Disaster Cost Estimates: FEMA Can Improve Its Learning from Past Experience and Management of Disaster-Related Resources
Published: 2008-02-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Public Law No. 110-28 directed GAO to review how the Federal Emergency Management Agency (FEMA) develops its disaster cost estimates. Accordingly, GAO addressed the following questions: (1) What is FEMA's process for developing and refining its cost estimates for any given disaster? (2) From 2000 through 2006, how close have cost estimates been to the actual costs for noncatastrophic (i.e., federal costs under $500 million) natural disasters? (3) What steps has FEMA taken to learn from past experience and improve its management of disaster-related resources and what other opportunities exist? To accomplish this, GAO reviewed relevant FEMA documents and interviewed key officials. GAO also obtained and analyzed disaster cost data and determined that they were sufficiently reliable for the purposes of this review.
section_title: What GAO Found
paragraphs: After a disaster is declared, FEMA staff deployed to a joint field office work with state and local government officials and other relevant parties to develop and refine cost estimates. The overall estimate comprises individual estimates for FEMA's assistance programs plus any related tasks assigned to other federal agencies (mission assignments) and FEMA administrative costs. The methods used to develop these estimates differ depending on program requirements including, in some cases, historical knowledge. FEMA officials told GAO that cost estimates are updated on a continuing basis. Decision makers need accurate information to make informed choices and learn from past experience. FEMA officials stated that by 3 months after a declaration estimates are usually within 10 percent of actual costs--which they defined as reasonable. GAO's analysis showed that decision makers did not have cost information within this 10 percent band until 6 months after the disaster declaration. These results cannot be generalized since this comparison could only be made for the 83 (24 percent) noncatastrophic natural disaster declarations for which final financial decisions had been made. Disaster coding issues also hamper FEMA's ability to learn from past experience. For example, in several instances the code for the incident type and the description of the disaster declaration did not match. Officials described several ways in which FEMA has learned from past disasters and improved its management of disaster-related resources. For example, FEMA uses a national average to predict costs for expected applicants for Individual Assistance. FEMA has also taken several actions to professionalize and expand the responsibilities of its disaster comptrollers. Nonetheless, FEMA could further learn from past experience by conducting sensitivity analyses to identify the marginal effect various factors have on causing fluctuations in its estimates. FEMA could improve its management of disaster-related resources by developing standard procedures for staff involved in entering and updating cost estimate data in its database.

section_title: Letter
paragraphs: The mission of the Federal Emergency Management Agency (FEMA) is to  lead the nation in mitigating, responding to, and recovering from major  domestic disasters, both natural and man-made, including terrorist  incidents. Budgeting for FEMA’s mission is inherently difficult because the  number, severity, and timing of disasters are unknown. In recognition of  this fact, a large portion of FEMA’s funding is provided in emergency  supplemental appropriations when a disaster is declared.
In a recent report, we raised concerns about FEMA’s ability to manage its  day-to-day resources and the lack of information on how FEMA’s  resources are aligned with its operations. More recently, the House  Committee on Appropriations expressed its concern about FEMA’s ability  to manage resources in a manner that maximizes its ability to effectively  and efficiently deal with disasters. One aspect of particular concern to the  committee is how FEMA makes projections of funding needed in response  to any given disaster or to address future disasters. The U.S. Troop  Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability  Appropriations Act of 2007 enacted a directive from a House Committee  on Appropriations report that we review how FEMA develops its estimates  of the funds needed to respond to any given disaster. Accordingly, this  review addresses the following questions: (1) What is FEMA’s process for  developing and refining its cost estimates for any given disaster? (2) From  2000 through 2006, how close have cost estimates been to the actual costs  for noncatastrophic natural disasters? (3) Given the findings from the first  two questions and our relevant past work, what steps has FEMA taken to  learn from past experience and improve its management of disaster- related resources and what other opportunities exist? To address these  questions, we obtained and reviewed FEMA regulations, policies,  procedures, training materials, and other documents and interviewed key  FEMA, Department of Homeland Security (DHS) Inspector General, and  Office of Management and Budget (OMB) staff. We also obtained and  analyzed disaster estimate and cost data from FEMA. We determined that  these data were sufficiently reliable for the purposes of our review.
We conducted this performance audit from June 2007 through February  2008 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: In response to concerns about the lack of a coordinated federal approach  to disaster relief, President Carter established FEMA by Executive Order  in 1979 to consolidate and coordinate emergency management functions in  one location. In 2003, FEMA became a component of the Emergency  Preparedness and Response (EP&R) Directorate in the newly created  DHS. Much like its FEMA predecessor, EP&R’s mission was to help the  nation to prepare for, mitigate the effects of, respond to, and recover from  disasters. While FEMA moved intact to DHS and most of its operations  became part of the EP&R Directorate, some of its functions were moved  to other organizations within DHS. In addition, functions that were  formerly part of other agencies were incorporated into the new EP&R  organization. After FEMA moved into DHS it was reorganized numerous  times. FEMA’s preparedness functions were transferred over 2 years to  other entities in DHS, reducing its mission responsibilities. However,  recent legislation transferred many preparedness functions back to  FEMA. Today, once again, FEMA’s charge is to lead the nation’s efforts to  prepare for, protect against, respond to, recover from, and mitigate the  risk of natural disasters, acts of terrorism, and other man-made disasters,  including catastrophic incidents.
subsections: section_title: Disaster Declaration Process
paragraphs: The Robert T. Stafford Disaster Relief and Emergency Assistance Act  (Stafford Act), establishes the process for states to request a presidential  disaster declaration. The Stafford Act requires the governor of the affected  state to request a declaration by the President. In this request the  governor must affirm that the situation is of such severity and magnitude  that effective response is beyond the capabilities of the state and the  affected local governments and that federal assistance is necessary.
Before a governor asks for disaster assistance, federal, state, and local  officials normally conduct a joint preliminary damage assessment. FEMA  is responsible for recommending to the President whether to declare a  disaster and trigger the availability of funds as provided for in the Stafford  Act. When an obviously severe or catastrophic event occurs, a disaster  may be declared before the preliminary damage assessment is completed.
In response to a governor’s request, the President may declare that a major  disaster or emergency exists. This declaration activates numerous  assistance programs from FEMA and may also trigger programs operated  by other federal agencies, such as the Departments of Agriculture, Labor,  Health and Human Services, and Housing and Urban Development, as well  as the Small Business Administration to assist a state in its response and  recovery efforts. FEMA can also issue task orders—called mission  assignments—directing other federal agencies and DHS components, or  “performing agencies,” to perform work on its behalf to respond to a major  disaster. The federal disaster assistance provided under a major disaster  declaration has no overall dollar limit. However, each of FEMA’s  assistance programs has limits either in the form of federal-state cost  share provisions or funding caps.
section_title: Disaster Assistance Provided by FEMA
paragraphs: FEMA provides assistance primarily through one or more of the following  three grant programs:    Public Assistance provides aid to state government agencies; local  governments; Indian tribes, authorized tribal organizations, and Alaskan  Native villages; and private nonprofit organizations or institutions that  provide certain services otherwise performed by a government agency.  Assistance is provided for projects such as debris removal, emergency  protective measures to preserve life and property, and repair and  replacement of damaged structures, such as buildings, utilities, roads and  bridges, recreational facilities, and water-control facilities (e.g., dikes and  levees).  Individual Assistance provides for the necessary expenses and serious  needs of disaster victims that cannot be met through insurance or low- interest Small Business Administration loans. FEMA provides temporary  housing assistance to individuals whose homes are unlivable because of a  disaster. Other available services include unemployment compensation  and crisis counseling to help relieve any grieving, stress, or mental health  problems caused or aggravated by the disaster or its aftermath. FEMA can  cover a percentage of the medical, dental, and funeral expenses that are  incurred as a result of a disaster.
The Hazard Mitigation Grant Program provides additional funding (7.5 to  15 percent of total federal aid for recovery from the disaster) to states  and Indian tribal governments to assist communities in implementing long- term measures to help reduce the potential risk of future damages to  facilities.
Not all programs are activated for every disaster. The determination to  activate a program is based on the needs identified during the joint  preliminary damage assessment. For instance, some declarations may  provide only Individual Assistance grants and others only Public  Assistance grants. Hazard Mitigation grants, on the other hand, are  available for most declarations.
section_title: Initial Response
paragraphs: Once a federal disaster is declared, the President appoints a federal  coordinating officer to make an appraisal of the types of relief needed,  coordinate the administration of this relief, and assist citizens and public  officials in obtaining assistance. In addition, the federal coordinating  officer establishes a joint field office at or near the disaster site. This office  is generally staffed with a crew made up of permanent, full-time FEMA  employees; a cadre of temporary reserve staff, also referred to as disaster  assistance employees; and the state’s emergency management personnel.
section_title: Objectives, Scope, and Methodology
paragraphs: Public Law No. 110-28, the U.S. Troop Readiness, Veterans’ Care, Katrina  Recovery, and Iraq Accountability Appropriations Act, 2007, directs us to  review how FEMA develops its estimates of the funds needed to respond  to any given disaster, as described in House Report No. 110-60.  Accordingly, we addressed the following questions:  (1) What is FEMA’s process for developing and refining its cost  estimates for any given disaster?  (2) From 2000 through 2006, how close have cost estimates been to the  actual costs for noncatastrophic natural disasters?  (3) Given the findings from the first two questions and our relevant  past work, what steps has FEMA taken to learn from past experience  and improve its management of disaster-related resources and what  other opportunities exist?
To address the first question, we examined FEMA policies, regulations,  and other documents that govern its estimation processes. We interviewed  senior staff from FEMA’s Office of the Chief Financial Officer, as well as  headquarters and regional personnel responsible for FEMA’s disaster  assistance programs (Public Assistance, Individual Assistance, and the  Hazard Mitigation Grant Program). Although we looked at how the  estimates from other federal, state, and local government and private  nonprofit organizations feed into FEMA’s process, we did not review the  estimating processes of these entities. Also, we did not review whether  FEMA implemented its cost estimation processes as described.
To address the second question, we compared FEMA’s cost estimates at  various points in time (initial; 1, 2, 3, 6 months; and a year) to actual costs  to determine when estimates reasonably predicted actual costs. FEMA  officials defined “reasonable” as within 10 percent of actual costs.  Although the total number of disaster declarations from 2000 through 2006  was 363, we focused on noncatastrophic, natural disasters. Two of the 363  disaster declarations were not natural—they were related to the terrorist  attacks of 9/11—and another 14 were considered catastrophic. Of the  remaining 347 disaster declarations, 83 (24 percent) had actual or close to  actual costs—known as reconciled or closed, respectively—that could be  compared to earlier estimates. None of these 83 disaster declarations  occurred in 2005 or 2006. Although the analysis of these 83 disaster  declarations is informative, it is not generalizable to all declarations as it  does not represent the general population of disasters. Finally, to assess  the reliability of FEMA’s estimate data, we reviewed the data FEMA  officials provided and discussed data quality control procedures with  them. We determined that the data were sufficiently reliable for purposes  of this report.
To address the third question of how FEMA has improved its management  of disaster-related resources and identify other opportunities for  improvement, we reviewed available policies, procedures, and training  materials for staff involved in developing disaster cost estimates or the  management of disaster-related resources. In addition, we reviewed our  earlier work that identified areas for improvement and discussed FEMA’s  related management issues with DHS’s Deputy Inspector General for  Disaster Assistance Oversight. We interviewed staff in FEMA’s Office of  the Chief Financial Officer and OMB to learn more about FEMA’s planning  for annual and supplemental requests for disaster-related resources.  Finally, the work we did to address questions one and two provided  valuable insights on other opportunities for FEMA to improve its  management of disaster-related resources.
section_title: FEMA Uses Various Methods to Develop and Refine Cost Estimates Depending on Program Requirements
paragraphs: Once a major disaster has been declared, FEMA staff deployed to the joint  field office, along with state and local officials and other relevant parties  (e.g., private nonprofit organizations, other federal agencies, etc.), develop  and refine cost estimates for each type of assistance authorized in the  disaster declaration. According to FEMA officials, these estimates build  upon and refine those contained in the preliminary damage assessment.  They said that the estimates contained in the preliminary damage  assessment are “rough” and are used primarily to ensure that the damage  is of a severity and magnitude that the state requires federal assistance.
FEMA officials said that while the joint field office is open FEMA program  and financial management staff work on a continuing basis to refine these  estimates. Staff provide these estimates to a disaster comptroller, who  enters them into the Disaster Projection Report (DPR), which compiles  and calculates the overall estimate. The disaster comptroller reports the  estimates (via the DPR) to both the responsible regional office and the  Disaster Relief Fund Oversight Branch within FEMA’s Office of the Chief  Financial Officer. The first DPR is provided to these two entities within 1  week of the joint field office opening; updates are reported at least  monthly or when large changes occur in the underlying estimates.  However, regional office staff only enter updated estimates into the  Disaster Financial Status Report (DFSR)—FEMA’s central database for  disaster costs—on a monthly basis.
After the joint field office is closed, the responsible regional office updates  estimates for the given disaster along with all others within its jurisdiction.  Regional office program staff (i.e., staff in Public Assistance, Individual  Assistance, and the Hazard Mitigation Grant Program) provide updated  estimates for all ongoing declared disasters for monthly DFSR reporting.  How this information is entered into the DFSR database varies by region;  in some regional offices program staff update the estimates for their  programs’ costs (e.g., Public Assistance) directly into DFSR, whereas in  other regional offices this function is performed by financial management  staff, who collect and enter updated disaster estimate data from the  program staff. Figure 1 illustrates FEMA’s disaster cost estimation  process.
subsections: section_title: FEMA’s Estimation Processes and Related Costs Are Driven by the Types of Assistance Provided
paragraphs: FEMA’s overall estimate for any given disaster may cover programmatic  and administrative costs in up to five different categories, and the methods  for developing these underlying estimates vary. The overall cost estimate  for any given disaster could include projected costs for Public Assistance,  Individual Assistance, and Hazard Mitigation grants, depending on what  type of assistance was authorized in the disaster declaration. In addition,  the overall estimate may also cover projected costs for mission  assignments—FEMA-issued tasks to other federal agencies or components  within DHS, known as performing agencies—as well as administrative  costs associated with operating the joint field office and administering  disaster assistance. Our review focused on FEMA’s policies and  procedures for developing these estimates, as described in related  documents and by FEMA officials; we did not review whether these  processes were implemented as described.
Public Assistance officials said that initial estimates for their program are  prepared by category of work and then refined for specific projects.  Working with potential applicants following a disaster, program staff will  develop overall estimates for Public Assistance costs for each category of  emergency and permanent work, as authorized. Costs for Public  Assistance are shared between the federal and state governments. The  minimum federal share is 75 percent; the President can increase it to 90  percent when a disaster is so extraordinary that it meets or exceeds  certain per capita disaster costs, and to 100 percent for emergency work in  the initial days after the disaster irrespective of the per capita cost. Later,  the overall estimate is refined to reflect the estimates for individual  projects. The Public Assistance program uses many methods to develop  these estimates. Common methods include time and materials estimates  and competitively bid contracts. Public Assistance officials told us that  they rely heavily on the applicants’ (state government agencies, local  governments, etc.) prior experience and historical knowledge of costs for  similar projects. For small projects (those estimated to cost less than  $59,700 in fiscal year 2007, adjusted annually), applicants can develop the  estimates themselves—FEMA later validates their accuracy through a  sample—or they can ask FEMA to develop the estimates. According to a  senior Public Assistance official, most applicants choose the latter option.  For large projects (estimated to cost more than $59,700 in fiscal year 2007,  adjusted annually), Public Assistance staff are responsible for working  with applicants to develop project worksheets, which include cost  estimates.
According to senior program officials, Individual Assistance cost  estimates depend on individuals’ needs. Using demographic, historical,  and other data specific to the affected area, as well as a national average  of costs, Individual Assistance staff project program costs. Depending on  the type of Individual Assistance provided, estimates are refined as  individuals register and qualify for certain types of assistance or as FEMA  and the state negotiate and agree upon costs. For housing and other needs  assistance—such as disaster-related medical, dental, and funeral costs— estimates are based on the number of registrations FEMA receives, the  rate at which registrants are found eligible for assistance, and the type and  amount of assistance for which they qualify. For fiscal year 2007, federal  costs for housing assistance were limited to $28,600 per individual or  household. This amount is adjusted annually. Other needs assistance is a  cost-share program between the federal and state governments with the  federal share set at 75 percent of costs. Disaster unemployment assistance  is provided to those unemployed because of the disaster and not otherwise  covered by regular unemployment insurance programs. The amount  provided is based on state law for unemployment insurance in the state  where the disaster occurred. The state identifies any need for crisis  counseling services and FEMA works with the state mental health agency  to develop the estimate for that. Individual Assistance officials also told us  that although they set aside $5,000 for legal services FEMA is rarely billed  for these services.
Hazard Mitigation Grant Program costs are formulaic and based on a  sliding scale. If a grantee (state or Indian tribal government) has a  standard mitigation plan, the amount FEMA provides to the grantee is a  statutorily set percentage of the estimated total amount provided under  the major assistance programs. This percentage ranges from 7.5 to 15  percent and is inversely related to the total; that is, when overall  assistance estimates are higher, the percentage available for Hazard  Mitigation grants decreases. Costs for Hazard Mitigation grants are shared  among the federal government, grantees, and applicants (e.g., local  governments), with a federal share of up to 75 percent of the grant  estimate. FEMA calculates and provides an estimate of Hazard Mitigation  funding to grantees 3, 6, and 12 months after a disaster declaration. The 6- month figure is a guaranteed minimum. At 12 months FEMA “locks in”  the amount of the 12-month estimate unless the 6-month minimum is  greater.
Cost estimates for mission assignments are developed jointly by FEMA  staff and the performing agencies. Among the information included in a  mission assignment are a description of work to be performed, a  completion date for the work, an estimate of the dollar amount of the  work to be performed, and authorizing signatures. Mission assignments  may be issued for a variety of tasks, such as search and rescue missions or  debris removal, depending on the performing agencies’ areas of expertise.  The signed mission assignment document provides the basis for obligating  FEMA’s funds. When federal agencies are tasked with directly providing  emergency work and debris removal—known as direct federal assistance  mission assignments—costs are shared in the same manner as Public  Assistance grants.
Estimates for FEMA’s administrative costs are developed by financial  management staff in the joint field office. These costs are based on several  factors including the number of staff deployed, salary costs, rent for office  space, and travel expenses.
section_title: Time Needed to Predict Disaster Costs and Data Reliability Issues Hamper Decision Making
paragraphs: Although estimates developed in the immediate aftermath of a major  disaster are necessarily based on preliminary damage assessments,  decision makers need accurate cost information in order to make  informed budget choices. FEMA officials told us that by 3 months after a  declaration the overall estimate of costs related to any given  noncatastrophic natural disaster is usually reasonable, that is, within 10  percent of actual costs. However, as figure 2 illustrates, our analysis of the  83 noncatastrophic natural disaster declarations with actual or close to  actual costs shows that on average 3-month estimates were within 23  percent of actual costs and the median difference was around 14 percent.  Although the average (mean) difference did not achieve the 10 percent  band until approximately 1 year, the median difference reached this band  at 6 months.
These results, however, cannot be generalized to disaster declarations for  which all financial decisions have not been made since we were only able  to compare estimates to actual costs for about one-quarter of the  noncatastrophic natural disasters declared from 2000 through 2006. From  2000 through 2006, there were 347 noncatastrophic natural disasters. As of  June 30, 2007, 83 of these (approximately 24 percent) had actual or near  actual costs to which we could compare estimates, as figure 3 illustrates.  Fourteen disasters were “reconciled,” meaning that all projects were  completed and the FEMA-State Agreement was closed and 69 disasters  were “closed,” meaning that financial decisions had been made but all  projects were not completed. The rest of the disasters (264) were  “programmatically open,” meaning financial decisions were not  completed, eligible work remains, and estimates are subject to change.  According to FEMA officials, it takes 4 to 5 years to complete all work for  an “average” disaster. Time frames for the underlying assistance programs  vary. For example, according to a FEMA official, Individual Assistance  takes approximately 18 months and Public Assistance 3 years to complete  all work. Projects using Hazard Mitigation grants are expected to last 4  years although they can be extended to 6 years.
subsections: section_title: Data Reliability Issues Hamper Decision Makers’ Ability to Learn from Past Disasters
paragraphs: Accurate data permits decision makers to learn from previous  experience—both in terms of estimating likely costs to the federal  government and in managing disaster assistance programs. However, the  way FEMA records disaster information, specifically the way in which it  codes the disaster that occurred, inhibits rather than facilitates this  learning process. The combination of a single-code limit to describe  disasters, inconsistent coding of disasters with similar descriptions, and  overlapping codes means that the data are not easily used to inform  estimates and other analyses. Such issues mean that we could not  compare estimated and actual costs by type of disaster. Moreover, they  limit FEMA’s ability to learn from past disasters.
Every disaster declaration is coded with an incident type to identify the  nature of the disaster (e.g., earthquake, wildfire, etc.). As shown in table 1,  there are 27 different incident codes in the DFSR database. We found  problems with these data. First, the coding of incident type did not always  match the description of the disaster. For example, 31 declarations are  coded as tsunamis, but many of these are described—and should be  coded—as something else. Second, each disaster declaration can be coded  with only one incident type even though most descriptions list multiple  types of incidents. We found declarations with similar descriptions coded  differently—FEMA has no guidance on how to select the incident type  code to be used from among the types of damage. For example, a number  of declarations are described as “severe storms and flooding” or “severe  storms, flooding, and tornadoes,” but sometimes these were coded as  flooding, other times as severe storms, and still other times as tornadoes.
Any coding system should be designed for the purpose it must serve. From  the point of view of looking at the cause of damage (e.g., water, wind,  etc.), many of the 27 incident codes track weather events but do not  necessarily capture or elaborate on the type of information relevant to  FEMA’s mission of providing disaster assistance. Moreover, they are not  all mutually exclusive and thus some codes could be consolidated or  eliminated. For example, coastal storms (C), hurricanes (H), and typhoons  (J) might all be seen as describing similar events and therefore could be  seen as candidates for consolidation.
section_title: FEMA Has Taken Steps to Learn from Past Disasters and Improve Its Management of Disaster-Related Resources but Further Opportunities Exist
paragraphs: FEMA officials identified several ways in which FEMA takes past  experience into account and uses historical data to inform its cost  estimation processes for any given disaster. For example, Individual  Assistance officials told us that they use demographic data (such as  population size and average household income) and a national average of  program costs to predict average costs for expected applicants.  Furthermore, based on past experience, Individual Assistance officials  adjust cost estimates for different points in time during the 60-day  registration period. Individuals with greater need tend to apply within the  first 30 days of the registration period, according to Individual Assistance  officials. This is usually followed by a lull in registrations, then an increase  in registrations prior to the close of the registration period. The Public  Assistance program has compiled a list of average costs for materials and  equipment, which is adjusted for geographic area. As noted earlier, the  Public Assistance program also relies heavily on the past experience and  historical knowledge of its applicants for the costs of similar projects.
Staff within FEMA’s Office of the Chief Financial Officer also contribute to  FEMA’s learning from past disasters. For example, in collecting and  compiling estimates at the joint field office, the disaster comptroller may  question certain estimated costs based on his or her past experience with  similar disasters. Similarly, once these estimates are reported to the  Disaster Relief Fund Oversight Branch, staff there will review the DPR  and, based on their knowledge of and experience with past disasters, may  question certain estimates and compare them to similar past disasters.  Office of the Chief Financial Officer staff also have worked with others  throughout FEMA to develop a model to predict costs for category 3 or  higher hurricanes prior to and during landfall. Among other types of data,  the model uses historical costs from comparable hurricanes to predict  costs. Although the model is finished, it has not been fully tested; no  category 3 or higher hurricanes have made landfall in the United States  since it was developed.
subsections: section_title: FEMA Has Taken Steps to Improve Its Management of Disaster-Related Resources
paragraphs: FEMA has taken several steps to improve its management of disaster- related resources. In the past few years, FEMA has undertaken efforts to  professionalize and expand the responsibilities of its disaster comptroller  cadre. For example, FEMA has developed and updated credentialing plans  since 2002 in an attempt to ensure that comptrollers are properly trained.
The agency has also combined the Disaster Comptroller and  Finance/Administration Section Chief into one position to better manage  financial activities at the joint field office. The Office of the Chief Financial  Officer introduced the DPR—developed by the Disaster Relief Fund  Oversight Branch—as a tool for comptrollers to standardize the  formulation and reporting of disaster cost projections. At the time of our  review, FEMA was converting six disaster comptrollers from temporary to  permanent positions. Officials told us that they plan to place two  comptrollers in headquarters to assist with operations in the Office of the  Chief Financial Officer, and four in regional offices to provide a “CFO  presence” and to have experienced comptrollers on hand to assist with  disasters.
FEMA has also taken steps to better prepare for disasters. According to  FEMA officials, the agency is focusing on “leaning forward”—ensuring  that it is in a state of readiness prior to, during, and immediately following  a disaster. For example, FEMA officials told us that they pre-position  supplies in an attempt to get needed supplies out more quickly during and  after a disaster. Similarly, FEMA has negotiated and entered into a number  of contingency contracts in an attempt to begin work sooner after a  disaster occurs and to potentially save money in the future since costs are  prenegotiated.
section_title: Other Opportunities Exist for FEMA to Learn from Past Experience and Improve Its Management of Disaster-Related Resources
paragraphs: According to FEMA officials, each disaster is unique, and because of this,  FEMA “starts from scratch” in developing estimates for each disaster.  Although each disaster may be unique, we believe that commonalities  exist that would allow FEMA to better predict some costs and have  identified a number of opportunities to further its learning and  management of resources.
subsections: section_title: Opportunities to Learn from Past Experience
paragraphs: FEMA officials told us that a number of factors can lead to changes in  FEMA’s disaster cost estimates, some of which are beyond its control. For  example, the President may amend the disaster declaration to authorize  other types of assistance, revise the federal portion of the cost share for  Public Assistance, or cover the addition of more counties. Also, hidden  damage might be discovered, which would increase cost estimates.  Fluctuations in estimates also may occur with events such as the  determination of insurance coverage for individuals and public structures  or higher-than-estimated bids to complete large projects (Public  Assistance). Changes in the state or local government housing assistance  strategies can also drive changes in costs.
However, that these are beyond FEMA’s control does not mean FEMA has  no way to improve its estimates. FEMA could conduct sensitivity analyses  to understand the marginal effects of different cost drivers, such as the  addition of counties to a declaration, revisions to the cost share, or the  determination of insurance coverage, and to provide a range for the  uncertainty created by these factors. We recently reported that as a best  practice sensitivity analysis should be used in all cost estimates because  all estimates have some uncertainty. Using its experiences from prior  disasters, FEMA could analyze the underlying causes of changes in  estimates. This could help FEMA develop and provide to policymakers an  earlier and more realistic range around its point estimate.
In addition, there are other areas where FEMA has greater control. FEMA  could review the effect its own processes have on fluctuations in its  disaster cost estimates and take actions to better mitigate these factors.  For example, FEMA officials told us that mission assignments are  generally overestimated but these are not corrected until the performing  agencies bill FEMA. We previously reported that when FEMA tasks  another federal agency with a mission assignment, FEMA records the  entire amount up front as an obligation, but does not adjust this amount  until it has received the bill from the performing agency, reviewed it, and  recorded the expenditure in its accounting system. The performing  agency might not bill FEMA until months after it actually performs the  work. If upon reviewing supporting reimbursement documentation FEMA  officials determine that some amounts are incorrect or unsupported,  FEMA may retrieve or “charge back” the moneys from the agencies. In  these instances, agencies may also take additional time to gather and  provide additional supporting documentation. We made several  recommendations aimed at improving FEMA’s mission assignment  process and FEMA officials told us that they are reviewing the  management of mission assignments.
One official posited that overestimates of mission assignments could have  caused the overall estimates to take longer than expected to reach the 10  percent band FEMA officials defined as a reasonable predictor of actual  costs. If a review of the mission assignment process shows this to be the  case, FEMA should take steps—such as working with performing agencies  to develop more realistic mission assignment estimates up front and  ensuring that these agencies provide FEMA with bills supported by proper  documentation in a timely manner—to improve this process and lessen its  effect on the overall estimates. If, however, the overestimation of mission  assignments is not driving these changes, FEMA should focus on  identifying what is and take appropriate actions to mitigate it. Another  area that could warrant review is the determination of eligible costs for  Public Assistance. For example, after Public Assistance projects are  completed, FEMA sometimes adjusts costs during reconciliation to  disallow ineligible costs or determine that other costs are eligible.  Focusing on this issue earlier in the process might lead to a more accurate  determination of costs eligible for reimbursement and so improve  projections.
FEMA could also expand its efforts to better consider past experience in  developing estimates for new disasters. For example, in tracking incident  types, FEMA could improve both the accuracy and the usefulness of the  data for its analytic and predictive purposes. A review and revision of  incident type codes to reflect the cause(s) of damage would tie the data  and coding to their purposes. This could permit making comparisons  among similar disasters to better inform and enhance both cost estimates  and decision making. Also, FEMA could ensure that for past declarations  in the DFSR database, as well as for future declarations, incident codes  match the related descriptions and are consistently entered. This effort  could be aided by revising the DFSR database to allow for multiple  incident types for each declaration to better reflect what occurred. Other  opportunities may also exist for the assistance programs. For example, in  predicting costs for the Individual Assistance program, the usefulness of a  national average should be examined. The substitution or addition of more  geographically specific indicators might better predict applicant costs.
In some ways, FEMA recognizes the value of using past experience to  inform current estimates. For example, it draws upon the experience of its  disaster comptrollers and staff in the Disaster Relief Fund Oversight  Branch to question estimated costs. In addition, the aforementioned model  to predict hurricane costs shows that FEMA recognizes that similar  disasters may lead to similar costs, which can be analyzed and applied to  better predict costs. According to FEMA officials, they are considering  expanding the model to predict costs from other potentially catastrophic  disasters, such as earthquakes. In the same vein, we believe that FEMA  could expand upon this effort to better predict costs for other types of  disasters, particularly those that are noncatastrophic and recur more  frequently.
FEMA’s opportunities to learn from past experience, especially from its  disaster cost data, could be hampered by some costs that are no longer  distributed to individual disaster declarations. FEMA officials told us that  they use a “surge account” to support federal mobilization, deployment,  and preliminary damage assessment activities prior to a disaster  declaration. FEMA records subsequent costs by declaration. In the past  these surge account costs were distributed on a proportional basis to each  disaster declared in the year—so the data for the 83 disaster declarations  we were able to review do include these costs. However, FEMA no longer  does this. FEMA officials told us that they determined that there was no  obvious benefit to distributing surge account costs to subsequent  declarations, especially in potential hurricane events that might result in  multiple declarations. We note that costs in the surge account have  increased significantly in recent years. For fiscal years 2000 through 2003,  annual obligations in the surge account were less than $20 million each  year; after 2004 they increased to over $100 million each year, according to  FEMA data as of June 30, 2007. In fact by that date surge account costs  for fiscal year 2007—three-quarters through the fiscal year—had already  reached $350 million. No longer distributing these costs to disasters poses  an analytical challenge for FEMA’s learning as costs for current and future  disasters are not comparable to those that occurred in the past.
section_title: Opportunities to Improve Management of Disaster- Related Resources
paragraphs: To improve data reliability, FEMA could also develop standard operating  procedures and training for staff entering and maintaining disaster  estimate data in the DFSR database. In a recent review of FEMA’s day-to- day operations we found that it does not have a coordinated or strategic  approach to training and development programs. Further, FEMA officials  described succession planning as nonexistent and several cited it as the  agency’s weakest link. We have previously reported that succession  planning—a process by which organizations identify, develop, and select  their people to ensure an ongoing supply of successors who are the right  people, with the right skills, at the right time for leadership and other key  positions—is especially important for organizations that are undergoing  change. Like the rest of the government, FEMA faces the possibility of  losing a significant percentage of staff—especially at the managerial and  leadership levels—to retirement. About a third of FEMA’s Senior  Executive Service and GS-15 leaders were eligible to retire in fiscal year  2005, and Office of Personnel Management data project that this  percentage will increase to over half by the end of fiscal year 2010. Since  FEMA relies heavily on the experience of its staff, such a loss could  significantly affect its operations. Furthermore, according to FEMA  officials with whom we met, there are no standard operating procedures  or training courses for staff who are involved in entering and maintaining  disaster cost estimate data in the DFSR database that would help mitigate  this loss of knowledge and ensure consistency among staff in regional  offices and in headquarters. Standard operating procedures also might  reduce the coding errors described earlier.
FEMA may be able to improve its management of disaster-related  resources by reviewing the reasons why “older” disaster declarations  remain open and take action to close and reconcile them if possible. By  finalizing decisions about how much funding is actually needed to  complete work for these open declarations, FEMA will be better able to  target its remaining resources. FEMA officials told us that it takes 4 to 5  years to obligate all funding related to an average disaster declaration but  we found the average life cycle to be longer—a majority of the  noncatastrophic natural disasters declared from 2000 through 2002 (5 to 7  years old) are still open (see table 2).
We previously reported that in November 1997, FEMA’s Director chartered  three teams of Office of Financial Management staff—referred to as  closeout teams—to assist FEMA regional staff and state emergency  management personnel in closing out funding activities for all past  disasters. Their primary goal was to eliminate remaining costs for these  disasters by obligating or recovering funds. We found that these teams  were effective in doing so. According to FEMA officials, the closeout  teams no longer formally exist because they had successfully closed out  funding activities for past disasters. FEMA now relies on regional offices  to perform this function, and several use teams similar to the closeout  teams to undertake this work.
Given its mission, FEMA tends to focus much of its resources on disaster  response and recovery. For example, as we previously reported, all FEMA  employees are expected to be on call during disaster response and no  FEMA personnel are exclusively assigned to its day-to-day operations.  Indeed, FEMA officials have said that what FEMA staff label “nondisaster”  programs are maintained on an ad hoc basis when permanent staff are  deployed, and the agency does not have provisions for continuing  programs when program managers are called to response duties. Without  an understanding of who holds a mission-critical position for day-to-day  operations and what minimum level of staffing is necessary even during  disaster response, business continuity and support for the disaster-relief  mission are put at increased risk. FEMA staff’s strong sense of mission is  no substitute for a plan and strategies of action. It is likely, therefore, that  the tasks necessary to close disasters become subordinated to responding  to new disasters. This contributes to a situation in which disaster  declarations remain open for a number of years. However, closing and  reconciling declarations is not merely a bookkeeping exercise. Given the  multiple claims on federal resources, it is important to provide decision  makers with the best information possible about current and pending  claims on those resources.
section_title: Opportunities to Improve Budgeting for Disaster Relief
paragraphs: FEMA’s annual budget requests and appropriations for disaster relief are  understated because they exclude certain costs. Currently, annual budget  estimates are based on a 5-year historical average of obligations, excluding  costs associated with catastrophic disaster declarations (i.e., those greater  than $500 million). This average—which serves as a proxy for an estimate  of resources that will be needed for the upcoming year—presumes to  capture all projected costs expected not only from future disasters but  also those previously declared. However, as demonstrated by FEMA’s  receipt of supplemental appropriations in years when no catastrophic  disasters occurred, it does not do so. Excluding certain costs associated  with previously declared catastrophic disasters results in an  underestimation of annual disaster relief costs for two reasons. First,  because FEMA finances disaster relief activities from only one account— regardless of the severity of the disaster—the 5-year average as currently  calculated is not sufficient to cover known costs from past catastrophic  disasters. Second, from fiscal years 2000 through 2006, catastrophic  disasters occurred in 4 out of 7 years, raising questions about the relative  infrequency of such events. Excluding costs from catastrophic disasters in  annual funding estimates prevents decision makers from receiving a  comprehensive view of overall funding claims and trade-offs. This is  particularly important given the tight resource constraints facing our  nation. Therefore, annual budget requests for disaster relief may be  improved by including known costs from previous disasters and some  costs associated with catastrophic disasters.
Funding for natural disasters is not the only area where a reexamination of  the distribution between funding through regular appropriations and  funding through supplemental appropriations might be in order. In our  work on funding the Global War on Terrorism (GWOT), we also noted that  the line between what is funded through regular, annual appropriations  and supplemental appropriations has become blurred. The Department of  Defense’s GWOT funding guidance has resulted in billions of dollars being  added for what DOD calls the “longer war against terror,” making it  difficult to distinguish between base costs and the incremental costs to  support specific contingency operations.
section_title: Conclusions
paragraphs: Given FEMA’s mission to lead the nation in mitigating, responding to, and  recovering from major domestic disasters, many individuals as well as  state and local governments rely on the disaster assistance it provides. The  cost estimates FEMA develops in response to a disaster have an effect not  only on the assistance provided to those affected by the disaster but also  on federal decision makers, as supplemental appropriations will likely be  needed. As such, it is imperative for FEMA to develop accurate cost  estimates in a timely manner to inform decision making, enhance trade-off  decisions, and increase the transparency of these federal commitments.
We were able to identify ways in which FEMA has learned from past  disasters; however a number of opportunities exist for FEMA to continue  this learning and to improve its cost estimation process. For example,  FEMA could better ensure that incident codes are useful and accurate. In  addition, a number of factors can lead to revisions in its estimates but  FEMA can mitigate these factors by conducting sensitivity analyses and  reviewing its estimation processes to identify where improvements could  be made. To further facilitate learning, FEMA needs to better ensure that it  has timely and accurate data from past disasters and this report suggests  several ways in which FEMA could do so. FEMA can also explore refining  its learning, for example, by using geographically specific averages to  complement the national averages it uses. In addition, to facilitate analysis  by making current disaster cost data comparable to past disaster data,  FEMA could resume distribution of surge account costs to disasters, as  appropriate.
FEMA has also taken steps to improve its management of disaster-related  resources, such as “leaning forward,” professionalizing and expanding the  responsibilities of its disaster comptroller cadre, and developing a model  to predict costs for category 3 or higher hurricanes prior to and during  landfall. However, additional steps would further improve how FEMA  manages its resources. For example, to improve data reliability FEMA  could develop standard operating procedures and training for staff  entering and maintaining disaster estimate data in the DFSR database.  Also, although FEMA officials told us that it takes 4 to 5 years to finish all  work related to an average disaster, our analysis of FEMA’s data shows  that a majority of disasters declared from 2000 through 2002 were still  open—that is they had work ongoing—during our review. In the past  FEMA formed teams to review these “older” disasters, which resulted in  the elimination of remaining costs for these disasters by obligating or  recovering funds. A similar effort today could have the same effect. Also,  FEMA relies on supplemental appropriations both to cover the costs of  providing assistance for new disasters and known costs from past  disasters. To promote transparency in the budget process and to better  inform decision making, annual budget requests for disaster relief should  cover these known costs, including some from catastrophic disasters.
section_title: Recommendations for Executive Action
paragraphs: To better mitigate the effect of factors both beyond and within FEMA’s  control to improve the information provided to decision makers; to better  inform future estimates, including the ability to incorporate past  experience in those estimates; and to improve the management of FEMA’s  disaster-related resources, the Secretary of Homeland Security should  instruct FEMA’s Administrator to take the following nine actions:    Conduct sensitivity analyses to determine the marginal effects of key cost  drivers to provide a range for the uncertainty created by factors beyond  FEMA’s control.
Review the effect FEMA’s own processes have on fluctuations in disaster  cost estimates and take steps to limit the impact they have on estimates.
Review the reasons why it takes 6 months or more for estimates to  reasonably predict actual costs and focus on improving them to shorten  the time frame.
Undertake efforts—similar to those FEMA used to develop its model to  predict hurricane costs—to better predict costs for other types of  disasters, informed by historical costs and other data.
Evaluate the benefits of using geographically specific averages in addition  to national averages to better project Individual Assistance costs.
Resume the distribution of surge account costs to individual disasters, as  appropriate, to make cost data from past, current, and future disasters  comparable.
Review and revise incident coding types to ensure that they are accurate  and useful for learning from past experience. At a minimum, incident  codes should match the descriptions and be consistently entered and  reflect what occurred, which may require permitting multiple incident  types for each declaration.
Develop training and standard operating procedures for all staff entering  incident type and cost information into the DFSR database.
Review reasons why “older” disasters remain open and take action to  close/reconcile them if possible.
To promote a more informed debate about budget priorities and trade-offs,  the Secretary of Homeland Security also should instruct FEMA’s  Administrator to work with OMB and Congress to provide more complete  information on known costs from prior disasters and costs associated with  catastrophic disasters as part of the annual budget request.
section_title: Agency Comments
paragraphs: We requested comments on a draft of this report from the Secretary of  Homeland Security. In its comments, DHS generally agreed with eight of  our ten recommendations. It stated it would take our recommendation to  conduct sensitivity analyses to determine the marginal effects of key cost  drivers under advisement and did not comment on our recommendation  that it work with OMB and Congress to provide more complete  information as a part of its annual budget requests. FEMA also provided  technical comments, which we have incorporated as appropriate.
We are sending copies of this report to the Director of OMB, the Secretary  of Homeland Security, the Administrator of FEMA, and interested  congressional committees. We will also make copies available to others  upon request. In addition, the report will be available at no charge on  GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions about this report please contact me  at (202) 512-9142 or irvings@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who contributed to this report are acknowledged  in appendix I.
section_title: Appendix I: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the individual listed above, Carol Henn, Assistant Director;  Benjamin T. Licht; and Kisha Clark made significant contributions to this  report. Pedro Briones, John Brooks, Stanley Czerwinski, Peter Del Toro,  Carlos Diz, Gabrielle Fagan, Chelsa Gurkin, Elizabeth Hosler, William  Jenkins, Casey Keplinger, Tracey King, Latesha Love, James McTigue, Jr.,  Tiffany Mostert, John Vocino, Katherine Hudson Walker, Greg Wilmoth,  and Robert Yetvin also made key contributions to this report.