Investigators detail fraud, waste in FEMA disaster assistance

Internal weaknesses at the Federal Emergency Management Agency may have cost the government and taxpayers hundreds of millions of dollars in questionable contracts and fraudulent claims in the aftermath of the hurricanes that struck the Gulf Coast last season, federal investigators said Monday.

FEMA has significant flaws when it comes to managing its disaster relief programs in the areas of housing, contact oversight and benefits claims, investigators told the Senate Homeland Security and Governmental Affairs Committee.

Members of the committee expressed outrage that FEMA does not have better internal controls nearly five months after hurricanes Katrina, Rita and Wilma hit the Gulf Coast and Florida.

"We have a continuing disaster, and that's FEMA," said Sen. Mark Dayton, D-Minn. "I've reached the point where I'm almost saying we ought to just dispense with FEMA [and] just start all over again. It'd be one thing if these kinds of failures occurred in the heated aftermath of what we all agree is an overwhelming disaster . . . but this is continuing today."

Dayton suggested that the National Guard could be put in charge of disaster relief.

"There's never any consequences in the federal government for anything that just goes fundamentally wrong," he added.

Only about 1,200 out of 25,000 mobile homes that FEMA purchased are being used, said Richard Skinner, the Homeland Security Department's inspector general.

FEMA spent about $858 million on manufactured homes, and about $40 million on modular homes.

About 11,000 mobile homes are sitting at an airport in Hope, Ark. But they are sinking in the mud and their frames are bending, meaning they may not be able to be used at all, Skinner said. Some had flaws when they were delivered, while others are being cannibalized for parts.

"These trailers are going to take the place of those very expensive toilet seats that we remember," said Sen. Joe Lieberman, D-Conn., the committee's ranking member.

FEMA spokesman Butch Kinerney said there currently is more need for travel trailers because the mobile homes cannot be placed in floodplains. He said FEMA also is having problems finding locations that are clear of debris or have adequate infrastructure for the homes, such as gas, electricity and sewage. And he said some communities have yet to accept the homes.

He said FEMA plans to hold onto the homes until they can be used, either for next year's hurricane season or for other disasters. He added that FEMA will make needed repairs.

"I don't think they're necessarily going to go bad as quickly as people think," he said. "It's a long and slow process."

Skinner said he does not believe FEMA is prepared to deal with another disaster on the scale of Hurricane Katrina.

"I know that they are in the process of preparing themselves," Skinner said. "They recognize they made many, many mistakes after Katrina, Rita and Wilma ... but they're not where they should be."

He added: "If a disaster occurred today, I think that we would be no better prepared than we were after Katrina."

"Mr. Skinner, that is shocking," said Sen. Daniel Akaka, D-Hawaii.

Skinner said his staff also found questionable contracts and some contractors that appear to be overbilling the government. He said his work is ongoing, and he did not name those contractors.

"We have found very, very few incentives to keep costs down," he added.

He said FEMA needs to have pre-disaster contracts in place, better define its requirements, hire additional staff, increase the number of contracting officers and contracting officer technical representatives, provide better training to employees and increase internal controls for information technology systems.

DHS Secretary Michael Chertoff on Monday announced several changes to FEMA. Some are intended to protect against fraud and abuse, such as using advanced information technology and computer systems to more easily gather, search and track case-specific information.

Kinerney said FEMA plans to have more national-level contracts in place before a disaster strikes that include incentives to keep costs down. He said the agency is reviewing contracts that were awarded after the hurricanes hit, and will rebid some.

The Government Accountability Office also found FEMA is susceptible to benefits fraud.

Investigators posing as disaster victims were able to obtain $2,000 checks and debit cards using fake identities, bogus addresses and fabricated stories over the telephone, said Gregory Kutz, GAO's managing director for forensic audits and special investigations.

FEMA had tighter controls for Internet applicants. But the agency did not regularly validate damaged property addresses for either Internet or telephone registrations, GAO found.

Kutz said the cost of benefits fraud is probably tens or hundreds of millions of dollars, but GAO is still calculating the total. He said FEMA should have developed internal controls to prevent such fraud.

"This is something that should have been done years ago," he said. "I would call this fraud prevention 101."

Committee Chairman Sen. Susan Collins, R-Maine, added: "I just am at a loss to understand why these basic safeguards weren't built into the system."

FEMA Director R. David Paulison said Monday that the agency provided expedited assistance to victims knowing that there would be some fraudulent claims.

"Victims must always come first," he said. "At FEMA, we take a calculated risk and provide money and resources as quickly as possible. We understand that some may take advantage of the system, but we take this risk because we believe the victim must come first.

"We will always go back to identify and prosecute those who commit fraud, but we will not let victims suffer due to the actions of a few bad apples," Paulison added.

FEMA plans to work with the DHS inspector general and the Hurricane Katrina Fraud Task Force starting in March to review all expedited assistance payments. If fraud is discovered, the government will seek to recoup the money and prosecute those who are found to have violated the law.

Sen. Carl Levin, D-Mich, said he expects government prosecutors to punish contractors as well as individuals who are found to commit fraud.