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

Letter

Overview of Testimony

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Testimony on Continued Findings of Fraud, Waste, and Abuse

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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.

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.

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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.

Appendix II: Comments from the Federal Emergency Management Agency