Hurricanes Katrina and Rita: Unprecedented Challenges Exposed the Individuals and Households Program to Fraud and Abuse; Actions Needed to Reduce Such Problems in Future
Released: 2006-09-27T00:00:00

Letter

Background

The purpose of the Stafford Act is to provide an orderly and continuing means of assistance by the federal government to state and local governments in carrying out their responsibilities to alleviate the suffering and damage which results from disasters. The Stafford Act originally was enacted in 1974 and amended in 1988, 1993, and 2000. The Disaster Mitigation Act of 2000 established the IHP by combining two previous disaster grant programs - - the Temporary Housing Assistance and Individual Family Grant programs. Under the IHP, these programs were replaced by Housing Assistance and Other Needs Assistance. Looking specifically at the Housing Assistance component of the IHP, section 408 of the Stafford Act authorizes five types of assistance, of which four are relevant to disaster victims of Hurricanes Katrina and Rita: (1) Financial assistance to rent temporary housing. FEMA may provide financial assistance to individuals or households to rent alternative housing accommodations, existing rental units, manufactured housing, recreational vehicles, or other readily fabricated dwellings.(2) “Direct” temporary housing assistance. FEMA may provide temporary housing units (e.g., mobile homes and travel trailers), acquired by purchase or lease, directly to disaster victims, who, because of a lack of available housing resources, would be unable to make use of financial assistance to rent alternate housing accommodations. In other words, direct assistance would be available in situations where rental accommodations are not available. By statute, direct assistance is limited to an 18-month period, after which FEMA may charge fair market rent for the housing unless it extends the 18-month free-of-charge period due to extraordinary circumstances.(3) Repair assistance. Under this authority, FEMA may provide financial assistance for the repair of owner-occupied private residences, utilities, and residential infrastructure damaged by a major disaster. However, the maximum amount of repair assistance provided to a household is limited to $5,000, adjusted annually to reflect changes in the CPI.(4) Replacement assistance. This form of housing assistance authorizes funding to replace owner-occupied private residences. The amount of replacement assistance FEMA may provide to a household is limited to $10,000, adjusted annually to reflect changes in the CPI. For a victim to receive this assistance, there must have been at least $10,000 of damage to the dwelling. The victim may use the assistance toward replacement housing costs.

As of September 25, 2006, proposed legislation was pending before Congress that would, among other things, eliminate the cap on home repair and replacement assistance.

FEMA may provide ONA grant funding for public transportation expenses, medical and dental expenses, and funeral and burial expenses. ONA grant funding may also be available to replace personal property, repair and replace vehicles, and reimburse moving and storage expenses under certain circumstances. The maximum financial amount of housing and other needs assistance that an individual or household may receive is capped at $25,000, adjusted annually to reflect changes in the Consumer Price Index. Eligibility for IHP assistance is determined when an individual or household applies with FEMA and is based on the amount of property damage resulting from the disaster.

For disaster victims with financial resources, SBA’s Disaster Loan Program is intended to be a primary resource available to aid in their recovery. FEMA refers disaster victims who apply for assistance and meet established income levels to SBA. Applicants who are denied loan assistance by SBA or have remaining unmet needs are sent back to FEMA for an assistance determination of their eligibility for certain types of ONA grant funding. (We reported on SBA’s efforts to provide disaster loans in response to the 2005 hurricanes in July 2006 and expect to issue another report on SBA’s response later this year.) Table 1 provides an overview of IHP benefits and identifies the ONA benefits that are subject to SBA disaster loan eligibility.

FEMA manages the IHP primarily through a decentralized structure of permanent and temporary field offices staffed mostly by contract and temporary employees. The offices include permanent locations at the FEMA Recovery Division in FEMA Headquarters, regional offices, National Processing Service Centers, and temporary locations at Joint Field Offices, Area Field Offices, and Disaster Recovery Centers. Once the President declares a major disaster that is eligible for federal assistance, victims in declared counties must first apply for it with FEMA, by phone, over the Internet, or in person at a disaster recovery center. Figure 1 shows disaster victims waiting to speak with temporary disaster staff in October 2005 at a Disaster Recovery Center in St. Bernard Parish, Louisiana.

Once a FEMA representative records personal information from a disaster application and provides the applicant with a FEMA application number, FEMA’s National Emergency Management Information System automatically determines potential eligibility for designated categories of assistance. FEMA refers disaster victims who apply for moving and storage, personal property repair or replacement, and/or vehicle repair or replacement related grant funding assistance and meet established income levels to SBA. Applicants who are denied loan assistance by SBA or have remaining unmet needs are sent back to FEMA for an assistance determination of their eligibility for certain types of ONA grant funding. To confirm that the home and personal property sustained damages as reported in a disaster assistance application, FEMA is to meet with disaster victims at their homes to conduct individual inspections to verify, ownership, occupancy, and damage. Figure 2 shows a FEMA inspection notice on a home in St. Bernard Parish damaged by Hurricane Katrina.

Based on the results of the inspection and determinations made by staff at the National Processing Service Centers, FEMA approves or denies housing and/or other needs assistance. (Applicants may be eligible for either or both types of assistance.) If the applicant qualifies for a grant, FEMA sends the applicant a check by mail or deposits the grant funds in the applicant’s bank account. If an applicant is denied, he or she may appeal the decision by contacting a service center and providing additional information or clarification. Recipients of IHP assistance must recertify their continuing need for assistance every 30 to 90 days, depending on the type of assistance. Additional details about federal disaster assistance and IHP including the types of and eligibility for benefits, how the program is structured and implemented and the process for applying for and receiving program assistance are provided in appendix III.

IHP Assistance to Victims of Hurricanes Katrina and Rita Far Surpassed Assistance to Victims of 2003 and 2004 Hurricane Seasons

Because of the magnitude of the hurricanes and the extent of the resulting damage, the total number of applications for, and benefits provided through IHP in 2005 for Hurricanes Katrina and Rita far exceeded the combined total of the 2 years since the program was established in 2003. Two categories of assistance—temporary housing assistance and expedited assistance---- accounted for much of the significant increase in IHP expenditures for Hurricanes Katrina and Rita as compared to prior years. FEMA also provided a much greater amount of assistance for Hurricanes Katrina and Rita, than in prior years, for specific types of ONA benefits that are primarily provided only after applicants apply for and are denied an SBA disaster loan, indicating that the percentage of lower income applicants may have been a significant portion of total applicants. While the approval rate for housing assistance was greater than in previous years, the approval rate for ONA was notably lower for Hurricanes Katrina and Rita than the 2 previous hurricane seasons; 41 percent as compared to 65 percent in 2003 and 50 percent in 2004. Accordingly, the percentage of applicants FEMA identified as ineligible for housing assistance was lower while the percentage of ineligible applicants for ONA was higher for Hurricanes Katrina and Rita (44 percent) than for named hurricanes that came ashore in 2004 (31 percent). To establish a basis for eligibility, FEMA had to conduct a much greater number of inspections and accordingly, the related cost of those inspections were greater with Hurricanes Katrina and Rita than in 2003 and 2004 combined. Although FEMA referred more applicants to SBA for disaster loans for Hurricanes Katrina and Rita than in the prior 2 years, SBA returned about the same percentage of disaster loan applicants to FEMA for ONA consideration.

IHP Applications, Benefits and Related Inspection Workload Were Greater for Hurricanes Katrina and Rita than in 2 Preceding Years

FEMA received far more IHP applications, approved more requests for Housing and Other Needs Assistance, and awarded more grant money in 2005-2006 for Hurricanes Katrina and Rita than for all the hurricanes that resulted in a disaster declaration in 2004 (Ivan, Charley, Frances, and Jeanne) and 2003 (Isabel and Claudette) combined. Table 2 shows the number of applicants approved for both categories of IHP assistance and the grant award totals—as of August 2006, for Hurricanes Katrina and Rita and named hurricanes that came ashore in the United States in 2004. The table also shows the number of applications received by FEMA—as of September 2006. The number of applicants and both categories of IHP assistance for the 2003 named hurricanes were provided by FEMA as of April 2006.

FEMA data as of August 2006, shows that two categories of assistance— temporary housing assistance and expedited assistance accounted for much of the significant increase in IHP expenditures for Hurricanes Katrina and Rita as compared to prior years, as shown in figure 3. FEMA specifically established a new transitional housing assistance allowance, as part of temporary housing assistance, to advance to Katrina disaster victims an amount equal to the initial 3 months of rental payments based on the national average rent for a 2-bedroom apartment. Expedited assistance is a pre-inspection disbursement of funds to disaster victims based on specific criteria such as the severity of the damage. (See glossary for definitions of all housing and other needs assistance categories.) Transitional housing assistance that was authorized exclusively for Hurricane Katrina, was estimated at about $1.3 billion while expedited assistance for both Hurricanes Katrina and Rita totaled an about $2.3 billion. By comparison, about $59 million was approved for hurricanes in 2004, while no expedited assistance was approved for hurricanes in 2003.

In terms of ONA, figure 4 shows that FEMA provided a much greater amount of income dependent assistance for Hurricanes Katrina and Rita in 2005 than in prior years. Income dependent assistance requires that eligible applicants initially apply for and be denied assistance from the SBA Disaster Loan Program and includes expenses for personal property, moving and storage, and vehicle repair and replacement expenses. For Hurricanes Katrina and Rita, personal property assistance accounted for the majority of the income dependent assistance, about $1.8 billion. In comparison, for the hurricanes in 2003 and 2004, the combined total income-dependent assistance approved was less than $495 million. Lower income applicants may have made up a significant portion of those receiving ONA benefits because income dependent assistance in the form of personal property assistance was nearly 87 percent of the ONA approved for victims of hurricanes Katrina and Rita.

Victims of Hurricanes Katrina and Rita Seek Housing Assistance in Numbers Greater than Those for Other Needs Assistance

As of August 2006, FEMA data shows that for Hurricanes Katrina and Rita nearly 2 million applicants applied for Housing Assistance while 1.3 million applicants requested ONA. About 67 percent of applicants for Housing Assistance were approved versus an estimated 41 percent of applicants approved for ONA. Although during Hurricanes Katrina and Rita more applicants were approved for ONA, the percentage of approved applicants was less than for hurricanes in the prior 2 years, whose approval rates were higher than 50 percent in each year. Accordingly, the percentage of applicants FEMA identified as ineligible for housing assistance was lower while the percentage of ineligible applicants for ONA was higher for Hurricanes Katrina and Rita (44 percent) than for named hurricanes that came ashore in 2004 (31 percent).

Table 3 shows, by IHP assistance category, the number and percentage of applicants FEMA considered for IHP assistance as of August 2006 for hurricanes in 2004 and Hurricanes Katrina and Rita, and for hurricanes in 2003 as of April 2006. In addition, the table shows the number and percent of approved, ineligible, and pending IHP applicants. It also shows the number and percent of applicants that appealed FEMA decisions regarding their IHP assistance, for Hurricanes Katrina, Rita and named hurricanes that came ashore in 2003 and 2004. The table does not show the number of IHP applicants who withdrew their application during the evaluation process.

In order to provide the unprecedented level of disaster assistance, FEMA had to significantly increase its number of home inspections. As of August 2006, data reported by FEMA indicates that after Hurricanes Katrina and Rita, about 1.9 million inspections were completed at a cost of approximately $179.6 million, or about $92 per inspection. For the hurricanes in 2003 and 2004, FEMA completed about 108,000 and 1.0 million inspections at a cost of about $8.0 million and $70.3 million or about $74 and $75 per inspection, respectively. In August 2006, FEMA reported the average time required for completing inspections—the time between the application for assistance until submission of an inspection report—after Hurricanes Katrina and Rita was about 33 days and 25 days respectively. The average time for completing inspections for the hurricanes in 2003 was 1 to 2 days and in 2004 the average was 4 to 5 days. A FEMA official stated that the goal for conducting inspections is a 3-day turnaround time. Figure 5 compares the number of inspections completed by contractors and the cost of the inspections for the named hurricanes in our review.

According to a FEMA official, the following factors had an impact on the higher per inspection costs for Hurricanes Katrina and Rita: Both of FEMA’s inspection contractors had automatic annual increases on a per inspection basis built into their contract.

Automatic annual increases from 2004 to 2005 for maintaining on-call availability were also included in the contracts.

For 2005, FEMA added a new requirement for inspectors to photograph disaster damage that added to the cost per inspection.

The contractors increased the per inspection cost in December 2005 when FEMA extended the contract beyond the initial 5-year period of performance.

Percentage of SBA Disaster Applicants Sent Back to FEMA’s ONA for Hurricanes Katrina and Rita Was Comparable to Those after Hurricanes in 2003 and 2004

For Hurricanes Katrina and Rita, FEMA referred about 2.5 million applicants to SBA for assistance through its Disaster Loan Program. For hurricanes in 2003 and 2004, FEMA referred fewer applicants—about 107,000 and 1.3 million applicants respectively, to the SBA. As of August 2006, data reported by FEMA show that nearly 10 percent of applicants were sent back to FEMA from SBA for ONA consideration. In comparison, during hurricanes in 2003 and 2004, SBA sent back to FEMA a comparable percentage of applicants—about 12 percent and 10 percent respectively, which indicates that SBA’s loan denial rate was relatively consistent although more applicants were referred for Hurricanes Katrina and Rita than in the prior 2 years. Figure 6 shows the number of applicants referred to the SBA for loan assistance and the number of applicants the SBA sent back to FEMA for ONA in 2003, 2004, and for Hurricanes Katrina and Rita in 2005.

FEMA Responded to the Challenges of Hurricanes Katrina and Rita with New Approaches, yet Reported Ongoing Management Challenges Hindered Implementing IHP

Faced with unprecedented challenges in the aftermath of Hurricanes Katrina and Rita, FEMA devised new approaches and adapted pre-existing ones to administer the IHP. However, our work and six federal reports we reviewed pointed to ongoing management challenges which hindered IHP implementation. These management challenges included a lack of planning and trained staff, and programmatic restrictions on the uses of IHP funds that limited FEMA’s flexibility in using IHP assistance in the most efficient and effective manner. In May 2006, FEMA announced initiatives to address the problems and recommendations cited in the various reports. However, it is too early to assess the success of these initiatives.

FEMA Used New Approaches to Address Hurricanes’ Unprecedented Challenges

Hurricanes Katrina and Rita posed numerous unprecedented challenges for FEMA’s administration of the IHP. These challenges arose from the sheer number of victims seeking assistance, including many who had lost key financial, residential, and other documentation in the storms, and the dispersal of these victims throughout the United States. As a result, FEMA was also challenged to conduct an unprecedented number of housing inspections, often with limited or no access to individuals or, in many cases, to the affected homes. To provide benefits quickly to eligible victims, communicate with about 2 million applicants scattered across the country and conduct inspections, FEMA developed a number of new approaches, as summarized in table 4.

In addition, FEMA adapted several of its traditional approaches to respond to Hurricanes Katrina and Rita, according to FEMA, as summarized in table 5.

Despite New Approaches, Reported Ongoing Management Challenges Hindered Implementing IHP

Each of the assessments of the federal government’s response to Hurricanes Katrina and Rita we reviewed identified problems in FEMA’s implementation of IHP during and after the storms. Our review and our assessment of these reports showed that the agency’s efforts to implement the IHP were hindered by a lack of planning, trained staff, and program limitations, despite its new and revised approaches for implementing the program. A list of these assessments is provided in table 7. In addition, a summary of Katrina- and Rita-issues related to the IHP addressed in these reports is identified in appendix IV.

Regarding planning, the DHS Inspector General reported in March 2006 that FEMA lacked final plans that specifically addressed the types of challenges the agency could be expected to face in catastrophic circumstances. For example, because FEMA was unable to immediately implement IHP assistance to provide funds to transition victims from short-term lodging, including shelters, hotels and motels to longer-term housing alternatives such as mobile homes or apartments, FEMA officials used Public Assistance funds. Normally, public assistance is provided (under section 403 of the Stafford Act) only for immediate emergency sheltering efforts to get assistance to individuals and households quickly. Under normal circumstances, IHP funds provided under Section 408 of the Act are intended to accommodate the longer-term housing needs of evacuees up to 18 months. FEMA officials said that many applicants would have waited months to receive their initial assistance if FEMA had followed normal IHP processes and procedures under Section 408 and had to wait until inspections were completed and IHP information and assistance could be communicated to disaster victims who were dispersed to all 50 states. However, this use of Public Assistance funds was problematic, according to the DHS Inspector General’s report. Because application for assistance is not a requirement for the provision of Public Assistance under section 403 of the Stafford Act, FEMA did not know whether disaster victims were actually eligible for assistance as a direct result of the disaster. This increased the potential for duplication with other assistance programs since there was no internal mechanism to determine whether an evacuee had received assistance from the IHP when interim housing may have already been provided. The interim housing assistance funded under section 403 was only phased out after FEMA was able to identify that an evacuee had received IHP funds.

FEMA was aware it needed to plan for large disasters but had problems getting necessary funding, according to the Senate Homeland Security and Governmental Affairs Committee’s Katrina Report. FEMA requests for $100 million for catastrophic planning and an additional $20 million for catastrophic housing planning in fiscal year 2004 and fiscal year 2005, respectively, were denied by DHS. Our review of FEMA’s implementation of IHP showed that FEMA’s reactive approach to planning and implementing the IHP on a disaster-by-disaster basis is inadequate to deal with the short-term and long-term needs of affected communities, particularly for catastrophic disasters when the agency’s resources and staff are strained. For example, FEMA failed to pre-identify workable sites and land and take advantage of available housing units from other federal agencies, according to a February 2006 White House report. We have ongoing work focusing on the federal role in providing housing assistance in response to Hurricanes Katrina and Rita.

In terms of trained staff, FEMA lacked the surge capacity to effectively manage the disaster assistance process. Specifically, according to the March 2006 DHS Inspector General report, additional trained staff were needed to (1) provide initial application services at Disaster Recovery and Call/Processing Centers, (2) process applications and respond to questions at the National Processing Service Centers, and (3) conduct inspections. First, according to the DHS Inspector General, disaster victims experienced delays when they contacted Call Centers or were not able to speak with anyone. Second, disaster victims experienced delays in obtaining their eligibility determination, according to FEMA officials responsible for managing the IHP. Third, inspections were delayed, in part, because FEMA lacked enough contract inspectors to perform inspections, according to FEMA. Our analysis found, for example, that inspection times for Katrina and Rita took an average of two to five times longer compared to named hurricanes in 2004. FEMA uses inspectors that have a construction, real estate, or appraisal background, but it is not required, according to a FEMA Inspection Services Manager. FEMA requires that each inspector be trained on FEMA standards and policies regarding program eligibility and that new inspectors undergo background checks. In most conventional disasters, experienced inspectors are to accompany new inspectors in the field to ensure that they are meeting FEMA standards before they are allowed to complete inspections on their own. We have work underway assessing trends in FEMA’s resources, including staffing, and their impact on FEMA’s capacity to conduct operations and plan to report on FEMA’s workforce management efforts later this year.

According to the March 2006 DHS Inspector General report, FEMA was not able to dedicate its full staffing strength to Hurricane Katrina for three primary reasons. First, at the time of the disaster, FEMA had personnel assigned to 38 other disasters not related to Hurricane Katrina. For example, Hurricane Ophelia in the Carolinas, Hurricane Rita in the Gulf Coast region, and flooding in the Northeast were declared disasters and required FEMA resources. Second, an average of 30 percent of FEMA Disaster Assistance Employees reported they were unavailable to respond to Katrina or any other disaster during the August 24, 2005 – September 30, 2005 time frame. (Disaster Assistance Employees may be unavailable for such issues as health or family concerns.) Third, FEMA officials said, although FEMA was authorized 2,445 staff in August 2005, 389 positions were vacant and many of these were key leadership positions. The DHS Inspector’s report included recommendations that FEMA (1) develop a more comprehensive program to recruit, train, and retain local hires for use in augmenting FEMA’s Disaster Assistance Employees and permanent staff, (2) provide training to additional NPSC staff and contractors to enhance FEMA’s capability to perform evacuee assistance and case management activities, and (3) develop a disaster workforce plan for permanent, temporary, and reserve staff that is scalable events regardless of cause, size, or complexity. FEMA concurred with the recommendations.

Throughout our review FEMA officials cited their concerns regarding the lack of agency and contractor staffing resources needed to effectively implement the program during a catastrophic event. Concerns regarding training and staffing for disaster response management are long-standing. In 2003, in our report on major performance and accountability challenges for FEMA, we noted that FEMA faced challenges to enhance its disaster assistance training and resource planning. According to the report, FEMA developed a program in 1999 for evaluating the knowledge, skills, and abilities of its staff—both permanent and temporary—who are deployed to respond to a disaster. FEMA expected the program would ensure its employees would have basic qualifications to perform their jobs, but, according to FEMA officials, the program was not implemented because of budget constraints. We also reported that 48 percent of FEMA’s workforce would be eligible to retire in the next 5 years and this would pose a challenge for having staff with the skills needed to perform core functions.

Finally, FEMA officials cited legislative and regulatory limitations that restricted FEMA’s flexibility in implementing the IHP in the aftermath of Hurricane Katrina. For example, FEMA’s Federal Coordinating Officer for Louisiana cited the statutory program’s maximum of $5,000 for home repair as one limitation, noting that if the $5,000 is not sufficient to fix the home, then FEMA may have to provide a trailer for temporary housing. He testified that manufactured housing is not cost-effective and can cost up to $90,000 to $100,000 per mobile home for a group site (including total costs for site preparation, hauling and installation, and cost of home). He suggested that in some situations if FEMA were able to give disaster victims the maximum amount of IHP financial assistance, it would be more cost-effective because it would allow many of these families to find permanent housing. However, the Acting Deputy Director for FEMA’s Recovery Division told us that FEMA only uses manufactured housing as a last resort, and in the post-Katrina and Rita environment, housing and the infrastructure that supports the community was destroyed. As a result, FEMA did not have any alternative other than to provide manufactured housing.

FEMA officials were unable to use a large supply of federally controlled housing units that could have been made available for occupancy by disaster victims with only minor repairs because reimbursement for repairs to existing available housing units are not authorized under the current program regulations, according to the White House report on Hurricane Katrina. As a result, FEMA had to provide alternative temporary housing such as trailers and other manufactured housing units, at considerably greater cost, while leaving other potentially available housing vacant.

A bill, the Natural Disaster Housing Reform Act of 2006, was introduced May 16, 2006, in the House of Representatives that would provide the federal government with more flexibility in the provision of short- and long-term housing after a major disaster. For example, the bill would allow the President to offer disaster victims manufactured modular housing under the IHP if it could be provided at a lower cost than other readily fabricated dwellings. It would also extend repair assistance under the IHP, currently available only for owner-occupied residences, so that renters could repair existing rental units to make them habitable as alternate housing accommodations. The bill also proposes that the President may provide financial assistance or direct assistance to individuals or households to construct permanent or semi-permanent housing in any area in which the President declared a major disaster or emergency in connection with Hurricane Katrina of 2005 during the period beginning on August 28, 2005, and ending on December 31, 2007. Under the IHP, permanent housing construction is only available for disaster victims who reside in insular areas or other remote locations.

Initiatives to Improve IHP Are Ongoing, but Their Impact Is Unknown

In an effort to address the problems and recommendations cited in the various reports, FEMA announced plans on May 24, 2006, to implement a number of new approaches to enhance logistics, emergency communications, situational awareness, housing and victim management. According to FEMA, the improvements related to IHP include plans to increase the number of trained staff and revise new policies and procedures. However, at the time of our review, many of these initiatives were in the planning or at the early implementation stage. As a result, it was too early to assess their potential impact on future program implementation. Specifically, FEMA reported plans to: Hire a training coordinator to develop a more comprehensive training program to prepare existing and new personnel for Disaster Recovery Center assignments. According to FEMA’s Acting Deputy Director for the Recovery Division, they were still searching for qualified applicants for the training coordinator position as of August 2006.

Train 3,000 disaster “generalist” surge cadre employees for ready deployment during the height of the 2006 hurricane season and increase its capacity to deploy and communicate with the increased number of disaster employees. According to FEMA, these surge employees are to form a “generalist” pool of disaster workers and be trained in a number of basic functions cutting across traditional program areas including Community Relations, Individual Assistance, Public Assistance and Logistics. As of August 2006, FEMA said approximately 1,836 employees had completed the training.

Develop greater contract and contingency surge capabilities to expand application intake capacity of up to 200,000 per day (during the weeks following Hurricanes Katrina and Rita, FEMA recorded more than 100,000 applications a day) and expand its Internet-based application capability by improving accessibility to reduce application wait times and FEMA Helpline information delays following a major disaster. According to FEMA officials, the objective of expanding its capabilities is to have private-sector contracts in place and resources ready to handle calls within 48 hours of a disaster declaration. In the past, FEMA had to augment its application intake surge capabilities each hurricane season especially during 2004 and 2005 a step usually taken under urgent and compelling needs, through emergency contracts, and by using Internal Revenue Service personnel. FEMA plans to award the contract for this initiative in 2007 and, in the interim period, plans to continue to utilize IRS personnel and redirect existing FEMA staff to augment application intake capabilities.

Implement a pilot program in the 2006 hurricane season to use Mobile Registration Intake Centers that can be deployed to emergency shelter locations or impacted neighborhoods without power or phone service and provide on-site capability to quickly apply for FEMA assistance. These units would be capable of providing the public access to the FEMA disaster assistance program via phone and the internet. FEMA currently has five vehicles each equipped with 20 telephones and 20 personal computers. As of August 2006, FEMA was in the planning stage of upgrading each vehicle’s capacity to support 40 telephones and 40 personal computers and has the ability to expand this effort by using tents with tables and equipment set up near the vehicles. FEMA’s intention is to evaluate the pilot program at the end of the 2006 hurricane season to determine if they should expand this capability.

Increase contractor staffing capacity for housing inspections from 7,500/per day/per contractor to 20,000/per day/per contractor. FEMA anticipates that this added capacity will increase the speed and accuracy of home inspections. FEMA intends to implement the related requirements with the award of its new inspection contracts tentatively scheduled for the end of December 2006.

Clarify program policies on the appropriate use and authorization of emergency sheltering funds (Stafford Act, section 403 assistance) and individual housing assistance funds (Stafford Act, section 408 assistance) for the disaster victims. As part of this initiative, FEMA plans to have a draft policy in place for issuing authorization codes to evacuees for lodging and hotels for the 2006 hurricane season. In addition, FEMA plans to have a policy for Expedited Assistance that defines the conditions that must be met before initiating the program. FEMA issued a strategy for mass sheltering and housing assistance on July 24, 2006, and plans to develop more detailed policies and procedures to implement the strategy.

GAO Audit and Investigative Work Reveals Potential for Fraud and Abuse Related to IHP Applications and Debit Card Use

As we recently reported, one of the major challenges FEMA faced after Hurricanes Katrina and Rita was balancing the need to quickly deliver benefits and services to needy and eligible victims while minimizing occurrences of fraud and abuse. As we testified in June 2006, an estimated 16 percent, or approximately $1 billion, in FEMA IHP payments were improper and potentially fraudulent due to invalid application data. (A copy of our testimony is provided in app. IV.) Additionally, we found that FEMA made improper or potentially fraudulent IHP payments to applications containing names and Social Security Numbers of individuals who were incarcerated at the time of disaster, and paid hotel room charges for applicants who were also receiving rental assistance concurrently. We also determined that FEMA had little accountability over debit card distribution and lacked proper controls over debit card usage.

Invalid Applications Provide the Potential for $1 Billion in Potentially Improper Payments

An estimated 16 percent of payments totaling approximately $1 billion were improper and potentially fraudulent due to invalid applications. The 95-percent confidence interval surrounding the estimate of 16 percent ranges from 12 percent to 21 percent. The 95-percent confidence interval surrounding the estimate of $1 billion ranges from $600 million to $1.4 billion. The estimated amount included payments for expedited assistance, rental assistance, housing and personal property repair and replacement, and other necessary and emergency expenses. These payments were made to (1) applications containing Social Security Numbers (SSN) that were never issued or belonged to other individuals, (2) applicants who used bogus damaged addresses, and (3) applicants who had never lived at the declared damaged addresses or did not live at the declared damaged address at the time of disaster. These payments were also made to applications containing information that was duplicative of other applications already recorded in FEMA’s system. The duplicative payment failures refer to instances where FEMA made payments to more than one application with the same damaged property and current addresses, and the payment selected was associated with the second or later application. For example, one applicant submitted an application for the same current and damaged address that was used on another application, and both received payments for $2,358 of rental assistance on each application in September 2005. Effective preventive controls for duplicate applications would have detected that the two applications shared the same damaged and current address and acted to prevent the duplicate payments.

Our projection likely understated the total amount of improper and potentially fraudulent payments because our work was limited to issues related to misuse and abuse of identity, damaged property address information, and duplicate payments. Our estimate did not account for improper and potentially fraudulent payments related to issues such as identity theft, and whether the applicants received rental assistance they were not entitled to, received housing and other assistance while incurring no damage to their property, and/or received FEMA assistance for the same damages already settled through insurance claims.

Our forensic audit and investigative work found that improper and potentially fraudulent payments occurred mainly because FEMA did not validate the identity of all applicants, the physical location of the declared damaged address, and ownership and occupancy of all applicants at the time of application. For example, in one case an applicant received $7,328 for expedited and rental assistance even though the applicant had moved out of the house a month prior to Hurricane Katrina. Examples of other improper and potentially fraudulent payments included a FEMA payment of $2,000 to an individual who provided a damaged address that did not exist, and payment of $2,358 in rental assistance to another individual who claimed his damaged property was inside a cemetery. We also found that FEMA made approximately $5.3 million in payments to applicants who provided a post office box address as their damaged residence. For example, FEMA paid an applicant $2,748 who had listed a post office box in Alabama as the damaged property. Follow-up work with local postal officials revealed that the post office box listed on the application had been used by individuals linked to other potential fraud schemes.

Our undercover work provided further evidence of the weaknesses in FEMA’s management of the disaster assistance process. For example, FEMA provided nearly $6,000 in rental assistance to one of GAO’s undercover applicants who had applications that declared a bogus property as the damaged address. These payments continued to be provided even though verification with third-party records indicated that the GAO undercover applicant did not live at the damaged address, and after the Small Business Administration had reported that the damaged property could not be found. In another example, a FEMA inspector assigned to inspect a bogus property was not able to find the house despite numerous attempts to verify the address through the phone book, the post office, and a physical inspection. Nevertheless, in early 2006 FEMA provided GAO a check for $2,000 for presumed losses sustained by this property.

Without verifying the identity and primary residence of applicants prior to IHP payments, it is not surprising that FEMA also made expedited and rental assistance payments totaling millions of dollars to over 1,000 applications containing information belonging to prison inmates. In other words, payments were made to applications using the names and SSNs of individuals who were not displaced as a result of the hurricanes, but rather were incarcerated at state prisons of the Gulf Coast states (that is, Louisiana, Texas, Florida, Georgia, Mississippi, and Alabama), or in federal prisons across the United States when the hurricanes hit the Gulf Coast. For example, FEMA paid over $20,000 to an inmate who had used a post office box as his damaged property.

Duplicative Housing Assistance

Our data mining work also found potentially wasteful and improper rental assistance payments to individuals who were staying at hotels paid for by FEMA. In essence, the government paid twice for these individuals’ lodging—first by providing a hotel at no cost and, second, by making payments to reimburse these individuals for out-of-pocket rent. For example, FEMA paid an individual $2,358 in rental assistance, while at the same time paying about $8,000 for the same individual to stay 70 nights— at more than $100 per night—in a hotel in Hawaii. In this particular case, the duplicate payments were not only wasteful, but they were improper because the applicant did not live at the damaged property at the time of the hurricane. Another applicant stayed more than 5 months—at a cost of $8,000—in hotels paid for by FEMA in California, while also receiving three rental assistance payments for the two separate disasters totaling more than $6,700.

These instances occurred because FEMA did not require hotels to collect FEMA application numbers and SSNs from residents staying in FEMA-paid for rooms. Without this information, FEMA could not verify if the applicants were staying in government provided hotels before sending them rental assistance. Without the ability to identify all IHP applicants who had already received hotel lodging, FEMA provided duplicate housing benefits to a number of applicants. Because the hotels and FEMA did not collect application identification numbers, we were unable to quantify the magnitude of individuals who received these duplicate benefits. However, the tens of thousands of dollars that were wasted in the previous examples are illustrative of the wasteful spending we found through data mining.

Lack of Accountability over Debit Cards

Finally, we found that FEMA did not institute adequate controls to ensure accountability over the debit cards. Specifically, FEMA initially paid $1.5 million for over 750 debit cards that the government could not determine actually went to help disaster victims. Based on our numerous inquiries, upon identification of several hundred undistributed cards J.P. Morgan Chase refunded FEMA $770,000 attributable to the undistributed cards. Further, we continued to find that debit cards were used for items or services such as a Caribbean vacation, professional football tickets, and adult entertainment, which do not appear to be necessary to satisfy disaster-related needs as defined by FEMA regulations. In commenting on our draft report, FEMA partially concurred with our recommendation to increase accountability over debit cards, acknowledging the challenges inherent in the use of debit cards and stating that the agency has no current plans to use debit cards. FEMA said the agency will continue to evaluate the report’s recommendations to determine whether any further use may be warranted.

Fraud and error in this program is not new and FEMA has struggled for some time with the issue of balancing expeditious assistance with minimizing fraud and improper payments. For example, FEMA’s and later DHS Office of Inspector General reported problems with the FEMA’s previous disaster assistance program —the Individual and Family Grants program—in 2001 and 2004. These previous reports identified problems related to a lack of inspections to verify property damage, relaxed requirements to document whether an applicant was eligible for advance payment of a grant, increasing the likelihood of fraud for the program. More recently, in May 2005, DHS’s Office of Inspector General reported shortcomings in FEMA’s administration of IHP and its oversight of inspections in response to Hurricane Francis. For example, FEMA designated a county eligible for Individual Assistance programs without a proper preliminary damage assessment and FEMA’s contractors were not required to review inspections prior to submission.

Conclusions

Katrina and Rita were two of the most intense hurricanes ever recorded during the Atlantic hurricane season. The widespread devastation they wrought presented unprecedented challenges to all levels of government and voluntary organizations to help the hundreds of thousands of victims evacuate, relocate, and get food, shelter, medical care, and other assistance. As we and others have reported, the unprecedented geographic scope of the damage, the number of victims who had to be relocated, and the extent of the devastation clearly overwhelmed both government and nongovernment relief agencies, resulting in widespread dissatisfaction with the effectiveness of the preparation and response to the disaster.

FEMA’s processes and systems for registering hurricane victims for assistance, determining eligibility for IHP assistance, and managing the IHP were simply overwhelmed, and FEMA was unable to effectively manage the enormous challenge that the disasters posed for the IHP. GAO’s audit and that of others found a number of problems with the program, including a lack of appropriately trained personnel that limited FEMA’s effective surge capacity, an inability to effectively identify ineligible and duplicate applications, and consequently the payment of millions of dollars of assistance to ineligible persons. GAO’s audit and investigative work found that FEMA did not have an effective fraud prevention program in place prior to the landfall of Hurricanes Katrina and Rita. The consequences were that tens of thousands of individuals received an estimated $600 million to $1.4 billion in potential improper or fraudulent payments through February 2006. The actual amount may be higher because our work excluded such issues as identify theft, insurance fraud, and individuals who had no uninsured losses who may have received benefits.

In any major disaster FEMA faces the demand to get assistance to eligible victims, many of whom may have lost everything, expeditiously while also ensuring that assistance does not go to those who are ineligible. FEMA recognizes that the problems it encountered in managing the IHP in the wake of Hurricanes Katrina and Rita need to be addressed and has announced several initiatives to address those problems. The effect of those efforts cannot yet be determined, and not all of them were scheduled to be in effect for the 2006 hurricane season. We believe it is possible to have effective fraud prevention controls in place while also getting money to eligible victims quickly. Such controls are far more effective in ensuring that IHP funds are used properly than efforts to recoup funds paid to those who were ineligible for assistance. Recoupment actions are expensive and may recover only pennies on the dollar because the assistance has already been spent.

Recommendations for Executive Action

We recommend that the Secretary of the Department of Homeland Security (DHS) direct the Director of FEMA to take the following actions to address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony of June 14, 2006. Many of the recommendations below are preventive and thus, are intended for the 2007 hurricane season and other future disasters that include IHP assistance payments. However, whenever appropriate, we have identified recommendations we believe should also be implemented for the remaining aspects of assistance for Hurricanes Katrina and Rita.

For all recommendations below, FEMA should fully field test all changes to provide assurance that all valid applicants are able to apply for and receive IHP payments. Also, for all recommendations, FEMA must ensure that there are adequate manual processes in place to allow applicants who are incorrectly denied assistance to appeal the decision and receive aid. In addition, we are reemphasizing the importance of implementing the six recommendations we made previously in our June report. The recommendations in this report are designed to prevent further payments from being made on improper and potentially fraudulent Katrina and Rita applications, to the extent possible recoup Katrina and Rita payments already identified as fraudulent and improper, and address weaknesses so that, in future disasters, FEMA can identify fraudulent and improper applications prior to making payments.

To obtain reasonable assurance that applicants are prevented from receiving assistance based on invalid damaged addresses, we recommend that the Secretary of Homeland Security direct the Director of FEMA to take the following three actions: Implement changes to its systems and processes to reject damaged addresses that are PO boxes.

Provide applicants immediate feedback that PO boxes are not valid damaged addresses. Implement a process to identify damaged addresses that are not primary residences, such as commercial mail drops.

To provide reasonable assurance that payments are only made based on a valid damaged address that was the applicant’s primary residence, we recommend that the Directors of DHS and FEMA take the following two actions: Include, in the design of the address verification process recommended in our prior report, procedures to validate that the address an applicant claimed as damaged was the applicant’s primary residence at the time of the disaster.

Develop and implement processes and procedures to deal with applications where FEMA or other inspectors have concluded that the damaged address was bogus. Within this process, FEMA should Develop timely information sharing procedures between inspectors working for FEMA and other agencies to provide assurance that applicants who submitted damaged addresses that inspectors identified as bogus are not provided disaster assistance.

To prevent and/or detect prisoners from improperly receiving IHP payments in the future we recommend that the Director of FEMA explore information sharing agreements with federal and state officials in charge of maintaining custody over prisoners that could be used to identify ineligible applications.

To reduce duplicate payments, we recommend that FEMA Expand the data fields used in the duplicate detection process at the time of application to restrict applications to one per eligible household, unless warranted by other circumstances, such as households displaced to separate locations.

To prevent concurrent payments for lodging (i.e., rental assistance, hotels, etc.) for which FEMA is financially responsible, we recommend that the Director of FEMA take the following two actions: Establish procedures requiring that individuals apply with FEMA prior to receiving no cost disaster lodging accommodations from federal agencies or the Red Cross.

Develop procedures to provide reasonable assurance that individuals staying in FEMA or other no cost lodging are not also provided IHP rental assistance payments for the time they are in the paid for hotel rooms.

To increase accountability over debit cards, we recommend that the Director of FEMA take the following three actions: Finalize a full reconciliation to link each issued Katrina debit card recorded by the bank (JP Morgan Chase) to a specific IHP application, Require that the bank refunds the government for any unaccounted for funds related to distribution of Katrina-related debit cards, and Augment procedures for future disasters to provide reasonable assurance that accountability over debit card distribution occurs at each custody transfer in the distribution process.

To identify and recoup payments based on improper and potentially fraudulent Katrina and Rita applications, we recommend that the Director of FEMA develop a comprehensive strategy—for current and future disasters—to identify the types of improper applications discussed in this report and refer them for either collections or additional investigations.

Agency Comments and Our Evaluation

On September 18, 2006, FEMA provided written comments on a draft of this report (see appendix II). FEMA fully concurred with 9 of 13 recommendations, and substantially concurred with the remaining 4 recommendations. However, FEMA disagreed with our estimate of fraudulent and improper payments. FEMA noted that our estimate of 16 percent was substantially higher than their historical estimate of 1 to 3 percent. However, FEMA’s reported fraud rate of 1 to 3 percent is not based on an independent, comprehensive statistical sample of the entire population of individual assistance payments; instead, the 1 to 3 percent FEMA estimate is simply the amount of overpayments that it identifies based on its own internal processes and procedures.

FEMA fully agreed with 9 of the 13 recommendations, and stated that it had taken or plans to take actions to specifically respond to these 9 recommendations. While we did not evaluate the extent to which the implementation of these changes would address the weaknesses we identified with FEMA’s oversight of IHP payments, if they are properly implemented the changes should address our concerns. FEMA also partially concurred with four recommendations related to debit cards and hotel accommodations. Regarding our 3 recommendations on debit cards, FEMA stated that the agency has no current plans to use debit cards and will continue to evaluate the report’s recommendations to determine whether any further use may be warranted. In response to our recommendation that FEMA establish procedures requiring that individuals apply with FEMA prior to receiving no cost disaster lodgings accommodations from federal agencies or the Red Cross, FEMA stated that the agency has implemented a protocol to ensure that disaster victims register and obtain an authorization code as a prerequisite for the use of hotels/motels as transition shelters. While FEMA cannot impose this protocol on the Red Cross, FEMA stated that it planned to affirm eligibility prior to reimbursing the Red Cross. Our objective in making this recommendation is to prevent duplicate housing benefits from being provided to registrants. Thus, if FEMA’s new process affirms the eligibility of registrants prior to reimbursing Red Cross, FEMA’s processes would address the objective of this recommendation.

While FEMA substantially agreed with our recommendations, it disagreed with the methodology we used to conduct our work, which formed the basis for many of the 13 recommendations. Specifically, in light of FEMA’s repeated representations that 1 to 3 percent of its IHP payments are fraudulent or improper, FEMA took exception to our estimate that 10 to 22 percent of the payments were based on registrations containing fraudulent or inaccurate information. However, it is important to note that FEMA’s estimate of 1 to 3 percent fraud is not based on an independent, comprehensive statistical sample of the entire population of individual assistance payments; instead, it is based on the historical amount of IHP payments that FEMA places in its internal recoupment process, which includes overpayments identified through case reviews, system checks, and hotline tips. FEMA officials have acknowledged that their estimate is not based on an in-depth statistical analysis for eligibility or any other type of fraud.

Further, our estimate is likely understated because it only focused on payments made to invalid registrations. Our estimate excluded substantial potential fraudulent and improper payments caused by such actions as identity theft, insurance fraud, duplicate government payments for lodging, or payments without evidence of property damage. In responding to our draft report, FEMA also commingled the results of our statistical sampling with other findings of fraudulent and improper payments that were not included in our estimate. For example, the reported fraudulent and improper payments related to individuals who stayed at FEMA-paid hotels and received rental assistance payments were not included in our statistical sample and resultant estimate of 16 percent of fraudulent and improper payments.

FEMA also questioned whether some payments we categorized in our statistical sample results as potentially fraudulent and improper, such as those relating to separated households, were in fact valid payments. Specifically, FEMA stated that without a “knowledgeable” case by case analysis, our estimate was not accurate. We disagree. We were aware of FEMA’s separated household’s policy and did not count any payments as duplicates if they related to families that were displaced to different locations. In addition, for our statistical sample we performed a detailed case by case analysis on sample items that included using all available audit and investigative tools, background information, and NEMIS data to ensure conclusions reached were accurate. For example, we visited damaged addresses and spoke with IHP applicants, landlords, neighbors, and postal officials.

FEMA also stated that it has been unable to validate our results because we had not provided evidence related to our estimate for their review. We have not provided details of our sample failures to FEMA because the cases of fraudulent and improper payments are in the process of being referred to the Katrina Fraud Task Force for investigation and potential prosecution, as has been the standard process for other fraud cases identified though data mining. Based on agreements with the Katrina Fraud Task Force, which includes the Department of Homeland Security Inspector General, all fraud cases will continue to be referred directly to the Katrina Fraud Task Force to ensure investigations and prosecutions are not jeopardized.

FEMA also raised concerns with the registrants we reported who had received duplicate lodging assistance. FEMA commented that such a determination can only be made after a knowledgeable case by case analysis determined the appropriateness of payments. Our methodology used to identify data mined examples of the duplicate lodging payments consisted of comparing hotel receipt information and FEMA’s own payment data to confirm that the subject received multiple rental assistance payments at the same time FEMA paid for their hotel room.

We are sending copies of this report to the Secretary of the Department of Homeland Security, and the Director of Federal Emergency Management Agency. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact either William Jenkins at (202) 512- 8757 or jenkinswo@gao.gov or Greg Kutz at (202) 512-7455 or kutzg@gao.gov if you or your staffs have any questions concerning this report. Key contributors to this report are listed in appendix VI. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report.

Appendix I: Scope and Methodology

To evaluate the Federal Emergency Management Agency’s (FEMA) disaster assistance provided in response to Hurricanes Katrina and Rita through the Individuals and Households Program (IHP), we assessed (1) how the types and amounts of assistance provided to victims of Hurricanes Katrina and Rita compare to other recent hurricanes, (2) the challenges posed by the magnitude of the requests for assistance following Hurricanes Katrina and Rita, and FEMA’s response to these challenges, and (3) the vulnerability of the IHP to fraud and abuse and management issues in the wake of Hurricanes Katrina and Rita and FEMA’s reported actions to address any identified problems.

To describe the type and amount of IHP assistance FEMA provided for Hurricanes Katrina and Rita in comparison to assistance provided in other hurricane disasters, we interviewed agency officials. We obtained and analyzed data provided by officials from FEMA’s National Processing Service Center in Winchester, Virginia, and compared IHP disaster assistance provided under Hurricanes Katrina and Rita to assistance provided after other hurricane-related disaster declarations occurring in calendar years 2003 through 2005, to the extent information was available from FEMA’s National Processing Service Center’s National Emergency Management Information System. (FEMA provided data for IHP benefits paid as of August 2006, and for IHP applications received as of September 2006 for both the named hurricanes that came ashore in 2004 and Hurricanes Katrina and Rita. The 2003 named hurricane data was provided by FEMA as of April 2006. A FEMA official told us that changes to the data for named hurricanes in 2003 from April to August 2006 would be minor enough to prove statistically insignificant.) We selected these hurricanes for comparison because they constituted a cross section of disaster declarations that (1) occurred within the period in which IHP was implemented, and (2) represented hurricane disaster declarations that occurred in a single state and those that occurred in multiple states simultaneously. We assessed the accuracy and reliability of the system by interviewing agency officials knowledgeable about the data system and by obtaining from the agency written responses regarding (1) the agency’s methods of data collection and quality control reviews, (2) practices and controls over data entry accuracy, and (3) any limitations of the data. We determined that the data were sufficiently reliable for the purposes of our engagement.

To determine the programmatic challenges FEMA faced during Hurricanes Katrina and Rita and agency efforts to address those challenges, we interviewed FEMA headquarters officials from the Recovery Division and staff from the agency’s Individual Assistance and Public Assistance Branches, FEMA staff from the National Processing Service Center and contract Inspection Services located in Virginia, and Joint Field Office officials in New Orleans, Louisiana. We observed contract inspectors assessing damaged residential properties in New Orleans. We also reviewed and analyzed federal legislation and regulations that are applicable to FEMA disaster assistance programs prior to and after the implementation of IHP and relevant FEMA policies, guidance, and processes. We reviewed and analyzed the agency’s IHP budget, staffing, and performance measures. We also reviewed prior audit reports and assessments related to FEMA’s implementation of the IHP.

To assess the vulnerability of the IHP to fraud and abuse and management issues in the wake of Hurricanes Katrina and Rita and FEMA’s reported actions to address any identified problems, we estimated the number of improper and potentially fraudulent payments based on statistical sampling of payments to examine whether the associated applications contained invalid Social Security Numbers (SSN), bogus addresses, invalid primary residence, and duplicate information with another application. Invalid SSNs refer to instances where the SSNs did not match with the name provided; the SSNs belonged to deceased individuals; or the SSNs had never been issued. Bogus addresses refer to instances where audit and investigative work we performed indicate that the damaged address did not exist. Invalid primary residences are related to applications where the applicant had never lived at the damaged address, or did not live at the damaged address at the time of the hurricanes. Duplicate information refers to instances where the applications contained information that is duplicative of another application that received a payment and was earlier recorded in FEMA’s system. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95-percent confidence interval (e.g., plus or minus 5 percentage points). This is the interval that would contain the actual population value for 95-percent of the samples we could have drawn. As a result, we are 95-percent confident that each of the confidence intervals in this report will include the true values in the study population. Also, the 16 percent of payments that was improper and potentially fraudulent excluded payments that were returned to the U.S. government by the time of our review. We also reviewed IHP processes and procedures for determining applicant eligibility for specific types of IHP assistance and analyzed prior audit reports and assessments. We also obtained information from FEMA’s Acting Deputy Director of Recovery on the status of FEMA’s efforts to address the problems identified. Because we have not tested all aspects of potential fraud, waste and abuse related to the IHP, the recommendations in this and our prior report do not represent a comprehensive fraud prevention program.

We conducted our audit work between January 2006 and September 2006 in accordance with generally accepted government auditing standards. We conducted our investigative work between October 2005 and September 2006 in accordance with the standards prescribed by the President’s Council on Integrity and Efficiency.

Appendix II: Comments from the Department of Homeland Security

Appendix III: Federal Disaster Assistance and Individuals and Households Program Benefits, Structure and Processes

FEMA’s IHP is Part of Overall Federal Disaster Assistance

Federal assistance takes many forms—including the direct provision of goods and services, financial assistance (through insurance, grants, loans, and direct payments), and technical assistance—and can come from various sources. The Individuals and Households Program (IHP) is one of these individual assistance programs funded through the Stafford Act’s Disaster Relief Fund, as illustrated in the conceptual framework for federal disaster assistance in the figure 7.

Congress may provide funding for federal disaster assistance to specific agencies for areas in which they retain expertise. For example, the Department of Housing and Urban Development administers funds for economic redevelopment and infrastructure restoration, the Department of Transportation provides assistance for road restoration, and other agencies provide assistance for activities such as providing small businesses disaster assistance loans and public health or medical services that may be needed in the affected area.

With respect to Stafford Act activities, FEMA administers the Disaster Relief Fund, which provides for three major categories of aid under the Stafford Act—assistance to state and local governments through public and hazard mitigation assistance programs and assistance to individuals and households.

FEMA’s Public Assistance program provides grants to eligible state and local governments and specific types of private nonprofit organizations that provide services of a governmental nature, such as fire departments, emergency and medical facilities, and educational institutions, to help cover the costs of emergency response efforts and work associated with recovering from the disaster. Public Assistance is typically the most costly disaster assistance provided.

FEMA’s Hazard Mitigation Grant Program provides grants to states, local governments, and Indian tribes for long-term hazard mitigation projects after a major disaster declaration. The purpose of the program is to reduce the loss of life and property in future disasters by funding mitigation measures during the recovery phase of a natural disaster.

FEMA’s Individual Assistance Program includes among other things, a crisis counseling program, disaster legal services, and direct and financial assistance through the IHP. The purpose of the crisis counseling program is to help relieve any grieving, stress, or mental health problems caused or aggravated by the disaster or its aftermath. FEMA also provides free legal counseling through an agreement with the Young Lawyers Division of the American Bar Association for low- income individuals regarding cases that will not produce a fee. FEMA provides direct (temporary housing units) and financial assistance (grant funding for temporary housing and other disaster-related needs) to individuals and households through the IHP to meet necessary expenses and serious needs of eligible disaster victims who, as a direct result of a major disaster, have uninsured or under insured necessary expenses and serious needs and are unable to meet such needs through other means.

FEMA’s IHP Provides Housing and Other Needs Assistance to Disaster Victims Who Meet Eligibility Requirements

Under the IHP, there are two programs which are referred to as the Housing Assistance program and the Other Needs Assistance (ONA) program. The Housing Assistance program provides financial assistance for such things as rental housing, home repair assistance (up to $5,000), and home replacement assistance (up to $10,000). In addition, for disaster victims for whom rental accommodations are not available under the Housing Assistance program, FEMA may provide “direct assistance” in the form of temporary housing units (e.g., mobile homes and travel trailers), that FEMA has acquired by purchase or lease. The ONA program also includes financial assistance for medical, dental, funeral, personal property, transportation, and other disaster-related expenses that are not compensated by other means. The IHP is not intended to fully compensate disaster victims for all losses from damage to real and personal property that resulted from the disaster or to provide sufficient funds to restore damaged property to its condition before the disaster. Rather, IHP is intended to provide assistance in covering expenses not covered by other means, such as insurance claims and payments or the victim’s own savings and resources. The maximum amount that an individual or household may receive is statutorily capped at $25,000, adjusted annually to reflect changes in the Consumer Price Index. In addition to the financial cap, IHP assistance is also limited to 18 months beginning on the date the President declares a major disaster. However, the President may extend this 18- month period if the President determines that due to extraordinary circumstances an extension would be in the public interest.

Eligibility for IHP assistance is determined when an individual or household applies with FEMA and is based on the amount of property damage. To qualify for Housing Assistance, a disaster victim must: have experienced losses in an area that has been declared a disaster by have uninsured (or underinsured) needs that cannot be met through be a citizen of the United States, a non-citizen national, or a qualified alien, or have a qualifying individual who lives with the disaster victim; have been living or usually live in the home in the disaster area at the time of the disaster; and be unable to live in the home, cannot get to their home due to the disaster, or the home requires repairs because of damage from the disaster.

If a disaster victim is eligible for housing assistance from FEMA based upon the above criteria, grant funds can be used for housing assistance purposes. Individuals or households who receive the assistance may be asked to show receipts to prove that it was used for eligible housing expenses. If an individual is unable to find a rental house or apartment within a reasonable commuting distance of their damaged home, FEMA may provide direct assistance in the form of a travel trailer or mobile home. Direct or financial housing assistance from FEMA does not require that an applicant file for an Small Business Administration (SBA) disaster loan and is 100 percent federally funded and administered by the federal government. While the financial housing assistance is subject to the $25,000 cap, the cost of direct housing assistance is not subject to the cap.

In contrast, ONA grants are provided in a cost-shared partnership between FEMA and the state. As part of this partnership, FEMA and the state engage in annual coordination efforts to determine how the ONA will be administered in any presidentially-declared disaster in the coming year.

For example, the state establishes award levels related to vehicle repairs, vehicle replacement, and funeral grants. States may choose the level of involvement of state officials in administering the program and assume complete, partial, or no responsibility for administering the program. Whichever option a state chooses, FEMA provides 75 percent of the grant funds, and the state is obligated to provide the balance of ONA grant funds.

To receive ONA grant funds, an applicant must generally meet the eligibility requirements for housing assistance, must have necessary expenses or serious needs because of the disaster, and must first apply to the SBA Disaster Loan Program and either be declined for assistance, or demonstrate that SBA disaster assistance is insufficient to meet all disaster-related necessary expenses and serious needs. Applicants who do not meet a certain income threshold may be excused from the requirement to complete the SBA disaster loan application. For example, in 2005, a household of four with an income less than $24,188 would not be required to complete the SBA loan application.

The types of assistance that may be provided depending on the level of the applicant’s income are for personal property, transportation, and moving/storage expenses. Eligibility for medical, dental, funeral and other/miscellaneous expenses is not dependent on an applicant’s income; for these categories applicants are referred directly to ONA for assistance. Specifically, FEMA may provide ONA grant funding to replace personal property, repair and replace vehicles, and reimburse moving and storage expenses if an applicant is ineligible for an SBA disaster loan. To receive ONA grants, for public transportation, medical and dental, and funeral and burial expenses, disaster victims are not required to apply for an SBA loan to be eligible and income levels are not subject in determining eligibility.

FEMA’s Decentralized Structure for Implementing the IHP Relies Primarily on Contract and Temporary Employees

FEMA manages the IHP primarily through a de-centralized structure of permanent and temporary field offices staffed primarily by contract and temporary employees. The offices include the FEMA Recovery Division in FEMA Headquarters, regional offices, National Processing Service Centers, Joint Field Offices, Area Field Offices, and Disaster Recovery Centers. The Stafford Act authorizes FEMA to draw upon temporary personnel for disaster operations.

FEMA’s Recovery Division in Washington, D.C., manages the IHP and as of August 2006 had about 15 people to develop and issue policies and procedures for implementing the individual assistance programs. Eight members of that staff are specifically responsible for managing the IHP. In FEMA’s 10 regional offices, one or two full-time employees manage individual assistance programs. The regional office staff may participate in the preliminary disaster assessment after a disaster to determine what individual assistance is needed.

FEMA’s National Processing Service Centers (NPSC) provide centralized disaster application service to FEMA customers and help coordinate with other assistance programs. The centers are to provide an automated “teleregistration” service—a toll-free phone bank through which disaster victims apply for IHP assistance and through which their applications are processed and their questions answered. The NPSCs are also to assist with referrals to other assistance programs, process appeals, recertify existing rental assistance, assist with recovering funds, and respond to congressional inquiries. As of August 2006, a total of 13 permanent FEMA employees were working at the NPSCs in the United States and were supported by several hundred temporary employees (whose numbers can be increased by 2,000 to 3,000 additional temporary employees for application processing after a disaster), as well as contract employees. FEMA operates four NPSCs in Denton, Texas; Puerto Rico; Winchester, Virginia; and Hyattsville, Maryland.

The Texas NPSC is in charge of caller services including call centers, and the agency’s quality control program. (Although all NPSCs have call centers within their offices, the Texas NPSC is in charge of the general policies and procedures for those call centers, and also sets up arrangements with the IRS and private companies when FEMA needs to handle added call volume.)

The Puerto Rico NPSC is also a call center, with a specialty in handling calls from Spanish speaking applicants. This center has oversight from the Texas NPSC.

The Virginia NPSC is the central point of contact for the National Emergency Management Information System, the main database/automated processing system for IHP application and benefits determination and processing, the NPSC Coordination Team, and the Inspection Management contracts.

The Maryland NPSC is responsible for oversight of all mail operations and receives management oversight from the Virginia NPSC.

At FEMA’s Inspections Services Section, located in the Virginia NPSC, as of August 2006, one permanent and approximately 35 to 40 temporary FEMA employees oversee the work of two firms with standing contracts to perform inspection services. Each firm has about 2,000 inspectors who visit applicants’ homes to verify disaster-related damages to real and personal property.

Temporary FEMA field locations are established after a disaster occurs. FEMA deploys about 600-700 “reservists” or disaster assistance employees who are deployed at field offices at the state and local levels to augment full time FEMA staff temporarily re-assigned from FEMA headquarters and regional offices.

The Joint Field Office is to serve as the temporary headquarters for disaster response and recovery efforts and is typically located in the capital of the state where a disaster occurred or in the high impact area. The joint office houses FEMA, state partners, other federal agencies, and voluntary agencies. Two key FEMA joint field office officials direct and coordinate disaster response and recovery operations for program implementation at the local level. The Federal Coordinating Officer is responsible for assessing disaster needs, establishing the joint office and Disaster Recovery Centers and other possible disaster facilities, and coordinating the administration of disaster relief. The FEMA operations section chief’s responsibilities include managing the Human Services Branch that oversees provision of mass care and food, individual assistance, the coordination of voluntary agency contributions, and donations. The role of regional coordinating structures varies depending on the situation. Many incidents may be coordinated by regional structures primarily using regional assets. Larger, more complex incidents may require direct coordination between the joint office and the national level, with regional structures continuing to play a supporting role. The focal point for coordination of federal support is the joint field office.

FEMA may also establish Area Field Offices whose staff and organization is to mirror the joint field office and provide similar coordination and oversight in support of the joint office at the local level. The area office reports to the joint office. The area office’s operational responsibilities are to be delineated by the joint office which may establish as many area filed offices as deemed necessary and efficient to the response.

FEMA Disaster Recovery Centers are offices where applicants may go for information about FEMA and other disaster assistance programs. Recovery center locations are usually announced in local newspapers and on local television and radio stations and are established close to the disaster area, often in schools or armories to be readily accessible to those in need of assistance. The centers are temporary facilities jointly operated by the state and FEMA where representatives of federal agencies, local and state governments, and voluntary relief organizations provide guidance regarding disaster recovery and literature on services available, including housing assistance and individual and household grants information, educational materials, crisis counseling, assistance in completing applications and answers to questions, resolution to problems, and referrals to agencies that may provide further assistance. The number of centers depends on the magnitude of the disaster and the size of the area included in the declaration.

FEMA’s Process for Providing IHP Benefits

Under the Stafford Act, the federal government provides disaster assistance after a presidential disaster declaration. A presidential disaster declaration results from a legal process involving specific steps taken by local, state, and federal governments as generally shown in figure 8.

After a disaster occurs and the state determines that effective response may exceed both state and local resources, a state is to first request a preliminary damage assessment. Teams are assembled from individuals from FEMA, the Small Business Administration, state emergency management, and the local jurisdiction who are to (1) assess the types of dwellings affected, (2) assess the probable insurance and income levels of residents, and (3) estimate the number of individuals affected to determine potential funding requirements. After the assessment is complete, the Governor is to determine if federal disaster assistance is needed and, if it is, he or she is to submit a request to the President through the FEMA Regional Director who reviews and communicates the request to FEMA’s Headquarters within the Emergency Preparedness and Response Directorate. The Directorate’s Undersecretary is to then make a recommendation to the President, who makes the final decision to declare a major disaster, an emergency, or deny the request for federal assistance.

FEMA Provides Disaster Victims with Multiple Means to Apply for Assistance

Once the President declares a disaster and decides to provide federal disaster assistance, disaster victims in declared counties must first apply for assistance with FEMA, by phone, in person at a disaster recovery center, or over the Internet. Typically, an application period is closed 60 days following the date of the disaster declaration. During the application process, an individual provides personal information including Social Security number, current and pre-disaster address, a telephone number, insurance information, total household annual income, and a description of losses caused by the disaster. After the submission of an application, FEMA provides applicants with a copy of their application and a program guide, “Help After a Disaster: Applicant’s Guide to the Individuals and Households Program.” The document, whose cover is shown in figure 9, is also available on the Internet.

Once a FEMA representative records personal information from a disaster application and provides the applicant with a FEMA application number, FEMA’s National Emergency Management Information System automatically determines potential eligibility for designated categories of assistance.

To confirm that damages occurred to the home and personal property as reported in disaster assistance applications, FEMA is to conduct individual inspections to verify damage, ownership, and occupancy. Contract inspectors are to schedule damage inspection appointments with applicants. The inspections usually take about 30 to 60 minutes, according to FEMA. Homeowners are not required to be at home at the time of the inspection, but a designated representative generally must be present and the applicant must be able to provide proof of ownership and occupancy to the inspector. This assessment provides a basis to determine how much assistance an individual/household should receive for housing repair and replacement and for other needs. If an applicant’s home or its contents were damaged and the applicant has insurance, they must provide FEMA with a letter from the insurance company regarding the settlement of the claim before FEMA issues its inspection report. (If the damages are caused by flooding and the applicant has flood insurance, FEMA will issue an inspection report before receiving a copy of the applicant’s flood insurance decision letter because temporary living expenses are not covered by flood insurance.)

According to FEMA, the system reportedly determines eligibility for about 90 percent of applicants requesting housing assistance, usually within 10 days of application. FEMA caseworkers are to process the remaining applications that cannot be automatically processed, to determine an applicant’s eligibility for disaster assistance based on additional documentation, for example, documentation of insurance payment; these applications may take longer to process. If the applicant qualifies for a grant, FEMA sends the applicant a check by mail or deposits the funds granted in the applicant’s bank account. FEMA will also send a letter describing how the applicant is to use the money (for example; repairs to their home or to rent another house while the applicant makes repairs). Recipients of IHP assistance must recertify their continuing need for assistance every 30 to 90 days, depending on the individual circumstances. FEMA uses three criteria to recertify the applicant.

First, FEMA may provide continued housing assistance (travel trailers or rental assistance) during the period of assistance, based on need, and generally only when adequate, alternate housing is not available.

Second, for rental assistance, the applicant must show that he or she used the previous rental assistance to pay rent by sending copies of receipts.

Third, the applicant must show he or she is working to find permanent housing that the applicant can afford. For example, FEMA is to require applicants to show they are actively seeking affordable housing, maintain a list of addresses they looked at, including the landlord’s name and phone number, and specify the reason(s) for not renting the units. A FEMA Housing Adviser may verify with landlords that a contact was made by an applicant seeking a rental unit.

Conversely, if FEMA determines that the applicant does not qualify for an IHP grant, it is to send the applicant a letter explaining why the applicant was turned down and gives the applicant a chance to appeal the decision. Applicants who are denied housing and other needs assistance under IHP have 60 days from the date that FEMA notifies the applicant to appeal the decision. According to FEMA, common reasons for denial include: Adequate insurance coverage. Damage to secondary home, not a primary residence. Duplicate applications made from the same address. Inability to prove occupancy or ownership. More information is needed before the analysis can be completed.

Appendix IV: Issues Reported Related to FEMA’s IHP Disaster Assistance Provided for Katrina

February

GAO, Expedited Assistance for Victims of Hurricanes Katrina and Rita: FEMA’s Control Weaknesses Exposed the Government to Significant Fraud and Abuse, GAO-06-403T (Washington, D.C.: Feb. 13, 2006).

Appendix V: GAO’s June 14, 2006 Testimony on Fraud and Abuse of FEMA’s Individual Assistance program

Appendix VI: GAO Contact and Staff Acknowledgments

William Jenkins, Director, Homeland Security & Justice Issues (202) 512- 8757 (jenkinswo@gao.gov) and Greg Kutz, Managing Director, GAO Forensic Audits and Special Investigations, (202) 512-7455 (kutzg@gao.gov)

Acknowledgments

In addition to the contacts named above, the following individuals from GAO’s Forensic Audits and Special Investigations and GAO’s Homeland Security and Justice Team also made contributions to this report: Kord Basnight, James Berry Jr., Gary Bianchi, Valerie Blyther, Matthew Brown, Norman Burrell, Willie Commons, Jennifer Costello, Christine Davis, Katherine Davis, Paul Desaulniers, Steve Donahue, Dennis Fauber, Christopher Forys, Adam Hatton, Aaron Holling, William O. Jenkins Jr., Chris Keisling, Jason Kelly, John Kelly, Sun Kim, Stan Kostyla, Crystal Lazcano, Tram Le, John Ledford, Jennifer Leone, Barbara Lewis, Gary M. Malavenda, Marvin McGill, Jonathan Meyer, Gertrude Moreland, Richard Newbold, Kristen Plungas, Jennifer Popovic, John Ryan, Sidney Schwartz, Robert Sharpe, Gail Spear, Tuyet-Quan Thai, Patrick Tobo, Matthew Valenta, Tamika Weerasingha, and Scott Wrightson.

Glossary

Financial assistance to address the dental costs.

Direct Assistance

Financial assistance to address the cost of funeral services, burial, cremation, and other funeral expenses related to a death caused by the disaster.

Expedited Assistance

Expedited assistance provides fast track money in the form of $2,000 in expedited payments to eligible disaster victims to help with immediate, emergency needs of food, shelter, clothing and personal necessities. FEMA changed the maximum amount from $2,000 to $500 on July 24, 2006.

Funeral Expenses

Money to address the cost of funeral services, burial, cremation, and other funeral expenses related to a death caused by the disaster.

Home Replacement Grant

Financial assistance provided to replace the primary residence of an owner-occupied dwelling if the dwelling was damaged by the disaster and there was at least $10,000 of damage (as adjusted annually to reflect changes in the CPI). The applicant may either replace the dwelling in its entirety for $10,000 (as adjusted annually to reflect changes in the CPI) or less, or may use the assistance toward the cost of acquiring a new permanent residence that is greater in cost than $10,000 (as adjusted annually to reflect changes in the CPI).

Home Repair Grant

Financial assistance provided for the repairs of uninsured disaster-related damages to an owner’s primary residence. The funds are to help return owner-occupied primary residences to a safe and sanitary living or functioning condition. Repairs may include utilities and residential infrastructure damaged by a major disaster.

IHP Other Needs Assistance Categories

The ONA Program is designed for those with serious needs who have no other source of assistance. The program covers necessary expenses such as uninsured personal property, medical and dental expenses and funeral expenses.

Lodging Expenses

Expenses for reasonable short-term accommodations that individuals or households incur in the immediate aftermath of a disaster. Lodging expenses may include but are not limited to the cost of brief hotel stays.

Medical Expenses

Financial assistance to address the cost of medical treatment or the repair or replacement of medical equipment required as a result of the disaster.

Moving & Storage Expenses

Financial assistance to address necessary expenses and serious needs related to moving and storing personal property to avoid additional disaster damage.

Necessary Expense

The cost associated with acquiring an item or items, obtaining a service, or paying for any other activity that meets a serious need.

Other Needs Expenses

Financial assistance to address the cost of other specific disaster-related necessary expenses and serious needs of individuals and households.

Personal Property Expenses

Financial assistance to address the cost of repairing and/or replacing disaster damaged items, such as furniture, bedding, appliances, and clothing.

Preliminary Disaster Assessment

A mechanism used to determine the impact and magnitude of damage and the resulting unmet needs of individuals, businesses, the public sector, and the community as a whole.

Rental Assistance

As part of IHP housing assistance, rental assistance funds address the cost renting another place to live. For homeowners, this money may be provided in addition to home repair, if needed.

Serious Need

The requirement for an item, or service, that is essential to an applicant’s ability to prevent, mitigate, or overcome a disaster-related hardship, injury or adverse condition.

Transitional Housing Assistance

Transitional Housing Assistance is a cash grant of up to $2,358 per household intended to cover an initial 3 months of rental payments for eligible applicants. Transitional Housing Assistance is a form of rental assistance and was implemented for the first time in selected disaster areas in Louisiana and Mississippi during Hurricane Katrina.

Transportation Expenses

Financial assistance for public transportation and any other transportation related costs or expense and the cost of repairing and/or replacing a disaster damaged vehicle that is no longer usable because of disaster- related damage.

Related GAO Products

Small Business Administration: Actions Needed to Provide More Timely Disaster Assistance. GAO-06-860. Washington, D.C.: July 28, 2006.

Individual Disaster Assistance Programs: Framework for Fraud Prevention, Detection, and Prosecution. GAO-06-954T. Washington, D.C.: July 12, 2006.

Expedited Assistance for Victims of Hurricanes Katrina and Rita: FEMA’s Control Weaknesses Exposed the Government to Significant Fraud and Abuse. GAO-06-655. Washington, D.C.: June 16, 2006.

Hurricanes Katrina and Rita Disaster Relief: Improper and Potentially Fraudulent Individual Assistance Payments Estimated to Be Between $600 Million and $1.4 Billion. GAO-06-844T. Washington, D.C.: June 14, 2006.

Hurricanes Katrina and Rita: Coordination between FEMA and the Red Cross Should Be Improved for the 2006 Hurricane Season. GAO-06-712. Washington, D.C.: June 8, 2006.

Hurricane Katrina: Improving Federal Contracting Practices in Disaster Recovery Operations. GAO-06-714T. Washington, D.C.: May 4, 2006.

Hurricane Katrina: Planning for and Management of Federal Disaster Recovery Contracts. GAO-06-622T. Washington, D.C.: April 10, 2006.

Hurricane Katrina: Comprehensive Policies and Procedures Are Needed to Ensure Appropriate Use of and Accountability for International Assistance. GAO-06-460. Washington, D.C.: April 6, 2006.

Hurricane Katrina: Policies and Procedures Are Needed to Ensure Appropriate Use of and Accountability for International Assistance. GAO-06-600T. Washington, D.C.: April 6, 2006.

Agency Management of Contractors Responding to Hurricanes Katrina and Rita. GAO-06-461R. Washington, D.C.: March 15, 2006.

Hurricane Katrina: GAO’s Preliminary Observations Regarding Preparedness, Response, and Recovery. GAO-06-442T. Washington, D.C.: March 8, 2006.

Expedited Assistance for Victims of Hurricanes Katrina and Rita: FEMA’s Control Weaknesses Exposed the Government to Significant Fraud and Abuse. GAO-06-403T. Washington, D.C.: February 13, 2006.

Statement by Comptroller General David M. Walker on GAO’s Preliminary Observations Regarding Preparedness and Response to Hurricanes Katrina and Rita. GAO-06-365R. Washington, D.C.: February 1, 2006.

Hurricanes Katrina and Rita: Provision of Charitable Assistance. GAO-06-297T. Washington, D.C.: December 13, 2005.

Hurricanes Katrina and Rita: Preliminary Observations on Contracting for Response and Recovery Efforts. GAO-06-246T. Washington, D.C.: November 8, 2005.