National Flood Insurance Program:

Financial Challenges Underscore Need for Improved Oversight of Mitigation Programs and Key Contracts

GAO-08-437: Published: Jun 16, 2008. Publicly Released: Jul 16, 2008.

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The Federal Emergency Management Agency (FEMA) and its contractors administer and implement the National Flood Insurance Program (NFIP). GAO designated NFIP as a high-risk area in March 2006, and as of December 2007, FEMA owed more than $17.3 billion to the Treasury for hurricane-related losses. Concerns have been raised about the financial condition of NFIP and FEMA's efforts to mitigate losses and monitor NFIP contractors. This report (1) describes statistical and financial trends for NFIP from 1997 through 2006, (2) assesses the extent to which flood-damaged properties were purchased to mitigate risk, and (3) evaluates procedures for monitoring NFIP-related contracts. For this study, GAO analyzed financial and statistical data on the NFIP and its mitigation programs, reviewed documentation of contract monitoring activities, and interviewed FEMA officials and contractors.

The number of federal flood insurance policies in force nationwide increased 36 percent from 1997 through 2006, but most homeowners at risk of flooding still lacked such insurance. While average insurance amounts (per policy) increased 78 percent from 1997 through 2006--consistent with rising home values--the average premium decreased 3 percent from 1997 through 2006, likely driven in part by the increase in policies sold in moderate- to low-risk areas. Conversely, loss amounts fluctuated by year, peaking at more than $17.7 billion in 2005. Seventy-nine percent of the funds paid out through NFIP from 1997 through 2006 were for hurricane-related claims, but the percentages in individual years varied widely (correlating with hurricane activity). Finally, the extent of claim payments attributed to repetitive loss properties (those with two or more claims in a rolling 10-year period) increased from 1997 through 2006, from $3.7 billion to nearly $8 billion, with the most significant increases resulting from the 2005 Gulf Coast hurricanes. Because of data limitations, GAO was not able to determine the actual number of properties acquired through FEMA mitigation programs, which are intended to minimize the damage and financial impact of floods. Information on completed mitigation projects (which encompass multiple properties) indicates that about one-third of properties approved for acquisition from 1997 to 2006 were acquired. However, these data are limited because they do not include a count of properties acquired in ongoing projects. Projects may take several years to complete, and FEMA does not report properties acquired until a project is complete. Further, FEMA collected property acquisition data (for completed projects) in an ad hoc manner because FEMA's grants management system lacks the capability to record acquisition data. As a result, FEMA cannot readily determine the extent to which flood-damaged and repetitive loss properties have been acquired through its mitigation programs. Lack of monitoring records, inconsistent application of procedures, and lack of coordination have diminished the effectiveness of FEMA monitoring of NFIP-related contracts. While federal internal control standards state that records should be properly maintained, FEMA did not consistently follow its monitoring procedures for preparing or maintaining monitoring reports and was unable to provide copies of the majority of monitoring reports GAO requested. Further, FEMA offices did not coordinate information and actions relating to contractor deficiencies and payments. In some cases, key officials were unaware of decisions on contractor performance. As a result, FEMA cannot consistently ensure adherence to contract requirements and lacks information critical for effective oversight of key contractors. Given the reliance of NFIP upon contractors, it is important that FEMA have in place adequate controls that are consistently applied to all contracts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FEMA officials provided evidence that FEMA staff are clearly monitoring each performance standard for selected NFIP contracts. The monitoring reports provided to GAO indicate that the FEMA officials with responsibility for monitoring contracts are completing monitoring reports and uploading them into an information system in a timely manner. In addition, the monitoring reports explicitly indicate whether specific performance standards were met. GAO staff physically viewed the information system, and verified that monitoring reports are uploaded and maintained in this system.

    Recommendation: To ensure more effective oversight of contractors performing key NFIP data collection, reporting, and insurance functions, the Secretary of Homeland Security should ensure that FEMA staff clearly monitor each performance standard that the contractor is required to meet in the time frames required by contract and that FEMA staff clearly link monitoring reports and performance areas.

    Agency Affected: Department of Homeland Security

  2. Status: Closed - Implemented

    Comments: In April 2012, FEMA officials provided documentation showing they implemented a process to collect and review monthly contract monitoring reports. Officials also provided documentation of the current roles and responsibilities of the Contracting Officer's Technical Representative (COTR) and the Program Management Office (PMO)in submitting and reviewing these reports. Further, GAO staff physically observed FEMA officials demonstrating the functionality of an information system that retains the reports.

    Recommendation: To ensure more effective oversight of contractors performing key NFIP data collection, reporting, and insurance functions, the Secretary of Homeland Security should implement a process to ensure that monitoring reports are submitted on time and systematically reviewed by the Contract Officer's Technical Representative (COTR) and the Program Management Office and copies of monitoring reports are retained in a quality assurance file, as directed by the contract.

    Agency Affected: Department of Homeland Security

  3. Status: Open

    Comments: On April 22, 2010, various mission team members from GAO met with various FEMA officials to discuss the status of open recommendations from previous GAO reports related to the National Flood Insurance Program. GAO reviewed documentation submitted by FEMA officials in June 2010 and January 2011. As of April 2012, a system to track property acquisitions in real time had not been established, thus this recommendation cannot be closed.

    Recommendation: To more accurately track the extent to which flood-prone properties are acquired, the Secretary of Homeland Security should establish a means to track real-time property acquisitions for NFIP-funded mitigation programs.

    Agency Affected: Department of Homeland Security

  4. Status: Open

    Comments: On April 22, 2010, various mission team members from GAO met with various FEMA officials to discuss the status of open recommendations from previous GAO reports related to the National Flood Insurance Program. GAO reviewed documentation submitted by FEMA officials in June 2010 and January 2011. As of April 2012, final written guidance had not been established, so this recommendation cannot be closed.

    Recommendation: To more accurately track the extent to which flood-prone properties are acquired, the Secretary of Homeland Security should establish written guidance for FEMA regional offices to better ensure consistent and timely recording of property acquisition data.

    Agency Affected: Department of Homeland Security

  5. Status: Closed - Implemented

    Comments: FEMA officials provided documentation of their current Discrepancy Reporting Procedures, dated September 2011. The officials also provided evidence of following these procedures. Specifically, they provided documentation of a contract discrepancy, having appropriate officials complete and sign-off as required by reporting procedures, and taking actions (implementing a financial penalty) based upon contractual agreements.

    Recommendation: To ensure more effective oversight of contractors performing key NFIP data collection, reporting, and insurance functions, the Secretary of Homeland Security should ensure implementation of written guidance for all NFIP-related contracts on how to consistently handle the failure of a contractor to meet standards in performance areas and establish written policies and procedures about the coordination between FEMA officials and offices (including the COTR, the Program Management Office, and the Contracting Officer) when addressing contractor deficiencies, including determining whether and under what circumstances to issue discrepancy reports, and ensuring that financial disincentives are appropriately and consistently applied.

    Agency Affected: Department of Homeland Security

 

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