Hurricane Katrina: Policies and Procedures Are Needed to Ensure Appropriate Use of and Accountability for International Assistance
Published: 2006-04-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In response to Hurricane Katrina, countries and organizations donated to the United States government cash and in-kind donations, including foreign military assistance. The National Response Plan establishes that the Department of State (DOS) is the coordinator of all offers of international assistance. The Federal Emergency Management Agency (FEMA) within the Department of Homeland Security (DHS) is responsible for accepting the assistance and coordinating its distribution. GAO's testimony covers (1) the amount and use of internationally donated cash and (2) the extent to which federal agencies with responsibilities for international in-kind assistance offered to the United States had policies and procedures to ensure the appropriate accountability for the acceptance and distribution of that assistance.
section_title: What GAO Found
paragraphs: Because the U.S. government had not received such substantial amounts of international disaster assistance before, ad hoc procedures were developed to accept, receive and distribute the cash and in-kind assistance. Understandably, not all procedures would be in place at the outset to provide a higher level of accountability. The Administration recognized the need for improvement in its recent report on lessons learned from Hurricane Katrina. GAO was able to track the cash donations received to designated U.S. Treasury accounts or disbursed. In the absence of policies, procedures, and plans, DOS developed an ad hoc process to manage $126 million in foreign cash donations to the U.S. government for Hurricane Katrina relief efforts. As cash donations arrived, a National Security Council (NSC)-led interagency working group was convened to make policy decisions about the use of the funds. FEMA officials told GAO they had identified and presented to the working group a number of items that the donated funds could be spent on. The NSC-led interagency working group determined that use of those donated funds, once accepted by FEMA under the Stafford Act, would be more limited than the wider range of possible uses available if the funds were held and then accepted under the gift authorities of other agencies. In October 2005, $66 million of the donated funds were spent on a FEMA case management grant, and as of March 16, 2006, $60 million remained undistributed in the DOS-designated account at the Treasury that did not pay interest. Treasury may pay interest on funds accepted by FEMA under the Stafford Act. According to DOS, an additional $400 million in international cash donations are likely to arrive. It is important that cash management policies and spending plan options are considered and in place to deal with the forthcoming donations so that the purchasing power of the donated cash is maintained for relief and reconstruction. FEMA and other agencies did not have policies and procedures in place to ensure the proper acceptance and distribution of in-kind assistance donated by foreign countries and militaries. In-kind donations included food and clothing. FEMA and other agencies established ad hoc procedures. However, in the distribution of the assistance to FEMA sites, GAO found that no agency tracked and confirmed that the assistance arrived at their destinations. Also, lack of procedures, inadequate information up front about the donations, and insufficient coordination resulted in the U.S. government agreeing to receive food and medical items that were unsuitable for use in the United States and storage costs of about $80,000. The procedures also allowed confusion about which agency was to accept and provide oversight of foreign military donations. DOD's lack of internal guidance regarding the DOS coordinating process resulted in some foreign military donations that arrived without DOS, FEMA, or DOD oversight.

section_title: Letter
paragraphs: We are pleased to be here today to discuss the results of GAO’s work  concerning the accountability for international assistance for Hurricane  Katrina, which is based on the report that we issued today. Hurricane  Katrina brought death, devastation, and destruction to the Gulf Coast  states causing billions of dollars in damage and dislocating thousands of  residents. In response to the disaster, many foreign countries and  organizations offered cash and in-kind assistance, including foreign  military donations, to the United States.
In addition to relevant statutes, Executive Orders, and directives, the  National Response Plan (NRP) is the framework for managing domestic  events. According to the NRP, the Department of State (DOS) is the  coordinator for all offers of international assistance. For Hurricane  Katrina, DOS established a task force to coordinate the offers of foreign  assistance and to provide the Federal Emergency Management Agency  (FEMA) information regarding the offers. FEMA used the Stafford Act to  accept some of the assistance, and after acceptance, it was then  responsible for coordinating the distribution of the assistance and  ensuring it was distributed as intended. To accomplish these tasks, FEMA  requested support from the Office of Foreign Disaster Assistance (OFDA),  an organization within the U.S. Agency for International Development  (USAID), to manage all logistics/operations support to coordinate the  international in-kind assistance for FEMA. DOD was involved in the  receipt of disaster relief donations from foreign militaries. In addition to  the agencies mentioned above, the National Security Council (NSC) also  had a role to play in the federal response to the hurricane. The NRP  section on principal organizational elements states that issues that require  policy adjudication or that fall outside the Secretary of Homeland  Security’s areas of authority are elevated for resolution through the  Homeland Security Council and the National Security Council system.
The NRP also includes financial management guidance that states that  federal agencies are to use proper federal financial principles, policies,  regulations, and management controls to ensure proper accountability of  funds. To safeguard assets, agencies can use the Comptroller General’s  Standards for Internal Controls in the Federal Government. These  standards provide federal agencies with the framework necessary to  establish internal controls and thus safeguard and monitor assets and  inventory to prevent waste, loss, or unauthorized use.
Our testimony today is focused on (1) the amount of cash that foreign  countries donated, and the extent to which cash had been used to assist in  the relief efforts; and (2) the extent to which those federal agencies with  responsibilities regarding the international assistance had policies and  procedures in place to ensure the appropriate accountability for the  acceptance and distribution of in-kind donations, including foreign  military donations.
subsections: section_title: Cash Donation Management Policies, Procedures, and Plans Were Not in Place
paragraphs: In the absence of international cash donation management policies,  procedures, and plans, DOS developed an ad hoc process to manage the  cash donations flowing to the U.S. government from other countries for  Hurricane Katrina relief efforts. By September 21, about $115 million had  been received and as of December 31, 2005, DOS reported that $126  million had been donated by 36 countries. Our review noted that DOS’s ad  hoc procedures did ensure the proper recording of international cash  donations and we were able to reconcile the funds received with those  held in the designated DOS account at Treasury. Also, an NSC-led  interagency working group was established to determine uses for the  international cash donations for domestic disaster relief. In October 2005,  $66 million of the $126 million donated had been accepted by FEMA under  the Stafford Act and used for a Hurricane Katrina relief grant. As of March  16, 2006, the other $60 million from international donations remained  undistributed. Once accepted by FEMA under the Stafford Act, funds  would be limited to use on activities in furtherance of the act. We were  told that the NSC-led interagency working group did not transfer the funds  to FEMA because it wanted to retain the flexibility to spend the donated  funds on a wider range of assistance than is permitted under the Stafford  Act. During this period and while deliberations were ongoing, the funds  were kept in an account that did not pay interest, thereby diminishing the  purchasing power of the donated funds and losing an opportunity to  maximize the resources available for relief. Under the Stafford Act, FEMA  could have held the funds in an account that can pay interest, but Treasury  lacks the statutory authority to credit DOS-held funds with interest. A  number of options could be considered to address this situation if there  are dual goals of flexibility and maintaining purchasing power.
subsections: section_title: Key Events Involving the Use of International Cash Donations
paragraphs: Table 1 below shows the dates of key events in the receipt and distribution  of the international cash donations according to documentation received  and interviews with DOS and FEMA officials.
In early September 2005, FEMA officials identified an account at the U.S.  Treasury for recording international cash donations and a number of  potential uses for the donations that would help meet relief needs of the  disaster. By September 21, 2005, about $115 million in foreign cash  donations had been received. In a paper submitted to the NSC-led  interagency working group, dated September 22, 2005, DOS recognized  that every effort should be made to disburse the funds to provide swift and  meaningful relief to Hurricane Katrina victims without compromising  needed internal controls to ensure proper management and effective use  of the cash donations and transparency. FEMA officials told us that on  September 23, 2005, they had identified and proposed to the NSC-led  interagency working group that the international cash donations could be  spent on the following items for individuals and families affected by  Hurricane Katrina: social services assistance, medical transportation,  adapting homes for medical and handicap needs, job training and  education, living expenses, building materials, furniture, and  transportation. At NSC’s request, on October 7, 2005 FEMA presented  more detailed proposals for using the foreign donations. On October 20,  2005, with the NSC-led interagency working group consensus, DOS  transferred to FEMA $66 million of the international donations to finance  case management services to help up to 100,000 households affected by  Hurricane Katrina define what their needs are and to obtain available  assistance.
As of February 2006, the remaining $60 million had not been released,  pending the NSC-led interagency working group determination about the  acceptance and use of the remaining funds. DOS and FEMA officials told  us that for the remaining $60 million in donated funds, the NSC-led  interagency working group had considered a series of proposals received  from a number of both public and private entities. At the time of our  review, we were told that the NSC-led interagency working group decided  that the vital needs of schools in the Gulf Coast area would be an  appropriate place to apply the donations, and that they were working with  the Department of Education to finalize arrangements to provide funding  to meet those needs. FEMA officials told us that under the Stafford Act,  they could use donated funds for projects such as rebuilding schools, but  projects for new schools buildings are not consistent with Stafford Act  purposes unless replacing a damaged one. Also, according to DHS  officials, the Act would have required that receiving entities match FEMA  funds for these purposes. However, because of the devastation, the  entities would have difficulty matching FEMA funds, which in essence  limited FEMA from doing these types of projects. According to DHS,  FEMA considered whether it would be useful for donated funds to  contribute to the non-federal share for applicants having trouble meeting  the non-federal share, but would need legislative authority to use it to  match federal funds. We contacted NSC to further discuss these matters;  however NSC did not respond to our requests for a meeting. On March 16,  2006, DOS and the Department of Education signed a Memorandum of  Agreement regarding the use of $60 million of the international cash  donations.
section_title: Inadequate Cash Management Policies and Planning Reduced Purchasing Power of Some International Cash Donations for Disaster Relief
paragraphs: Advance planning is very important given the outstanding pledges of $400  million or more that DOS officials indicated may still be received. While  acknowledging that the U.S. government has never previously had  occasion to accept such large amounts of international donations for  disaster relief, going forward, advance planning is a useful tool to identify  potential programs and projects prior to the occurrence of an event of  such magnitude. In the case of Hurricane Katrina, while the NSC-led  interagency working group reviewed various proposals on the use of the  remaining $60 million, DOS held the funds in an account at the U.S.  Treasury that did not earn interest. Treasury lacks the statutory authority  to credit those DOS-held funds with interest. For the time the funds were  not used, their purchasing power diminished due to inflation. If these  funds had been placed in an account that could have been credited with  interest to offset the erosion of purchasing power, the amount of funds  available for relief and recovery efforts would have increased while  decision makers determined how to use them. The U.S. government would  be responsible for paying the interest if these funds were held in an  account at the Treasury that can pay interest. Although the Stafford Act  does not apply to the donated funds maintained in the DOS account at  Treasury, the Stafford Act does provide that excess funds accepted under  the Act may be placed in Treasury securities, and the related interest paid  on such investments would be credited to the account. Had the foreign  monetary donations been placed in Treasury securities, we estimate that  by February 23, 2006, the remaining funds for relief efforts would have  increased by nearly $1 million.
The Administration’s report, The Federal Response To Hurricane  Katrina: Lessons Learned, released on February 23, 2006, recognized that  there was no pre-established plan for handling international donations and  that implementation of the procedures developed was a slow and often  frustrating process. The report includes recommendations that DOS  should establish before June 1, 2006, an interagency process to determine  appropriate uses of international cash donations, and ensure timely use of  these funds in a transparent and accountable manner, among others. DOS  officials recognized that the ad hoc process needed to be formalized and  planned to develop such procedures by June 1, 2006. When developing  policies and procedures, it is important that consideration also be given to  strategies that can help maintain the purchasing power of the international  donations. If the goal is to maintain both purchasing power and flexibility,  then among the options to consider are seeking statutory authority for  DOS to record funds in a Treasury account that can pay interest similar to  donations accepted under the Stafford Act pending decisions on how the  funds would be used, or to allow DOS to deposit the funds in an existing  Treasury account of another agency that can pay interest pending  decisions on how the funds would be used.
section_title: Lack of Guidance Regarding the Accountability for International In-Kind Assistance
paragraphs: In the absence of guidance, we found a lack of accountability in the  management of the in-kind assistance. Specifically, FEMA did not have a  process in place that confirmed that the in-kind assistance sent to  distribution sites was received. The lack of guidance, inadequate  information about the nature and content of foreign offers of in-kind  assistance, and insufficient advance coordination also resulted in the  arrival of food and medical assistance that could not be used in the United  States. Also, the ad hoc procedures created to manage foreign military  donations allowed for confusion about which agency—FEMA or DOD— should accept and be responsible for oversight of such donations.
subsections: section_title: Lack of Policies and Procedures to Confirm Receipt of Goods at Distribution Points
paragraphs: Because of the lack of guidance to track assistance, USAID/OFDA created  a database to track the assistance as it arrived. We found that  USAID/OFDA reasonably accounted for the assistance given the lack of  information on the manifests and the amount of assistance that was  arriving within a short time. However, on September 14, 2005, FEMA did  request USAID/OFDA to track the assistance from receipt to final  disposition. However, the system USAID/OFDA created did not include  confirming that the assistance was received at the FEMA distribution sites.  In part, USAID/OFDA did not set up these procedures on its own in this  situation, because its mission is to deliver assistance in foreign countries  and it had never distributed assistance within the United States. FEMA  officials told us that they assumed USAID/OFDA had these controls in  place. FEMA and USAID/OFDA officials could not provide us with  evidence that confirmed that the assistance sent to distribution sites was  received. Without these controls in place to ensure accountability for the  assistance, FEMA does not know if all or part of these donations were  received at FEMA distribution sites. Internal controls, such as a system to  track that shipments are received at intended destinations, provides an  agency with oversight, and for FEMA in this case, they help ensure that  international donations are received at FEMA destination sites.
section_title: Inadequate Guidance, Information, and Coordination Resulted in the Arrival of Food and Medical Items That Could Not Be Used
paragraphs: We noted that the guidance the agencies created did not include policies  and procedures to help ensure that food and medical supplies that the U.S.  government agreed to receive and came into the United States met U.S.  standards. The lack of guidance, inadequate information up-front about  the nature and content of foreign offers of in-kind assistance, and  insufficient advance coordination with regulatory agencies before agreeing  to receive them, resulted in food and medical items, such as MREs and  medical supplies, that came into the United States even though they did  not meet USDA or FDA standards and thus could not be distributed in the  United States. We noted that FEMA’s list of items that could be used for  disaster relief that was provided to DOS was very general and did not  provide any exceptions, for example, about contents of MREs. DHS  commented on our report that FEMA repeatedly requested from DOS  additional information about the foreign items being offered and DOS did  not respond. Both instances represent lost opportunities to have  prevented the arrival of items that could not be distributed in the United  States. The food items included MREs from five countries. Because of the  magnitude of the disaster, some normal operating procedures governing  the import of goods were waived. According to USDA and FDA officials,  under normal procedures, entry documents containing specific  information, which are filed with U.S. Customs and Border Protection, are  transmitted to USDA and FDA for those agencies’ use in determining if the  commodities are appropriately admissible into the United States. Without  consultation or prior notification to USDA or FDA, the Commissioner of  U.S. Customs and Border Protection authorized suspension of some  normal operating procedures for the import of regulated items like food  and medical supplies. Consequently, USDA and FDA had no involvement  in the decision making or process of agreeing to receive regulated product  donations, including MREs and medical supplies, and no opportunity to  ensure that they would all be acceptable for distribution before the  donated goods arrived. Both USDA and FDA, based on regulations  intended to protect public health, prevented distribution of some  international donations, which resulted in the assistance being stored at a  cost of about $80,000.
section_title: Policies and Procedures Were Lacking in the Oversight of Foreign Military Donations
paragraphs: In the absence of policies and procedures, DOS, FEMA, and DOD created  ad hoc policies and procedures to manage the receipt and distribution of  foreign military goods and services. However, this guidance left open  which agency—FEMA or DOD—was to formally accept the foreign  military assistance and therefore each agency apparently assumed the  other had done so under their respective gift authorities. As a result, it is  unclear whether FEMA or DOD accepted or maintained oversight of the  foreign military donations that were vetted through the DOS Task Force.  The offers of foreign military assistance included, for example, the use of  amphibious ships and diver salvage teams. FEMA did not maintain  oversight of the foreign military donations that it accepted through the  DOS task force. A FEMA official told us that they were unable to tell us  how the foreign military donations were used because FEMA could not  match the use of the donations with mission assignments it gave Northern  Command. Moreover, FEMA and Northern Command officials told us of  instances in which foreign military donations arrived in the United States  that were not vetted through the DOS task force. For example, we were  told of military MREs that were shipped to a military base and distributed  directly to hurricane victims. For the shipments that were not vetted  through the Task Force, DOS, FEMA, and DOD officials could not provide  us information on the type, amount, or use of the items. As a result, the  agencies cannot determine if these items of assistance were safeguarded  and used as intended.
In closing, since the U.S. government had never before received such  substantial amounts of international disaster assistance, we recognize that  DOS, FEMA, USAID/OFDA, and DOD created ad hoc procedures to  manage the receipt, acceptance, and distribution of the assistance as best  they could. Going forward, it will be important to have in place clear  policies, procedures, and plans on managing and using both cash and in- kind donations in a manner that provides accountability and transparency.  If properly implemented, the six recommendations included in our report  issued today will help to ensure that the cognizant agencies fulfill their  responsibilities to effectively manage and maintain appropriate and  adequate internal control over foreign donations.
Mr. Chairman, this concludes GAO’s prepared statement. We would be  happy to respond to any questions that you or Members of the Committee  may have.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For further information on this testimony, please contact either Davi M.  D’Agostino at (202) 512-5431 or dagostinod@gao.gov or McCoy Williams at  (202) 512-9095 or williamsm1@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Individuals making key contributions to this testimony  included Kay Daly, Lorelei St. James, Jay Spaan, Pamela Valentine, and  Leonard Zapata.
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