Hurricanes Katrina and Rita:

Unprecedented Challenges Exposed the Individuals and Households Program to Fraud and Abuse; Actions Needed to Reduce Such Problems in Future

GAO-06-1013: Published: Sep 27, 2006. Publicly Released: Sep 27, 2006.

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In 2005, Hurricanes Katrina and Rita caused unprecedented damage. The Federal Emergency Management Agency's (FEMA's) Individuals and Households Program (IHP), provides direct assistance (temporary housing units) and financial assistance (grant funding for temporary housing and other disaster-related needs) to eligible individuals affected by disasters. Our objectives were to (1) compare the types and amounts of IHP assistance provided to Hurricanes Katrina and Rita victims to other recent hurricanes, (2) describe the challenges FEMA faced by the magnitude of the requests for assistance following Hurricanes Katrina and Rita, and (3) determine the vulnerability of the IHP program to fraud and abuse. GAO determined the extent to which the program was vulnerability to fraud and abuse, by conducting statistical sampling, data mining and undercover operations.

For Hurricanes Katrina and Rita, FEMA received more than 2.4 million applications for IHP assistance and distributed $7.0 billion as compared to the six hurricanes that hit the United States in the prior two years and totaled about 1.5 million applications and about $1.5 billion in assistance, respectively. Temporary housing assistance and expedited assistance accounted for much of the increase in IHP expenditures as compared to prior years. Overall, however, although the number of applications was much higher, the percentage approved for non-housing assistance was notably lower for Hurricanes Katrina and Rita than in 2003 and 2004. The magnitude of Hurricanes Katrina and Rita posed challenges in providing assistance to an unprecedented number of victims many of whom were widely dispersed across the country. To address these challenges, FEMA developed new approaches and adapted existing approaches to quickly provide assistance and improve communication with victims. Despite these efforts, management challenges in staffing and training and program restrictions limited the effectiveness and efficiency of the disaster assistance process. FEMA has proposed a number of initiatives to address these problems, but it is too early to determine whether these efforts will effectively address the problems identified. GAO identified the potential for significant fraud and abuse as a result of FEMA's management of the IHP in response to Hurricanes Katrina and Rita. Flaws in the registration process resulted in what GAO estimated to be between $600 million and $1.4 billion in improper and potentially fraudulent payments due to invalid registration data. In addition, duplicate payments were made and FEMA lacked accountability over $2,000 debit cards that were given to disaster victims.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To obtain reasonable assurance that applicants are prevented from receiving assistance based on invalid damaged addresses, FEMA should implement changes to its systems and processes to reject damaged addresses that are PO boxes.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of financial assistance payments following hurricanes Katrina and Rita, we found that FEMA did not have control procedures in place to reject Individuals and Households Program (IHP) registration claims containing damaged addresses listed as post office boxes, resulting in numerous potentially improper payments. We recommended that FEMA implement changes to its systems and related processes to identify and reject registration claims listing post office boxes as damaged addresses. In response, FEMA implemented a system processing change which prevents registrations listing a post office box as a damaged address from being accepted in the IHP payment processing system. Implementing a system change to reject invalid damaged addresses should help to reduce the risk of improper and potentially fraudulent IHP payments in the future.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To obtain reasonable assurance that applicants are prevented from receiving assistance based on invalid damaged addresses, FEMA should provide applicants immediate feedback that PO boxes are not valid damaged addresses.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our audit of financial assistance payments following hurricanes Katrina and Rita, we found that FEMA's Individuals and Households Program (IHP) registration controls did not provide feedback to registrants that post office boxes were not valid damaged addresses that could be used to support IHP claims. We recommended that FEMA provide registrants with immediate feedback that post office boxes are not valid damaged addresses. In response, FEMA now has established a procedure to instruct phone agents accepting registrations to inform applicants that post office addresses are not acceptable and to instead obtain and verify a valid address for the registration. The immediate feedback to registrants should help to prevent invalid damaged addresses from being used to support IHP claims, and in turn reduce the potential for improper payments based on invalid damaged addresses.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To obtain reasonable assurance that applicants are prevented from receiving assistance based on invalid damaged addresses, FEMA should implement a process to identify damaged addresses that are not primary residences, such as commercial mail drops.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of financial assistance payments following hurricanes Katrina and Rita, we found that FEMA did not have control procedures in place to reject Individuals and Households Program (IHP) registration claims containing damaged addresses that are not primary residences, such as commercial mail drops. For example, we found FEMA made payments to registrants who submitted claims using storefronts or cemeteries for damaged addresses. We recommended that FEMA implement changes to its system and related processes to identify registration claims listing non-primary residences as a damaged address. In response, in 2008 FEMA implemented a system processing change which identifies registrations listing high-risk (i.e. warehouse, campground, etc.) and business addresses and rejects them from the IHP payment processing system. These additional controls should help reduce the risk of future improper and potentially fraudulent IHP payments.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To provide reasonable assurance that payments are only made based on a valid damaged address that was the applicant's primary residence, DHS and FEMA should 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.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of FEMA's Individuals and Households Program payments following hurricanes Katrina and Rita, we found that FEMA made disaster assistance payments through its Individuals and Households Program without properly validating reported damaged addresses were the applicant's primary residence at the time of the disaster. For example, we found FEMA made payments to registrants who submitted claims for damaged addresses they did not occupy. We recommended that FEMA establish procedures to validate that the addresses applicants claimed as damaged were the applicant's primary residence at the time of the disaster. In response, FEMA established procedures requiring confirmation during the disaster assistance registration process, that the damaged dwelling address is a valid address in the disaster impacted area, and that the applicant lives at the listed address. FEMA's actions to provide additional controls to confirm that the applicant's address is their primary residence should, if effectively implemented, aid in reducing the risk of future improper disaster assistance payments.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To provide reasonable assurance that payments are only made based on a valid damaged address that was the applicant's primary residence, DHS and FEMA should 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.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of FEMA's Individuals and Households Program (IHP) payments following hurricanes Katrina and Rita, we found that FEMA made disaster assistance payments to registrants who listed bogus damaged addresses, resulting in numerous potentially improper payments. We recommended that FEMA implement processes and procedures to deal with applications where FEMA or other inspectors have concluded that the damaged address was bogus. We further recommended that 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. In response, in 2008, FEMA implemented an automatic address and occupancy verification. In addition, FEMA now requires that an inspector meet with an applicant to verify occupancy and to confirm that a property was damaged in order to be eligible for rental assistance. FEMA and the inspectors now use the National Emergency Management Information System (NEMIS) to record all the registration information submitted to FEMA, along with inspector's notes, and the internal controls each application passes. Implementing this system change to reject bogus damaged addresses and establishing procedures to deal with bogus damaged addresses will aid in reducing the risk of improper IHP payments in the future.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To prevent and/or detect prisoners from improperly receiving IHP payments in the future FEMA should explore information sharing agreements with federal and state officials in charge of maintaining custody over prisoners that could be used to identify ineligible applications.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Not Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To reduce duplicate payments, FEMA should 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.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of FEMA's Individuals and Households Program (IHP) payments following hurricanes Katrina and Rita, we found that FEMA did not have controls in place to prevent duplicate payments to the same household, resulting in millions of dollars in duplicate payments. We recommended 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. Consistent with the intent of our recommendation, in 2008, FEMA established procedures to flag and reject duplicate damaged and current addresses. FEMA's actions to provide additional controls over duplicate household payments will help reduce the risk of improper IHP payments.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To prevent concurrent payments for lodging (i.e., rental assistance, hotels, etc.) for which FEMA is financially responsible, FEMA should establish procedures requiring that individuals apply with FEMA prior to receiving no cost disaster lodging accommodations from federal agencies or the Red Cross.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of FEMA's Individuals and Households Program (IHP) payments following hurricanes Katrina and Rita, we found that FEMA did not have control procedures in place to prevent applicants from receiving IHP rental assistance payments while also receiving housing benefits, such as rent free hotel rooms from federal agencies or the Red Cross. We recommended that FEMA establish procedures requiring that individuals apply with FEMA to ensure they were not already receiving housing assistance payments prior to receiving disaster lodging accommodations from federal agencies or the Red Cross. In response, FEMA implemented a protocol to ensure that disaster victims register and obtain an authorization code as a prerequisite for the use of hotels or motels as transition shelters and affirm eligibility prior to receiving lodging accommodations through the Red Cross. Implementing a process that requires applicants to obtain an authorization code and FEMA to affirm the eligibility of registrants prior to reimbursing the Red Cross should help to reduce FEMA's risk of providing duplicate housing benefits to registrants.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To prevent concurrent payments for lodging (i.e., rental assistance, hotels, etc.) for which FEMA is financially responsible, FEMA should 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.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of FEMA's Individuals and Households Program (IHP) payments following hurricanes Katrina and Rita, we found that FEMA did not have control procedures in place to prevent applicants from receiving IHP rental assistance payments while also receiving housing benefits, such as rent free hotel rooms from federal agencies or the Red Cross. We recommended that FEMA establish procedures requiring that individuals apply with FEMA to ensure they were not already receiving housing assistance payments prior to receiving disaster lodging accommodations from federal agencies or the Red Cross. In response, FEMA implemented a protocol to ensure that disaster victims register and obtain an authorization code as a prerequisite for the use of hotels or motels as transition shelters and affirm eligibility prior to receiving lodging accommodations through the Red Cross. Implementing a process that requires applicants to obtain an authorization code and FEMA to affirm the eligibility of registrants prior to reimbursing the Red Cross should help to reduce FEMA's risk of providing duplicate housing benefits to registrants.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To increase accountability over debit cards, FEMA should finalize a full reconciliation to link each issued Katrina debit card recorded by the bank (JP Morgan Chase) to a specific IHP application.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of the overall effort to assist disaster victims of Hurricane Katrina in 2005, the Federal Emergency Management Agency (FEMA), Treasury Department's Financial Management Service (FMS), and JP Morgan Chase worked together to distribute expedited assistance to more than 10,000 victims housed in Texas shelters in the form of $2,000 debit cards. During the course of our review of the Individuals and Households Program, under which the debit cards were distributed, we discovered that FEMA had paid for 11,374 debit cards by having money transferred from FEMA to JP Morgan Chase through FMS. However, initially neither FEMA nor the bank had reconciled the actual number of cards distributed with the number of cards paid for. Based on repeated inquiries by GAO, JP Morgan Chase performed a physical count of cards remaining to identify the number of cards distributed. This resulted in JP Morgan Chase determining that it distributed 10,989 not 11,374 cards. Upon identification of the undistributed 385 debit cards, JP Morgan Chase refunded to FMS/FEMA the $770,000 related to the cards via a fedwire transfer. Due to our numerous inquires made to FEMA, FMS, and JP Morgan Chase, the government was reimbursed more than three quarters of a million dollars.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To increase accountability over debit cards, FEMA should require that the bank refunds the government for any unaccounted for funds related to distribution of Katrina-related debit cards.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of the overall effort to assist disaster victims of Hurricane Katrina in 2005, the Federal Emergency Management Agency (FEMA), Treasury Department's Financial Management Service (FMS), and JP Morgan Chase worked together to distribute expedited assistance to more than 10,000 victims housed in Texas shelters in the form of $2,000 debit cards. During the course of our review of the Individuals and Households Program, under which the debit cards were distributed, we discovered that FEMA had paid for 11,374 debit cards by having money transferred from FEMA to JP Morgan Chase through FMS. However, initially neither FEMA nor the bank had reconciled the actual number of cards distributed with the number of cards paid for. Based on repeated inquiries by GAO, JP Morgan Chase performed a physical count of cards remaining to identify the number of cards distributed. This resulted in JP Morgan Chase determining that it distributed 10,989 not 11,374 cards. Upon identification of the undistributed 385 debit cards, JP Morgan Chase refunded to FMS/FEMA the $770,000 related to the cards via a fedwire transfer. Due to our numerous inquires made to FEMA, FMS, and JP Morgan Chase, the government was reimbursed more than three quarters of a million dollars.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To increase accountability over debit cards, FEMA should augment procedures for future disasters to provide reasonable assurance that accountability over debit card distribution occurs at each custody transfer in the distribution process.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Implemented

    Comments: As part of our review of FEMA's Individuals and Households Program payments following hurricanes Katrina and Rita, we found FEMA was vulnerable to fraud and abuse as a result of inadequate controls over debit card distribution. We recommended that FEMA establish procedures to improve accountability over debit card distributions. In response, FEMA took action to eliminate future use of debit cards to provide financial assistance as part of the Individuals and Households Program. FEMA's actions effectively eliminate the accountability issues we found associated with the distribution of debit cards.

    Recommendation: To address the improper and potentially fraudulent payments within the IHP based on the findings in our testimony, the Department of Homeland Security (DHS) should direct the Director of FEMA to take the following action. To identify and recoup payments based on improper and potentially fraudulent Katrina and Rita applications, FEMA should 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 Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response: Federal Emergency Management Agency

    Status: Closed - Not Implemented

    Comments: The agency has not taken action.

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