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Tuesday, January 31, 2023

OIG Says FEMA Is Phasing Out Alternative Contracting Methods for NFIP

During two prior audits of the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program (NFIP), the Office of Inspector General (OIG) found FEMA used alternative contracting methods to bypass the Federal Acquisition Regulation (FAR) contracting requirements for reimbursing contractors. 

OIG has now concluded a further audit and found that FEMA continues to phase out its use of alternative contracting methods to administer NFIP.

The audit found that FEMA used alternative contracting methods to pay NFIP Community Rating System (CRS), NFIP Direct servicing agent, and FEMA Bureau and Statistical Agent (BSA) contractors. Between fiscal year 2015 and FY 2021, FEMA used alternative contracts to pay about $263.9 million for certain NFIP services, OIG said. FEMA used NFIP insurance premiums collected or advanced funds to pay the contractors. In using these alternative contracting methods, the watchdog found FEMA bypassed FAR contracting requirements and did not accurately report Federal dollars expended to procure and pay for NFIP services. As a result, taxpayers were unaware of the total cost of NFIP services.

According to FEMA, by FY 2023 it will acquire NFIP CRS services through a FAR contract. Additionally, beginning in FY 2021, FEMA’s new NFIP Direct and BSA contracts require its contractors to invoice FEMA for flood response services and reimbursable items, instead of using NFIP premiums collected or advanced funds. 

During the audit, OIG noticed that FEMA did not provide adequate oversight of the NFIP cash management process. Instead, the watchdog said FEMA relied heavily on self-certifications and external audits. As a result, FEMA was unaware why at least 2,000 policyholders’ premium refund and claim payments remained uncashed. 

To address the shortcomings, OIG recommends that FEMA:

  • Complete the effort to procure NFIP Community Rating System services under a Federal Acquisition Regulation contract. 
  • Review all existing guidance to ensure that the use of Letters of Credit is not allowed for goods or services that should be procured with a Federal Acquisition Regulation contract. 
  • Strengthen oversight of the NFIP cash management process to ensure Write Your Own (WYO) insurance providers’ and NFIP Direct and BSA contractors’ accounts receivable and accounts payable aging reports and bank reconciliations are reviewed. 

FEMA concurred with all three recommendations and said its Federal Insurance and Mitigation Administration’s Floodplain Management Division is in the award phase of a sole source acquisition for NFIP CRS services. In addition, FEMA will review the NFIP cash management process and ensure policies and procedures comply with Generally Accepted Accounting Principles to the extent possible. FEMA’s revised process will be documented and distributed to WYOs to ensure consistency of accounting application. The Federal Insurance and Mitigation Administration’s Finance Management Division will provide oversight of the process by routinely reviewing the status of stale-dated checks and actions taken to date to ensure accuracy and consistency. FEMA expects to complete all work to address the recommendations by December 31, 2022.

Read the full report at OIG

Kylie Bielby
Kylie Bielby has more than 20 years' experience in reporting and editing a wide range of security topics, covering geopolitical and policy analysis to international and country-specific trends and events. Before joining GTSC's Homeland Security Today staff, she was an editor and contributor for Jane's, and a columnist and managing editor for security and counter-terror publications.

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