, Georgia; and Region VII, located  in Kansas City, Missouri. In addition, we conducted semi-structured  interviews with PA officials (Branch Chiefs or their designee) from all 10  of FEMA’s regions, 10 state emergency management officials (i.e.,  grantees), and 11 local officials (i.e., subgrantees). The information  obtained from the states and localities cannot be generalized nationwide.  However, the information obtained from these states and localities  provides insight into the issues grantees and subgrantees encounter  during the disaster recovery process.
We conducted this performance audit from November 2013 to December  2014 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. See appendix I for more  information on our scope and methodology.
subsections: section_title: Background
paragraphs: The Robert T. Stafford Disaster Relief and Emergency Assistance Act, as  amended, established the process by which a state may request a  presidential disaster declaration. According to the act, the President can  declare a major disaster after a governor or chief executive of an affected  tribal government finds that a disaster is of such severity and magnitude  that effective response is beyond the capabilities of the state and local  governments and that federal assistance is necessary. The act also  generally defines the federal government’s role during disaster response  and recovery and establishes the programs and processes through which  the federal government provides disaster assistance to state, tribal,  territorial, and local governments as well as certain nonprofit  organizations, and individuals. Figure 1 shows the number of major  disasters declared during fiscal years 2004 through 2013. See appendix II  for the number of disaster declarations during fiscal years 2004 through  2013 by jurisdiction.
Major disaster declarations can trigger a variety of federal assistance  programs and activities for governmental and nongovernmental entities,  households, and individuals. FEMA’s programs and activities include: PA,  Individual Assistance, Hazard Mitigation, and Mission Assignment.  FEMA tracks DRF obligations for major disasters in five categories, which  consist of four of the agency’s programs and activities, and its  administrative costs. Table 1 highlights that, as of April 2014, FEMA  obligated $95.2 billion for the 650 major disasters declared during the  period of our review. See appendix II for obligations for disaster  declarations during fiscal years 2004 through 2013, by jurisdiction.
subsections: section_title: FEMA’s Administrative Costs
paragraphs: FEMA defines administrative costs for major disasters as costs that  support the delivery of disaster assistance. Examples of FEMA  administrative costs include the salary and travel costs for the disaster  workforce, rent and security expenses associated with field operation  locations, and supplies and information technology for field operation  staff. According to FEMA officials, the agency’s administrative costs for  major disasters primarily support field operation activities; however,  administrative costs can also be incurred at FEMA regional offices,  headquarters, and other locations, such as FEMA’s National Processing  Service Center—that is, a service center where FEMA officials register  individuals and families for Individual Assistance.detailed description of FEMA’s administrative costs categories.
section_title: Public Assistance Process
paragraphs: PA is the largest of FEMA’s major disaster programs, comprising nearly  half the funds obligated from the DRF for major disasters. PA funds  debris removal and the repair, replacement, or restoration of disaster- damaged facilities. PA also funds certain types of emergency work  designed to, among other things, eliminate immediate threats to lives,  public health and safety, and property. After a disaster, FEMA works with  the affected state, tribal, or territorial government to set up a joint field  office (JFO) at or near the disaster site to administer PA grants. FEMA  staffing usually consists of (1) permanent full- or part-time employees, (2)  nonpermanent reserve staff, and (3) technical assistance contractors. In  addition, the JFO may be staffed by personnel from the affected  government’s emergency management office. The majority of FEMA staff  assigned to the JFO consists of nonpermanent reserve staff who are  typically deployed for short-term assignments (i.e., 90 to 120 days).  Technical assistance contractors may provide specialized assistance in  areas such as structural, mechanical, and civil engineering.
Federal, state, tribal, territorial, and local officials each play a significant  role in carrying out the steps in the PA funding process. In this process,  the state, tribal, or territorial government is the “grantee” that manages  and disburses PA funds, and the affected local governments or equivalent  entities are typically the “subgrantees” that receive the funds. A  subgrantee can be any eligible state or local government entity—for  example, school district, county, or township—or certain nonprofits. After  a disaster is declared, FEMA, state, tribal, or territorial representatives  brief applicants on the program, and FEMA, among other things, assigns  a PA coordinator, project officers, and technical specialists to assist the  applicant through the PA funding process. After determining the  subgrantees and projects eligible for funding, FEMA works with the  grantee and subgrantees to develop project worksheets that describe the  scope of work and estimated cost. FEMA also conducts historic  preservation and environmental reviews as part of its approval process.  See appendix IV for further details on the PA process.
section_title: Grantee and Subgrantee Administrative Costs
paragraphs: FEMA reimburses grantees and subgrantees for some expenses  associated with administering PA grants. FEMA divides these  reimbursements into two categories: section 324 management costs  (management costs) and direct administrative costs. Management costs  are any indirect costs, any administrative expense, and any other  expense not directly chargeable to a specific project. FEMA defines  direct administrative costs as costs incurred by the grantee or subgrantee  that can be identified separately and assigned to a specific project.
Examples of Management Costs and Direct  Administrative Costs  Management costs
Disaster: DR-4068
State: Florida
Declared: July 3, 2012
Description: Tropical Storm Debby
Amount: $3,910,571
Activity examples: (1) maintaining a  website to house documentation and closeout  information for Public Assistance (PA)  activities, and (2) pay office rent costs for  space occupied by PA staff.
Examples of management costs: activities related to attending and participating in the applicant’s  briefing for the overall PA grant,  travel expenses related to general support and not tied directly to one  specific project, and activities related to attending, coordinating, and responding to  correspondence and meeting requests from FEMA and grantee  officials for the overall program and not specific to one project.
Direct administrative costs
Disaster: DR-1971
State: Alabama
Declared: April 28, 2011
Description: severe storms, tornadoes,  straight-line winds, and flooding
Amount: $1,987,670
Activity examples: (1) develop, write, and  review project documentation; (2) assess  project eligibility; (3) gather and review payroll  data, and invoices; (4) and perform data entry.
Examples of direct administrative costs: activities related to developing a detailed site-specific damage  description component of one specific project worksheet, activities related to visiting, surveying, and assessing sites for one  specific project, and  travel expenses related to one specific project.
In fiscal year 2008, FEMA changed the way it reimburses grantees and  subgrantees for management costs. In November 2007, pursuant to the  Disaster Mitigation Act of 2000,that established rates for reimbursing grantee and subgrantee   FEMA implemented an interim final rule  management costs associated with PA grants. For major disaster  declarations, FEMA set management costs at a percentage rate of no  more than 3.34 percent of the federal share of projected eligible program  costs for assistance. In addition, FEMA officials stated that the 2007 rule  changed the process by which grantees and subgrantees received  management costs reimbursement. Figure 2 outlines the funding process  for grantees and subgrantees for PA administrative costs. According to  agency officials, FEMA set the management costs rate at 3.34 percent  after determining that it was approximately the historical average of all  management and administrative costs. See appendix V for further details  on the reimbursement process for management costs.
section_title: FEMA’s Administrative Costs Have Doubled, and an Integrated Plan Could Help Meet Its Goals of Reducing and Better Controlling These Costs
subsections: section_title: FEMA Administrative Costs
paragraphs: FEMA obligated $12.7 billion from the DRF to cover its administrative  costs for the 650 major disasters declared during fiscal years 2004  through 2013. As shown in figure 3, the $12.7 billion represents 13  percent of the $95.2 billion obligated from the DRF for the 650 major  disasters during this time period. Figure 3 provides a breakout of FEMA’s  cost categories for major disasters and how much was obligated for each  category from the DRF.
While figure 3 shows the total amount FEMA obligated for its  administrative costs from the DRF, it is significantly impacted by large  disasters such as Hurricane Katrina. For example, of the $12.7 billion  FEMA obligated for its administrative costs during fiscal years 2004  through 2013, $5.4 billion, or 43 percent, related to Hurricane Katrina.  Therefore, the 13 percent shown in figure 3 is significantly affected by one  disaster. Figure 3 also does not provide information about FEMA’s  administrative costs for individual disasters. One measure FEMA uses to  understand administrative costs for a single major disaster is a disaster’s  administrative cost percentage—that is, administrative cost obligations   A benefit to analyzing administrative cost  divided by total obligations.percentages is that FEMA can assess whether a reasonable amount of  administrative costs were obligated for a single disaster.
Our analysis shows that FEMA’s average annual administrative cost  percentages for major disasters have doubled since fiscal year 1989.  Specifically, we calculated the average administrative cost for each fiscal  year from 1989 to 2013 to identify long-term trends in FEMA’s  administrative costs. For example, to determine the average for fiscal  year 2013, we calculated the administrative cost percentage for each of  the 65 major disasters declared in fiscal year 2013. Next, we calculated  the average of the 65 administrative costs percentages. As shown in  figure 4, FEMA’s average administrative cost percentage was 18 percent  in fiscal year 2013, which more than doubled the average of 7 percent in  fiscal year 1989.
FEMA categorizes major disasters using three event levels—small,  medium, or large—based on the projected amount of federal funding to  be obligated for disaster assistance. Small disasters have projected  disaster assistance of less than $50 million, medium disasters have  projected disaster assistance from $50 million to $500 million, and large  disasters have projected disaster assistance of $500 million to $5 billion.FEMA’s administrative cost percentages are typically higher for small  disasters than for large disasters. For example, FEMA may be able to  achieve economies of scale for relatively large disasters, thereby  reducing the related administrative cost percentage. Examples of  administrative costs and other DRF obligations for a small and large  disaster are provided in appendixes VI and VII.
Our analysis shows that FEMA’s average administrative cost percentage  at least doubled for all sizes of disasters—small, medium, and large. For  example, for small disasters, FEMA’s average administrative cost  percentage was 20 percent during the fiscal year 2004-to-2013 period,  doubling the average of 10 percent during the fiscal year 1989-to-1998  period. Table 2 shows FEMA’s average administrative costs percentage  for small, medium, large, and all disasters combined.
We also found a wide variance in administrative costs percentages for  disasters of similar sizes in fiscal years 2004 to 2013, and for small  disasters, instances where FEMA charged the DRF more for  administrative costs than assistance. Specifically:
For the 518 small disasters (total disaster assistance of less than $50  million), administrative cost percentages averaged 20 percent, and  ranged from less than 1 percent to 74 percent. Sixteen or 3 percent of  the 518 small disasters had administrative costs that were equal to, or  exceeded, the disaster assistance.
For the 112 medium disasters (total disaster assistance from $50  million to $500 million), administrative cost percentages averaged 12  percent, and ranged from 1 percent to 29 percent. None of the  medium disasters had administrative costs that were equal to, or  exceeded, disaster assistance.
For the 20 large disasters (total disaster assistance from $500 million  to $5 billion), administrative cost percentages averaged 13 percent,  and ranged from 3 percent to 25 percent. None of the large disasters  had administrative costs that were equal to, or exceeded, disaster  assistance.
As we reported in September 2012, FEMA created a management guide  in November 2010 that included targets for administrative cost  percentages; however, the agency does not consider the targets formal  guidance and does not hold its officials accountable for meeting the  targets. FEMA did not require that the targets be met because according  to FEMA officials, the agency’s intent was to provide general guidance  rather than to stipulate a prescriptive policy or formula. Further, according  to FEMA’s management guide, one limitation of the targets is that “there  will be situations where the  levels are inappropriate due to  extraordinary circumstances.” As mentioned earlier, FEMA categorizes  major disasters using three event levels, essentially small, medium, or  large, based on the amount of federal funding for the disaster, and the  2010 guidance established target ranges for administrative cost  percentages for each category:
Small disasters have an administrative cost percentage target range  of 12 percent to 20 percent.
Medium disasters have an administrative cost percentage target  range of 9 percent to 15 percent.
Large disasters have an administrative cost percentage target range  of 8 percent to 12 percent.
To help FEMA control its administrative costs, we recommended in 2012  that FEMA implement goals for administrative cost percentages and  monitor performance to achieve these goals. FEMA has not yet  implemented our recommendation and plans to provide us a response by  the end of the second quarter of fiscal year 2015. Table 3 shows the  potential reduction in administrative costs had FEMA met the high and  low ends of its target range for the 650 major disasters declared during  fiscal years 2004 through 2013. For example, 259, or 40 percent, of the  650 major disasters exceeded the high end of FEMA’s target range for  administrative cost percentages. Had FEMA’s administrative cost  percentages for the 259 major disasters equaled the high end of the  target range, obligations for administrative costs would have been $2.3  billion lower. FEMA did not develop the target ranges until November  2010, and FEMA does not require its officials to stay within or below the  target ranges. As a result, this analysis does not indicate the amount that  FEMA should have saved during this period. Rather, the analysis can be  used as an indication of potential cost savings in the future, if the target  ranges are met.
Table 4 shows the potential reduction in administrative costs had FEMA  met the high and low ends of its target range for the 209 disasters  declared during fiscal years 2011 through 2013—that is, the time period  since FEMA created its administrative cost targets.
section_title: FEMA Has Taken Steps to Better Control and Reduce Administrative Costs, But Lacks An Integrated Plan to Achieve These Goals
paragraphs: As we reported in 2012, FEMA officials said that it was difficult to identify  the principal factors causing increases in administrative costs since fiscal  year 1989 because of the complexities associated with the underlying  factors, particularly in light of the span of time involved. We further  reported that FEMA officials stated that the agency has evolved from one  originally focused on grants management to an organization  implementing increasingly more complex programs with an increasingly  sophisticated and specialized workforce. In addition, FEMA officials told  us that there is a tension between efficiency and effectiveness of  delivering disaster assistance—for example, reducing administrative  costs could negatively affect FEMA’s ability to help individuals and  families recover from a disaster. FEMA officials provided information on  several ongoing efforts to better manage and control its administrative  costs, as discussed below.
FEMA’s 2010 guidance. In November 2010, FEMA issued guidelines  intended to better control its administrative costs.that FEMA had “witnessed spiraling administrative costs and staffing  levels” since fiscal year 1989, and that all agency managers would be  accountable for controlling administrative costs. It also noted that staffing  levels had risen significantly faster than disaster activity, with a tripling in   The guidance states  the average number of FEMA staff deployed per year. For example, the  average number of FEMA staff deployed to a disaster increased  significantly, from fewer than 500 in fiscal year 1989 to over 1,500 in fiscal  year 2009. The memorandum noted that FEMA had provided limited  guidance for controlling costs and staffing levels (i.e., the main driver of  administrative costs), and that FEMA managers did not have uniform  guidance to control administrative costs. The guidance also included best  practices for staffing levels and staff deployment times, and  considerations for whether to use less costly Virtual JFOs instead of  physical offices. Moreover, the guidance set targets for administrative  cost percentages. According to FEMA officials, the guide is used to train  field leadership and reflect the importance of administrative cost  management. However, FEMA did not require that this guidance be  followed or targets be met because the agency’s intent was to ensure  flexibility and provide general guidance rather than to stipulate a  prescriptive policy or formula.
FEMAStat. In 2012 and 2013, the agency’s FEMAStat team collected  and analyzed data on administrative costs associated with managing  disasters. The FEMAStat team found that FEMA (1) did not leverage  benchmarks and information about past deployments to inform staffing  decisions; (2) cost drivers, such as workload forecasts and local capacity,  were not accessible for its analytical purposes; and (3) had not defined  when the less costly Virtual JFOs should be used. It also found that there  is little predictability in the number of FEMA PA staff deployed to  disasters—for instance, one disaster had roughly three times as many PA  staff as another similar-sized disaster. The FEMAStat team concluded  that while it had demonstrated that data from past disasters could be  used to control costs, FEMA had to determine who has the authority and  responsibility to monitor and question these staffing levels, as well as put  into place a process to formalize this practice. As of September 2014,  FEMA officials said that the agency was working to implement the  FEMAStat recommendations. As a result, it is too early to assess whether  this effort will reduce administrative costs.
Strategic plan goal. In July 2014, FEMA issued its Strategic Plan for  2014-2018, which includes a goal to reduce its average annual  percentage of administrative costs, as compared with total program costs,  by 5 percentage points, by the end of 2018. According to FEMA  officials, the goal to reduce FEMA’s administrative costs reflects its  importance to FEMA. FEMA officials stated that the agency determined  that a 5 percentage point reduction was aggressive, but reasonable  based on its review of administrative costs for previous disasters. In  conjunction with this goal, FEMA officials also told us that they revised  their definition of administrative costs as of October 1, 2014. For example,  according to FEMA officials, the previous definition of administrative costs  included the cost associated with urban search and rescue operations;  however, they said these costs would be better defined as operational. As  of October 2014, FEMA had yet to determine the starting percentage from  which it will reduce 5 percentage points. According to FEMA officials, the  agency will identify this starting point during fiscal year 2015 using the  new definition of administrative costs.
Other ongoing steps to reduce administrative costs. FEMA has  several other ongoing actions that have helped, or could eventually help,  to reduce administrative costs, as follows:
Placing greater scrutiny on the amount of overtime worked by disaster  assistance personnel. For example, according to FEMA, since 2011,  FEMA has decreased the average overtime per person from almost  16 hours per pay period to 7.5 hours per pay period.
Eliminating unnecessary or duplicative telecommunication services.
For example, according to FEMA, since April 2013, FEMA has  reduced monthly telecommunication costs by more than $1 million per  month.
Implementing new flexibilities and pilot programs authorized by the  Sandy Recovery Improvement Act of 2013 that could help reduce its  administrative costs. For example, the act authorizes FEMA to  implement alternate procedures for administering the PA program that  allow FEMA to provide grants based on up-front estimated costs for  PA projects. According to FEMA, this could alleviate some of the  administrative burden for FEMA and grantees during the PA  process. However, according to FEMA officials, these efforts are in  the very early stages, and FEMA will not know for several years  whether these pilot programs actually lead to reduced administrative  costs.
FEMA officials do not have an integrated plan for how they will better  control and reduce administrative costs for major disasters, and have not  identified the office or officials accountable for overseeing administrative  costs. FEMA’s November 2010 management guide stated that “little  emphasis has been placed on managing overall  costs.”  Since the guide was created, FEMA officials have taken a number of  steps intended to better control and reduce the agency’s administrative  costs for major disasters. However, despite FEMA’s efforts since  November 2010, FEMA’s average administrative cost percentages have  not significantly decreased. According to FEMA officials, they have not  developed a plan that integrates the steps they are taking to better control  and reduce costs, and that highlights clear roles and responsibilities,  performance metrics, milestones, and a monitoring system to assess their  progress. In addition, according to FEMA officials, the agency has not  designated an office or senior officials accountable for controlling  administrative costs. For example, as part of the FEMAStat initiative,  FEMA officials highlighted that it was unclear who had authority and  responsibility to monitor and question staffing levels, even though staffing  is the largest driver of administrative costs.
According to A Guide to the Project Management Body of Knowledge,  which provides standards for project managers, specific goals and  objectives should be conceptualized, defined, and documented in the  planning process, along with the appropriate steps, time frames, and  milestones needed to achieve those results. According to the Standards  for Internal Control in the Federal Government, managers should  compare actual performance to planned or expected results throughout  the organization and analyze significant differences; it also states that an  agency’s organizational structure should clearly define key areas of  authority and responsibility and establish appropriate lines of reporting.  Designating an office or senior official with sufficient time, responsibility,  authority, and resources can help improve FEMA’s accountability and  progress. Until a plan that integrates FEMA’s initiatives is created, FEMA  will continue to lack assurance that it has an effective and efficient plan  for reaching its goals to better control and reduce costs. During our  interviews with FEMA officials, they agreed that indentifying agency  officials who will be accountable, and creating a plan, would be beneficial  to reach the agency’s goals to better control and reduce administrative  costs.
section_title: FEMA Could Better Track and Analyze Administrative Costs by DRF Program
paragraphs: In analyzing FEMA administrative costs, we found that that the agency  does not track or analyze its administrative costs for major disasters by  individual DRF program—including PA, Individual Assistance, and Hazard   For example, FEMA could tell us how much it obligated for its  Mitigation.own administrative costs, in total, for the Hurricane Sandy disaster  response, but not how much it has obligated for its administrative costs  related to each DRF program. Without administrative cost data by  program, neither we, nor FEMA, can determine whether increases in  administrative cost percentages since fiscal year 1989 were greater for  one program than for another, or greater for certain components, such as  staffing for a particular DRF program. For example, in responding to  disasters, costs may be higher for providing individual assistance than  other programs, which can drive up the administrative costs for the entire  disaster. Better understanding the drivers of administrative costs and  collecting these data could allow FEMA to more effectively identify cost  drivers and help control its administrative expenses.
According to FEMA officials, gathering administrative costs data by DRF  program would require additional resources and technical changes;  however, the agency has not assessed the costs versus the benefits of  tracking the data. FEMA officials stated that assessing the costs and  benefits would be helpful, and they agreed that administrative costs  should be tracked by program. According to Standards for Internal  Control in the Federal Government, program managers need financial  data to determine whether they are meeting their goals for accountability  for effective and efficient use of resources. Further, FEMA’s 2014-2018  Strategic Plan emphasizes the need for data-driven decision making.assessing the costs and benefits of tracking administrative cost data by  DRF programs, FEMA could determine whether such data could be  useful for identifying long-term trends, more effectively controlling its  administrative costs, and better tailoring its administrative costs to  program delivery.
section_title: FEMA Obligated $1.7 Billion in Administrative Costs to Grantees and Subgrantees during Fiscal Years 2004 through 2013; 2007 Rule Led to Increased Complexity and Workload
subsections: section_title: Grantee and Subgrantee Administrative Costs
paragraphs: For the 650 major disasters declared during fiscal years 2004 through  2013, FEMA obligated $1.7 billion to reimburse grantees and subgrantees  for all types of administrative costs associated with PA grants. The $1.7  billion is 2 percent of the $95.2 billion obligated from the DRF during this  period. Figure 5 provides total DRF obligations, including grantee and  subgrantee administrative costs, for the 650 major disasters declared  during fiscal years 2004 through 2013 by FEMA cost category.
Administrative costs reimbursed to grantees and subgrantees, as a  percentage of total PA funding, ranged from 0.9 percent to 4.7 percent  per year, as shown in table 5.
In fiscal year 2008, FEMA implemented a rule that changed the  administrative reimbursements available for grantees and subgrantees of  PA grants. Under the rule, grantees and subgrantees are eligible for two  forms of administrative reimbursements: management costs and direct  administrative costs. As shown in table 6, FEMA obligated $383 million in  management costs and $132 million in direct administrative costs for  major disasters declared during fiscal years 2008 through 2013. Many PA  projects for major disasters declared during fiscal years 2008 through  2013 have not been completed; thus obligations for management costs  and direct administrative costs in tables 5 and 6 will likely increase as  these projects are completed.
section_title: 2007 Rule Change Led to Increased Workload for FEMA, Grantees, and Subgrantees; FEMA’s Guidance for Direct Administrative Costs Lack Clarity and Specificity
paragraphs: In November 2007, FEMA implemented a rule change that was intended  to simplify and clarify the method it uses to reimburse grantees and  subgrantees for certain costs incurred while administering PA grants.  FEMA officials and grantees we interviewed were generally satisfied with  the revised process for claiming and reimbursing management costs.  However, according to FEMA officials, the 2007 rule change led to an  unexpectedly high rate of claims for direct administrative costs. In  addition, the lack of clarity and specificity in FEMA’s policies and  guidance for direct administrative costs has led to increased complexity  and workload for FEMA, grantees, and subgrantees.
subsections: section_title: Management Costs
paragraphs: FEMA’s 2007 rule was intended to simplify and clarify the method FEMA  uses to reimburse grantees and subgrantees for certain costs incurred  while administering PA grants.funding categories with a management cost funding category based on a  single percentage of the federal share of projected eligible program   Specifically, the rule replaced three  costs.are generally satisfied with the process for claiming and reimbursing  management costs. Specifically, FEMA PA officials we interviewed in 6 of  10 regional offices reported that the review process for management  costs is very efficient or somewhat efficient. Six of 10 grantees we  interviewed said it was easy or very easy for them to meet FEMA’s  requirements for documenting and claiming management costs.
FEMA officials and grantees we interviewed reported that they  According to FEMA officials involved in creating the 2007 rule, the  management costs rate was intended to cover some of the expenses  incurred by both grantees and subgrantees of the PA program, but the  rule was designed to allow grantees flexibility to determine the  appropriate amount or percentage of management costs to provide, or  “pass through,” to subgrantees. According to FEMA headquarters officials  and grantees we interviewed, grantees generally do not pass through any  management costs to subgrantees. For example, none of the 10 grantees  we interviewed said that they had passed through management costs to  subgrantees for any disaster. Seven of 10 grantees we interviewed said  that the management costs rate is not enough to cover their costs, and 5  of 10 grantees we interviewed cited the lack of funds provided by  management costs as a reason they do not pass through funds to  subgrantees. In addition, four grantees said that passing through  management costs to subgrantees would create additional administrative  burdens. As the primary recipient of FEMA PA grants, grantees are  responsible for ensuring that subgrantees properly expend and account  for the management cost funds. Although grantees generally do not pass  through management costs, they can provide other forms of assistance to  subgrantees, such as funding a portion of the subgrantee’s nonfederal  cost share for project costs or assisting subgrantees with preparing  damage assessments.
FEMA PA officials stated that the agency is developing proposals for  modifying the 2007 rule but could not provide information on these  proposals because they are under internal review. FEMA officials stated  that the management costs rate for PA is based on an analysis of  historical obligations of administrative cost reimbursements for both  grantees and subgrantees. However, a 2011 report by the Homeland  Security Institute on behalf of FEMA stated that the rate “does not  adequately address the administrative cost burden incurred by the  grantee.” FEMA officials reported that the agency’s review of the 2007  rule is ongoing and is being used to, among other things, inform potential  changes to the management costs rate.
section_title: Direct Administrative Costs
paragraphs: According to FEMA officials, the 2007 rule led to an unexpectedly high  rate of claims for direct administrative costs. In contrast to the  management costs process, FEMA officials, grantees, and subgrantees  we interviewed said that the use of direct administrative costs  reimbursement has increased administrative complexity and workload.  FEMA officials stated that, in developing the 2007 rule, they did not  anticipate direct administrative costs claims beyond limited, unique  circumstances, such as paying an environmental specialist to conduct an  extensive review of a single project. As a result, the 2007 rule did not  define or include rules on reimbursements for direct administrative costs.  According to FEMA officials, after the new rule was issued, grantees and  subgrantees began requesting reimbursements for direct administrative  costs much more frequently than FEMA officials expected. Based on our  analysis of FEMA data, for major disasters declared during fiscal years  2008 through 2013, FEMA processed approximately 170,000 transactions  for direct administrative costs.
One potential reason for the increase, according to FEMA officials, is that  without a pass through of management costs from the grantee, the only  reimbursement for administrative costs that subgrantees may receive is  through direct administrative costs. In contrast, prior to the 2007 rule,  FEMA provided both grantees and subgrantees an administrative  allowance calculated as a sliding scale percentage of net eligible costs of  assistance. See appendix VIII for details on the administrative  allowance used prior to the 2007 rule.
In March 2008, FEMA released Disaster Assistance Policy 9529.9 to  provide grantees and subgrantees additional guidance on management  costs and direct administrative costs. The policy defines direct  administrative costs as costs incurred by a grantee or subgrantee that  can be identified separately and assigned to a specific project and states  that, among other things, direct administrative costs would be limited to  actual reasonable costs incurred for a specific project. The policy  references Office of Management and Budget (OMB) Circular A-87, which  states that a cost is reasonable if, in its nature and amount, it does not  exceed that which would be incurred by a prudent person under the  circumstances prevailing at the time the decision was made to incur the  cost. The policy further states that FEMA will reimburse direct  administrative costs that are properly documented.
FEMA was alerted to concerns with the policies and guidance for direct  administrative costs within a year of the release of Disaster Assistance  Policy 9525.9. In March 2009, during the response to record flooding in  Cedar Rapids, Iowa, the JFO for the disaster and the FEMA regional  office produced a report that noted potential problems with the  implementation of direct administrative costs and attempted to develop a  set of tools and standard operating procedures to assist FEMA PA staff   The  with evaluating direct administrative costs submitted for projects.report stated that the policy “has created an environment where  ambiguous project expenses related to administrative activities are being  submitted for reimbursement to FEMA by subgrantees as direct  administrative costs.” The report described the two main contributing  factors to this situation as “the ambiguity regarding what constitutes a  direct administrative cost and the lack of concrete, quantifiable guidelines  for a ‘reasonable’ direct administrative cost.” Figure 6 provides an  example of a PA project following the Iowa flooding.
In September 2009, FEMA’s Assistant Administrator issued a  memorandum to the FEMA regional offices with additional guidance on  implementing the management costs and direct administrative costs  policies.several factors when evaluating the reasonableness of contract costs: the  method of contracting for the services, the skill level of persons  performing the activities, the amount of time required to perform an  activity, and the amount of time required to perform a particular task. The  memorandum also clarifies that grantees and subgrantees may use  contractors to perform grant management functions. To further assist  FEMA staff, the memorandum includes a table of PA administrative  activities classified as either management costs or direct administrative  costs. However, the memorandum notes that the table is not an  exhaustive list and there may be exceptions to the categorizations.
The memorandum states that FEMA staff must consider  FEMA officials, grantees, and subgrantees we interviewed said that  FEMA’s guidance for direct administrative costs lacks clarity and  specificity. For example, grantees and subgrantees told us that FEMA’s  policies and guidance for direct administrative costs lack the information  needed to determine whether a claim is eligible, reasonable, and properly  documented. Furthermore, FEMA PA officials we interviewed said that  without clear and specific guidance, they do not have sufficient  information to evaluate direct administrative costs claims, leading to  inconsistency in the approval process as well as disputes between FEMA  and the grantees and subgrantees.
section_title: Perspectives of FEMA PA Officials, Grantees, and Subgrantees
paragraphs: Seven of the 10 FEMA PA officials we interviewed at regional offices, and  6 of the 10 grantees we interviewed, said that FEMA policies and  guidance do not provide sufficient instruction for their staff to determine  whether a claim is eligible. In addition, 9 of 10 FEMA PA officials, and 8 of  10 grantees, said that FEMA policies and guidance do not provide  sufficient instruction for their staff to determine whether a claim is  reasonable. See figure 7 for FEMA PA officials (Branch Chief) responses  regarding FEMA polices and guidance related to direct administrative  costs.
Figure 8 shows grantee responses regarding FEMA polices and guidance  related to direct administrative costs.
FEMA PA officials from 3 regional offices stated that FEMA currently does  not have sufficient guidance on what constitutes proper supporting  documentation for approving or denying a claim for direct administrative  costs. In addition, two grantees and two subgrantees we interviewed  reported that it is difficult to know whether they have collected sufficient  documentation to support their claim. For example, one subgrantee we  interviewed reported having a direct administrative cost claim or estimate  approved by FEMA field staff, only to have it reduced during a higher- level review. The subgrantee told us that this lack of consistency makes it  difficult for them to budget for their administrative expenses. FEMA PA  officials in headquarters and in regional offices said that disputes over  direct administrative cost claims or estimates have led to a more  contentious environment among FEMA, grantees, and subgrantees.
According to FEMA PA officials, reviewing and processing direct  administrative costs reimbursements is labor-intensive and has increased  the agency’s workload. FEMA PA officials from 4 regional offices said  they spend considerable resources reviewing and determining whether  direct administrative cost claims meet the criteria in FEMA’s policies and  guidance. For example, for each project wherein direct administrative cost  are claimed, FEMA officials may have to review time keeping, payroll, and  travel records as well as salary information for all grantee and subgrantee  personnel assigned to work on a particular project. FEMA PA officials  from all 10 regional offices reported that reviewing a direct administrative  cost claim can vary from 10 minutes to several weeks or months.  According to FEMA headquarters officials, the increased workload  associated with reviewing these claims reduces the amount of FEMA staff  available for other essential tasks.
Two-thirds, or 14 of 21, of grantees and subgrantees we interviewed  stated that the time and resources necessary to document and claim  direct administrative costs increases their administrative burden. In  addition, three grantees and two subgrantees we interviewed reported  that they do not always have the personnel or resources needed to track,  document, and submit all potential claims. To receive reimbursement,  grantees and subgrantees must track their time by project. Although  doing so is not required by FEMA, three grantees we interviewed said  that they track their administrative expenses in 15 minute intervals.
Eight out of 21 grantees and subgrantees reported to us that they have  employed private contractors to perform grant management functions  because of the administrative burden and complexity of FEMA’s  reimbursement process. According to FEMA officials, the greater use of  contractors among grantees and subgrantees has raised the cost to  FEMA because contractors tend to charge higher hourly rates than state,  tribal, territorial, and local government officials. However, FEMA officials  also said that, in some cases, contractors perform grants management  functions that assist grantees and subgrantees. In addition, one grantee  we interviewed said that it hired a contractor for grants management  related to Hurricane Sandy because the relatively small number of state  personnel available for disaster recovery was insufficient given the  severity of the damage, which FEMA officials estimate may result in as  many as 5,100 PA projects. The grantee said that the contractor was  more effective at seeking reimbursement from FEMA than their state or  local officials would have been, given the contractor’s expertise and  experience working with FEMA. According to the grantee, the contractor  has increased the amount of funds FEMA obligated to the state. For  example, the grantee said that the contractor discovered $8 million in  eligible funding that FEMA PA staff had not included on the approved  project worksheet. The contractor stated that, in less than 1 year, it had  increased the amount of FEMA PA funding to the grantee by more than  $60 million while charging about $10 million for its services. In response  to these claims, FEMA officials told us that these under-obligated projects  could have been noticed and corrected during project closeout.
FEMA headquarters officials we interviewed said that the number of  appeals related to administrative costs have increased. Under the PA  program, grantees and subgrantees may appeal any FEMA decision  regarding eligibility for, or the amount of assistance. From November  2007 to May 2014, FEMA reported receiving 182 first appeals and closing  21 second appeals related to direct administrative costs. FEMA officials  stated that prior to the 2007 rule, there were no appeals related to  administrative costs and that these new claims have increased the  agency’s administrative burden by pulling resources from more pressing  areas. Furthermore, the number of both first and second appeals is likely  understated because many large, complex projects have not been  completed. One subgrantee told us that they chose not to appeal FEMA’s  decision to reduce their direct administrative costs claim, as the appeal  process may take months or years to resolve and the amount in question  was small relative to the total project funding.
As discussed above, FEMA officials and grantees reported that FEMA  policies and guidance do not provide sufficient instruction to determine  whether a claim is eligible or reasonable and that clarifying such guidance  would help to address these issues. In addition, without clear and specific  guidance on how to evaluate and approve or deny direct administrative  costs claims, FEMA regional officials and field staff must make difficult,  subjective determinations when evaluating claims. This leads to  inconsistent application of the direct administrative costs policy and  guidance, creating confusion and frustration among grantees and  subgrantees, and leading to additional appeals. OMB’s Final Bulletin for  Agency Good Guidance Practices states that “well designed guidance  documents serve many critical functions in a regulatory program.  Guidance documents, used properly, can channel the discretion of  agency employees  increase efficiency,” among other things. In addition, according to FEMA’s 2014-2018 Strategic Plan, the agency  intends to “focus on improving and streamlining community recovery  services, including grant processing and related interactions” with the  goal of ensuring that “disaster services are transparent, efficient, and  effective in meeting the needs of survivors.”
According to FEMA officials, the agency recognizes the unintended  complexity and additional workload that the 2007 rule created and is  working to address this issue. For example, FEMA officials told us that  the agency is considering a pilot program for direct administrative costs  for the state of New York and select subgrantees in the state on certain  PA projects. According to FEMA officials, this pilot program will be  designed specifically for Hurricane Sandy recovery operations and may  use a sliding-scale or fixed percentage administrative allowance, which  could reduce the administrative burden and complexity associated with  the current direct administrative costs process because administrative  costs will be agreed upon before the project begins. In addition, as  described earlier in the report, FEMA PA officials stated that the agency is  developing proposals for modifying the November 2007 rule. According to  the PA officials, these modifications could also change the rules for direct  administrative costs; however, changes would only affect major disasters  declared after the release of the new rule. As of April 30, 2014, 516, or 79  percent, of the 650 disasters declared during fiscal years 2004 through  2013, have not been completed. Therefore, despite FEMA’s potential new  rule, recovery operations for hundreds of disasters could benefit from  FEMA officials clarifying the agencies’ guidance and minimum  documentation requirements for direct administrative costs claims, which  would help FEMA and its grantees better determine whether  administrative costs are reasonable and potentially help reduce  complexity in the process.
section_title: Conclusions
paragraphs: Major disaster declarations have increased significantly in recent  decades, and FEMA has obligated $95.2 billion from the DRF for the 650  major disasters declared during fiscal years 2004 through 2013. FEMA’s  administrative cost percentages have risen for major disasters of all sizes,  and FEMA has not implemented our 2012 recommendation to implement  goals for administrative cost percentages and monitor performance to  achieve these goals. Although FEMA has taken steps to better control  and reduce its administrative costs since November 2010, administrative  costs have not decreased. Establishing an integrated plan that designates  an office or senior officials responsible for controlling and monitoring  administrative costs, interim time frames, and milestones would help  FEMA to better track progress in addressing this longstanding issue and  achieving its goals to better manage and reduce administrative costs.  Without an integrated plan, FEMA officials’ actions may not be  implemented or coordinated to ensure they most effectively achieve the  agency’s goals. FEMA would also be better positioned to identify long- terms trends in its administrative costs by assessing the costs and  benefits of tracking and analyzing these costs by individual programs for  major disasters. Doing so could provide FEMA with information to better  manage these costs.
FEMA’s 2007 rule was intended to simplify the reimbursement process for  grantee and subgrantee administrative costs. However, the lack of clarity  and specificity in FEMA’s policies and guidance for direct administrative  costs has led to increased complexity and workload for FEMA, grantees,  and subgrantees. Although FEMA was alerted to the increased  complexity and workload in March 2009, the agency has not taken steps  to resolve these problems. FEMA officials stated that they are considering  modifications to the 2007 rule that may include changes to direct  administrative costs rules and guidance; however, these steps will only  affect major disasters declared after the issuance of the new rule.  Seventy-nine percent of the 650 disasters declared during fiscal years  2004 through 2013, have not been completed. As a result, despite  FEMA’s potential new rule, recovery operations for hundreds of disasters  could benefit from FEMA officials clarifying the agencies’ guidance and  minimum documentation requirements. These changes would help FEMA  and its grantees better determine whether administrative costs are  reasonable and potentially help reduce complexity in the process.
section_title: Recommendations for Executive Action
paragraphs: To increase the efficiency and effectiveness of processes related to  administrative costs for major disasters, we recommend that the FEMA  Administrator take the following three actions:  1.  Develop an integrated plan to better control and reduce FEMA’s  administrative costs for major disasters. The plan should include steps  the agency will take to reduce administrative costs, milestones for  accomplishing the reduction, and clear roles and responsibilities,  including the assignment of senior officials/offices responsible for  monitoring and measuring performance.  2.  Assess the costs versus the benefits of tracking FEMA’s  administrative cost data for major disasters by Public Assistance,  Individual Assistance, Hazard Mitigation, and Mission Assignment,  and if feasible, track this information.  3.  Clarify the agency’s guidance and minimum documentation  requirements for direct administrative costs claims by grantees and  subgrantees of the Public Assistance program.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DHS for their review and comment.  DHS provided written comments on November 25, 2014, which are  summarized below and reproduced in full in appendix IX. DHS concurred  with all three of our recommendations and described planned actions to  address them. In addition, DHS provided written technical comments,  which we incorporated into the report as appropriate.
DHS concurred with our first recommendation that FEMA develop an  integrated plan to better control and reduce FEMA’s administrative costs  for major disasters. DHS stated that FEMA has prioritized improving  administrative cost management and made reducing disaster  administrative costs a performance goal in its Strategic Plan. Additionally,  FEMA has developed a standardized definition of administrative costs  and established a Disaster Administrative Cost Integrated Project Team  (IPT). The IPT is charged with taking actions to institutionalize the new  administrative cost definition, scope, and posture the agency for improved  administrative cost management. FEMA plans to complete this effort by  September 30, 2015. These actions, if implemented effectively, could  address our recommendation and help control and reduce FEMA’s  administrative costs. However, the extent to which the planned actions  will fully address the intent of this recommendation will not be known until  the agency completes its review and implements an integrated plan.
DHS also concurred with our second recommendation that FEMA assess  the costs versus the benefits of tracking FEMA’s administrative costs data  for major disasters by Public Assistance, Individual Assistance, Hazard  Mitigation, and Mission Assignment, and if feasible track this information.  DHS stated that FEMA is assessing the cost versus the benefit of tracking  the information by September 30, 2015 to determine if this information  can be captured and used to inform future decision making.
DHS also concurred with our third recommendation that FEMA clarify its  guidance and minimum documentation requirements for direct  administrative costs claims by grantees and subgrantees of the Public  Assistance program. For future disasters, FEMA is assessing its direct  administrative cost pilot program for Hurricane Sandy recovery  operations. If the pilot is successful, results from this pilot could inform the  development of additional guidance. For current and other past disasters,  FEMA will provide clarifying guidance on direct administrative claims and  documentation requirements by October 31, 2015. We will continue to  monitor DHS’s efforts.
We will send copies of this report to the Secretary of Homeland Security,  the FEMA Administrator, and appropriate congressional committees. If  you or your staff have any questions about this report, please contact me  at (404) 679-1875 or curriec@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last   page of this report. Other key contributors to this report are listed in  appendix X.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report addresses the following questions: (1) To what extent were  disaster relief funds (DRF) obligated to cover the Federal Emergency  Management Agency’s (FEMA) administrative costs for major disasters  during fiscal years 2004 through 2013, and what steps, if any, has FEMA  taken to control its administrative costs, and (2) To what extent were DRF  funds obligated to cover grantee and subgrantee administrative costs for  Public Assistance (PA) grants, and what has been the impact of FEMA’s  November 2007 regulatory changes on administrative costs reimbursed  to grantees and subgrantees for the PA program.
To address our first objective, we obtained and analyzed data from  FEMA’s Integrated Financial Management Information System (IFMIS) on  the amount of DRF obligations for administrative costs to FEMA for each  major disaster declared by the President during fiscal years 1989 through  2013. We focused on this time frame because it contains current data for  major disasters. It also comprises the time period after FEMA was  merged into the newly created DHS, on March 1, 2003, and predates  Hurricane Katrina in 2005. Fiscal year 1989 is the earliest year for which  FEMA maintains obligations data. We focused primarily on fiscal years  2004 through 2013; however, to provide historical context and to compare  results across similar periods, we also reviewed obligations data during  fiscal years 1989 through 2013. To determine FEMA’s administrative cost  percentages for disaster declarations, we obtained actual and projected  DRF obligations for all 1,332 major disasters declared during fiscal years  1989 through 2013. To assess FEMA’s current practices, we compared  FEMA’s administrative cost percentages for disasters declared during  fiscal years 2004 through 2013 with FEMA’s target ranges for  administrative cost percentages. Specifically, we calculated the  percentage of total federal assistance that was obligated for  administrative costs for each disaster in our scope. Next we determined  whether these percentages were above or below FEMA’s administrative  cost targets and whether FEMA’s administrative costs would have  changed during the period had FEMA met the targets. To identify  potential trends over time, we compared FEMA’s administrative cost  percentages during fiscal years 1989 through 1998 with FEMA’s  administrative cost percentages during fiscal years 2004 through 2013.  According to FEMA officials, administrative costs are typically higher in  the early months of a declaration, typically decreasing as the declaration  matures (that is, as labor-intensive response activities decline). In order to  ensure the results of our analyses were not skewed by major disasters  that had not yet matured and whose administrative costs were high, we  analyzed actual administrative costs for disaster declarations that were  closed as of April 30, 2014. For declarations that were still open as of  April 30, 2014, we analyzed actual obligations as of April 30, 2014, plus  the amount that FEMA projected to obligate in the future until the  declarations are eventually closed. To determine whether the IFMIS data  were reliable, we reviewed the data that FEMA officials provided,  discussed data quality control procedures with relevant FEMA officials,  and reviewed documentation such as DHS audits that included IFMIS to  ensure the integrity of the data. We determined that the IFMIS DRF data  were sufficiently reliable for the purposes of this report.
In addition, we obtained and analyzed FEMA policies, procedures, and  guidance specific to FEMA’s administrative costs. We obtained FEMA’s  Financial Information Tool for a small and large disaster to better  understand FEMA’s categories of administrative costs.
To determine what actions, if any, FEMA is taking to reduce the costs of  delivering disaster assistance, we interviewed officials from FEMA’s  Office of Chief Financial Officer and obtained and analyzed  documentation to determine what, if any, internal standards FEMA utilizes  to determine the reasonableness of its administrative costs and whether  FEMA implemented administrative cost goals and tracks performance  against the goals. We also interviewed three Federal Coordinating  Officers to determine their ability to control costs and the respective  outcomes. We also obtained and analyzed FEMA policies, procedures,  and guidance specific to administrative costs, such as its guidance on  costs to federal coordinating officers, FEMA’s Strategic Plans, and its  Financial Management Code guide. We evaluated them using Standards  for Internal Control in the Federal Government and project management  guidance. We compared the intent of the criteria against FEMA’s  policies/practices to control administrative costs, and determine the extent  FEMA is meeting the intent of the criteria.
To address our second objective, we obtained and analyzed data on DRF  obligations to state and local governments for PA-related administrative  costs for all major disasters declared by the President during fiscal years  2004 through 2013. Further, we calculated the dollar amount and  percentage for each fiscal year in our scope to determine whether  administrative costs increased or decreased during the period. We  reviewed and analyzed FEMA policies, procedures, and guidance specific  to state and local administrative costs, such as its Disaster Assistance  Policy and associated memorandum and evaluated them using practices  for good guidance. We analyzed administrative cost data from three of  FEMA’s information technology systems that track financial data for  disasters. We selected example transactions and obtained supporting  documentation to better understand the types of administrative costs  associated with major disaster declarations.
To assess the impact of FEMA’s 2007 Management Costs interim final  rule on administrative costs, we interviewed with the following FEMA  regional officials and officials from selected states and localities either in- person or by teleconference within each region:
Public Assistance Branch Chief or their designee in each of FEMA’s  10 regional offices. We visited three FEMA regions:
Region II, located in New York, New York, which represents a  large recent catastrophic disaster;
Region IV located in Atlanta, Georgia, which represents all sizes  of disasters (including catastrophic), has frequent disasters, and  has a range of disaster types; and
Region VII, located in Kansas City, Missouri, which represents  many sizes of disasters, a frequent disaster area—a total of 84 out  of 650 disasters in the past 10 fiscal years (2004 through 2013) — and a range of disaster types.
State emergency management officials from 10 select states  (grantees) who work in their states’ recovery offices and with FEMA  on public assistance projects. Located in the three regions selected  above
Local officials (subgrantees) from 11 select localities that received or  will receive FEMA PA assistance from the 10 select states.
Senior FEMA officials from the Louisiana Recovery Office and the  Sandy New Jersey and New York Recovery Offices. These offices are  responsible a large number of public assistance projects.
From these interviews, we obtained information on administrative costs  reimbursed to grantees and subgrantees through the PA program,  including section 324 management costs (management costs) and direct  administrative costs. The information obtained from these states and  localities cannot be generalized across all states and tribal nations.  However, the information obtained from these states and localities  provides a broad understanding of the issues grantees and subgrantees  encounter during the disaster recovery process.
In addition, to assess the effects of FEMA’s interim rule:
We interviewed officials from three private sector companies from  three of the select states that provide services to the states and  localities in documenting and claiming administrative costs.
We also reviewed first and second appeals related to direct  administrative costs filed by grantees and subgrantees since FEMA  implemented its 2007 Management Costs interim final rule. The  second appeals information was centrally maintained by FEMA  headquarters and posted on its webpage. We also inquired about  appeals related to management costs and direct administrative costs  during our regional interviews.
We conducted this performance audit from November 2013 to December  2014 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: GAO Analyses of the Number of Disaster Declarations and Amount of Obligations
paragraphs: Fifty-seven jurisdictions received major disaster declarations during fiscal  years 2004 through 2013. Oklahoma had the most, with 29 declarations,  while Guam had 1. Table 7 identifies the number of disaster declarations  for all jurisdictions during fiscal years 2004 through 2013.
The Federal Emergency Management Agency (FEMA) obligates funds  from the Disaster Relief Fund to help jurisdictions respond to and recover  from declared disasters. FEMA classifies these funds into five categories:  Public Assistance, Individual Assistance, Hazard Mitigation, Mission  Assignments, and Administrative Costs. Table 8 shows the obligations for  each category by jurisdiction.
section_title: Appendix III: Federal Emergency Management Agency (FEMA) Administrative Cost Categories
paragraphs: This appendix provides a definition of each of FEMA’s cost categories for  its administrative costs. The cost categories within the table below  comprised FEMA’s administrative costs during the period of our review— fiscal years 2004 through 2013. However, according to FEMA officials, in  October 2014 the agency changed the cost categories that comprise  administrative costs—for example, the urban search and rescue cost  category is no longer included in administrative costs.
Definition  Includes gross compensation (before tax and other deductions) directly related to duties  performed for the government by federal civilian employees, military personnel, and nonfederal  personnel.  This covers: additional compensation such as hazardous duty, night differential,  holiday, standby, and overtime pay, cost-of-living allowance (COLA), and post differential;  salaries for casual workers; payments to other agencies on reimbursable details; re-employed  annuitants and rewards for information.
Includes travel and transportation costs of government employees and other persons while in an  authorized travel status, that are to be paid by the government either directly or by reimbursing  the traveler. Costs of both travel away from official stations, subject to regulations governing  civilian travel, and local travel and transportation of persons in and around the official station of  an employee, rental or lease of vehicles for transportation of government employees or others  necessary to carry out a disaster operation or related activities, rental or lease of vehicles from  interagency motorpools (disaster-related or not), subsistence for travelers and reimbursement of  actual expenses, and incidental expenses related to official travel, such as baggage transfer,  telephone and telegraph expenses, fees for purchasing passports, travel checks, and use of  Automatic Teller Machines (ATMs).
Includes contractual obligations incurred for the transportation of things (animals included), for  the care of such things while in process of being transported, and for other services incident to  the transportation of things (e.g., lifts) by freight and express carriers. Includes rental of  transportation equipment, such as U-Haul or Ryder trucks. Excludes transportation paid by a  vendor for commodities purchased by government.
Includes payments for the use of property owned by others and charges for communication and  utility services. Excludes payments for rental of transportation equipment.
Includes printing and duplicating, quick copy services, photostats, blueprints, photography,  microfilming, and advertising performed by contractors, the Government Printing Office, other  government agencies or units, or commercial printers and photographers. Includes all common  processes of duplicating obtained on a contractual or reimbursable basis. Includes publication of  notices, advertising, radio and television time, when done by contract. Also includes standard  forms when specially printed or assembled to order and printed envelopes and letterheads.
Includes personnel, equipment, and supplies for a mission assignment to another federal agency  to provide administrative and logistical support to begin and maintain disaster operations.  Excludes rental or lease of vehicles and activities performed by contractors.
Includes advisory and assistance services contractors, purchases of goods and services from  government accounts, operation and maintenance of facilities and equipment, medical care,  research and development contracts, subsistence and support of persons, and services not  otherwise classified.
Includes commodities that are (1) ordinarily consumed or expended within 1 year after use, (2)  converted in the process of construction or manufacture, or (3) used to form a minor part of  equipment or fixed property, up to a cost of $25,000.
subsections: section_title: Administrative cost category Equipment
paragraphs: Definition  Includes the purchase of personal property that may normally be expected to have a period of  service for a year or more after being put in use without material impairment of its physical  condition or functional capacity.
Includes purchase and improvement of land, buildings and other structures, non-structural  improvements, and fixed equipment acquired under contract.
Includes deployment of Urban Search and Rescue teams to stage for or respond to disasters.
Includes payments to creditors for the use of moneys loaned, deposited, overpaid, or otherwise  made available; the distribution of earnings to owners of trust or other funds, and interest  payments under lease-purchase contracts for construction of buildings. Excludes the interest  portion of the payment of claims when a contract has been delayed by the government.
Includes payments of amounts previously collected by the government. Includes payments (1) to  correct errors in computations, erroneous billing, and other factors and (2) to former employees  or their beneficiaries for employee contributions to retirement and disability funds.
section_title: Appendix IV: The Federal Emergency Management Agency’s (FEMA) Public Assistance (PA) Process, Project Categorization, and Direct Administrative Costs
paragraphs: FEMA generally defines a project as a logical grouping of work that will be  funded as a unit. Under this definition, a project may cover work for one  damage site (e.g., all of the damage to a single school) or for similar  types of damage at various locations (e.g., all sewer pump stations in a  city). To facilitate project review, approval, and funding, FEMA classifies  PA projects as either small or large based on annually adjusted cost  thresholds.
FEMA funds small projects through a process known as Simplified  Procedures that is intended to expedite the processing of grant funding by  obligating funds for small projects based on FEMA’s approval of the  project’s cost estimate. At the beginning of fiscal year 2014, the small  project minimum and maximum thresholds were $1,000 and $68,500,  respectively. If the estimated total project amount is between the  minimum and maximum thresholds, the project is processed as a small  project using Simplified Procedures. The Sandy Recovery Improvement  Act of 2013 (SRIA) required FEMA to complete an analysis to determine  whether or not an increase in the small project thresholds was  appropriate. Subsequently, FEMA raised the minimum threshold to  $3,000 and the maximum threshold to $120,000. These new thresholds,  which will both be adjusted annually to reflect changes in the Consumer  Price Index for all Urban Consumers published by the Department of  Labor, apply to all projects for disasters declared on or after February 26,  2014. Prior to SRIA, only the maximum threshold was adjusted annually.  Under Simplified Procedures, FEMA does not perform a final inspection  of completed small projects, but will review, or validate, a sample of an  applicant’s small projects to ensure that the project scope of work and  damage assessment are complete and that all special considerations  have been identified, among other things.
After FEMA approves a project, funds are obligated—that is, they are  made available—to the grantee, which, in turn, passes the funds along to  subgrantees. Funding for small projects is generally fixed; however,  FEMA may approve a cost estimate or scope of work for a project after  project approval when new information comes to light. For example, if an  applicant discovers that the actual costs for a project are higher than  FEMA’s estimate, the applicant may apply to FEMA for additional funds.  Before the disaster is closed, the grantee must certify that all such  projects were completed in accordance with FEMA approvals and that the  state contribution to the nonfederal share has been paid to each  subgrantee.
FEMA funds large projects, those with an estimated cost greater than the  small project maximum threshold, based on actual documented costs. As  with small projects, FEMA initially approves a cost estimate for a large  project and obligates the federal share of the funds to the grantee. Funds  are generally made available to the subgrantee on a progress payment  basis as work is completed and actual costs are documented. When all  work associated with the project is complete, a subgrantee must submit  documentation to the grantee to account for all incurred costs. The  grantee then determines the final cost of the eligible work and submits a  report to FEMA certifying that the subgrantee’s costs were incurred in the  completion of the eligible work. After reviewing the grantee’s report,  FEMA reviews and may adjust, through obligation or deobligation, the  final amount of the grant to reflect the actual cost of the eligible work.
section_title: Appendix V: Federal Emergency Management Agency (FEMA) Reimbursement Process for Public Assistance (PA) Management Costs
paragraphs: FEMA reimburses grantees and subgrantees for some expenses  associated with administering PA grants. FEMA divides these  reimbursements into two categories: section 324 management costs  (management costs) and direct administrative costs. Management costs  are any indirect costs, any administrative expense, and any other  expense not directly chargeable to a specific project. Figure 10 describes  the reimbursement process for management costs.
section_title: Appendix VI: Small Disaster Example – Major Disaster Declaration (DR-1885) Kansas Severe Winter Storms and Snowstorm (Declared March 9, 2010)
paragraphs: Appendix VI: Small Disaster Example – Major  Disaster Declaration (DR-1885) Kansas Severe  Winter Storms and Snowstorm (Declared  March 9, 2010)
This appendix shows Federal Emergency Management Agency’s (FEMA)  obligations for Public Assistance, Individual Assistance, Hazard  Mitigation, Mission Assignment, and administrative costs for DR-1885.  With total obligations of about $21.7 million, DR-1885 is classified as a  small disaster. This includes approximately $4.1 million in FEMA’s  administrative costs, $0.8 million in management costs reimbursed to the  grantee, and $0.2 million in direct administrative costs reimbursed to both  the grantee and subgrantees.
section_title: Appendix VII: Large Disaster Example – Major Disaster Declaration (DR-4085): New York Hurricane Sandy (Declared October 30, 2012)
paragraphs: Appendix VII: Large Disaster Example – Major  Disaster Declaration (DR-4085): New York  Hurricane Sandy (Declared October 30, 2012)
This appendix shows Federal Emergency Management Agency’s (FEMA)  obligations for Public Assistance, Individual Assistance, Hazard  Mitigation, Mission Assignment, and administrative costs for DR-4085.  With total obligations of $4.8 billion, DR-4085 is classified as a large  disaster. This includes $482 million in FEMA administrative costs, $0 in  management costs reimbursed to the grantee, and $10.9 million in direct  administrative costs reimbursed to the grantee and subgrantees of Public  Assistance grants.
section_title: Appendix VIII: Sliding-Scale Administrative Allowance for Disasters Declared before November 13, 2007
paragraphs: Prior to the 2007 rule, the Federal Emergency Management Agency  (FEMA) used several mechanisms to reimburse grantees for costs  associated with administering Public Assistance (PA) grants.  Additionally, both grantees and subgrantees were eligible to receive a  sliding-scale administrative allowance to cover costs incurred in preparing  project worksheets, validating small projects, preparing final inspection  reports, quarterly reports, and final audits, and making related field  inspections by state employees, including overtime pay and per diem and  travel expenses, but not including regular time for such employees. For  grantees, the amount of reimbursement was based on a percentage of  the total amount of assistance provided (federal share) for all eligible  subgrantees in the state.
In addition, a subgrantee could be reimbursed to cover necessary costs  of requesting, obtaining, and administering federal disaster assistance  subgrants. For subgrantees, the amount of reimbursement was based on  a percentage of net eligible costs.
section_title: Appendix IX: Comments from the Department of Homeland Security
section_title: Appendix X: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgements
paragraphs: In addition to the contact named above, Edward George, Assistant  Director; David Alexander; Aditi Archer; Andrew Berglund; Jeffrey Fiore;  Eric Hauswirth; Tracey King; Anne Kruse; Jessica Orr; Jim Ungvarsky;  and Samuel Woo made key contributions to this report.