katrina fraud and waste

8/7/2019 Katrina Fraud and Waste

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FEMA trailers in transitAP/Wide World photo


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Chapter 28

FEMA Waste and Fraud

Poor Controls and Decisions in FEMA Spending

B

esides overwhelming many government emergency-response capabilities, Hurricane

Katrina severely af ected the governments ability to purchase goods and services

and properly track and veriy its costs when it contracted or them.

It takes money to prepare, respond, and recover rom a disaster. As o March 8, 2006, the

ederal government has committed $88 billion to the response, recovery, and rebuilding

ef orts or Katrina.1 Unortunately, not all o this money has been wisely spent. Precious

taxpayer dollars have been lost to raud, waste, and abuse.

T e Committee did not speci cally include pre- and post-Hurricane Katrina spending by

FEMA and other ederal agencies as part o its investigation. However, almost rom the time

Katrina hit, the Committee was aware o wasteul, and sometimes raudulent and abusive,

spending practices and scal decision making. T e Committee careully ollowed reports o

wasteul spending, conducting a number o oversight activities to understand how unds were

being spent and to encourage measures to prevent wasteul spending. T e ull Committee heldtwo hearings on Hurricane Katrina spending by FEMA, and its Federal Financial Manage-

ment, Government Inormation, and International Security Subcommittee held another.2

Wasteful Spending: Nothing New

What is particularly troubling about the wasteul practices in the wake o Katrina is the

similarity to wasteul spending examined by this Committee in a May 18, 2005, hearing,

FEMAs Response to the 2004 Florida Hurricanes: A Disaster or axpayers?3

In the span o just six weeks in August and September 2004, Florida was hit by our power-

ul hurricanes: Charley, Frances, Ivan, and Jeanne. Parts o Florida suf ered tremendous

devastation. More than 10 percent o the states housing stock was damaged or destroyed by

the hurricanes, af ecting more than 700,000 residents. Property damage exceeded $21 bil-

lion and 117 Floridians lost their lives. A disaster o this scale required a rapid and substan-

tial response. FEMA distributed more than $2 billion in immediate relie to Floridians as

they rebuilt their battered state.4

In the wake o these hurricanes, however, it became clear to the Committee that FEMAs

provision o assistance was marred by payments or raudulent claims, wasteul spend-

ing, and inef ective internal and management controls. When scarce resources are wasted,

raudulent claims are paid, and saeguards are ignored, there are new victims the tax-

payers. T en Under Secretary or Emergency Preparedness and Response and Director o

FEMA, Michael Brown, said:

Among the many challenges we ace when responding to disasters, the most di cult o en

involves balancing the tradeof between ensuring a timely and ef ective response to those in

need, and the responsibility to protect the scal integrity o the program. It is a classic com-

peting tension between the provision o immediate disaster assistance and administrative

perection. As you move closer to one, you move arther away rom the other.5

T e Committee rejects this argument. Saying that government cannot protect taxpayers

while responding ef ectively to the urgent needs o disaster victims is a alse dichotomy.


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Subsequent to the May 18, 2005, hearing, the Chairman and the Ranking Member o the

Committee, Senator Collins and Senator Lieberman, sent a letter to Brown, urging FEMA to

address some o the serious issues revealed by the 2004 Florida hurricanes.6 In his response,

Brown wrote, FEMA is always seeking to improve upon its successes as well as improve

upon other practices to best serve our stakeholders.7 T is echoed his statement at the

hearing that We take the opportunity a er every major disaster to review and analyze our

perormance so we can institutionalize best practices, identiy issues and concerns, and cor-

rect problems, all to ace the next disaster better prepared.8 Unortunately, the response to

Katrina showed that FEMA was still inadequately prepared to exercise good stewardship o

taxpayer dollars while carrying out its mission o assisting disaster victims.

Hurricane Katrina: Same Story

On February 13, 2006, the Committee held a hearing, Hurricane Katrina: Waste, Fraud,

and Abuse Worsen the Disaster.9 Like the May 18, 2005, hearing, this one revealed that

taxpayer dollars intended to help hurricane victims were once again being lost to waste,

raud, and abuse.

T e U.S. Government Accountability O ce (GAO) testi ed about its preliminary reviewo some Hurricane Katrina expenditures, recognizing that it will be many months, and

perhaps years, beore a complete assessment can be conducted. However, GAO concluded

rom its initial work that weak controls in the Individuals and Households Program (IHP)

that provides temporary help with housing and nancial aid or other needs, le FEMA

vulnerable to waste, raud, and abuse.

GAO testi ed that there were aws, including weaknesses or outright ailures o controls

and saeguards, in the process o registering those receiving assistance under the IHP. For

instance, GAO ound that when applying or bene ts over the Internet, applicants were

screened by checking or valid Social Security numbers beore bene ts were approved.

When people applied by telephone, however, FEMA did not perorm this screening beore

paying initial IHP bene ts, which allowed thousands o alse and raudulent applications.O the more than 2.5 million registrations recorded in FEMAs database, 60 percent (more

than 1.5 million) were not subject to identity veri cation because they were submitted via

the telephone; some o these registrations were ound to be raudulent.

GAO outlined several other examples o raud, abuse, or poor management, including the

ollowing:

FEMA made expedited-assistance payments to tens o thousands o individu-

als whose registrations contained alse or duplicative inormation, including

Social Security numbers that had never been issued, or had been issued to an-

other individual, or to an individual since deceased. It is important to note that

not all duplicate inormation was submitted raudulently. GAO is continuingto investigate both payments resulting rom individuals intentionally trying to

deraud the government and those resulting rom errors in FEMAs system or

registration process.

GAO ound thousands o Social Security numbers that were used on more

than one registration associated with the same disaster. A Social Security

number is a unique number assigned to an individual. Because individuals are

eligible to receive disaster relie only on their primary residence, the same

Social Security Number should not be used more than once to receive assis-

tance or the same disaster.


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GAO ound that $10 million in duplicate payments were made when 5,000

registrants received both a debit card and a check worth $2,000 each, when

they should have received either a debit card or a check.10

T e Inspector General o the Department o Homeland Security (DHS IG) has conducted

oversight o Katrina response and recovery activities, and testi ed about some speci c ex-

amples o wasteul spending by FEMA. One o the most egregious examples presented,

as discussed more ully below, is the purchase o approximately 25,000 manuactured homesthat are virtually useless to Katrina victims because FEMAs own regulations prohibit their

installation in a ood plain. At the time o the hearing, at least 10,000 o these homes were

sitting unused in Hope, AK.11 Making one bad decision a er another, FEMA decided to

make sure that no home had better amenities than others, so they removed some equipment,

including microwaves and televisions. T e DHS IG indicated that in the immediate a er-

math o Katrina, decision making was mostly reactive, lacking planning or coordination.12

Another area o waste occurred in temporarily housing evacuees in hotels. As evacuees were

moved out o shelters, FEMA instructed hotels across the country to allow anyone with a

drivers license rom the af ected areas to check in and then send FEMA the bill. T ere were

virtually no controls in place. T e DHS IG ound hotels charging or empty rooms, indi-

viduals holding multiple rooms, hotel rooms being used as storage units or personal goods,individuals staying at resorts, and hotels charging rates above even the rack rate (the

maximum or ull price the hotel will charge or the room) at times costing taxpayers up to

$400 per night.13

T e DHS IG indicated that his investigators had seen more waste in contracts than actual

raud at that point, but attributed this partly to the act that FEMA was in the very early

stages o the major contracting activity. At the time o the February 13, 2006, hearing, DHS

had reported awarding contracts valued at over $5 billion, with other ederal agencies re-

porting an additional $4.2 billion. T e DHS IG indicated that the ederal Inspectors General

will continue their oversight activities through the lie o these contracts.

As government agencies rushed to meet requirements in the immediate a ermath o Ka-trina, they used expedited contracting methods authorized by the Federal Acquisition Regu-

lations. T e DHS IG ound cases in which procurement personnel authorized contractors

to begin work without a de nitive statement o work, sometimes on a sole-source basis with

no attempt to independently estimate costs. Some o the contractors perormed the work

e ciently and in good aith, but some did not. Under some o the most questionable con-

tracts, the government may have little legal recourse to recoup payments made to contrac-

tors who did not perorm required work or who overcharged or work they did perorm.14

On September 8, 2005, the Department o Justice established the Hurricane Katrina Fraud

ask Force to deter, investigate, and prosecute hurricane-related raud in the wake o Hur-

ricane Katrina, stating T e message o our collective ef ort is clear: we will not tolerate this

kind o behavior in our compassionate society. Fraud will not go unpunished.15 U.S. At-torneys have never beore implemented a zero tolerance policy with respect to disaster-re-

lated assistance and contracting raud. T e chair o the ask Force indicated that this policy

did have an impact. She reported that individuals returned payments to FEMA or requested

to arrange repayment plans, coincident with publicized arrests or raud.16


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The Odyssey of the Ice

In the immediate a ermath o a disaster, some o the commodities most in demand include

water, ood, and ice. FEMAs problems in moving commodities are well known. In the case

o ice, plenty o movement occurred but not always to places one would expect.

FEMA ordered 182 million pounds o ice to respond to Hurricane Katrina. A er a typical

hurricane, evacuees soon return to their homes, but may be without electric power or sometime. Ice helps keep ood and medicine cold until power is restored. A er Katrina, however,

hundreds o thousands o evacuees were sent to shelters across the country and did not

return home or days and weeks a er the storm. T us, the household need or ice was much

lower in some areas than anticipated.17 While there was a severe shortage o ice in some

af ected areas, and many hurricane victims who remained in the area did not have access to

ice,18 in the end FEMA had excess ice and used less than 50 percent o what it had ordered.19

Some o the ice ended up in Portland, ME 1,600 miles rom the disaster area. T e cost o

handling and storing the 200-plus truckloads o ice that went to Portland was approximate-

ly $275,000.20 More ice went to other distant locations around the country because FEMA

decided it made more sense to move the ice to cold-storage acilities or use in new disasters

than to let it melt.21

It is not clear that this was the most cost-ef ective choice, given the lacko planning that resulted in trucks being rerouted multiple times, and sometimes sitting idle

or days, while costs to the government were mounting.

On September 16, NBC News reported that it had ound trucks ull o ice in locations such

as Maryland, Missouri, Georgia, and ennessee. Some o the trucks had been driving and/or

sitting idle with their ull loads or two weeks. One truck driver reported that he had begun his

trip in Oshkosh, Wisconsin, traveled to Louisiana, then was sent to Georgia, but was rerouted

to South Carolina, beore being sent to Cumberland, MD.22 NBC News later reported that the

truck was then sent to Iowa, where the ice was put into cold storage.23 T e driver reported that

this cost taxpayers at least an extra $9,000.24 When multiplied by hundreds o truckloads that

also took circuitous routes to cold storage, the wasted taxpayer dollars begin to add up.

Some o the ice shipped to cold-storage acilities around the country has already been used or

other disasters. But one truckload ended up at the Reid Park Zoo in ucson, AZ, to be enjoyed

by the polar bears and other animals. T e truck driver who donated the ice to the zoo did so

a er traveling through 22 states without delivering a single bag o ice to hurricane victims.25

No-Bid Contracts

FEMA typically has a contingency Individual Assistance echnical Assistance Contract

(IAAC) in place to assist when disaster strikes. When Katrina hit, FEMA was competing

this contract bids had been solicited and evaluated, and contract negotiations had begun,

but the process was not complete, so no competitively awarded IAAC was in place. Facedwith an overwhelming demand or technical assistance, FEMA contracted with our major

engineering rms to provide technical assistance to the Individual Assistance Program,

the scope o which included supporting staging areas or housing units (travel trailers and

mobile homes), installation o housing units, maintenance and upkeep, site inspections and

preparations, site restoration, group site design, group site construction, site assessments,

property and acility management, as well as housing unit deactivation and rehabilitation.2

One o the contracts was awarded on the basis o competition (Fluor had won, but the con-

tract had not yet been negotiated), and the other three contracts (awarded to Shaw Group,

Bechtel, and CH2M Hill) were awarded as letter-contracts based on FEMAs critical need


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or expedited assistance.27 Essentially, these were sole-source contracts. Each had an original

ceiling value o $100 million, but this was raised to $500 million late in 2005.28 T e ceiling

on two o the contracts was raised again in early 2006.29

On October 6, 2005, Acting FEMA Director R. David Paulison pledged in a Committee

hearing to compete the requirements covered by the contracts,30 holding an open com-

petition, as normally required by ederal contracting regulations, where all companies can

compete or the work. It is generally accepted that only through ull and open competitionis the government assured o getting the best price or supplies and services. T e Commit-

tee was disappointed that this was not done. FEMA did compete a subset o the require-

ments or uture work, such as maintenance and deactivation o the travel trailers, but these

awards were not made until April 2006.31 FEMA decided to allow the our contractors to

continue work under the sole-source contracts. o respond to uture disasters, FEMA o-

cials have said the agency intends to competitively award a number o national IAACs

beore the 2006 hurricane season.

Unusable Manufactured Housing

As part o its Individual Assistance Program, FEMA typically provides travel-trailers tohouse individuals whose homes have been badly damaged or destroyed while they rebuild

or nd alternative housing. When Hurricane Katrina hit and FEMA realized the scope o

temporary-housing needs, the agency began buying all o the travel trailers it could nd.

Unortunately, in this buying renzy, FEMA purchased approximately $900 million worth

o manuactured homes and modular homes that could not be used because FEMAs own

regulations do not allow or these types o homes to be placed in ood plains. Further, some

o the homes purchased did not t FEMAs size standards.32

T e Committee held a hearing on the manuactured housing in Hope, Arkansas, on April

21, 2006, and learned more about FEMAs poor decision making and wasteul spending.

FEMA purchased 24,967 manuactured homes and 1,295 modular homes in response to the

need or transitional housing to assist displaced evacuees.33 However, FEMA seemingly hadno plans or how the homes would be used when the purchases were made. FEMA issued

a mission assignment to the U.S. Forest Service to set up eight emergency storage sites, in-

cluding one in Hope, Arkansas.34 o house some o the manuactured and modular homes,

FEMA leased a staging area at the Hope Municipal Airport at a cost o $25,000 per month

equivalent to a rent o $300,000 per year. T e Committee learned that prior to the lease

with FEMA, the City o Hope had rented the same site to a hay armer or $5,000 per year.35

As o the April hearing, there were 15,603 manuactured and modular homes as well as

7,229 travel trailers staged at the eight emergency housing sites. While FEMA was able to

use some o the homes in other disasters, and had plans to use more, they still had no plan

or thousands o manuactured and modular homes. T e Committee learned that FEMA

had already hired sales staf to sell the homes as surplus property i they are not eventuallyused,36 but typically this type o sale recoups only pennies on the dollar.37 T e manuactured

and modular homes purchased represent some o the most serious waste discovered to date.

Conclusion

T e Committee is not the only organization looking into the raud, waste, and abuse issues

related to Katrina. T e DHS IG, GAO, and other ederal Inspectors General are investigat-

ing these issues as well. It may well be years beore the ull scope o taxpayer dollars lost


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to waste, raud, and abuse is determined, but the preliminary ndings should be noted as

the more expensive recovery and rebuilding phases proceed. New natural or man-made

disasters are inevitable, but they need not also become scal disasters where taxpayer unds

meant to provide speedy, ef ective relie are lost to raud, waste, and abuse.

1 T e White House, Fact Sheet: Gul Coast Update: Hurricane Relie, Recovery, and Rebuilding Continues, pressrelease, Mar. 8, 2006. http://www.whitehouse.gov/news/releases/2006/03/20060308-8.html. Accessed on Apr. 21, 2006.

2 U.S. Senate, Committee on Homeland Security and Governmental Af airs, hearing on Hurricane Katrina: Waste, Fraud, and

Abuse Worsen the Disaster, Feb. 13, 2006; U.S. Senate, Committee on Homeland Security and Governmental Af airs, hearing

on FEMAs Manuactured Housing Program: Haste Makes Waste, Apr. 21, 2006; U.S. Senate, Committee on Homeland Secu-

rity and Governmental Af airs, Subcommittee on Federal Financial Management, Government Inormation, and Internationa

Security, hearing on Katrina and Contracting: Blue Roo, Debris Removal, ravel railer Case Studies, Apr. 10, 2006.

3 U.S. Senate, Committee on Homeland Security and Governmental Af airs, hearing on FEMAs Response to the 2004

Florida Hurricanes: A Disaster or axpayers?, May 18, 2005.

4 Written Statement o Sen. Susan M. Collins, or the U.S. Senate, Committee on Homeland Security and Governmental

Af airs, hearing on FEMAs Response to the 2004 Florida Hurricanes: A Disaster or axpayers?, May 18, 2005.

5 Written Statement o Michael Brown, then-Director, Federal Emergency Management Agency (FEMA), or the U.S.

Senate, Committee on Homeland Security and Governmental Af airs, hearing on FEMAs Response to the 2004 Florida

Hurricanes: A Disaster or axpayers?, May 18, 2005, pp. 5-6.

6 Senators Susan M. Collins and Joseph I. Lieberman, letter to Michael Brown, July 8, 2005.

7 Michael Brown, letter to Chairman Susan M. Collins and Senator Joseph I. Lieberman, Aug. 4, 2005, p. 1.

8 Written Statement o Brown, Senate Committee hearing, May 18, 2005, p. 7.

9 U.S. Senate, Committee on Homeland Security and Governmental Af airs, hearing on Hurricane Katrina: Waste,

Fraud, and Abuse Worsen the Disaster, Feb. 13, 2006.

10 Written statement o Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations, U. S. Govern-

ment Accountability O ce, or the U.S. Senate, Homeland Security and Governmental Af airs Committee, hearing on

Hurricane Katrina: Waste, Fraud, and Abuse Worsen the Disaster, Feb. 13, 2006.

11 Written Statement o Richard L. Skinner, Inspector General, U.S. Department o Homeland Security, or the U.S.

Senate, Homeland Security and Governmental Af airs Committee, hearing on Hurricane Katrina: Waste, Fraud, and

Abuse Worsen the Disaster, Feb. 13, 2006, p. 7.

12 Written Statement o Skinner, Senate Committee hearing, Feb. 13, 2006.

13 U.S. Department o Homeland Security, O ce o the Inspector General, brie ng by Richard L. Skinner, Inspector

General, U.S. Department o Homeland Security, given to Committee staf , Jan. 31, 2006.

14 Written Statement o Skinner, Senate Committee hearing, Feb. 13, 2006.

15 Alberto R. Gonzales, Remarks at the Hurricane Katrina Fraud ask Force Conerence, Oct. 20, 2005. http://www.

usdoj.gov/ag/speeches/2005/ag_speech_0510201.html. Accessed on Apr. 21, 2006.

16 Written Statement o Alice S. Fisher, Assistant Attorney General, Criminal Division, Chairman, Hurricane Katrina

Fraud ask Force, U.S. Department o Justice, or the U.S. Senate, Homeland Security and Governmental Af airs Com-

mittee, hearing on Hurricane Katrina: Waste, Fraud, and Abuse Worsen the Disaster, Feb. 13, 2006.

17 FEMA Responds to Ice Issues, MSNBC, Oct. 11, 2005. http://www.msnbc.msn.com/id/9665486/rom/RL.1. Ac-

cessed on Apr. 19, 2006.

18 Matthew Brown, T e Ice rucks Cometh to the Relie o Many; For T ose in T eir Homes, the Cubes are

Like Gold, New Orleans imes-Picayune, Sept. 6, 2006, p. A06; Arnold Lindsay, Firms Work to Relieve Scarcity

o Ice, T e Clarion-Ledger, Sept. 2, 2006. http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20050902/NEWS0110/509020352/1260. Accessed on May 25, 2006.



20 Michael W. Lowder, letter to Senator Susan M. Collins, Nov. 4, 2005, p. 1.



22 Lisa Myers and the NBC Investigative Unit, NBC News, T e FEMA Ice Follies: How come ice cant e ciently reach

those in need? Sept. 16, 2005. http://www.msnbc.msn.com/id/9369937/print/1/displaymode/1098. Accessed on Apr. 19

2006.

23 Lisa Myers and the NBC Investigative Unit, NBC News, T e FEMA Ice Follies Revisited: Agency Opts to store mil-

lions o pounds or next disaster, Oct. 11, 2005. http://www.msnbc.msn.com/id/9665434/print/1/displaymode/1098.


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Accessed on Apr. 19, 2006.

24 Lisa Myers and the NBC Investigative Unit, NBC News, T e FEMA Ice Follies: How come ice cant e ciently reach

those in need? Sept. 16, 2005. http://www.msnbc.msn.com/id/9369937/print/1/displaymode/1098. Accessed on Apr. 19,

2006.

25 Lisa Myers and the NBC Investigative Unit, NBC News, T e FEMA Ice Follies Revisited: Agency Opts to store mil-

lions o pounds or next disaster, Oct. 11, 2005. http://www.msnbc.msn.com/id/9665434/print/1/displaymode/1098.

Accessed on Apr. 19, 2006.

26 Written Statement o Skinner, Senate Committee hearing, Feb. 13, 2006, p. 1227 Written Statement o Skinner, Senate Committee hearing, Feb. 13, 2006, p. 12

28 Committee staf interview o Elaine Duke, Chie Procurement O cer, U.S. Department o Homeland Security, con-

ducted on Feb. 24, 2006 (untranscribed).

29 Duke interview, Feb. 24, 2006.

30 estimony o R. David Paulison, Acting Undersecretary o Homeland Security or Emergency Preparedness and

Response and Acting Director, FEMA, beore the U.S. Senate, Committee on Homeland Security and Governmental

Af airs, hearing on FEMA Status Report on Recovery Ef orts in the Gul States, Oct. 6, 2005.

31 U.S. Department o Homeland Security, FEMA, Small Business Administration Work ogether to Award Hurricane

Katrina Recovery Contracts to Small and Minority-Owned Businesses, press release, Mar. 31, 2006. http://www.ema.

gov/news/newsrelease.ema?id=24682. Accessed on May 9, 2006.

32 Skinner, Senate Committee hearing, Feb. 13, 2006.

33 estimony o Richard L. Skinner, Inspector General, U.S. Department o Homeland Security, beore the U.S. Senate,Committee on Homeland Security and Governmental Af airs, hearing on FEMAs Manuactured Housing Program:

Haste Makes Waste, Apr. 21, 2006.

34 Skinner, Senate Committee hearing, Apr. 21, 2006.

35 Committee staf interview o Mayor Dennis Ramsey, City o Hope, AR, conducted on Apr. 6, 2006 (untranscribed);

Andy Davis, Hope Airport to See 5,000 Homes Go, Rest Stay: FEMA Has Long-erm Emergency Supply Plans or Site,

ArkansasDemocrat-Gazette, Mar. 22, 2006. Accessed on LexisNexis.

36 Written Statement o Skinner, Senate Committee hearing, Apr. 21, 2006, p. 5.

37 Skinner, Senate Committee hearing, Feb. 13, 2006.


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