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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.