Audit finds FEMA slow to recover improper payments

The Federal Emergency Management Agency has not attempted to collect roughly $643 million in improper payments to 160,000 individuals who claimed they were victims of hurricanes Katrina and Rita, according to a new report released on Monday by the Homeland Security Department's inspector general.

Auditors blamed the delays on FEMA leadership, which has yet to sign off on a new process, mandated by judge's order in a 2007 class action lawsuit, for recovering the misspent funds.

"These payments remain uncollected because your office has not given final approval of a new recoupment process," Homeland Security IG Richard Skinner wrote in a memo to FEMA Administrator W. Craig Fugate. "Given the volume and significance of these improper disaster assistance payments and the administration's current effort to cut the billions of dollars wasted each year in improper payments, we recommend that you promptly authorize the collection of this debt."

Following a disaster declaration, affected residents are able to apply for assistance from the Individuals and Households program. The disaster-related relief includes funds for temporary housing, home repair and replacement, transportation, and medical, funeral, moving and storage expenses.

In the wake of hurricanes Katrina and Rita, FEMA disbursed more than $7 billion in individual assistance payments to survivors. But the agency now estimates approximately $643 million of those payments were issued improperly due to inadequate internal controls, human error, mistake or fraud.

Agency efforts to recoup those funds, however, hit a major roadblock in June 2007 when a federal district court judge ordered FEMA to discontinue its debt collection activities until certain changes were made to its recoupment process, including providing interested parties with advance written notice of the reasons for termination or discontinuance, and notifying them of their right to appeal FEMA decisions, the IG said.

In 2008, FEMA halted its recoupment process until new departmentwide debt collection standards were established. The agency also announced it would review every case a second time to confirm that the payment was not valid and determine if additional documentation provided adequate verification to render the payment proper.

FEMA's Office of Chief Counsel developed a new recoupment process in 2008 but according to the IG, the order has been awaiting final approval by the agency's administrator since late 2008. Fugate came to FEMA in May 2009.

"Your office has not instructed the responsible parties to restart the recoupment process," Skinner wrote. "Further delay only makes aging debts more difficult to collect."

FEMA said it has been working on finalizing the recoupment process for several months, independent of the IG audit.

"At FEMA we are committed to being responsible stewards of taxpayer dollars, and not only do we agree with the inspector general's recommendation to recoup disaster assistance payments that were improperly disbursed to individuals in recent years, but we are and have been actively working with state and local leadership and other stakeholders to finalize plans to recoup misspent funds, while continuing to support Gulf Coast communities as they recover," said spokeswoman Rachel Racusen.

FEMA is legally required to recover all improper payments. If residents who improperly received assistance are unable to repay the funds upfront, then FEMA said it will work with them to create a repayment plan or adjustments to the debt due to hardship.

"We have worked diligently to put protections in place that will safeguard against fraud and abuse; significantly reduce the percentage of improper payments; and develop a fair, open and transparent process for recovering these payments," Racusen said. "We are well under way in taking the steps we need to begin this new process -- which will be another important step toward protecting our tax dollars, while ensuring that those in need are receiving assistance as quickly as possible."

FEMA personnel from the Texas National Processing Service Center will carry out the new recoupment process. Center staff already have established a strategy to move forward and identified the employees needed to initiate the work, auditors said. The new method also outlines an appeals process that provides some applicants an opportunity to participate in an oral hearing regarding their case.

Federal agencies made roughly $125 billion in improper payments in fiscal 2010, mostly through Medicare, Medicaid and unemployment insurance programs. While the value of improper payments governmentwide increased from $110 billion in fiscal 2009 to $125 billion in fiscal 2010, the governmentwide improper payment rate actually declined from 5.65 percent to 5.49 percent, Office of Management and Budget Controller Danny Werfel said in November 2010.

In July, President Obama signed the Improper Payments Elimination and Recovery Act, which enhanced payment recapture audits and intensified the scrutiny on agencies failing to reduce errors. The administration wants to recoup at least $2 billion in erroneous payments between fiscal 2010 and fiscal 2012. Werfel said agencies are "right on target" to meet the goal.

As an incentive, agencies are allowed to keep 25 percent of recovered funds for a federal financial management program, 25 percent for the program's original purpose and 5 percent for the inspector general's office. The remainder is returned to the general treasury to lower the national debt.