DHS Chief Responds to “60 Minutes” Report on Hurricane Sandy Contractor Relief Fraud

Following a CBS“60 Minutes” report on alleged fraud on the part of insurance companies and contractors overseen by the Federal Emergency Management Agency (FEMA) which handled claims and repairs of homes and business in Hurricane Sandy afflicted areas, Department of Homeland Security (DHS) Secretary Jeh Johnson said Monday that, “The 60 Minutes report Sunday about Hurricane Sandy insurance claims is a matter of great concern to me and FEMA Administrator Craig Fugate."

Johnson said, "We share the views expressed by FEMA Deputy Associate Administrator Brad Kieserman during the program. Any allegation of fraud is highly troubling, and especially so when it involves Americans who have lost their homes in a natural disaster.”

On the heels of an audit completed late last year by DHS’s Office of Inspector General (IG) which found FEMA failed to track $66 billion in obligated disaster funds that put long-term disaster recovery efforts at risk, a subsequently Government Accountability Office (GAO) audit report detailed having identified $39 million, or 2.7 percent, of Hurricane Sandy financial assistance that may have been improper or outright fraudulent, compared to 10–22 percent of similar assistance provided for Hurricanes Katrina and Rita.

DHS’s IG report stated, “FEMA risks mismanaging disaster relief funds because it does not track costs or performance data and has not created and implemented standardized policies, procedures and performance measures for long-term recovery offices.”

As of August 2014, FEMA stated it had provided over $1.4 billion in Hurricane Sandy assistance through its Individuals and Households Program (IHP)—which provides financial awards for home repairs, rental assistance and other needs—to almost 183,000 survivors.

However, GAO said it “identified payments as at-risk if they had characteristics indicating, for example, that ineligible recipients or duplication of assistance could be involved. However, it is not possible to determine whether these payments were definitively improper or fraudulent without inspecting each payment. FEMA officials reviewed GAO’s findings and stated that at least $6.1 million of the $39 million were not improper or fraudulent, but GAO could not independently confirm their conclusions for each payment.”

GAO recommended FEMA collaborate with the Social Security Administration (SSA) to obtain and collect important data to detect duplicative assistance and to implement an approach to verify whether recipients have private insurance.

DHS concurred with all five of GAO’s recommendations, described ongoing or planned actions, and provided a timeline for addressing the recommendations.

The 70-page report, Hurricane Sandy: FEMA Has Improved Disaster Aid Verification but Could Act to Further Limit Improper Assistance, was originally requested by Rep. Michael McCaul (R-Texas), chairman of the House Committee on Homeland Security, and Rep. Susan W. Brooks (R-Ind.) chairman of the Subcommittee on Emergency Preparedness, Response, and Communications.

“GAO found FEMA put $39 million of taxpayers’ dollars at risk of becoming improper or fraudulent,” McCaul said in a statement at the time, adding, “This is reckless and simply unacceptable. FEMA needs to be more vigilant in order to reduce the misuse of disaster aid. I am encouraged they have taken positive steps since Hurricane Katrina to reduce their volume of improper payments following a disaster, but it isn’t enough. I look forward to working with the agency as they implement the recommendations in this report."

Yesterday, in response to the “60 Minutes” report, Johnson said that, “The ‘Write Your Own’ insurance companies that issue policies and process claims for the National Flood Insurance Program represent FEMA, and like FEMA, they are stewards of taxpayer funds. FEMA has expressed its deepest concern about allegations regarding the integrity of the claims adjustment processes currently under litigation, and it has encouraged a full review of insurance company adjustment and engineering practices to ensure fair treatment of flood survivors.”

“In addition,” Johnson said, “FEMA has requested the DHS Office of Inspector General not only investigate allegations of fraud but also review and make recommendations on FEMA’s flood insurance oversight role. In December 2014, as part of that review, FEMA directed the ‘Write Your Own’ companies to obtain and produce all documentation related to the use of engineers to evaluate flood damages. FEMA is also actively engaged in leading efforts to settle claims filed by survivors of Hurricane Sandy.”

“Anticipating full year funding from Congress, FEMA also took the proactive step of creating an interim office of the Flood Insurance Advocate to ensure policyholders and property owners are treated fairly throughout the process of mapping flood hazards, the identification of risks from flood and the implementation of measures to minimize flood damage,” Johnson added, saying, “Once there is a full-year budget for the Department of Homeland Security, the Interim Office of the Flood Insurance Advocate will become permanent, with full time staff and resources.”

“FEMA’s top priority is to help disaster survivors and their communities recover from the devastation of disasters,” he said, adding, “FEMA is fully cooperating with policyholders whose claims are under appeal, with the courts and the Inspector General and is seeking to settle as many claims as possible. FEMA will continue to work with Congress to ensure policyholders are paid every dollar to which they are entitled and to improve transparency in the flood insurance program going forward.”

“Those who purchase insurance must be able to count on it being there when it is needed to help rebuild their lives,” Johnson concluded.

FEMA has faced a string of stinging DHS Inspector General (IG) and GAO audits.

The Inspector General stated in an audit late last year that, with $66 billion dollars in obligated disaster funds in question after FEMA failed to track costs and performance data for its long-term recovery offices, FEMA is at risk of mismanaging disaster relief funds.

“FEMA risks mismanaging disaster relief funds because it does not track costs or performance data and has not created and implemented standardized policies, procedures and performance measures for long-term recovery offices,” the DHS IG audit report stated.

Similarly, Homeland Security Today had earlier reported that another IG  audit found significant flaws in FEMA’s $247 million disaster relief system that may hamper an effective response to a catastrophic disaster.

Last July, Homeland Security Today reported 58 management and disaster relief fund audit reports by DHS’s Inspector General identified $88.6 million in questioned costs, and $8.9 million in funds that could be put to better use.

For example, an IG audit found FEMA officials did not correctly apply their own disaster relief guidelines in response to the catastrophic 2008 flooding in Cedar Rapids, Iowa, resulting in a loss to taxpayers of more than $12 million.

Between 1994 and 2013, FEMA’s long-term recovery offices were responsible for 26 major disaster declarations totaling $66 billion in obligated funds. Without tracking costs, FEMA could not evaluate the cost-effectiveness of the long-term recovery offices.

Long-term recovery offices are established in cases where state and local community officials, businesses and citizens need additional recovery assistance. These offices are generally opened in the case of a major disaster that overwhelms the FEMA Regional Office.

To maintain accountability, The Federal Managers’ Financial Integrity Act of 1982 requires federal agencies to properly account for revenues and expenditures applicable to agency operations. While FEMA tracked overall disaster costs, it failed to track costs by location.

The IG indicated FEMA must track the costs for each long-term recovery office, stating, “Without tracking costs or data, FEMA cannot determine whether these offices are cost effective."

With the federal costs associated with Hurricane Sandy—the most destructive hurricane of the 2012 Atlantic hurricane season, as well as the second-costliest hurricane in United States history— likely to surpass all disasters except Hurricane Katrina, the IG emphasized the importance of implementing new tracking policies.

The audit also found FEMA needs standardized policies, procedures and performance measures for their long-term recovery offices. Without standardized policies, opening and closing long-term recovery offices is left up the discretion of FEMA officials.

The audit report further stated that, “FEMA officials said that the key decision point for establishing and closing a Long Term Recovery Office rests on the regional officials’ ‘disaster knowledge’ for determining the need, operation, and closure of these offices. FEMA also said the ability and desire of the affected State to close out disaster recovery work quickly affects the operations and closure of the Long Term Recovery Offices.”

The subjective decision-making process, according to the IG, has resulted in long-term recovery offices being open for inconsistent timeframes. Without the proper controls in place, FEMA risks the mismanagement of disaster funds for Hurricane Sandy.

“As of January 2014, FEMA had already obligated nearly $7 billion in disaster funds for Hurricane Sandy in New York and New Jersey and employed over 700 staff for Long Term Recovery Offices in those two States,” the report stated.

DHS’s IG provided two recommendations to FEMA to assist the agency in managing long-term recovery offices more consistently and effectively. First, FEMA must identify, track and report costs and performance data that show cost effectiveness for long-term recovery offices. Second, the agency should implement standardized policies, procedures, and performance measures to establish, operate, and close these offices.

FEMA concurred with the IG’s recommendations and is currently “documenting the process, procedures, performance measures, lessons learned, and best practices used to scope and establish the Sandy Recovery Office.”

In addition, several FEMA officials have begun sharing their practices and knowledge with each other. The IG classified both of their recommendations as resolved and open, pending another audit in March 2015.

“Correcting these deficiencies will provide FEMA the information and guidance it needs to determine whether Long Term Recovery Offices are cost effective,” DHS’s IG concluded.

In light of these and other reports on DHS management issues, Homeland Security Today reported that the House Committee on Homeland Security’s Subcommittee on Oversight and Management Efficiency held a hearing  last Thursday to examine DHS’s performance and provide recommendations to improve homeland security.

“These reports show serious deficiencies in how DHS secures the border, protects federal buildings from cyber attacks, and manages billions of taxpayer dollars,” said subcommittee chairman Scott Perry (R-Penn.). “DHS must act on these and other recommendations to improve our homeland security.”

Testifying before the committee, DHS Inspector General John Roth asserted DHS faces management challenges in four major areas: unity of effort, acquisition management, cybersecurity and IT management, and financial management.

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