This is the accessible text file for GAO report number GAO-06-844T
entitled 'Hurricane Katrina and Rita Disaster Relief: Improper and
Potentially Fraudulent Individual Assistance Payments Estimated to Be
Between $600 Million and $1.4 Billion' which was released on June 14,
2006.
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Testimony:
Before the Subcommittee on Investigations, Committee on Homeland
Security, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 11:00 a.m. EST:
Wednesday, June 14, 2006:
Hurricanes Katrina And Rita Disaster Relief:
Improper and Potentially Fraudulent Individual Assistance Payments
Estimated to Be Between $600 Million and $1.4 Billion:
Statement of Gregory D. Kutz, Managing Director:
Forensic Audits and Special Investigations:
John J. Ryan, Assistant Director:
Forensic Audits and Special Investigations:
GAO-06-844T:
GAO Highlights:
Highlights of GAO-06-844T, a testimony before the Subcommittee on
Investigations, Committee on Homeland Security, House of
Representatives.
Why GAO Did This Study:
Hurricanes Katrina and Rita destroyed homes and displaced millions of
individuals. In the wake of these natural disasters, Federal Emergency
Management Agency (FEMA) responded to the need to provide aid quickly
through the Individuals and Households Program (IHP) program, which
provides housing assistance, real and personal property assistance, and
for other immediate, emergency needs. As of February 2006, FEMA made
2.6 million payments totaling over $6 billion.
Our testimony today will
(1) provide an estimate of improper and potentially fraudulent payments
through February 2006 related to certain aspects of the disaster
registrations, (2) identify whether improper and potentially fraudulent
payments were made to registrants who were incarcerated at the time of
the disaster, (3) identify whether FEMA improperly provided registrants
with rental assistance payments at the same time it was paying for
their lodging at hotels, and (4) review FEMA’s accountability over
debit cards and controls over proper debit card usage.
To estimate the magnitude of IHP payments made on the basis of invalid
registrations, we selected a random statistical sample of 250 payments
made to hurricanes Katrina and Rita registrants as of February 2006. We
also conducted data mining and investigations to further illustrate the
effects of control breakdowns.
What GAO Found:
We estimate that through February 2006, FEMA made about 16 percent or
$1 billion in improper and potentially fraudulent payments to
registrants who used invalid information to apply for disaster
assistance. Based on our statistical sample, we are 95 percent
confident that the range of improper and potentially fraudulent
payments is from $600 million to $1.4 billion. In our assessment of
whether a payment was improper and potentially fraudulent, we did not
test for other evidence of impropriety or potential fraud, such as
insurance fraud and bogus damage claims. This means our review
potentially understates the magnitude of improper payments made.
Examples of fraud and abuse include payments to registrants who used
post office boxes, United Parcel Service stores, and cemeteries as
their damaged property addresses.
Absent proper verification, it is not surprising that FEMA continued to
pay fictitious disaster registrations set up by GAO as part of our
ongoing forensic audit. In one case, FEMA paid nearly $6,000 to our
registrant who submitted a vacant lot as a damaged address. Below is a
copy of a rental assistance check sent to GAO after FEMA received
feedback from its inspector that the GAO undercover registrant did not
live at the damaged address, and after a Small Business Administration
inspector reported that the damaged property could not be found.
We also found that FEMA provided expedited and housing assistance to
individuals who were not displaced. For example, millions of dollars in
expedited and housing assistance payments went to registrations
containing the names and social security numbers of individuals
incarcerated in federal and state prisons during the hurricanes. In
addition, FEMA improperly paid individuals twice for their
lodging—paying their hotels and rental assistance at the same time. For
example, at the same time that FEMA paid $8,000 for an individual to
stay in California hotels, this individual also received three rental
assistance payments for both hurricane disasters. Finally, we found
that FEMA could not establish that 750 debit cards worth $1.5 million
went to hurricane Katrina victims. We also found debit cards that were
used for a Caribbean vacation, professional football tickets, and adult
entertainment.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-844T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory Kutz at (202) 512-
7455 or kutzg@gao.gov.
[End of Section]
Mr. Chairman and Members of the Subcommittee,
Thank you for the opportunity to discuss our ongoing forensic audit and
related investigations of disaster relief assistance provided to
individuals and households for hurricanes Katrina and Rita. In a
hearing held in February 2006[Footnote 1] before the Senate Committee
on Homeland Security and Governmental Affairs to discuss results of
ongoing work, we testified that significant flaws in the process for
registering disaster victims left the federal government vulnerable to
substantial fraud and abuse related to expedited assistance payments.
Due to the magnitude of potential fraud and abuse we observed in our
February 2006 testimony, we plan to issue a report containing
recommendations to Department of Homeland Security (DHS) and Federal
Emergency Management Agency (FEMA) to improve internal controls over
the Individuals and Households Program (IHP). This testimony reflects
additional findings from the work we have performed since February. We
plan to continue reviewing other aspects of IHP.
As we previously reported, expedited assistance--a component of the IHP
program for hurricanes Katrina and Rita--took the form of $2,000
payments provided to disaster victims to help with the immediate,
emergency needs for food, shelter, clothing, and personal necessities.
Individuals and/or households who received expedited assistance may
also be eligible to receive other IHP payments for temporary housing
assistance, real and personal property repair and replacement, and
other necessary expenses related to a disaster--up to a cap of
$26,200.[Footnote 2] As of mid-February 2006, FEMA data showed that the
agency had delivered about $6.3 billion in IHP aid for hurricanes
Katrina and Rita.[Footnote 3] Thirty seven percent (approximately $2.3
billion) of this amount was delivered through expedited assistance (EA)
to hurricanes Katrina and Rita registrants. Of the remaining payments,
about $2 billion was delivered through temporary housing assistance,
and another approximately $2 billion was for repair and replacement of
real and personal property, and for other miscellaneous categories.
As we previously testified, the need to provide assistance quickly led
FEMA to issue payments to hurricanes Katrina and Rita registrants
without first validating the identity and damaged property addresses of
all registrants and without first verifying that the registrants
incurred losses and had needs related to the hurricanes. However, with
limited exceptions,[Footnote 4] FEMA policy required that subsequent
payments for temporary housing assistance, real and personal property
repair and replacement, and other miscellaneous expenses be made only
after FEMA had conducted an inspection and determined that the extent
of loss merited further assistance. Addresses that were exempt from
inspections had to go through an electronic verification of ownership
and occupancy with a third-party contractor prior to FEMA providing
registrants in those areas with rental assistance and/or other
nonexpedited assistance payments.
Today's testimony summarizes the results from our ongoing forensic
audit and investigative work reviewing the type and extent of fraud and
abuse for the IHP program. This testimony will (1) provide an estimate
of improper and potentially fraudulent payments related to certain
aspects[Footnote 5] of the disaster registrations, (2) identify whether
FEMA made improper or potentially fraudulent IHP payments to
registrants who were incarcerated at the time of the disaster, (3)
identify whether FEMA provided registrants with rental assistance
payments at the same time it was paying for their lodging at hotel
rooms, and (4) review FEMA's accountability over debit cards and
controls over proper debit card usage.
To estimate the magnitude of IHP payments made on the basis of invalid
registrations, we selected a random sample of 250 payments of the 2.6
million IHP payments made to hurricanes Katrina and Rita registrants as
of February 2006. We excluded 3 of the 250 payments from our analysis
because these payments had been returned to the U.S. Government at the
time of our review, and the U.S. Government was therefore not
susceptible to potential fraud for them. We derived our estimate of
improper and potentially fraudulent payments by summing the dollars
associated with improper and potentially fraudulent payments in our
sample and multiplying that sum by a weighting factor to project the
total from the sample to the population. The weighting factor we used
was the number of payments "represented" by each of our randomly
sampled payments, namely, the number of payments in the population
divided by the number of payments we sampled. To validate sample
registration data, we used a combination of site visits, comparisons
with publicly available data and Social Security Administration (SSA)
data, interviews with residents and their neighbors, interviews with
local postal officials, and duplicate registration analysis. We also
data mined IHP registration data to identify case studies of
registrants who provided invalid and potentially fraudulent
information.
To further illustrate the effects of control breakdowns, we continued
our undercover operations with bogus registrations to obtain additional
IHP payments beyond the original expedited assistance. To identify IHP
registrants who were prisoners, we obtained a database of federal
inmates as well as databases of inmates at state prisons in and around
the areas affected by hurricanes Katrina and Rita. We then compared
prisoner data to IHP registration data to identify registrations
containing prisoner names and SSNs. To identify case studies of
individuals who received rental assistance at the same time that they
were housed in government-paid for hotels, we compared the IHP
registration data to information provided by the hotels, e.g. driver's
licenses. However, because data provided on hotel residents did not
contain FEMA registration numbers, we were unable to determine the
magnitude of duplicate payments.
To assess accountability over FEMA debit cards, we interviewed
officials from FEMA, Department of Treasury's Financial Management
Service (FMS), and JPMorgan Chase. To assess the usage patterns of FEMA
debit cards, we data mined debit card purchases and identified
transactions that appeared to be unrelated to emergency disaster needs.
Further details on our scope and methodology can be found in appendix
I.
We conducted our audit and investigations from February 2006 through
June 8, 2006. We conducted our audit work in accordance with generally
accepted government auditing standards and conducted investigative work
in accordance with the standards prescribed by the President's Council
on Integrity and Efficiency.
Summary:
We estimate that 16 percent of payments, totaling approximately $1
billion, were improper and potentially fraudulent because of invalid
registrations.[Footnote 6] This amount includes 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) registrations containing Social Security Numbers
(SSNs) that were never issued or belonged to other individuals, (2)
registrants who used bogus damaged addresses, (3) registrants who had
never lived at the declared damaged addresses or did not live at the
declared damaged address at the time of disaster, and/or (4)
registrations containing information that was duplicative of other
registrations already recorded in FEMA's system. Our projection likely
understates 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 does not account for improper and potentially
fraudulent payments related to issues such as 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 showed that improper and
potentially fraudulent payments occurred mainly because FEMA did not
validate the identity of the registrant, the physical location of the
damaged address, and ownership and occupancy of all registrants at the
time of registration. For example, in one case a registrant received
$7,328 for expedited and rental assistance even though the registrant
had moved out of the rented house a month prior to hurricane Katrina.
FEMA also paid $2,000 to an individual who provided a damaged address
that did not exist, and paid $2,358 in rental assistance to another
individual who claimed his damaged property was inside a cemetery.
Our work also confirmed that the processes that FEMA used to detect and
prevent duplicate registrations were not effective. Through sample
testing and data mining, we also found that FEMA made about $5.3
million in payments to registrants who provided a post office box as
their damaged residence. For example, FEMA paid a registrant $2,748 who
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 registration had been used by individuals linked to other
potential fraud schemes. While not all payments made to post office
boxes are improper or potentially fraudulent, the number of potentially
fraudulent payments could be substantially reduced if FEMA put in place
procedures to instruct disaster recipients to provide actual street
addresses of damaged property when claiming disaster assistance. In
addition, 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 registrations using a bogus property as the damaged
address. These payments came even though verification with third-party
records by FEMA indicated that the GAO undercover registrant did not
live at the damaged address, and after the Small Business
Administration reported that the damaged property could not be found.
GAO has not cashed these checks and plans to return the checks to the
Department of Treasury upon the conclusion of our work.
Without verifying the identity and primary residence of registrants
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 registrations made using information belonging to prison
inmates. In other words, payments were made to registrations using the
names and SSNs of individuals who were not displaced as a result of the
storm but rather were incarcerated at state prisons of the Gulf Coast
area (that is, Louisiana, Texas, Florida, Georgia, Mississippi, and
Alabama), or federal prisons across the United States at the time of
the hurricanes. FEMA criteria specified that expedited assistance be
provided only to individuals who were displaced due to the disaster and
therefore were in need of shelter, and further specified that FEMA may
provide additional assistance to individuals for the purpose of renting
accommodations.[Footnote 7] For example, FEMA paid over $20,000 to an
inmate who used a post office box as his damaged property.
We 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. This registrant did not
live at the damaged property at the time of the hurricane. Another
registrant 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 registration numbers and SSNs from residents staying in
FEMA-paid for rooms. Without this information, FEMA did not verify if
the registrants were staying in government provided hotels before
sending them rental assistance. As a result, FEMA made rental
assistance payments which covered the same period of time that the
registrant was staying at a FEMA-paid hotel. Because the hotels and
FEMA did not collect registration identification numbers, we were
unable to quantify the magnitude of individuals who received these
duplicate benefits.
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
JPMorgan 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.[Footnote 8]
FEMA Paid About $1 Billion to Individuals Who Provided Invalid
Registration Data:
Because of FEMA's failure to establish basic upfront validation
controls over registrants' identity and address information, we
estimate that FEMA made approximately $1 billion of improper and
potentially fraudulent payments based on invalid registrations.
[Footnote 9] This represents 16 percent of all individual assistance
payments for hurricanes Katrina and Rita.[Footnote 10] The improper and
potentially fraudulent payments included cases where individuals and
households used invalid SSNs, used addresses that were fictitious or
not their primary residence, and for submitted earlier registrations.
These improper payments based on phony or duplicate registration data
were not only restricted to the initial expedited assistance payments
that we previously reported on, but also included payments for rental
assistance, housing repair, and housing replacement. For example,
rental assistance payments were made to registrants that used a post
office box and a cemetery as damaged properties. In fact, as part of
our ongoing forensic audit, FEMA continues to provide rental assistance
to GAO based on registrations that contained fictitious identities and
bogus damaged addresses. In one case, FEMA even sent GAO a check for
expedited assistance after an inspector could not confirm that the
property existed, and FEMA had decided not to provide housing
assistance to this registration. Our projection likely understates the
total amount of improper and potentially fraudulent payments since our
examination of sample payments focused only on invalid registrations
and did not include other criteria, such as insurance policies, which
may make registrants ineligible for IHP payments.
Statistical Sample Results Indicate About $1 Billion in Potentially
Fraudulent and Improper IHP Payments:
Based on our statistical sample we estimate that 16 percent of all
payments were based on invalid registrations. We considered a
registration invalid if it contained an invalid identity, invalid
address information, or was paid from duplicate registration
information. Some registrations failed more than one attribute. We drew
our statistical sample from a population of 2.6 million payments made
in the wake of hurricanes Katrina and Rita, totaling over $6 billion
through mid-February 2006. Based on these results, we project that FEMA
made about $1 billion in assistance payments based on improper or
potentially fraudulent registrations. The 95 percent confidence
interval associated with our estimate of improper and potentially
fraudulent registrations ranges from a low of $600 million to a high of
$1.4 billion in improper and potentially fraudulent payments. Table 1
shows the attributes we tested, the estimated failure rate in each
attribute, and the overall projected failure amount.
Table 1: Results of Statistical Sampling and Estimate of Potentially
Improper and Fraudulent Payments:
Reason Why Payment Was Not Valid: Invalid primary residence (properties
which could not be a primary residence and properties that the
registrant did not live in at the time of the disaster);
Number of Failures: 26;
Percent Failure/ Estimated Amount: [Empty];
Reason Why Payment Was Not Valid: Payments based on duplicate
registration data (registration containing same SSN, damaged property
address, and/or current address as an earlier registration in FEMA's
system);
Number of Failures: 12;
Percent Failure/ Estimated Amount: [Empty];
Reason Why Payment Was Not Valid: Bogus properties used[A] (addresses
did not exist);
Number of Failures: 3;
Percent Failure/ Estimated Amount: [Empty];
Reason Why Payment Was Not Valid: Invalid SSN used (SSN never issued or
belonging to other individuals);
Number of Failures: 2;
Percent Failure/ Estimated Amount: [Empty];
Reason Why Payment Was Not Valid: Total failures;
Number of Failures: 39[B];
Percent Failure/ Estimated Amount: 16 percent;
Reason Why Payment Was Not Valid: Estimate of Improper and Potentially
Fraudulent Payments;
Reason Why Payment Was Not Valid: Point estimate;
Number of Failures: [Empty];
Percent Failure/ Estimated Amount: $1.0 billion[C];
Reason Why Payment Was Not Valid: 95 percent confidence interval;
Number of Failures: [Empty];
Percent Failure/ Estimated Amount: $600 million to $1.4 billion[C];
Source: GAO.
[A] Registrations containing bogus damaged property addresses also fail
the invalid primary residence attribute.
[B] Some registrations failed more than one attribute;
therefore, the total number of failures is less than the sum of the
attribute totals.
{C] Rounded to the nearest $10 million.
[End of table]
Payments to Registrants Whose Damaged Property Address Was Not Their
Primary Residence - Twenty six payments failed the primary residence
test. These include individuals who had never lived at the damaged
property, did not live at the damaged property at the time of the
disasters, or used bogus property addresses on their registrations. We
made these determinations after reviewing publicly available records,
conducting site visits, and interviewing current residents and/or
neighboring residents. We provide additional details related to
failures in this attribute in table 2.
Table 2: Selected Payments in Statistical Sample That Failed the
Primary Residence Attribute:
Case: 1;
Amount: $19,636;
Case Details: * Registrant received $2,000 in expedited assistance,
$2,358 in rental assistance, and more than $15,000 in personal property
replacement;
* Registrant originally claimed damage at a street address several
houses away from the damaged property address currently in FEMA's
database. At some point in the disaster assistance process, the
registrant made changes to the damaged property address;
* No physical inspection occurred at the damaged property. Personal
property payment was based on geospatial data due to the level of
devastation in the area;
* GAO reviews of publicly available information and credit report data
showed that the registrant had never lived at the damaged property
address for which she was paid.
Case: 2;
Amount: 14,750;
Case Details: * Registrant used valid physical property as damaged
address to receive three payments for expedited assistance, rental
assistance, and personal property replacement;
* GAO audit and investigative work found no evidence that the
individual ever lived at the property. After receiving the payments,
the registrant withdrew the application without ever having a physical
inspection performed or returning the disaster payments to FEMA.
Case: 3;
Amount: 7,328;
Case Details: * Registrant used damaged property in Kenner, Louisiana,
as primary residence to qualify for one expedited assistance payment
and two rental assistance payments;
* Registrant did not live at property at the time of disaster;
* Owner of the property told us that the registrant had moved out of
the damaged property a month prior to hurricane Katrina.
Case: 4;
Amount: 6,161;
Case Details: * Registrant used damaged property as primary residence
to receive one expedited assistance and two rental assistance payments;
* Residents at the property had never heard of the registrant.
Case: 5;
Amount: 2,784;
Case Details: * Registrant used post office box in McIntosh, Alabama,
as the damaged property address to receive expedited assistance and
rental assistance;
* The local postal inspector stated that the post office box was linked
to other individuals associated with known fraudulent activity.
Source: GAO analysis and investigation of FEMA data.
[End of table]
Payments to Duplicate Registrations--12 other payments in our sample
failed because they were made to registrants whose damaged property
addresses and current addresses had previously been submitted under
other registrations and had received payments on those previous
registrations. For example, one sample registrant submitted a
registration containing the same damaged and current property addresses
as those used previously by another registrant. Both registrations
received payments for rental assistance for $2,358 in September 2005.
Payments to Registrations with Bogus Property Addresses - Three
payments in our sample were made to registrations containing bogus
property addresses. For example, we found that one individual used
several pieces of bogus information to receive expedited assistance.
Specifically, the registrant used a SSN that was valid but the name did
not match the name in records maintained by the Social Security
Administration. The registrant also used a damaged property address in
the 3000 block that was determined to be invalid through our on-site
inspection, as street numbers on that street only went up to the 1000s.
After the initial payment, the registration was withdrawn voluntarily
by the registrant. In effect, this registrant was able to use
completely bogus information to receive $2,000 from FEMA and then
withdraw the registration to avoid further scrutiny.
Payments to Registrations Containing Invalid Social Security Numbers -
-Two of the payments in the sample were made to individuals that used
invalid SSNs (e.g., SSNs that have never been issued or SSNs that did
not match the name provided on the registration). For example, one
individual used a SSN that had never been issued to receive FEMA
payments for expedited and rental assistance.
Overall, we observed that 17 of our sample failures (44 percent) were
related specifically to expedited assistance payments. The high level
of expedited assistance-related failure was expected because these
payments needed to be made quickly and, typically, prior to a physical
inspection of the damaged property. However, we found that the other 22
failures (56 percent) were related to rental assistance and personal
and real property repair and replacement payments. In its response to a
draft GAO report, FEMA represented to us that all nonexpedited
assistance payments, including the $2,358 in housing assistance
payments, were subject to much more stringent requirements.
Specifically, FEMA represented that the registrants had to demonstrate
that they occupied the damaged property at the time of the disaster.
However, the 22 failures we found indicate that these requirements were
not effective in preventing improper and potentially fraudulent
registrations from receiving nonexpedited assistance payments.
Sample Testing Understates Improper and Potentially Fraudulent
Payments:
Our estimate likely understates the total amount of improper and
potentially fraudulent payments because we did not test our samples for
all potential reasons why a disaster assistance payment could be
fraudulent or improper. For example, our testing criteria did not
include reviewing whether registrants had insurance policies that
covered hurricane damages, which may have made them ineligible for IHP
payments. We also did not test whether FEMA inspectors accurately
assessed the damage to each sampled damaged property, or whether the
registrants were displaced from their homes, an eligibility factor for
rental assistance.
During the course of our work, we found that these problems affected
some of our sampled payments and, therefore, these payments may be
improper or potentially fraudulent. However, because the problems did
not relate to identity and address information, they passed our testing
criteria. For example, an individual in our statistical sample provided
a valid SSN and lived in a declared disaster area. However, the
individual informed GAO that he did not incur any hurricane-related
damage. Despite this fact, the individual received $2,000 in expedited
assistance. We did not test whether registrants received duplicate
benefits from other FEMA programs, such as free hotel lodging and
trailers, which would have resulted in FEMA paying duplicate housing
benefits to the same registrant. Later in this testimony, we provide
examples where registrants received from FEMA free hotel rooms in
addition to rental assistance. Finally, our estimate would include
payments FEMA has identified for potential recoupment.
Undercover Investigations and Case Study Examples of Fraudulent and
Improper IHP Payments:
Given the considerable amount of potentially fraudulent and improper
payments identified in our statistical sample, it is not surprising
that FEMA continued to provide rental assistance payments to GAO
investigators based on bogus registrations. In one instance, rental
assistance was made even after a FEMA inspector was unable to find the
damaged property. Similarly, our sample testing and data mining work
also identified additional examples of payments made on the basis of
bogus information.
In our previous testimony,[Footnote 11] we reported that we were able
to obtain $2,000 expedited assistance checks from FEMA using falsified
identities, bogus property addresses, and fabricated disaster stories.
FEMA has continued to provide us with additional disaster-related
assistance payments even after FEMA received indications from various
sources that our registrations may be bogus. GAO has not cashed these
checks and plans to return the checks to the Department of Treasury
upon the conclusion of our work. The following provides details of two
of our undercover operations:
* Case #1 relates to a registration submitted by GAO for hurricane Rita
that cited a bogus address in Louisiana as the damaged property. In
October 2005, GAO received notice that the inspector assigned to
inspect the property was not able to find the house despite numerous
attempts to verify the address with the phone book, post office, and
with a physical inspection. The registration was subsequently returned
to FEMA by the inspector and coded as withdrawn because no contact was
made with the registrant. Even though GAO never met with the inspector
to prove that the damaged property existed, FEMA sent GAO a check for
$2,000 in early 2006.
* Case # 2 relates to a GAO disaster registration for an empty lot in
Louisiana for hurricane Katrina. Although the damaged property address
was bogus, FEMA notified GAO that an inspection was performed and
confirmed that the property was damaged.[Footnote 12] However, FEMA
stated that the registration could not be processed because FEMA was
unable to corroborate that the GAO lived at the damaged property. GAO
subsequently submitted a fictitious driver's license that included the
bogus address, which FEMA readily accepted. Based on the fictitious
driver's license, FEMA issued GAO a $2,358 rental assistance check, as
shown in figure 1. Subsequent to FEMA issuing the $2,358 check, a Small
Business Administration (SBA) inspector who was responsible for
inspecting the damaged property in evaluation of a potential SBA
loan[Footnote 13] reported that the property did not exist. Although
SBA discovered that the property was bogus, FEMA issued another rental
assistance check to GAO, bringing the total rental assistance on this
bogus registration to about $6,000. We found that the discrepancy
between FEMA's result (which confirmed that the property existed), and
SBA's result (which showed that the property did not exist) occurred
because FEMA did not conduct a physical inspection on the property but
instead used geospatial mapping to determine losses.
Figure 1: Rental Assistance Check Issued to GAO:
[See PDF for image]
[End of figure]
Data Mining Continued to Find Other Illustrative Examples of Improper
and Potentially Fraudulent Payments:
We have previously testified regarding potentially fraudulent case
studies we uncovered through data mining and investigative techniques.
The potential fraud in those cases was hundreds of thousands of
dollars. We have continued our data mining work find additional
examples where FEMA made payments, sometimes totaling over $100,000, to
improper or potentially fraudulent registrations, including payments
made to registrants where cemeteries and post office boxes were claimed
as damaged property addresses. Table 3 provides several additional
examples of improper and potentially fraudulent payments.
Table 3: Examples of Payments Made to Improper and Potentially
Fraudulent Registrations:
Case: 1;
Amount: $109,708;
Case Details: * 8 individuals submitted 8 registrations using their own
SSNs;
* All 24 payments were sent to a single apartment;
* 4 individuals were members of the same household who were displaced
to the same location. However, these individuals each received an
expedited assistance and a rental assistance payment. According to
public records, the other 4 individuals were not living at the damaged
property at the time of the hurricane.
Case: 2;
Amount: 139,000;
Case Details: * Individual received 26 payments using 13 different
SSNs--only 1 of which belonged to the person;
* Public records indicate that the individual did not reside at any of
the 13 addresses claimed as damaged property addresses;
* Public records also indicate that 8 of the 13 addresses did not exist
or have public ownership records.
Case: 3;
Amount: 4,358;
Case Details: * Registrant claimed a UPS store address as damaged
property address to qualify for 2 payments for expedited assistance and
rental assistance.
Case: 4;
Amount: 2,358;
Case Details: * Registrant used an address in Greenwood Cemetery, New
Orleans, as the damaged property address to qualify for one rental
assistance payment.
Case: 5;
Amount: 2,000;
Case Details: * Registrant used a New Orleans cemetery as the damaged
property address to obtain one expedited assistance payment.
Source: GAO analysis and investigation of FEMA data.
[End of table]
The following provides illustrative information for three of the cases.
* Case number 1 involves 8 individuals who claimed several different
damaged property addresses, but the same current address which is a
single apartment. Public record searches also determined that only 2 of
the 8 individuals actually lived at the current address. Four
individuals were members of the same household who shared the same
damaged property address. However, the 4 individuals each received one
expedited and one rental assistance payment. FEMA criteria specified
that members from the same household who were displaced to the same
location should be entitled to only one IHP payment. According to
public records, the other 4 individuals were not living at the address
claimed as damaged at the time of the hurricane.
* Case number 2 involves an individual who used 13 different SSNs--
including one of the individual's own--to receive payments on 13
registrations. The individual claimed 13 different damaged property
addresses and used one single current address to receive FEMA payments.
According to publicly available records, this individual had no
established history at any of the 13 properties in Louisiana,
Mississippi, and Alabama, which the individual claimed as damaged. The
individual received approximately $139,000 consisting of 8 expedited
assistance payments, 4 rental assistance payments, and 14 other
payments, including 3 payments of $10,500 each, and 3 payments ranging
from over $12,000 to over $17,000 for personal property replacement.
Further audit and investigative work indicates that 8 of the 13
addresses did not exist or do not have public ownership records.
* Case number 4 involves a registrant who used the address of a
cemetery to make an IHP claim. Specifically, the registrant used a
damaged property address located within the grounds of Greenwood
Cemetery, in New Orleans, Louisiana, to request disaster assistance
from FEMA. Public records show no record of the registrant ever living
in New Orleans. Instead, public records indicate that for the past five
years, the registrant has resided in West Virginia at the address
provided to FEMA as the registrant's current address.
As discussed previously, one statistical sample item we tested related
to an improper and potentially fraudulent payment FEMA made to an
individual who received expedited and rental assistance as a result of
using a post office box as a damaged property address. According to the
Postal Inspector, this post office box was also linked to individuals
that are associated with fraudulent activity. In total, we found that
FEMA made over 2,000 payments totaling about $5.3 million to
registrants who provided a post office box as their damaged residence.
While not all payments made to post office boxes are improper or
potentially fraudulent, the number of potentially fraudulent payments
could be substantially reduced if FEMA put in place procedures to
instruct disaster recipients to provide actual street addresses of
damaged property when claiming disaster assistance.
Registrants Using Prisoner Identities Received Millions in Disaster
Assistance Payments:
FEMA paid millions of dollars to over 1,000 registrants who used names
and SSNs belonging to state and federal prisoners for expedited and
housing assistance.[Footnote 14] FEMA guidelines specify that
eligibility for disaster assistance is predicated on the registrant
being displaced from their primary residence due to the disaster, thus
having need for shelter. These eligibility criteria should have
generally excluded prisoners incarcerated throughout the disaster
period. Given the weaknesses we identified earlier related to the
number of individuals who claimed damages based on invalid property
addresses, we can not ascertain whether FEMA properly verified that
these registrations were valid, and therefore deserving of IHP
payments. The following are three cases where prisoner identities were
used to improperly receive IHP payments.
* Case 1 involves a convicted felon, housed in a Louisiana prison from
April 2001 to the present, who registered for IHP assistance by
telephone. The registrant made a FEMA claim using a post office box
address in Louisiana as his damaged property address to qualify for IHP
payments for expedited assistance, rental assistance, and personal
property replacement. Two of these payments were made via checks sent
to the address he falsely claimed as his current residence, and the
final payment was sent via electronic funds transfer (EFT) to someone
who also listed the same current address on the checking account. FEMA
paid over $20,000 to the registrant even though the damaged property
address on the registration was a post office box address and the
registrant was incarcerated throughout the disaster period.
* Case 2 involves a registrant who has been incarcerated in a Louisiana
state penitentiary since February 2005. Several weeks after the
disaster, the registrant applied by telephone for individual disaster
relief assistance claiming a Louisiana address. Based on his
registration information, FEMA paid the inmate over $14,000 in checks
mailed to an address in Texas that he listed as his current address,
and an EFT was sent to his checking account. Payments included
expedited assistance, rental assistance, and personal property
replacement funds.
* Case 3 involves a registrant who has been incarcerated in a
Mississippi correctional facility since 2004. The registrant used his
name and SSN over the telephone to apply for and receive $2,000 in
expedited assistance and $2,358 in rental assistance. The individual
listed his correct current address, at the prison, to receive these
payments.
Rental Assistance Payments Sent to Individuals Living in FEMA-Paid-For
Hotels:
Following hurricane Katrina, FEMA undertook massive efforts to house
individuals and households who were displaced by the hurricane. Among
other efforts, FEMA provided hotel accommodations to individuals who
were at that time displaced across the United States.[Footnote 15] We
found that although FEMA was responsible for paying hotel costs, FEMA
did not require hotels to collect registration information (such as
FEMA registration identification numbers or SSN) on individuals to whom
it provided hotel accommodations. Without this information, FEMA was
not able to identify individuals who were housed in hotels, and, thus,
FEMA was unable to determine whether rental assistance should be
provided to individuals to whom the federal government was providing
free lodging. As a result, FEMA made rental assistance payments which
covered the same period of time that the registrant was staying at a
FEMA-paid hotels.[Footnote 16] Table 4 provides examples of some of
these cases.
Table 4: FEMA Registrants Receiving Rental Assistance and FEMA Paid
Hotels:
Case: 1;
Hotel Name (Location): Quality Inn (Carson, Calif.);
Extended Stay America (Sacramento, Calif.);
Rental Assistance Payments: $6,734;
Total Hotel Payments[A]: $ 8,000;
Details: * Registrant stayed at two hotels from September 2005 to
February 2006 at a cost of $50 to $60 per night;
* FEMA paid registrant rental assistance for both Katrina and Rita in
October 2005 and again in December 2005 for Katrina.
Case: 2;
Hotel Name (Location): Motel 6 (Port Allen, La.);
Rental Assistance Payments: 5,602;
Total Hotel Payments[A]: 7,000;
Details: * Registrant stayed at hotels from October 2005 to February
2006 at cost of $36 to $56 per night;
* While at the hotel, registrant submitted self-certification forms
stating he required housing assistance as a result of both disasters;
* FEMA paid registrant two rental assistance payments for Rita in
November 2005 and two rental assistance payments for Katrina in
December 2005 and January 2006.
Case: 3;
Hotel Name (Location): Marriott Courtyard (Lafayette, La.);
Rental Assistance Payments: 5,208;
Total Hotel Payments[A]: 18,000;
Details: * Registrant stayed at hotel from September 2005 to February
2006 at a cost of $109 to $122 per night;
* FEMA paid registrant two rental assistance payments in September 2005
and December 2005.
Case: 4;
Hotel Name (Location): Marriott Cypress Harbour (Orlando, Fla.);
Rental Assistance Payments: 4,386;
Total Hotel Payments[A]: 12,000;
Details: * Registrant stayed at the vacation resort hotel from
September to November 2005 at a cost of $154 to $249 per night;
* In November 2005, the registrant moved to a FEMA-paid trailer;
* FEMA made two rental assistance payments to the registrant in October
2005.
Case: 5;
Hotel Name (Location): Days Inn (Monroe, La.);
Rental Assistance Payments: 4,386;
Total Hotel Payments[A]: 8,000;
Details: * Registrant stayed at hotel from October 2005 to January 2006
at a cost of $69 to $79 per night;
* FEMA paid registrant two rental assistance payments in September 2005
and December 2005;
* FEMA inspector notes indicate registrant did not live at the damaged
address at time of the hurricane.
Case: 6;
Hotel Name (Location): Intercontinental (New Orleans, La.);
Days Inn (Metairie, La.);
Best Western French Quarter Landmark (New Orleans, La.);
Rental Assistance Payments: 4,056;
Total Hotel Payments[A]: 14,000;
Details: * Registrant stayed at three hotels from November 2005 to
February 2006 at a cost of $119 to $260 per night;
* FEMA paid registrant rental assistance payments in November 2005 and
January 2006.
Case: 7;
Hotel Name (Location): Ramada Plaza Hotel (Corona, N.Y.);
Rental Assistance Payments: 2,358;
Total Hotel Payments[A]: 31,000;
Details: * Registrant stayed at hotel from September 2005 to March 2006
at a cost of $149 per night;
* FEMA paid registrant rental assistance in September 2005.
Case: 8;
Hotel Name (Location): Pagoda Hotel (Honolulu, Hawaii);
Rental Assistance Payments: 2,358;
Total Hotel Payments[A]: 8,000;
Details: * Registrant stayed at hotel from October to December 2005 at
a cost of $110 to $115 per night;
* FEMA paid the registrant rental assistance in November 2005 and
another rental assistance payment for $2,988 in January 2006;
* Our investigation and public records indicate that the registrant did
not live at the damaged property address in New Orleans at the time of
the hurricane but instead resided in North Carolina.
Case: 9;
Hotel Name (Location): French Quarter Suites (New Orleans, La.);
Old Towne Inn (New Orleans, La.);
Rental Assistance Payments: 2,358;
Total Hotel Payments[A]: 8,000;
Details: * Registrant stayed at two hotels from November 2005 to
January 2006 at a cost of $100 to $136 per night;
* FEMA paid registrant rental assistance in November 2005;
* Registrant was evicted from second hotel for violating hotel rules.
Case: 10;
Hotel Name (Location): Days Inn (Monroe, La.);
Rental Assistance Payments: 2,028;
Total Hotel Payments[A]: 8,000;
Details: * Registrant stayed at hotel from October 2005 to January 2006
at a cost of $61 to $79 per night;
* FEMA paid the registrant rental assistance in December 2005.
Source: GAO analysis and investigation of FEMA and hotel data.
[A] Rental assistance payments were made prior to February 13 while
these recipients were staying in the FEMA-paid hotels. Total hotel
payments are rounded to the nearest $1,000.
[End of table]
Because the hotels were not required to collect identification numbers,
we were unable to determine the magnitude of individuals who received
these duplicate benefits. However, as illustrated in table 4, our data
mining identified a number of individuals housed in FEMA-paid for
hotels who have received more than one rental assistance payment.
Without an effective means of reconciling individuals in FEMA hotels
with those individuals receiving rental assistance payments, FEMA may
have wasted taxpayer dollars by paying twice for housing assistance to
hurricane victims.
FEMA Lacked Controls over Accountability and Use of Debit Cards:
FEMA did not establish proper accountability for debit cards. As a
result, FEMA disbursed about $1.5 million of taxpayer money for over
750 debit cards that FEMA cannot establish went to disaster victims. In
addition, as reported previously, we continued to find cases where
recipients purchased goods and services that did not meet serious
disaster related needs as defined by federal regulations.[Footnote 17]
Control Weaknesses over Accountability of FEMA Debit Cards:
FEMA lacked controls for accounting for debit cards issued, resulting
in the loss of accountability for over 750 debit cards valued at about
$1.5 million. The lack of controls over debit cards is particularly
troubling given that debit cards are, in essence, cash that can be used
to purchase goods and services. In September 2005, JPMorgan Chase was
initially paid approximately $22.7 million for about 11,374 cards that
the bank believed were issued to FEMA registrants. However, prior to
our inquiries beginning in November 2005, we found that neither FEMA
nor the bank had reconciled the actual number of cards distributed with
the number of cards for which payment was made. From our numerous
inquiries, both JPMorgan Chase and FEMA began to reconcile their
records to the debit cards issued. As a result,
* JPMorgan Chase performed a physical count of cards remaining to
identify the number of cards distributed. This resulted in JPMorgan
Chase determining that it distributed 10,989 cards, not 11,374 cards.
Upon identification of the 385 undistributed debit cards, JPMorgan
Chase refunded to FEMA $770,000 attributable to these undistributed
debit cards.
* FEMA attempted to perform a reconciliation of the distributed cards
to the cards recorded in its disaster recipient database. As of May 26,
2006, FEMA can only account for 10,608 cards of the 10,989 cards
JPMorgan Chase claimed that it has distributed.[Footnote 18] As a
result, FEMA cannot properly account for 381 debit cards, worth about
$760,000.
Lack of Guidance for Proper Use of Debit Cards:
Since initially paying JPMorgan Chase $22.7 million, FEMA has expanded
the use of debit cards as a payment mechanism for future IHP payment
for some registrants. Through this process, FEMA made about $59 million
in additional payments of rental assistance and other benefits. As of
March 2006, over 90 percent of money funded to the debit cards has been
used by recipients to obtain cash and purchase a variety of goods and
services. Our analysis of data provided by JPMorgan Chase found that
the debit cards were used predominantly to obtain cash[Footnote 19]
which did not allow us to determine how the money was actually used.
The majority of the remaining transactions was associated with
purchases of food, clothing, and personal necessities.
Similar to findings in our February 13, 2006, testimony, we continue to
find some cases where cardholders purchased goods and services that did
not appear to meet legitimate disaster needs. In this regard, FEMA
regulations provide that IHP assistance be used for items or services
that are essential to a registrant's ability to overcome disaster-
related hardship. Table 5 details some of the debit cards activities we
found that are not necessary to satisfy legitimate disaster needs.
Table 5: Examples of Questionable Use of Debit Cards:
Vendor: Jewelz;
Location: Arlington, Tex;
Nature of Transaction: Diamond jewelry including watches, earrings, and
a ring;
Amount: $3,700.
Vendor: Vacation Express;
Location: Atlanta, Ga;
Nature of Transaction: All inclusive 1 week Caribbean vacation resort
in Punta Cana, Dominican Republic;
Amount: 2,200.
Vendor: Lesea Broadcasting;
Location: South Bend, Ind;
Nature of Transaction: Donations to a faith based charity;
Amount: 2,000.
Vendor: New Orleans Saints;
Location: New Orleans, La;
Nature of Transaction: 5 New Orleans Saints football season tickets;
Amount: 2,000.
Vendor: Mark Lipkin;
Location: Houston, Tex;
Nature of Transaction: Divorce lawyer services;
Amount: 1,000.
Vendor: Legends;
Location: Houston, Tex;
Nature of Transaction: Gentleman's club;
Amount: 600.
Vendor: The Pleasure Zone;
Location: Houston, Tex;
Nature of Transaction: Adult erotica products;
Amount: 400.
Vendor: Hooters;
Location: San Antonio, Tex;
Nature of Transaction: Alcoholic beverages including $200 bottle of Dom
Perignon champagne;
Amount: 300.
Vendor: GGW Video;
Location: Santa Monica, Calif;
Nature of Transaction: Girls Gone Wild videos;
Amount: 300.
Vendor: Alamo Fireworks;
Location: San Antonio, Tex;
Nature of Transaction: Fireworks;
Amount: 300.
Source: GAO analysis of debit card transactions and additional
investigations.
Note: Total transaction amounts are rounded to the nearest $100.
[End of table]
Concluding Comments:
FEMA faces a significant challenge in ensuring that IHP relief payments
are only sent to valid registrants while also distributing those relief
payments as fast as possible. To ensure the success of the program,
FEMA must build the American taxpayers confidence that federal disaster
assistance only goes to those in need, and that adequate safeguards
exist to prevent assistance from going to those who submit improper and
potentially fraudulent registrations. To that effect, FEMA must develop
and strengthen controls to validate information provided at the
registration stage. As we have stated in prior audit work, and as FEMA
had learned from prior experience, pursuing collection activities after
disaster relief payments have been made is costly, time-consuming, and
ineffective. Upfront controls are all the more crucial given the
estimated $1 billion dollars that had gone to improper and potentially
fraudulent registrations related to hurricanes Katrina and Rita. It is
key that FEMA address weaknesses in its registration process so that it
can substantially reduce the risk for fraudulent and improper payments
before the next hurricane season arrives.
In addition, to help deter future fraudulent registrations, FEMA must
ensure there are consequences for those who commit fraud. We plan to
refer potentially improper payments to FEMA for further review, and
hope that FEMA will take the necessary recoupment actions. Further, we
have referred, and plan to refer additional cases of potential fraud to
the Katrina Fraud Task Force for further investigations and, if
warranted, indictments. Finally, we plan to issue a report in the
future with recommendations for addressing problems identified in this
testimony.
Mr. Chairman and Members of the Committee, this concludes our
statement. We would be pleased to answer any questions that you or
other members of the committee may have at this time.
Contacts and Acknowledgement:
For further information about this testimony, please contact Gregory
Kutz at (202) 512-7455 or kutzg@gao.gov, John Kelly at (202) 512-6926
or kellyj@gao.gov.
Major contributors to this testimony include Kord Basnight, James Berry
Jr., Gary Bianchi, Valerie Blyther, Matthew Brown, Norman Burrell,
Jennifer Costello, Paul Desaulniers, Steve Donahue, Dennis Fauber,
Christopher Forys, Adam Hatton, Aaron Holling, Jason Kelly, Sun Kim,
Crystal Lazcano, Tram Le, John Ledford, Jennifer Leone, Barbara Lewis,
Jonathan Meyer, Gertrude Moreland, Richard Newbold, Kristen Plungas,
John Ryan, Sidney Schwartz, Robert Sharpe, Gail Spear, Tuyet-Quan Thai,
Patrick Tobo, Matthew Valenta, Tamika Weerasingha, and Scott Wrightson.
[End of section]
Appendix I: Objectives, Scope and Methodology:
Our objectives were to (1) provide an estimate of improper and
potentially fraudulent payments related to certain aspects of the
disaster registrations, (2) identify whether FEMA made improper or
potentially fraudulent IHP payments to registrants who were
incarcerated at the time of the disaster, (3) identify whether FEMA
provided registrants with rental assistance payments at the same time
it was paying for their hotel rooms, and (4) review FEMA's
accountability over debit cards and controls over proper debit card
usage.
To provide an estimate of improper and potentially fraudulent payments
related to certain aspects of the disaster registrations, we drew a
statistical sample of 250 payments from the Federal Emergency
Management Agency (FEMA)'s Individuals and Households Program (IHP)
payments. Three of the 250 were considered out of scope for our study
because the payment has been returned to the U.S. government by the
time of our review. Therefore, our review examined 247 payments for
which the government was subject to financial loss. Potentially
fraudulent and invalid payments are claims that contained (1) bogus
identities, (2) addresses that did not exist, (3) addresses where there
was no evidence that the address was the primary residence of the
registrant at the time of the disaster, and (4) addresses that had been
previously registered using duplicate information (such information
would include same SSNs, same damaged address, and/or same current
address). We conducted searches of public records, available FEMA data,
and/or made physical inspections of addresses to determine if
registrations were improper and/or potentially fraudulent.
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.
To identify whether FEMA made improper or potentially fraudulent IHP
payments to registrants who were incarcerated at the time of the
disaster, we obtained the FEMA IHP database as of February 2006. We
obtained databases containing state prisoner data since August 2005,
including releases and new incarcerations, from the states of
Louisiana, Texas, Mississippi, Alabama, Georgia, and Florida. We also
obtained federal prisoner data since August 2005, including releases
and new incarcerations, from the Department of Justice. We validated
the databases were complete by comparing totals against available
public information on prisoner populations. We compared these databases
against the population of IHP payments to identify prisoner SSN/name
combinations that received payments from FEMA. We restricted this
comparison to prisoners who were in state or federal prisons at the
time of the disasters. We also interviewed prisoners who registered for
disaster relief and prison officials to determine if prisoners were
incarcerated at the time of the disaster.
To identify whether FEMA improperly provided registrants with rental
assistance payments at the same time it was paying for their hotel
rooms, we reviewed FEMA policies and procedures to determine how FEMA
administered its hotel program, and obtained FEMA data on its hotel
registrants. We also used data mining and forensic audit techniques to
identify registrants who stayed in hotels paid for by FEMA who also
received rental assistance payments through the IHP program. To
determine whether registrations from our data mining resulted in
duplication of housing benefits, we used a selection of 10 case studies
for further investigation. We obtained documentation from hotel
officials to substantiate that case study registrants stayed at hotels
paid for by FEMA. We also gathered available FEMA data on case study
registrations that received multiple rental assistance payments to
determine what information they had provided FEMA in order to receive
additional rental assistance.
To review FEMA's accountability over debit cards and controls over
proper debit card usage, we reviewed databases of transactions and
accounts provided by JPMorgan Chase, the administering bank for the
debit cards, as well as FEMA's database of debit card accounts. We
interviewed bank, FEMA, and Treasury officials regarding the
reconciliation of debit card accounts against IHP registrants and
reviewed documentation related to the payment flow of debit cards. We
also performed data mining on debit card transactions to identify
purchases that did not appear to be indicative of necessary expenses as
defined by the Stafford Act's implementing regulations.
During the course of our audit work, we identified multiple cases of
potential fraud. For cases that we investigated and found significant
evidence of fraudulent activity, we plan to refer our cases directly to
the Hurricane Katrina Fraud Task Force. We performed our work from
February 2006 through June 8, 2006 in accordance with generally
accepted government auditing standards and quality standards for
investigations as set forth by the President's Council on Integrity and
Efficiency.
Data Reliability:
To validate that the National Emergency Management Information System
database was complete and reliable, we compared the total disbursements
against reports FEMA provided to the Senate Appropriations Committee on
Katrina/Rita disbursements. We also interviewed FEMA officials and
performed electronic testing of the database on key data elements.
FOOTNOTES
[1] 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).
[2] Pursuant to 42 U.S.C. § 5714, assistance for real property repair
and replacement is capped at $5,200 and $10,500, respectively. There
are no financial caps for housing assistance and other necessary
expenses.
[3] As of mid-May 2006, FEMA reported that IHP payments for Katrina and
Rita totaled slightly over $6.7 billion. Data we analyzed as of
February 2006 represented more than 90 percent of this amount.
[4] Exceptions were made for areas in Louisiana and Mississippi where
damages were widespread and extensive. For these areas, FEMA exempted
properties from an actual inspection prior to providing occupants in
these areas with rental assistance. FEMA also used geospatial imaging
to determine the level of real and personal property repair and
replacement on properties where FEMA could not conduct visual
inspections.
[5] For the purpose of this testimony, our estimate of improper and
potentially fraudulent payments is based on a statistical sample of
payments in which we examined whether the associated registrations
contained invalid Social Security Numbers (SSNs), bogus addresses,
invalid primary residence, and/or duplicate information. Invalid SSNs
refer to instances where the SSNs did not match with the name provided;
the SSNs belong to the deceased;
or the SSNs had never been issued. Bogus addresses refer to instances
where the damaged address did not exist. Invalid primary residences are
related to registrations where the registrant 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
registrations contained information that is duplicative of another
registration that received a payment and was earlier recorded in FEMA's
system.
[6] 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. 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.
[7] 44 CFR 206.117.
[8] 44 CFR 206.112.
[9] All dollar estimates from this sample of FEMA disaster payments
have 95 percent confidence intervals of within plus or minus $400
million of the estimate itself, unless otherwise noted.
[10] All percentage estimates from this sample of FEMA disaster
payments have 95 percent confidence intervals of within plus or minus 5
percentage points of the estimate itself, unless otherwise noted.
[11] GAO-06-403T .
[12] Follow-up work indicates that because the address fell in an area
with tremendous devastation, FEMA used geospatial mapping in lieu of a
physical inspection to identify the level of damage and calculate the
amount of assistance.
[13] Individuals and households who met a certain income threshold were
referred to SBA for a loan consideration.
[14] FEMA paid registrants who used names and SSNs belonging to inmates
in the Gulf Coast region (that is, Louisiana, Texas, Alabama,
Mississippi, Georgia, and Florida) or federal prison institutions and
whose application was made at the time of incarceration. Most of these
prisoners are still incarcerated. These numbers do not include
prisoners who submitted false identities or false addresses on their
registrations, prisoners who were free at the time of the hurricanes,
received rental assistance, and were later incarcerated (meaning they
received rental assistance covering periods of incarceration) or
prisoners who used other schemes to collect FEMA benefits, such as
identity theft. The average amount FEMA paid to a prisoner for
expedited assistance and rental assistance was over $3,000.
[15] Immediately after hurricane Katrina, the Red Cross moved to
provide hurricane victims with housing in hotels through its Special
Transient Accommodations Program. On October 25, 2005, FEMA took over
the management of this program. FEMA subsequently reimbursed Red Cross
for expenditures Red Cross incurred for its program.
[16] On November 23, 2005, FEMA issued a policy memo for Katrina
stating that rental assistance payments for the first 3 months ($2,358)
are not considered a duplication of benefits for individuals staying at
FEMA paid hotels. FEMA made the policy retroactive and applied it to
all rental assistance payments provided prior to the policy being
issued. We do not believe that this retroactive policy determination
eliminates the fact FEMA effectively provided some evacuees with two
forms of lodging benefits at the same time, resulting in a waste of
government funds.
[17] 44 CFR 206.110.
[18] Based on the electronic data provided to us, we were not able to
corroborate 400 of the 10,608 cards FEMA stated that they were able to
identify. According to a FEMA official, FEMA identified these
recipients utilizing data mining activities and a manual review process
of the recipient files. However, the FEMA official stated that no hard
copies of the recipient files were made and, thus, we are not able to
conclude whether these additional cards were, in fact, linked to a
recipient who received a debit card.
[19] Over 70 percent of debit card dollars were cash withdrawals.
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