Hurricanes Katrina and Rita Disaster Relief: Continued Findings of Fraud, Waste, and Abuse
Published: 2007-03-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Federal Emergency Management Agency (FEMA) continues to respond to hurricanes Katrina and Rita. GAO's previous work identified suspected fraud, waste, and abuse resulting from control weaknesses associated with FEMA's Individuals and Households Program (IHP) and the Department of Homeland Security's (DHS) purchase card program. Congress asked GAO to follow up on this previous work to determine whether potentially improper and/or fraudulent payments continued to be made. GAO testified on the results of our audit and investigative efforts on December 6, 2006. This report summarizes the results of our follow-up work.
section_title: What GAO Found
paragraphs: In our December 6, 2006, testimony, GAO stated that FEMA made tens of millions of dollars of potentially improper and/or fraudulent payments associated with both hurricanes Katrina and Rita. These payments include $17 million in rental assistance paid to individuals to whom FEMA had already provided free housing through trailers or apartments. In one case, FEMA provided free housing to 10 individuals in apartments in Plano, Texas, while at the same time it sent these individuals $46,000 to cover out-of-pocket housing expenses. In addition, several of these individuals certified to FEMA that they needed rental assistance. FEMA made nearly $20 million in duplicate payments to thousands of individuals who claimed damages to the same property from both hurricanes Katrina and Rita. FEMA also made millions in potentially improper and/or fraudulent payments to nonqualified aliens who were not eligible for IHP. For example, FEMA paid at least $3 million to more than 500 ineligible foreign students at four universities in the affected areas. This amount likely understates the total payments to ineligible foreign students because it does not cover all colleges and universities in the area. FEMA also provided potentially improper and/or fraudulent IHP assistance to other ineligible non-U.S. residents, despite having documentation indicating their ineligibility. Finally, FEMA's difficulties in identifying and collecting improper payments further emphasized the importance of implementing an effective fraud, waste, and abuse prevention system. For example, GAO previously estimated improper and potentially fraudulent payments related to the IHP application process to be $1 billion through February 2006. As of November 2006, FEMA identified about $290 million in overpayments and collected about $7 million. Finally, GAO's work on DHS purchase cards showed continuing problems with property accountability, including items GAO investigated that could not be located 1 year after they were purchased.

section_title: Letter
paragraphs: On December 6, 2006, we testified before the Senate Committee on  Homeland Security and Governmental Affairs on the continued findings of  fraud, waste, and abuse associated with disaster relief for hurricanes  Katrina and Rita. In addition to the December 6 testimony, in several prior  hearings, we testified that significant control weaknesses in the Federal  Emergency Management Agency’s (FEMA) Individuals and Households  Program (IHP) and in the Department of Homeland Security’s (DHS)  purchase card program left the government vulnerable to significant fraud,  waste, and abuse. As we previously reported, the Robert T. Stafford  Disaster Relief and Emergency Assistance Act (Stafford Act) provides the  basis for IHP. IHP is a major component of the federal disaster response  efforts designed to provide financial assistance to individuals and  households that have, as a direct result of a major disaster, necessary  expenses and serious needs that cannot be met through other means. The  Stafford Act allowed registrants to receive financial assistance up to a cap  of $26,200 for disasters occurring in 2005. In early October 2006, FEMA  reported to Congress that it had delivered approximately $7 billion in IHP  aid for hurricanes Katrina and Rita. This IHP amount included expedited  assistance, temporary housing assistance, repair and replacement of real  and personal property, and other miscellaneous categories.
Our December 6, 2006, testimony detailed our findings related to  additional work we had performed since June 2006. Specifically, the  testimony addressed our findings related to potentially improper and/or  fraudulent (1) rental assistance payments FEMA made to registrants at the  same time it was providing free housing via trailers and apartments;   (2) duplicate assistance payments to individuals who claimed damages to  the same property for both hurricanes Katrina and Rita; and (3) IHP  payments to nonqualified aliens who did not qualify for IHP. For purposes  of the testimony, potentially improper and/or fraudulent payments  referred to payments made by FEMA based on potentially improper and/or  fraudulent registration data submitted by IHP registrants. The testimony  also discussed (1) the importance of fraud prevention, and (2) the results  of our investigation into property bought by FEMA using DHS purchase  cards, which was subsequently lost or stolen. This report summarizes the  findings detailed in our December 6, 2006, testimony and makes specific  recommendations for corrective action. Our December 6, 2006, testimony  is reprinted in appendix I.
subsections: section_title: Overview of Testimony
paragraphs: In our testimony, we stated that our audit and investigative work on FEMA  disaster relief payments associated with hurricanes Katrina and Rita  identified additional indications of fraud, waste, and abuse. Specifically,  we found that FEMA made nearly $17 million in potentially improper  and/or fraudulent rental assistance payments to individuals after they had  moved into FEMA trailers. For example, after FEMA provided a trailer to a  household—in January 2006—FEMA provided rental assistance payments  to the same household in late January, February, and April of 2006 totaling  approximately $5,500. In addition, FEMA provided potentially improper  and/or fraudulent rental assistance payments to individuals living in  FEMA-provided apartments. For example, FEMA made nearly $46,000 in  rental assistance payments to at least 10 individuals living in apartments at  the same time that the apartments were being paid for by FEMA through  the city of Plano, Texas. Seven of 10 in this group self-certified to FEMA  that they needed rental assistance, despite the fact that they were living in  rent-free housing. Because of limitations in FEMA data, we were not able  to identify the full extent of potentially improper rental assistance  payments made to individuals in FEMA-provided apartments.
We also found that nearly $20 million in potentially improper and/or  fraudulent payments went to individuals who, using the same property,  registered for assistance for both hurricanes Katrina and Rita. With few  exceptions, FEMA officials explained that victims of both disasters are  entitled to only one set of IHP payments for the same damaged property.  However, FEMA officials told us that to increase the speed with which  FEMA could distribute disaster assistance, they turned off the system edits  that should have identified these types of duplicate payments.  Consequently, FEMA paid over 7,000 individuals IHP assistance twice for  the same property—once for Hurricane Katrina and once for Hurricane  Rita. These individuals received double payments for expedited  assistance, rental assistance, and/or housing replacement. For example,  FEMA records showed that one registrant received two housing  replacement payments of $10,500 each, despite the fact that he had only  one property to replace.
Millions of dollars of improper and potentially fraudulent payments also  went to nonqualified aliens, including foreign students and temporary  workers. For example, FEMA improperly paid at least $3 million in IHP  assistance to more than 500 ineligible foreign students at four universities.  Further, FEMA provided IHP payments that included expedited assistance  and personal property totaling more than $156,000 to 25 individuals who  claimed to be foreign workers on temporary visas. FEMA made these  payments despite having copies of the work visas for several individuals,  which should have alerted FEMA that the temporary workers were not  eligible for financial assistance. Social Security Administration records  also showed many of the individuals used invalid Social Security numbers,  which could have alerted FEMA about the individuals’ ineligibility. In  addition, several students and university officials stated that FEMA  personnel encouraged all students—including international students who  did not qualify for IHP assistance—that they were eligible for IHP financial  assistance. Because we did not obtain information from all universities in  the Gulf region and because of unavailability of detailed data on other  nonqualified legal aliens, we were not able to determine the magnitude of  improper and/or fraudulent payments in this area.
Our findings also showed that the small amount of money that FEMA has  been able to collect from improper payments further demonstrates the  need to have adequate preventive controls. We previously reported that  inadequate preventive controls related to the IHP application process  resulted in an estimated $1 billion of potentially improper and/or  fraudulent payments through February 2006. In contrast, as of November  2006, FEMA had detected through its own processes about $290 million in  overpayments. This overpayment amount, which FEMA refers to as  recoupments, represents the improper payments that FEMA had detected  and had issued letters requesting repayments. However, through  November FEMA had only collected nearly $7 million. Collection of only  $7 million of an estimated $1 billion of fraudulent and improper payments  clearly supports the basic point we have previously made that fraud  prevention is far more efficient and effective than detection and collection.
With respect to findings regarding the DHS purchase card program, we  found weaknesses and breakdowns in accountability for property items  bought for hurricanes Katrina and Rita relief efforts using government  purchase cards. For example, FEMA is still unable to locate 48 of the 143  missing items (e.g., laptop computers, printers, and GPS units) identified  in our July 2006 testimony. Moreover, 37 items were missing from an  additional 103 items that we investigated for the July testimony. Thus, over  a year after they were purchased, FEMA could not locate 85 of the 246  items (34 percent) that we investigated; we presume these items are now  lost or stolen. Our investigation also revealed that although FEMA was in  possession of 18 of the 20 flat-bottom boats it had purchased for hurricane  relief efforts, FEMA had not received the title to any of these boats. FEMA  could not provide any information about the location of the remaining two  boats.
In response to our December testimony, FEMA acknowledged weaknesses  in the processes and systems that resulted in ineligible individuals  receiving assistance. FEMA stated that in the 15 months since Hurricane  Katrina, FEMA has made great strides in correcting its deficiencies.  Examples of improvements FEMA has informed us that it put into service  include an upgraded registration application that FEMA expects will  prevent duplicate registrations and an identity verification process so that  all registrations for assistance are subjected to the same stringent criteria.
FEMA believes that the stringent controls it instituted this past year  improve its safeguards and will help eliminate processing errors and  fraudulent abuse. FEMA further stated that it will consider and evaluate  any new findings that can assist in improving its processes and  procedures.
Based on the findings in our testimony of December 6, 2006, we are  recommending that the Secretary of Homeland Security direct the Director  of FEMA to take a number of actions to reduce the potential for fraud and  abuse. Recommendations include developing controls to prevent duplicate  rental assistance benefits, increasing controls to prevent ineligible  nonqualified aliens from receiving payments, and enabling controls to  prevent duplicate payments to the same individual across multiple  disasters. FEMA concurred with all recommendations and responded that  it had taken, or is in the process of taking, actions to implement these  recommendations. However, in its response FEMA indicated that on two  of the recommendations it planned to perform investigations to determine  the extent of the problems identified prior to implementing the  recommendations.
section_title: Conclusions
paragraphs: Ineffective preventive controls for FEMA’s IHP have resulted in  substantial fraudulent and improper payments. The additional examples of  potentially fraudulent and improper payments, totaling tens of millions of  dollars, that we highlighted in our December 2006 testimony further show  that our estimate of $1 billion in potentially improper and/or fraudulent  payments through February is likely understated. In addition, we did not  include in this total potentially improper and/or fraudulent payments to  individuals who received disaster assistance from FEMA even though they  also received insurance payments for damaged property. With respect to  property bought with government purchase cards, FEMA’s inability to find  items 1 year after they were purchased, including laptop computers,  printers, and GPS units, shows that FEMA property accountability  controls are ineffective and possibly resulted in the loss or theft of  government property.
We have previously provided 25 recommendations to DHS and FEMA to  improve management of IHP and the purchase card program. FEMA and  DHS had fully concurred with 19 recommendations, and substantially or  partially concurred with the remaining 6 recommendations. DHS and  FEMA also reported that they have taken actions, or plan to take actions,  to implement all our recommendations. While we have not performed  work to determine whether FEMA’s actions adequately address our  recommendations, if properly implemented, our recommendations from  previous and current work should allow DHS and FEMA to rapidly provide  assistance to disaster victims while at the same time providing reasonable  assurance that disaster assistance payments are accurate and properly  authorized. As we have stated in prior reports addressing IHP improper  and fraudulent payments, these recommendations only address specific  weakness identified in this report and are only part of a comprehensive  fraud prevention program that should be in place. Further, FEMA should  ensure that there are adequate manual processes in place to allow  registrants who are incorrectly denied assistance to expeditiously appeal  the decision and receive aid. Also, FEMA should fully field test all changes  to provide assurance that valid registrants are able to apply for and receive  IHP payments.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Homeland Security direct the  Director of FEMA to take the following six actions to address weaknesses  identified in the administration of IHP.
To prevent rental assistance payments from being provided at the same  time that FEMA provides free housing (including trailers, mobile homes,  and apartments), FEMA should    develop processes for comparing IHP registrant data with FEMA direct  housing assistance data to prevent IHP registrants from receiving  payments for rental assistance covering the time they are living in  FEMA-provided housing and    provide clear guidance to IHP registrants, including rental assistance  registrants, indicating how the payments are to be used.
With respect to duplicate assistance payments across multiple disasters,  FEMA should implement and/or enable controls to prevent duplicate  payments to the same individual from different disasters for the same  damage done to the same address.
To prevent improper payments to nonqualified aliens, FEMA should    provide clear guidance and training to FEMA and contractor employees  on the specific types of aliens eligible for financial disaster assistance,  and identify nonqualified aliens, and    develop processes to identify and deny assistance to nonqualified  aliens who register for IHP assistance using valid Social Security  numbers through data comparisons with agencies that maintain data  on legal aliens with Social Security numbers.
With respect to property bought with DHS purchase cards, if FEMA  cannot locate this property in a reasonable time period, it should work  with DHS to reconcile its tracking system data and declare these items lost  or stolen.
section_title: Agency Comments and Our Evaluation
paragraphs: On February 15, 2007, FEMA provided written comments on a draft of this  report in which it outlined actions it plans to take or has taken that are  designed to address each of our six recommendations.  FEMA’s comments  are reprinted in appendix II. FEMA provided examples of several planned  actions to address identified weaknesses. For example, concerning our  recommendation to provide clear guidance to victims receiving IHP rental  assistance on how funds should be used, FEMA stated that it is conducting  a comprehensive review of existing communications policies and is  developing a more effective strategy to ensure that registrants understand  IHP and its purpose. Additionally, in response to our recommendation to  develop processes to identify and deny assistance to nonqualified aliens  who register for IHP assistance, FEMA stated that it is reaching out to  other federal agencies and commercial vendors in order to enhance  FEMA’s ability to screen out applications from nonqualified aliens.  FEMA’s response indicates that it is attempting to address problems we  identified in IHP. As the federal government prepares for future disasters,  it will be important for FEMA to establish effective controls to prevent  fraudulent and improper payments before they occur.
However, in its responses to our recommendations concerning actions to  prevent duplicate housing assistance and housing damage repair  assistance, FEMA also stated it planned to perform additional  investigations to confirm that the conditions described in our draft report  are in fact representative of systemic problems before initiating  appropriate corrective actions. Nonetheless, we continue to believe, as  discussed in our testimony (see app. I), that our work amply demonstrates  the systemic nature of the problems identified and the need for the  recommended corrective actions.
Specifically, with respect to our recommendation on preventing  individuals from receiving rental assistance payments while residing in  FEMA-provided housing (apartments and trailers), we continue to believe  our work demonstrates a systemic problem exists. In fact the $17 million  in potentially duplicate rental assistance paid to thousands of IHP  registrants is conservative and may even understate the extent of the  problems. In addition, our case studies clearly showed payments that were  at least improper and potentially fraudulent. Further, our work included  steps to minimize the possibility that, as FEMA asserted, many of these  cases could be explained by the fact that rental assistance payments could  have been made retroactively to cover rental expenses prior to the date of  payment. Specifically, in arriving at our estimate of the extent of a  systemic problem in this area, we took the following steps to ensure that  our reported estimate of the extent of potentially duplicate payments in  this area did not overstate the problem.
We only included payments as potential duplicates when they were  made to an IHP registrant at the same time that the registrant was  residing in FEMA-provided housing. We did not consider payments  made before a registrant moved in to FEMA-provided housing as  duplicates even though FEMA often makes advance rental assistance  payments. For example, FEMA provided more than $3 million in rental  assistance payments to FEMA trailer registrants in the week before  they moved into FEMA trailers. These payments averaged more than  $1,700, which indicates they were likely for multiple months of rental  assistance and could have been duplicate assistance payments because  they would have covered the time the registrants were in FEMA  trailers.
We conducted field investigations on case studies to ensure that  conclusions reached were accurate.
We excluded from our analysis any payments made to IHP registrants  living in FEMA-provided apartments. Those payments were excluded  from the analysis because FEMA failed to maintain detailed reliable  data on individuals living in FEMA-provided apartments. Thus there are  potentially millions more in duplicate rental assistance payments  associated with IHP registrants living in FEMA-provided apartments, as  supported by our case study investigations.
As discussed in our testimony, our work also clearly demonstrates a  systemic problem and our recommended corrective action with respect to  controls to prevent duplicate payments to the same individual for the same  damage across multiple disasters. FEMA stated it was unsure whether all  payments we identified as duplicates were in fact duplicate payments to  the same individual for the same damage across multiple disasters. FEMA  stated that some payments could have resulted from damage from  Hurricane Katrina, and then future payments were made based on  different damage caused by Hurricane Rita.
However, this assertion is contrary to representations FEMA made to us  during the course of the audit. Specifically, FEMA told us during the audit  that with few exceptions, registrants would only be entitled to one  payment for each damage and/or need. We acknowledge that a registrant  could have had a house damaged by Hurricane Katrina, and could have  repaired the damage and moved back into the original house—only to  have it damaged again by Hurricane Rita. However, this it is an extremely  unlikely scenario given the severity of the damage caused by Hurricane  Katrina and the fact that Hurricane Rita occurred shortly after, leaving  very little time for inspectors to inspect and certify housing damage  between storms, especially given there were more than 7,000 registrants  we identified. According to our case studies, FEMA performed the first  inspection of the properties in question after both hurricanes affected the  area. Our case studies also showed that FEMA used two different  inspectors to look at damaged properties, once for Hurricane Katrina and  once for Hurricane Rita. Without having an inspection performed before  Hurricane Rita hit, or having the same inspector review the claim to  determine what damage was from Hurricane Rita and what damage was  from Hurricane Katrina, FEMA is not in a position to know whether it paid  for the same damaged items twice. Therefore, we continue to believe our  work demonstrates a systemic problem for which FEMA should institute  our recommendation to institute controls that prevent duplicate payments  to the same individual for the same damage registered for under different  disasters.
We are sending copies of this report to the Secretary of Homeland  Security, and the Director of the Federal Emergency Management Agency.  We will also make copies available to others upon request. In addition, this  report will be available at no charge on the GAO Web site at  http://www.gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report. If  you or your staffs have questions about this report, please contact me at  (202) 512-7455 or kutzg@gao.gov; or contact John Kelly at (202) 512-6926  or kellyj@gao.gov.  Other individuals who made major contributions to  this report were Gary Bianchi, Jennifer Costello, Jason Kelly, Barbara  Lewis, Jonathan Meyer, Andrew McIntosh, John Ryan, and Tuyet-Quan  Thai.
section_title: Appendix I: Testimony on Continued Findings of Fraud, Waste, and Abuse
paragraphs: Hrran Ktrina anRidetroed homes and dispced mllns of inuas. Whle the Federl EmerManagemet A (FEMA) coinu to  respd to thisisaster, GAO’s prevus work deed signiant cotrol wess—speclly in FEMA’s Iua and  Household Prom (IHP) anin  the Departmet of HomelanSecy’s (DHS) purchase crd rom—resulting in signiant fraud, waste, anabus.
FEMA coinued to loe tens of mllns of doll througoteially iroer and/or fraulepayme from oth hrran Ktrina anRia.  Thepayme inclde $17 mll in reassisance paid to inuato whom FEMA hlre rovded free housing through trailer or  apartmes. Ie case, FEMA rovded free housing to 10 inua in  apartme in Plano, Texas, whle t the same tme t theinua$46,000 to cover ot-of-ocket housingxpnss. I dd, everl of  theinuacerted to FEMA tht the eeded reassisance.
Today’s temonyll ddress whether FEMA rovded roer anoteiall fraulet (1) reassisance payme to  registran t the same tme t was proving free housing ia trailer  anapartmes; (2) dupte assisance payme to inuawho claimed dag to the same roert for oth hrranKtrina anRia; and (3) IHP  payme to -U.S. residewho dot qua for IHP. This  temonyll o disuss (1) the ortance of frauden anreve, and (2) the resultof oinveiga into roertFEMA ught using DHS purchase crds.
FEMA mde rl $20 mll inupte payme to thousan of  inua who claimed dag to the same roert from oth hrran  Ktrina anRia. FEMA o mde mllns in oteiall roer and/or  fraulepayme to uaed ns who were ot eligible for IHP.  For exale, FEMA pait least $3 mll to more than ineligible foreign de t founiversi in the ffected reas. This mount lkel  underte the totpayme to ineligible foreign de ecaust doe  ot cover ll colle anuniversis in the rea. FEMA rovded oteiall roer and/or fraulet IHP assisance to other ineligible  -U.S. reside, despite hing docme ining theineligibiy.
Finall, FEMA’sfflt in deying and collecting roer paymerther emasized the ortance of lemeing an effectve fraud, waste, anabusreve system. For exale, GAO revusted roer anoteiall fraulepayme relted to the IHP  app rocess to e $1 bill through Feua.  A of Novemer  2006, FEMA deed abt $290 mll in roer payme and collected abt $7 mlln.
subsections: section_title: To ddress thee objectve, GAO dined ananazed FEMA record anintervewed coffia, universi offia, and foreign des. GAO o trveled to Louisiana and Texas to inspect elected roert tem and to inveigate roer housing payme to inuaing in FEMA-rovded housing.
paragraphs: www..gov/cg-bin/getrpt?GAO-07-252T.
To vew the fll prodct, nclng the cope  nd methodology, clck on the lnk above. For more nformon, contct Gregory Ktz t  (202) 512-7455 or ktzg@g.gov.
GAO’s revus work o the DHS purchase crd howed signianrolemth roert ccounabiy.  Of 246 tem we inveigated tht  FEMA purchased for hrrane relef effort using DHS’s purchase crd, 8tem—or 34 ercet—re ll missing anresumed lot or tolen.
section_title: Appendix II: Comments from the Federal Emergency Management Agency