[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
WASTE AND FRAUD IN THE AFTERMATH OF HURRICANE KATRINA
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON HOMELAND SECURITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 14, 2006
__________
Serial No. 109-82
__________
Printed for the use of the Committee on Homeland Security
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
__________
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Committee on Homeland Security
Peter T. King, New York, Chairman
Don Young, Alaska Bennie G. Thompson, Mississippi
Lamar S. Smith, Texas Loretta Sanchez, California
Curt Weldon, Pennsylvania Edward J. Markey, Massachusetts
Christopher Shays, Connecticut Norman D. Dicks, Washington
John Linder, Georgia Jane Harman, California
Mark E. Souder, Indiana Peter A. DeFazio, Oregon
Tom Davis, Virginia Nita M. Lowey, New York
Daniel E. Lungren, California Eleanor Holmes Norton, District of
Jim Gibbons, Nevada Columbia
Rob Simmons, Connecticut Zoe Lofgren, California
Mike Rogers, Alabama Sheila Jackson-Lee, Texas
Stevan Pearce, New Mexico Bill Pascrell, Jr., New Jersey
Katherine Harris, Florida Donna M. Christensen, U.S. Virgin
Bobby Jindal, Louisiana Islands
Dave G. Reichert, Washington Bob Etheridge, North Carolina
Michael McCaul, Texas James R. Langevin, Rhode Island
Charlie Dent, Pennsylvania Kendrick B. Meek, Florida
Ginny Brown-Waite, Florida
______
SUBCOMMITTEE ON INVESTIGATIONS
Michael T. McCaul, Texas, Chairman
Christopher Shays, Connecticut Bob Etheridge, North Carolina
Daniel E. Lungren, California Bill Pascrell, Jr., New Jersey
Dave G. Reichert, Washington Donna M. Christensen, U.S. Virgin
Ginny Brown-Waite, Florida Islands
Peter T. King, New York (Ex Bennie G. Thompson, Mississippi
Officio) (Ex Officio)
(II)
C O N T E N T S
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Page
STATEMENTS
The Honorable Michael T. McCaul, a Representative in Congress
From the State of Texas, and Chairman, Subcommittee on
Investigations................................................. 1
The Honorable Bob Etheridge, a Representative in Congress From
the State of North Carolina, and Ranking Member, Subcommittee
on Investigations.............................................. 3
The Honorable Bennie G. Thompson, a Representative in Congress
From the State of Mississippi, and Ranking Member, Committee on
Homeland....................................................... 5
The Honorable Charlie Dent, a Representative in Congress From the
State of Pennsylvania.......................................... 85
The Honoralbe Sheila Jackson-Lee, a Representative in Congress
From the State of Texas........................................ 78
The Honorable Bill Pascrell, Jr., a Representative in Congress
From the State of New Jersey................................... 74
The Honorable Stevan Pearce, a Representative in Congress From
New Mexico..................................................... 81
The Honorable Christopher Shays, a Representative in Congress
From the State of Connecticut.................................. 75
The Honorable Gene Taylor, a Representative in Congress From the
State of Mississippi........................................... 83
The Honorable Ginny Brown-Waite, a Representative in Congress
From the State of Florida...................................... 71
Witnesses
Mr. Joseph Becker, Senior Vice President for Preparedness and
Response, The American National Red Cross:
Oral Statement................................................. 52
Prepared Statment.............................................. 55
Ms. Donna M. Dannels, Acting Deputy Director of Recovery, Federal
Emergency Management Agency, Department of Homeland Security:
Oral Statement................................................. 47
Prepared Statement............................................. 49
Mr. Gregory D. Kutz, Managing Director, Forensic Audits and
Special Investigations, Government Accountability Office:
Oral Statement................................................. 6
Prepared Statement............................................. 8
Accompanied by:
Special Agent John J. Ryan, Assistant Director, Forensic Audits
and Special Investigations, Government Accountability Office... 62
Appendix
For the Record
Responses From Ms. Donna M. Dannels.............................. 89
WASTE AND FRAUD IN THE
AFTERMATH OF HURRICANE KATRINA
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Wednesday, June 14, 2006
U.S. House of Representatives,
Committee on Homeland Security,
Subcommittee on Investigations,
Washington, DC.
The subcommittee met, pursuant to call, at 11:19 a.m., in
Room 311, Cannon House Office Building, Hon. Michael T. McCaul
[chairman of the subcommittee] presiding.
Present: Representatives McCaul, Shays, Reichert, Brown-
Waite, Etheridge, Pacrell, Christensen, Thompson (Ex Officio),
Pearce, Dent, Jackson-Lee and Taylor.
Mr. McCaul. The Homeland Security subcommittee on
investigations will come to order. With the concurrence of the
ranking minority member, pursuant to committee rule 2(d)1, I
ask unanimous consent to waive the notice requirement for the
announcement of this hearing. Hearing no objection, so ordered.
I also ask unanimous consent that Congressman Pearce, who
sits on the full committee, be permitted to sit and question
during the hearing today. Hearing no objection, so ordered.
Good morning. I want to thank all of you for being here
today for this important Homeland Security Investigations
Subcommittee hearing. The purpose of today's hearing is to
examine the fraud, waste and abuse in the Federal disaster
assistance programs administered by FEMA in the aftermath of
Hurricanes Katrina and Rita.
The Government Accountability Office is conducting an
ongoing investigation into these crimes and the Individual and
Household Program. The GAO first testified before the Senate in
February of this year where they stated that the full extent of
the fraud was unknown but may reach tens to hundreds of
millions of dollars.
The GAO testified that this disaster assistance money was
used to purchase items such as a $450 tattoo, $400 massages, a
$1,100 engagement ring, a $1,300 handgun, $150 of products at
Condoms To Go, gambling, bail bond services and adult
entertainment, just to name a few.
The GAO also testified that FEMA paid for hotel rooms for
$438 per night in New York City and $375 per day for beachfront
accommodations in Panama City, Florida.
I have spent the last six months working with Federal
investigators through this subcommittee to uncover waste, fraud
and abuse at the Federal level. As part of this investigation,
the GAO conducted undercover tests on FEMA's disaster
assistance application systems to determine the adequacy of
their fraud prevention controls. The GAO found no meaningful
controls to detect or prevent fraud.
What is most troubling is that this lack of protection has
exposed the FEMA programs to substantial waste, fraud and
abuse. The GAO's investigation determined there was little if
any verification of the names, addresses or Social Security
numbers of applicants registering for Federal assistance. This
resulted in thousands of benefit checks being issued to
applicants with duplicate or false information.
Today the GAO will testify that 173 Federal prisoners
received expedited and rental assistance in payments that
totaled $800,000, and that more than a thousand State prisoners
received expedited and rental assistance payments that totaled
$10 million; $5.5 million was paid on applications using a P.O.
box as the damaged address. Benefits were paid on an
application where a cemetery was used as a damaged address.
As the GAO dug further, investigators continued to find
purchases which were far from essential to disaster assistance.
Such purchases included a $200 bottle of Dom Perignon purchased
at a Hooters restaurant, adult entertainment, tax payments, a
$2,000 Caribbean vacation, $5,000 for a divorce attorney,
season tickets for the New Orleans Saints and a down payment on
a house in Georgia.
Furthermore, the GAO uncovered and found that FEMA
continued to pay for deluxe accommodations and rental
assistance totaling $20,000 for resort accommodations in Hawaii
and Orlando.
Applicants registered for the Federal disaster assistance
and used damaged property addresses which did not exist,
including addresses where they did not live at the time of the
hurricanes. Likewise, Social Security numbers were used which
were never issued or belonged to deceased individuals.
Yet FEMA's fraud detection and prevention controls were so
weak or nonexistent that these fraudulent applications were
never detected, let alone prevented. Unfortunately, the
situation has gotten worse. The GAO now estimates that the
extent of the fraud in the Individual and Household Program
exceeds $1 billion, not the original estimate of tens to
hundreds of millions. The bad news continues as we realize
investigators are only in the beginning stages of their ongoing
comprehensive investigation.
This is an affront to the American taxpayer who has been
fleeced by the actions of these criminals and by lack of FEMA
fraud prevention. It is my intention today to make sure that
this never happens again, particularly as we enter into another
hurricane season.
While I appreciate Acting Deputy Director Dannels being
here, I invited FEMA Director Paulison to testify before this
committee, yet he is not here today. Given the lack of
management controls at FEMA and the obvious need for reform, it
is unfortunate that he is not here to help us fix this problem.
He is the leader of this agency and the only one with the power
to mandate the changes needed which can end this obscene
squandering of the taxpayers' money.
I pledge to continue to hold FEMA accountable for this
unacceptable mismanagement of taxpayer funds and to continue to
conduct hearings into this waste, fraud and abuse until FEMA
has adequate fraud prevention and detection controls in place.
To date, as a result of this investigation conducted by
these Federal investigators and this subcommittee, more than
7,000 cases have been referred to the Justice Department for
prosecution, and I expect this number to increase as these
investigations continue.
Furthermore, this hearing is a clear message to potential
criminals and fraudsters looking to exploit any future natural
disaster and steal from the American taxpayers. Several Federal
investigative agencies will be watching you closely. Criminals
will be detected, they will be prosecuted and punished to the
full extent of the law.
As a former Federal prosecutor, I will not stand by and
allow this situation to persist. I am currently working on
legislation from this committee to address these egregious
flaws in the FEMA disaster assistance registration process and
plan to introduce legislation to make sure that these mistakes
never happen again.
The Chair now recognizes the ranking minority member of the
committee, the gentleman from North Carolina, Mr. Etheridge,
for any statement he may have.
Mr. Etheridge. Thank you, Mr. Chairman. Let me thank the
witnesses for being here today. Even as we have the first
tropical storm of the season approaching or actually on the
east coast right now and probably pounding my home State of
North Carolina, the people of my State of North Carolina as
well as those in the southeast in the gulf coast await each
year the hurricane season with a mixture of trepidation and
resolve. They have been through it before. We know that one or
more storms will affect our State sometime during the 6-month
period of hurricane season. We know that one or more of these
storms will cause storm surge, flooding, beach erosion and wind
damage. And we know that, as individuals and families, we must
be protected or be prepared to protect our families, our homes
and our property as best we can.
Unfortunately, after witnessing the horrors of Hurricane
Katrina as it wrought its damage on the Gulf Coast and FEMA's
bungling response which accelerated the danger and misery of
storm victims, the people of my State and the rest of the
country do not know if this Federal Government will be ready to
provide the support and resources our States may need in the
event of a bad storm this year.
Every hurricane, natural disaster or terrorist attack
provides an often tragic lesson to local, State and Federal
emergency responders, and we rely on them to learn from those
experiences. In North Carolina, Hurricane Hugo, Fran, Floyd and
others taught us that storms don't always stop at the beach's
edge, but they quickly come inland and wreak havoc on towns and
villages hundreds of miles inland.
Hurricane Floyd is an example. It provided a stark reminder
that the majority of the casualties and the damages and deaths
from a hurricane are wrought hundreds of miles inland, and this
is true across the gulf coast. Last year, we saw that even in a
minor hurricane like Ophelia in North Carolina that wrecked
homes and destroyed businesses.
In North Carolina our State department of emergency
management uses every storm to identify weaknesses, and they
use every storm to further improve their preparedness and their
response capabilities. However, despite years of experiences
and many storms, it appears that FEMA never learns and at least
can't remember what they do one year from the next.
Today we are going to focus on the waste, fraud and abuse
that occurred in the aftermath of Hurricane Katrina and Rita. I
fully understand that it was a chaotic time and the storms
effects and scopes were unprecedented in American history. I
also understand that FEMA, the Red Cross and other support
organizations were under tremendous pressure to register storm
victims as quickly as possible so that they could receive
assistance. However, that is no excuse for the lack of
preparation, the lack of internal controls and the lack of
decisive and professional leadership at all levels of the
Federal Government.
Between 1991 and 2004, 23 hurricanes struck the United
States mainland, including the top 11 most costly storms in the
history of this country that affected millions of people. Last
May, the Department of Homeland Security Inspector General
released an audit report of FEMA individuals and household
programs problems in Florida after Hurricane Francis.
Let me just show what that report said. That report
outlined a number of problems with fraud and abuse that
permeated the Federal assistance programs. Specifically, on
page 4 of that report, it reported, and I quote, funds provided
for repair and replacements of household items were not based
on actual disaster related damages or loss.
We are revisiting it again today.
A south Florida newspaper, Sun Sentinel, reported that FEMA
paid $31 million in Hurricane Francis aid to residents of Miami
even though Francis never hit south Florida.
This past week, we received the GAO report on FEMA's
control problems with the expedited assistance program that has
cost taxpayers now we are learning hundreds of millions of
dollars. Let me just quote from that report. The Office of
Inspector General for the Department of Homeland Security in
regard to DHS's fiscal 2005 financial statements, and I quote,
unfortunately, the Department made little or no progress in
improving its overall financial reporting during fiscal year
2005. JPMT, the audit firm, was unable to provide an opinion on
the Department's balance sheet. The taxpayers of America are
appalled and should be when a Federal agency can't have their
report audited.
Unfortunately, these are the people who take advantage of
catastrophic events to exploit FEMA's weaknesses and internal
controls to steal funds that should rightfully go to true
disaster victims as we have talked about. Some of these people
fraudulently registered for individual assistance and other
fraudulent things that affected the taxpayers of America. We
need to find out all--who all these thieves and prosecute them
to the full extent of the law.
But, more importantly, FEMA and the other assistance groups
need to learn from these experiences and institute robust
internal controls, verification systems that dissuade would-be
criminals and ensure that legitimate victims receive assistance
as quickly as possible and the taxpayers' funds are protected.
I hope our witnesses will be able to show that we have
learned something from these past disasters and all the
mistakes. I also ask the Chairman that we continue this line of
questioning with more hearings that focus on the larger, more
expansive problems of fraud, waste and abuse as it relates to
contracting. I hope, Mr. Chairman, that will be the subject of
another hearing because it is a critical hearing that we need
to get into.
I hope I never see Americans trapped, hungry and fearing
for their lives in the aftermath of a disaster because local,
State and Federal officials did not learn from past mistakes,
and they have to suffer.
Thank you and I yield back.
Mr. McCaul. Let me say, we do intend to have hearings in
the future on this issue.
The Chair now recognizes the ranking member of the full
committee, the gentleman from Mississippi, Mr. Thompson, for
any statement he may have.
Mr. Thompson. Thank you very much, Mr. Chairman. I
appreciate the opportunity to participate in these hearings.
I thank the ranking member for also making the hearings
happen.
We are here today to talk about fraud, waste and abuse.
After every disaster, there are some who seek to turn a
national catastrophe into personal gain. Katrina was no
different. Some of these people wore jeans and sneakers and
cheated the government out of thousands of dollars, and some of
these people wore suits and dress shoes and cheated the
government out of millions of dollars.
Mr. McCaul was dead on when he said that this kind of fraud
is an assault on the American taxpayer, which is why I am glad
we are here today. That is why it is important that we
understand that our work is not done today because the fraud in
the individual assistance program pales in comparison to FEMA's
contracting follies.
It is important that we realize that what happened after
Katrina was not itself a disease. Instead, the frauds we will
talk about were symptoms of a much larger illness. The lack of
controls that allowed some individuals to fraudulently receive
individual assistance was just a symptom. The hundreds of
millions of dollars of trailers that FEMA bought and cannot use
was just a symptom. The layered contracts where subcontractor
upon subcontractor takes a cut while the men and women who do
the actual work on the ground got paid less than $0.07 on the
dollar was just a symptom. The rush to rent massive cruise
ships that ultimately went largely unused by actual hurricane
victims was just a symptom.
We are going to talk about symptoms, but I want to talk
about the diseases, too. The disease is an agency that for 5
years was weakened by poor leaders, leaders who were chosen
based on who they knew and not what they knew. The disease is
an agency that had only 36 employees in its procurement office
while senior leadership at the Department of Homeland Security
knew that the office needed as many as 125 to carry the
workload.
The disease is an agency that issues sole source contracts
to politically connected companies instead of using competition
to get the best deals and the best products. The disease is an
agency that for years could not get the administration to fund
a Hurricane Pam exercise and then only got part of it funded.
In short, the disease is an administration that for years
short-changed FEMA and short-changed catastrophic planning. So
while I want to talk about the things that happened after
Katrina, I also want to talk about why they happened. I don't
want to do too much over the symptoms without looking to the
disease.
But, Mr. Chairman, before I yield back, I want to take a
moment to thank the countless first responders, emergency
managers, line level FEMA employees and volunteers on the
ground who worked tirelessly and often on their own to help
Katrina's victims.
I want to make clear that my comments should in no way be
taken to disparage their efforts; that they performed
heroically in the face of leadership vacuums at all levels in
Washington is a testament to their dedication and
professionalism.
Some of these people made tough decisions during an
impossibly tough time. We do not want to second guess tough
decisions made on the ground, chest deep in water, with
thousands in need and in the face of unprecedented devastation.
Today we will hear some harsh truths about their leaders
and the policies of the administration, but we should never
forget or diminish their efforts. Nothing we say here today
should stop them from making the tough decisions necessary when
the next disaster happens.
Mr. Chairman, I also want to say I was happy to hear you
say that we will have additional hearings broadening the scope
of this review. This is just the beginning, and I look forward
to this hearing, and I yield back the balance of the time.
Mr. McCaul. The ranking member is recognized.
Mr. Etheridge. I ask unanimous consent Ms. Jackson-Lee be
able to sit in. She is a member of the full committee.
Mr. McCaul. Without objection, so ordered.
Let me remind members that under our committee rules,
opening statements are limited to the Chair and ranking
members. However, all members are entitled to submit written
opening remarks for the record, and due to our time constraints
today, we will need to move immediately to the testimony from
our witnesses.
Mr. McCaul. The chair now recognize Mr. Greg Kutz, Managing
Director, Forensic Audits and Special Investigations for the
GAO to testify. Mr. Kutz is accompanied by Special Agent John
Ryan, Forensic Audits and Special Investigations, Government
Accounting Office.
Mr. Kutz.
STATEMENT OF GREGORY D. KUTZ
Mr. Kutz. Mr. Chairman and members of the subcommittee,
thank you for the opportunity to discuss fraud and abuse
related to Hurricanes Katrina and Rita. In February, I
testified that weak or nonexistent controls left the government
vulnerable to substantial fraud and abuse for individual
assistance payments. At that hearing and subsequently, I
frequently have been asked, how big is this problem? My
testimony is intended to answer that question.
The bottom line of my testimony today is that we estimate
$1 billion of fraudulent and improper payments related to
Hurricanes Katrina and Rita.
My testimony has three parts: first, our estimate of fraud
and abuse; second, examples of fraud and abuse; and third,
usage of debit cards.
First, we estimate that 16 percent or $1 billion of
individual assistance payments were fraudulent and improper.
Our estimate is based on a statistical sample of the 2.6
million payments made totaling $6.3 billion through February of
2006. A statistical sample means that we randomly selected 247
payments from this population of 2.6 million payments.
We believe our estimate understates the magnitude of the
problem because it includes only issues related to the
application process.
Out of 247 sample items, at least 39 represent invalid
claims. Any cases that were not clearly invalid, we gave the
benefit of the doubt. For each sample item, we used all of the
audit and investigative tools that we had available. Our work
included visiting damaged property addresses, speaking to the
neighbors, visiting the post office and reviewing credit
reports.
The 39 sample failures related to the following four
problems: first, use of invalid Social Security numbers;
second, bogus damaged property addresses; third, invalid
primary residence, meaning the individual did not live there at
the time of the hurricane; and fourth, duplicate registrations.
As my second point, I would like to highlight examples of
the fraud and abuse starting with our own undercover operation.
In prior testimony, I highlighted the $2,000 expedited
assistance checks we received for applications using false
identities and bogus property addresses. We have continued to
test the system.
The poster board to my left shows the $2,358 rental
assistance payment that we received. The next poster board
shows the bogus damaged property address that we used to
receive this check. It also shows a letter from FEMA saying
that their inspection showed damage to our home and personal
property. However, the picture clearly shows this is a vacant
lot.
Other people were more creative than we were. The next
poster board shows an example of this. As you can see, FEMA
paid this fraudster from West Virginia for an address that was
actually an above-ground cemetery in New Orleans.
FEMA also paid millions of dollars to prisoners
incarcerated at the times of Hurricane Katrina and Rita. Given
that State and Federal Governments are already paying for these
prisoners' housing, the $4 million paid to them for expedited
and rental assistance is clearly improper.
The poster board shows one of the inmates who was willing
to pose for this picture. We blurred the picture to protect his
identity. Notice that he is holding in his hands his $2,000
expedited assistance check and his $2,358 rental assistance
check.
FEMA also made rental assistance payments to individuals
staying at hotels paid for by FEMA. Similar to paying for the
inmates twice, the government paid twice for these individuals'
lodging, first, by paying for their hotel and, second, by
sending them rental assistance money. This happened because
FEMA did not collect registration information for people
staying at these hotels. Thus, FEMA dispersed rental assistance
without first checking to see who was staying at the FEMA-paid
hotels.
Let me give you a few examples of what we found. One
individual stayed at a vacation resort in Orlando from
September 05 to November of 05. The total cost to FEMA was
$12,000 or up to $249 per night. This individual also received
rental assistance of over $4,000.
Another individual stayed at a hotel in Honolulu, Hawaii,
from October to December of 05. The total cost to FEMA was
$8,000 or up to $115 per night. This individual also received
over $5,000 of rental assistance. Another indication of fraud
for this case is that the individual appears to have actually
lived in North Carolina at the time of the hurricane.
Moving on to my third point, thousands of debit cards were
handed out for disaster assistance at three relief centers in
Texas. I have one of these debit cards in my hand that was used
by FEMA for these hurricanes. The poster board also shows you
an example of what these debit cards look like.
Most of the debit card money was withdrawn at ATM machines,
and thus we cannot tell you how it was spent. The remainder was
used primarily for food, clothing and personal necessary items.
However, we continue to find purchases that are clearly not
essential to meet serious disaster needs. Examples include an
all-inclusive vacation trip to a Caribbean beach resort in
July--that is next month--of 2006; five New Orleans Saints 2006
season tickets; a $200 bottle of Dom Perignon champagne
purchased at Hooters Restaurant; and Girls Gone Wild videos.
In conclusion, the good news is that the vast majority of
individual assistance money did go to qualified individuals.
However, our testimony shows that a substantial number of
individuals took advantage of the opportunity to commit fraud.
Their victim, the American taxpayer.
We believe that FEMA should have an effective fraud
prevention program that protects all taxpayers at the same time
that it provides assistance quickly to those that are truly in
need.
Mr. Chairman, this ends my statement. Special Agent Ryan
and I are happy to answer your questions.
[The statement of Mr. Kutz follows:]
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Mr. McCaul. Thank you, Mr. Kutz.
The Chair now recognizes Ms. Donna Dannels, Acting Deputy
Director, Office of Recovery for FEMA.
STATEMENT OF DONNA M. DANNELS
Ms. Dannels. Good morning, Chairman McCaul, Ranking Member
Etheridge, and committee members. My name is Donna Marie
Dannels, and I am the acting deputy director of recovery at
FEMA. I am here representing Secretary Chertoff and Director
Paulison.
It is an honor to appear before this subcommittee to
discuss our individual assistance program and FEMA's efforts to
provide assistance to individuals and families affected by
Hurricanes Katrina and Rita.
Before I begin, may I request that my entire statement be
added to the record?
Mr. McCaul. Without objection, so ordered.
Ms. Dannels. FEMA appreciates the opportunity presented by
this subcommittee to discuss the changes which FEMA has already
implemented in delivering grant assistance. Like the
suggestions of the Inspector General, our own reviews and those
which came out of a similar hearing 4 months ago in the Senate,
several issues have been raised which should be addressed to
strengthen the individual assistance program.
FEMA identified many of these issues soon after the
implementation of expedited assistance and has already taken
steps to correct them. While the Government Accountability
Office is just releasing its final report on expedited
assistance, the issues are not new. FEMA, as the program owner,
is extremely concerned about the issues in providing expedited
assistance which is why we have initiated and are currently
carrying out a number of improvements.
Katrina and Rita tested our programs and processes as never
before. Yet these same programs and processes have provided
nearly $7.3 billion to over 3 million victims of the 2005
hurricane season.
Even as we prepare for the upcoming hurricane season and
respond to the over 40 declared major disasters that have
impacted the country since last September, FEMA continues to
fund and facilitate an aggressive recovery strategy and work
with our partners to rebuild the gulf coast.
FEMA appreciates the efforts of the Inspector General and
GAO to help us identify control weaknesses so that we can
continue to improve delivery of our programs while remaining
effective stewards of taxpayer funds. While we welcome having
this dialog, it is important that we remember the situation we
faced in the days immediately following landfall.
In the immediate aftermath of Hurricane Katrina, hundreds
of thousands of people were displaced from their homes. Family
members were separated or missing, and an entire metropolitan
area had suffered from one of the greatest natural disasters in
the history of the United States.
It was in this environment that FEMA was faced with
providing assistance to individuals to meet their basic
emergency needs for lodging, clothing, medication and fuel,
while at the same time working with our Federal, tribal, State
and local private sector partners to meet longer-term needs.
In Katrina, we were presented with a population that had in
a matter of hours lost nearly everything. People were being
rescued from rooftops and showing up in shelters sometimes
without even a shirt on their back and without identification
of any kind.
In Rita, we were presented with a geographic area that had
just suffered through two massive hurricanes.
The primary focus of GAO's report is expedited assistance
or EA. EA is an accelerated method of dispersing initial
individual and household disaster assistance programs to meet
immediate emergency needs. EA has previously only been used in
a very limited number of disaster situations, primarily where
the need for immediate assistance surpassed the capabilities to
provide that assistance and when it was clear victims could not
return to their homes immediately following the disaster.
One of FEMA's top priorities is the quick and efficient
delivery of assistance to as many eligible victims as possible.
However, in meeting that goal, we realize that some individuals
may receive assistance in error or, unfortunately, because they
have intentionally tried to defraud the American people.
As part of our recruitment process, FEMA and in this case
the Inspector General review grant awards. FEMA makes every
effort to recover overpayments, and if fraud is suspected, FEMA
refers the case to the appropriate authorities for prosecution.
In reviewing the GAO report on EA, it is significant to
note that many of GAO's findings were already uncovered by
FEMA's internal review and our review at the Office of
Inspector General. FEMA in fact has gone to great lengths to
ensure that it is a good steward of the taxpayers' dollars by
deterring fraud while still allowing applicants who are in
serious need of assistance to receive it quickly and
appropriately. That is the balance we have to strike.
Our efforts of proper stewardship of public funds continue
this day. FEMA has already made significant improvements in our
delivery processes to prevent fraud, waste and abuse and is
well into the recruitment phase for the improper payments made
to Hurricanes Katrina and Rita victims. Because of the
immediacy of the crisis caused by Katrina and Rita, time was of
the essence in getting emergency assistance to victims. For all
other payments, however, FEMA took more time to ensure that
eligibility requirements were made, including verifying
occupancy of the damaged dwelling at the time of the disaster.
Any additional IHP assistance was then provided only after an
in-person inspection was performed and an actual address or the
applicant's occupancy was verified by a data verification
contractor and additional documents were verified by FEMA and
signed by the applicant.
Even though these measures were intended to minimize
overpayments due to fraud and errors, we are aware they were
not successful in every case. We continue to evaluate the
systems and processes put in place for the very first time in
this unprecedented event in order to make further improvements.
The GAO report references isolated incidents where EA debit
cards were used to purchase goods and services that did not
appear to meet serious disaster-related needs. While we are
similarly concerned by the inappropriate use of these funds,
these purchases represent a fraction of the overall assistance
provided.
These questionable purchases in GAO's review total just
under $8,000 or two one-hundredths of a percent of nearly $39
million in debit card transactions.
Through effective planning, enhanced internal controls and
a more systematic use of technology, FEMA can limit waste,
fraud and abuse. FEMA recognizes that even with the controls in
place, there is room for improvement.
During the 2005 hurricane season, FEMA was proactively
implementing more stringent controls concerning fraud and
identity verification. With these new processes in place, we
still need to take into consideration those families and
individuals that may not have traditional means of identity and
occupancy verification. For those applicants that required
additional review and resolution, there were significant delays
in FEMA providing any assistance. Such delays of course can
seriously impact victims who have lost all possessions.
FEMA's challenge is again to find the appropriate balance
of providing timely assistance while taking the necessary
precautions to ensure against fraud, waste and abuse.
We appreciate the time and the effort that GAO staff has
put into this report. The investigative research they conducted
and the resulting suggestions not only serve as a guide to us
to continue to improve our processes but have also helped to
highlight the value and types of assistance FEMA provides to
applicants following disasters.
FEMA remains committed to ensuring fiscal integrity and
will do all we can to ensure the effective and efficient use of
the taxpayers' dollars and protect against fraud while
performing our agency's critical missions to our citizens at
their time of need. Thank you again for opportunity to appear.
I am prepared to answer any questions you might have.
[The statement of Ms. Dannels follows:]
Prepared Statement of Donna M. Dannels
Good morning Chairman McCaul, Ranking Member Etherege, and
Committee Members.
My name is Donna Marie Dannels, and I am the Acting Deputy Director
of Recovery at FEMA. I am here representing Secretary Chertoff and
Director Paulison. It is an honor to appear before this subcommittee to
discuss our individual assistance program and FEMA's efforts to provide
assistance to individuals and families affected by Hurricanes Katrina
and Rita.
FEMA appreciates the opportunity presented by this subcommittee to
discuss the changes which FEMA has already implemented in delivering
grant assistance. Like the suggestions of the Inspector General, our
own reviews, and those which came out of a similar hearing four months
ago in the Senate, several issues have been raised which should be
addressed to strengthen the Individual Assistance program.
FEMA identified many of these issues soon after the implementation
of expedited assistance, and has already taken steps to correct them.
While the Government Accountability Office (GAO) is just releasing its
final report on Expedited Assistance, the issues are not new. FEMA, as
the program owner, is extremely concerned about the issues in providing
expedited assistance, which is why we have initiated and are currently
carrying out a number of improvements. These include the implementation
of identity verification for phone registrations, a reduction of the
dollar amount of expedited assistance, and an elimination of the use of
debit cards.
Katrina and Rita tested our programs and processes as never before.
Yet, these same programs and processes have provided nearly $7.3
billion to over 3 million victims of the 2005 hurricane season. Even as
we prepare for the upcoming hurricane season and respond to the over 40
declared major disasters that have impacted the country since last
September, FEMA continues to fund and facilitate an aggressive recovery
strategy and work with our partners to rebuild the Gulf Coast.
FEMA consistently strives to assess and improve its performance and
delivery of assistance in disasters. We appreciate the efforts of the
Inspector General and GAO to help us identify control weaknesses, so
that we can continue to improve delivery of our programs, while
remaining effective stewards of taxpayer funds.
While we welcome having this dialogue it is important that we
remember the situation we faced in the days immediately following
landfall. In the immediate aftermath of Hurricane Katrina, hundreds of
thousands of people were displaced from their homes, family members
were separated or missing and an entire metropolitan area had suffered
from one of the greatest natural disasters in the history of the United
States.
It was in this environment that FEMA was faced with providing
assistance to individuals to meet their basic emergency needs for
lodging, clothing, medication, and fuel, while at the same time,
working with our Federal, tribal, State, local and private sector
partners to meet longer-term needs. In Katrina, we were presented with
a population that had, in a matter of hours, lost nearly everything.
People were being rescued from rooftops and showing up in congregate
shelters, sometimes without even a shirt on their back, and without
identification of any kind. In Rita, we were presented with a
geographic area that had just suffered through two massive hurricanes
that overwhelmed our nation's disaster response system.
As was the case with these hurricanes, when the magnitude of a
disaster is so severe that normal recovery processes cannot immediately
get underway, FEMA can activate a policy under the Individual and
Households Program (IHP) to provide emergency assistance to accelerate
the disbursement of disaster assistance for immediate sheltering and
emergency needs.
Expedited assistance provided under the IHP is made available only
for a short period of time following the disaster to meet immediate
needs. This emergency assistance allows for a pre-inspection
disbursement of funds to an individual household, based on information
gathered from the applicant during the registration process that meets
the following criteria:
the registration must be for the primary residence
only;
the registrant must be displaced due to the disaster;
and
the registrant is in need of shelter.
If these criteria are met, emergency assistance is provided when
the magnitude of the event demands it. It is normally not implemented
under the Individual and Households Program. Hurricanes Katrina and
Rita, however, were catastrophic events that prompted FEMA to authorize
$2,000 in assistance to eligible households to be used for emergency
purchases until normal recovery programs became operable. This amount
of assistance was authorized for all eligible households that met the
criteria within the declared states where EA was implemented. For
Hurricane Katrina, EA was activated in the States of Louisiana on
September 7, 2005, Mississippi on September 8, 2005, and Alabama on
September 9, 2005. It was deactivated in all states on September 26,
2005. As of June 9, 2006, 47 percent of Hurricane Katrina registered
households received EA. Following Hurricane Rita, EA was activated in
the States of Louisiana and Texas on September 27, 2005, and
deactivated on October 21, 2005. As of June 9, 2006, 42 percent of the
registered Hurricane Rita households received EA. Applicants receiving
EA in Hurricane Katrina were ineligible for EA in Hurricane Rita. In
total, 45 percent of the Hurricane Katrina and Rita applicants received
expedited assistance.
EA is an accelerated method of dispersing initial IHP disaster
assistance to meet immediate emergency needs. When an individual or
household receives EA funding, it counts against the maximum IHP cap of
$26,200 that they may receive.
EA has previously only been used in a very limited number of
disaster situations, where the need for immediate assistance surpassed
the in-place and surge capabilities to provide assistance, and when it
was clear victims could not return to their homes immediately following
the disaster. It was first used in 1992 in response to Hurricane Andrew
and was also implemented during the 1994 Northridge earthquake, which,
prior to the hurricanes of 2004, had been FEMA's largest disaster in
terms of the number of applicants.
One of FEMA's top priorities is the quick and efficient delivery of
assistance to as many eligible victims as possible. However, in meeting
that goal, we realize that some individuals may receive assistance in
error, or unfortunately, because they have intentionally tried to
defraud the American people. As a part of our ``recoupment'' process,
FEMA, and in this case, the Inspector General review grants awards.
FEMA makes every effort to recover overpayments and if fraud is
suspected FEMA refers the case to the appropriate authorities for
prosecution.
At this point, excluding prosecutions carried out by the Department
of Justice, FEMA has determined that 6,110 Katrina and Rita
applications are undergoing recoupment actions, although not all of
these are based on fraud. Additionally there are another nearly 40,000
cases under review for potential recoupment. In reviewing the GAO
report on EA, it is significant to note that many of GAO's findings
were already uncovered by FEMA's internal review and our review with
the Office of Inspector General. FEMA, in fact, has gone to great
lengths to ensure that it is a good steward of the taxpayers' dollar by
deterring fraud, while still allowing applicants who are in serious
need of assistance to receive it quickly and appropriately. Our efforts
at proper stewardship of public funds continue to this day. FEMA has
already made significant improvements in our delivery processes to
prevent fraud, waste and abuse and is well into the recoupment phase
for the improper payments made to Hurricanes Katrina and Rita victims.
In addition, to put GAO's report on Expedited Assistance into
context, the committee must understand that GAO utilized a non-random
sample of 248 registrations from applicants with duplicate
registrations and those that received multiple payments. Since the vast
majority of our applicants were not duplicates, GAO's sample is not
representative of the implementation of the IHP or the EA program. It
is also worth noting that for Hurricane Katrina and Rita, FEMA took
more than 2.5 million registrations; therefore, GAO's sample of 248 is
only .01 percent of the total applications received. Further, what may
appear to GAO as duplicative payments under IHP, may in fact be
authorized payments under the ``separated households'' policy for
Hurricanes Katrina and Rita. Because of the widespread dispersion of
individuals and families across many states, FEMA instituted the
separated household policy where more than one member of the household
could receive expedited and or rental assistance to meet their needs
while they were separated. In our view, this was a more humane way of
treating these victims and ensuring that individuals who had lost
everything were not penalized simply because they could not be
geographically situated with their immediate family members.
The GAO report indicates that all applicants eligible for the
$2,000 in EA are also eligible for up to $26,200 under IHP. GAO
describes expedited assistance as a ``gateway to further IHP
payments''. This is an overstatement.
Applicants for EA had to provide answers to specific questions
concerning their disaster-related needs, as well as state that their
damaged residence was located in the disaster area and damaged by the
disasters in accordance with State and Federal laws. Because of the
immediacy of the crisis caused by Katrina and Rita, time was of the
essence in getting emergency assistance to the victims. For all other
payments, however, including the $2,358 transitional housing payments,
geospatial payments, and traditional IHP payments, FEMA took more time
to ensure that eligibility requirements were met including verifying
occupancy of the damaged dwelling at the time of the disaster. Any
additional IHP assistance was then provided only after an in-person
inspection was performed at an actual address or the applicant's
occupancy was verified by a data verification contractor, and
additional documents were verified by FEMA and signed by the applicant.
Even though these measures were intended to minimize overpayment due to
fraud and errors, we are aware they were not successful in every case.
We continue to evaluate the systems and processes put in place for the
first time in this unprecedented event in order to make further
improvements.
The GAO report references ``isolated incidents'' where EA debit
cards were used to purchase goods and services that did not appear to
meet serious disaster-related needs. While we are similarly concerned
by the inappropriate use of these funds, these purchases represent a
fraction of the overall assistance provided. These questionable
purchases in the GAO review total just under $8,000, or 0.02%, of
nearly $39 million in transactions processed by one bank. These
purchases represent questionable judgment on the part of the recipient;
however, by highlighting those limited expenditures, GAO suggests flaws
in FEMA's controls in providing expedited assistance. In fact, FEMA
continues to develop guidance and control measures to prevent the
inappropriate use of all of its funds, including expedited assistance.
Efforts to completely prevent misuse should be properly balanced
against the need to provided assistance to the truly needy.
Through effective planning, enhanced internal controls and a more
systematic use of technology, FEMA can limit waste, fraud, and abuse.
FEMA recognizes that even with the controls in place, there is room for
improvement. During the 2005 hurricane season, FEMA was proactively
implementing more stringent controls concerning fraud and identity
verification, including:
in October 2005, launching a new internet registration
application that disallows any duplicate registrations;
in February 2006, adding identity proofing to the call
center registration application that will insure that all IHP
registrations are subjected to the same criteria as the online
application. This includes social security number verification.
amending systems to ensure no automated payments are
sent to applicants who failed the identity proofing process;
sending all applications taken over the phone, from
August 2005 until February 2006 to FEMA's data contractor for
identity proofing and reviewing those that failed for possible
recoupment or referral to the Office of the Inspector General;
data-marking any applications in NEMIS that fail
identity proofing so they may be flagged for review and denied
automated payment;
introducing real-time interaction between the FEMA
service representative and the applicant during registration to
ensure that the data are entered correctly before accepting the
application.
With these new processes in place, we still need to take into
consideration those families and individuals that may not have
traditional means of identity and occupancy verification. For those
registrations sent to a ``duplicate investigation queue'' for
additional review and resolution, there were significant delays in FEMA
providing expedited assistance. Such delays, of course, can seriously
impact victims who have lost all possessions. FEMA strives to find the
appropriate balance of providing timely assistance while taking the
necessary precautions to ensure against fraud, waste, and abuse.
Additional changes were and continue to be made to the NEMIS
software, that include:
not allowing any registration to be accepted when a
registrant has the same social security number as another
registrant in the same disaster, and
in addition to identity verification, verifying
ownership and occupancy through FEMA's data during the
registration process.
We appreciate the time and effort the GAO staff has put into this
report. The investigative research they have conducted and the
resulting suggestions not only serves as a guide for us to continue to
improve our processes, but have also helped to highlight the value and
the types of assistance FEMA provides to applicants following
disasters. FEMA remains committed to ensuring fiscal integrity and will
do all we can to ensure the effective and efficient use of the
taxpayer's dollar and protect against fraud, while performing our
agency's critical missions to our citizens at their time of need.
Thank you again for the opportunity to appear before you. I am
prepared to answer any questions you may have.
Mr. McCaul. Thank you, Ms. Dannels.
The chair now recognizes Mr. Joseph Becker, senior vice
president for preparedness and response, American Red Cross.
STATEMENT OF JOSEPH BECKER
Mr. Becker. My name is Joe Becker, and I lead the American
Red Cross's disaster relief. I thank you for the invitation to
be here. I appreciate the chance to share with you some of our
experience of Hurricane Katrina.
I was asked to speak on three topics: to provide an
overview of what we do for victims of disasters; to share what
we did during Hurricane Katrina, what problems we encountered
and what we learned from that experience; and to discuss what
improvements we have put in place going forward.
My written testimony submitted for the record outlines
these topics in detail. I will speak to each of these three
briefly now.
What does the Red Cross do in times of disaster? We serve
victims of disaster every day, about 70,000 a year, from a
house fire to today and yesterday's flooding, from Alberto to
the largest disasters. We meet people's immediate emergency
needs. We shelter, that is giving people a place to stay out of
danger. We feed. We partner with a lot of other organizations
to feed people with fixed sites, and we drive meals through
neighborhoods. We distribute. We give out the supplies that
people need; water, toiletries, things to clean up their
houses. We provide a small amount of financial assistance to
help people with things, with needs that are better met with
cash instead of things, that next set of clothes or a pair of
shoes, gas for the car. We provide mental health counseling,
and we help families with information to unite them with lost
family members.
Your focus today is on one part of what I just described,
our providing financial assistance. We have provided this
assistance in one form or another since our earliest days. Mr.
Etheridge spoke about the Florida storms, the four storms that
hit Florida in 2004. That was the largest natural disaster the
Red Cross had ever responded to. We fed millions, sheltered
hundreds of thousands, but we gave that financial assistance to
about 73,000 families, one at a time, with a volunteer
typically in a high school gym serving the family.
After the storms of 2004, we then tested our systems to a
capacity of a 100,000 families. We wanted to make sure we were
ready for something even bigger. And then Katrina hit. In the
days after the storm, we knew we didn't have 73,000; we knew we
didn't have 100,000. Our earliest data said that we could have
a million families that would require Red Cross assistance. We
knew our current systems would not work. If we had volunteers
in high school gyms providing financial assistance, we would be
there for months trying to meet immediate emergency needs. So
we created new ways to provide that financial assistance as we
went.
We created call centers for financial assistance. We used a
software company. When the client called the call center, they
were asked a series of questions that the call agent new the
answer to: Where did you live before this? What's your rent
payment? And if they answered the questions correctly, then we
knew that they were who they said they were.
We used Western Union. We thought, who could move money
around the country on a scale like nobody else, and we worked
with them to partner where people would call the call center
and then go to their local Western Union with an ID number to
receive funds.
We used a lot of other methods. We used Wal-Mart gift
cards, preloaded debit cards. But the system that we were
putting that data into was a common system to keep track of who
we gave what to.
We had a tough choice in those earliest days of the
disaster: Do we delay helping people until we can build
entirely new ways to do this to a scale where we could take
care of everybody, or do we proceed with what we had and serve
people and build it as we went?
We chose to serve quickly. Yes, we had long lines. We had
very long waits on the phone. Our biggest problem, frankly, was
that our IT system couldn't handle the volume that we were
dealing with. After about a 100,000 or 120,000 cases, our IT
system started to bog down. At that point, we knew that people
could game our system. They could go to more than one place to
receive financial assistance, and they might be able to get it.
But we knew that we could find out who they were. It might take
us weeks, might take us months, but we would find out who they
were.
Mr. Becker. We ended up serving about 1.4 million families
with financial assistance at an average of about $1,000 a
family. It cost us about $1.5 billion.
Before Katrina, we had developed good technology, but
Katrina was about 20 times the number of families that we had
served in our biggest disaster. We failed to think big enough
with our systems. As I said, we had a tension at the beginning.
Do we wait until the systems are built, or do we move quickly?
And we decided to move quickly.
I mentioned that people could game the system if they
figured out that there was a lag time between when we gave them
assistance and when we entered their case into our data files,
but we also knew that we could find out who they were, and that
is what we have done since last fall.
We have had a team of paralegals and investigators
dedicated to uncovering fraud in our financial assistance. They
have gone through case by case, and where appropriate, they
worked with law enforcement to prosecute the folks who did
wrong. They look at all the allegations. They have also studied
the data. The addresses that we served, all the different ways
you could give your name to the Red Cross. To quantify it, we
have about 7,100 cases that might be fraud out of our 1.4
million families we served. If they all end up being fraud,
that is about $9.5 million. As of May, we have received back
about $2.3 million from people who took advantage of us, and
where necessary, we are referring those matters to law
enforcement for prosecution, and we have had great cooperation
from law enforcement to prosecute even though the dollars
involved are below their thresholds to prosecute.
So what we have put in place going forward, we have a long
list of projects completed or nearing completion, covering a
lot of aspects of how we respond to disasters. But to this
specific issue, we have rebuilt our IT systems that are now
able to handle 2 million families. A year from now, it may be
able to handle 10 million families. And we will know if we have
served you before we talk to you. We have over a million debit
cards in stock and ready to go, and we have call centers ready
to go that can handle a 100,000 families a day or serve a
million families over 10 days.
And we are moving very quickly to have all of our chapters
adopt this technology. By July 1, we will have almost all of
our chapters there. We only anticipate using these call centers
in the very catastrophic disasters. We still want our primary
way of serving to be a volunteer in a community building, not
just bringing money to a client but all the other services, the
mental health services, our nurses with health services. We
bring other nonprofits together to make sure we are all there
offering our assistance to the client.
We will not be perfect this fall. The system will continue
to develop, but we will have a much greater capacity to serve,
and we will have even higher level of controls around the
service. Unscrupulous people will always take advantage of
disasters. Our job is to have the best systems in place and to
keep a vigilant eye out for those who might do wrong. We
learned a lot last fall. We saw again that our volunteers can
do amazing work. This year we are ready to support them with
systems on a scale that Katrina taught us that we need. We
don't want to fail to think big enough again. Thank you very
much.
[The statement of Mr. Becker follows:]
Prepared Statement of Joseph C. Becker
Good morning Mr. Chairman, Members and staff of the Committee. The
topic of this hearing--waste, fraud and abuse--is a very serious topic
for the American Red Cross and for those who support our charitable
mission. We appreciate the opportunity to share our story with you this
morning.
It is appropriate to begin by giving you some background of our
individual assistance efforts over the last years, including the recent
evolution of our client assistance program.
After that, I can speak to our most recent experiences in the 2004
Florida hurricanes and the important lessons that guide our
improvements after the 2005 season.
I will conclude by sharing the latest news on the controls and
procedures that we have already implemented that will assist us in
guarding against waste, fraud and abuse as we move deeper into the 2006
hurricane season.
But before I start, on behalf of my colleagues and friends at the
American Red Cross, allow me to begin by saying this:
The American Red Cross is ready for the 2006 hurricane season. Over
the past six months, we have reviewed the things we did well in the
2004 and 2005 seasons and improved upon those successes. We have also
taken a hard look at those areas where we must improve our response and
we've addressed our shortcomings.
The American people can continue to rely upon the Red Cross to
deliver our promise of neighbor helping neighbor. Our legendary corps
of volunteers is ready. We are working closer today with our colleagues
in the nonprofit, charitable and faith-based communities to improve our
reach. We are better coordinating with Federal, state and local
officials. And, we are pre-positioning more supplies and building
greater capacity in key states before the storms hit.
I am very pleased to share with you today our plans for the coming
season as we address our goals. For as we all know, the next disaster
may not show up with advance warning on our weather radar screens. We
do not simply wait for June 1 to be ready for disaster response. For
the American Red Cross, we respond each day, every day.
The Red Cross and Individual Assistance: A Background
First and foremost, it is important to understand the elements of
Red Cross assistance and how they work together to serve our clients as
well as integrate with the assistance of state and federal programs.
Our first priority is to ensure that those affected by disaster have a
safe shelter and are provided with the basic necessities of life. In
addition to shelter, we strive to provide first aid and nursing
support, food, toiletries, bedding and other essential items of health
and welfare.
The next priority is to then assist families to take the first
steps toward recovery. This is the purpose and concern that individual
client assistance is designed to serve. It has long been the case that
while shelter, feeding and the distribution of critical items are
sufficient to stabilize individuals and families, it is not sufficient
to meet all short term emergency needs necessary for disaster victims
to begin their individual road to recovery. Critical items of
assistance such as resources for food, changes of clothing and bedding
bridge the gap between mass care activities and the receipt of state
and federal recovery assistance. This allows a family a modicum of
independence and a flexible resource for the types of essential items
mentioned above. Ultimately, within the framework of disaster
assistance provided by other agencies, as well as state and federal
programs, individual client assistance helps bridge the gap between
mass care activities and loans, temporary housing, and other needs
assistance.
To properly understand the challenges and successes of individual
client assistance, it may be necessary to review a bit of the
background.
Individual assistance to disaster victims is one of the
cornerstones of the American Red Cross Disaster Services program,
beginning with Clara Barton at the Michigan Forest Fires of 1881.
Throughout history, individual assistance has evolved to meet the ever
changing needs of those affected by disaster events. The fundamental
drivers of change in this program have been consistent over time and
include the needs of victims, the existence of or changes to state and
federal programs, and the evolving nature of disaster (such as
terrorism and mass casualty events). However, certain principles have
remained consistent--that disaster relief is based on verified need;
that such assistance should mitigate suffering; that similar needs
should be met with similar resources; and that clients are ultimately
responsible for their own recovery. Red Cross programs are
fundamentally based on these principles.
Historically, Red Cross individual assistance consisted of items to
repair homes, furniture, clothes, etc. Prior to the advent of
governmental programs, the Red Cross often dealt with the entire range
of response and recovery needs--food, clothing, and other essential
items to home repair, occupational supplies, medical needs, and income-
related support such as cloth, sewing machines, seed, and livestock.
The ongoing need for flexibility to adapt continues. More recently,
the Oklahoma City Bombing and Terrorist Attacks of 9/11 found victim's
verified needs related to loss of loved ones and economic survival
pending receipt of benefits, not loss of their personal possessions.
Individual assistance was quickly adjusted to ensure survivors
emotional needs were met with extensive mental health support and
continued financial assistance, in order to enable them to maintain
their homes pending receipt of government and personal assistance.
While individual needs change over the years or by the type of
disaster, standardization of assistance to meet the verified basic
needs of disaster victims remains constant. In essence, similar needs
are addressed with similar assistance. This application of the intent
of the policy and charter are applied daily, disaster by disaster.
Assistance has continually been updated to avoid duplication as
government assistance and assistance from partner agencies and
organizations has increased. In fact, referral to the programs of other
organizations and assistance in connecting with these providers is a
fundamental part of the Red Cross program.
Assistance has been provided in multiple ways, depending on what is
needed and available in the area of the disaster event. Individual
assistance for essential items was originally provided in cash or a
credit with a store. This was followed by checks, and then by
disbursing orders (which are similar to purchase orders). Today,
financial assistance is most often provided with debit cards. Other
vehicles such as gift cards, disbursing orders, and checks, are used as
back up mechanisms or when power is out for extensive periods of time.
How the individual assistance is actually provided is based on the
infrastructure in the disaster area and the conditions of merchants and
stores. If electricity is not available, debit cards are not a viable
option.
To enhance the dignity of our clients, reduce administrative costs
occurred by the organization, and provide for greater oversight, debit
cards are now used as the primary form of assiststance. These cards are
easy to use, can be replenished, carry no stigma, and make disaster
clients indistinguishable from other consumers. These cards are
intended for food, clothing, bedding and other essential items, and
they allow clients to take responsibility for their recovery.
While our fundamental commitment to meeting the emergency needs of
disaster victims remains constant, the range of events to which we
respond demands that we have more than a single model of service
delivery. Given that our organization has now experienced the differing
demands of terrorist / mass casualty type events (9/11) as well as
catastrophic natural disasters (Katrina) and is currently challenged by
the possibility of pandemic disaster (Avian Flu), it is clear that a
single service delivery model or program is no longer sufficient to
meet the demands and risks of our current environment. A large part of
the Red Cross success in Katrina was the ability to adapt and adjust
our assistance to meet individual and basic needs immediately. Moving
forward, the American Red Cross will continue to develop a small number
of standard models for use in our most likely scenarios, and will
prepare ourselves to execute the model or models most appropriate to
the event.
Katrina: Lessons Learned
Mr. Chairman, the Red Cross provided aid and comfort to over 1.4
million families after the storms of last year.
Thanks to the generosity of the American people, we provided an
average $1019.00 per family in emergency financial assistance. This is
not money provided to replace all that was lost--but to address urgent
need.
We provided shelter to nearly 500,000 hurricane survivors (3.4
million shelter nights) in nearly 1,100 shelters in 27 states and the
District of Columbia. And we served 68 million meals and snacks.
A Herculean challenge was getting financial assistance as quickly
as possible to an unprecedented number of people who left their homes
with little or nothing and in many cases would have no homes to which
they could return. As stated previously, the largest number of families
to which the Red Cross had ever provided assistance was approximately
73,000--those served during the four back-to-back hurricanes in 2004.
By contrast, demographic and census information from the area affected
by Katrina led us to estimate that more than one million families, most
of whom were bereft of all of their traditional social support systems,
would need financial assistance.
The challenge of raising enough money to provide assistance to an
estimated one million families was, frankly, daunting. Initial disaster
assessments and demographic information led us to estimate that, with
average assistance of about $1,000 per family, we were facing financial
assistance expenses of approximately $1 billion. We had to make the
difficult determination whether we would--or could--provide this
magnitude of financial assistance. Red Cross leadership, together with
our Board of Governors, rapidly decided that the tremendous needs of
the evacuees demanded that we act. Soon, it became clear that dollars
were going out at a fast rate. We had to either suspend our emergency
financial assistance or borrow funds. We chose to borrow the money--
over $300 million--with the confidence that the American public would
see our efforts as worthy and support the work we were doing. This has
proven to be the case.
The mechanisms for getting the financial assistance to the people
who needed it without delay posed an additional set of challenges.
During traditional responses, trained American Red Cross volunteers and
staff, conduct disaster damage assessments, meet with survivors to
determine their needs and provide assistance accordingly. We often do
home visits to confirm damage and determine necessary assistance. This
type of detailed assessment would clearly be impossible for many months
after Katrina and Rita. We had to choose between two options: we could
attempt to verify damage house by house and thereby delay assistance to
those who so urgently needed it, or we could utilize the best
information available regarding damaged areas and speed the provision
of our assistance. By choosing the latter option, we knew that we ran
the risk of putting assistance in the hands of potentially unscrupulous
individuals not affected by the hurricanes; we concluded that it was a
reasonable business risk and mitigated the risks as possible. We
considered the need to help the vast numbers of families in desperate
and legitimate need without delay. Using satellite images and fly-over
photographs, we determined specific ZIP codes where the devastation was
obvious and began to disburse the maximum assistance to these families
based on family size. It was our goal to get money in the hands of
survivors as quickly as possible. The fact that fraudulent claims for
assistance could occur was to be addressed with an aggressive ``no
tolerance'' fraud enforcement policy which we discussed with federal
and state law enforcement authorities.
Another hurdle was the logistics of getting cash into the hands of
so many people spread across so many states. Methods used in the past
would not accommodate the unique aspects of this epic disaster. We set
up an 800 number and call centers around the country and partnered with
Western Union to provide immediate cash assistance. A critical moment
came when we realized that it could take days and weeks to bring these
systems up to a scale that could accommodate the number of families in
need of assistance. That left us with another difficult choice: delay
assistance to every disaster victim until we had the capacity to
effectively serve them all, or proceed with the capacity we had,
getting funds into the hands of thousands of families right away and
working diligently to add to those numbers as quickly as we could scale
up our systems. We chose to help those whom we could without delay,
while striving to serve all who needed us. We sincerely regret that
there were long lines and a lot of busy signals, but we believe that we
made the right choice. In the six weeks following landfall, the Red
Cross put over one billion donated dollars into the hands of families
who desperately needed it without delay.
As part of our lessons learned process, we are striving to ensure
that we will eliminate long lines and mitigate fraud and abuse moving
forward. Our Client Assistance System (CAS) software has been modified
to provide a single system of record to support the deliver of
assistance to those in need. Enhancements to CAS and an upgraded
information technology infrastructure will allow the Red Cross to speed
emergency assistance to one million affected families within a 10-day
period, with the capacity to process a total of two million cases over
the long term. We have pre-stocked one million cash enabled client
assistance cards (CAC) so that the cards can be efficiently distributed
to families displaced by large-scale disasters.
Soon after Katrina's landfall, the Red Cross expanded an existing
Special Transient Housing Accommodations Program, in cooperation with
the Federal Emergency Management Agency (FEMA) and Corporate Lodging
Consultants (CLC). This program covered the cost of storm victims
requiring emergency assistance staying in motels or hotels where other
accommodations were not available. Over its duration, this program
housed more than 700,000 evacuees in every state in the nation. This
innovation alone provided critical and immediate shelter in addition to
the hundreds of traditional congregate care shelters established across
the nation. As agreed at the inception of the program, the Red Cross
transferred administration of the program to FEMA on October 24, 2005.
The American public is the client to whom the Red Cross ultimately
delivers services. The monumental challenge of providing immediate
relief and initial recovery assistance in the wake of the devastating
2005 hurricane season tested the spirit, determination and cooperation
of America. In the face of incredible demands, the American Red Cross
and the American people rose to the occasion and provided care and
comfort to millions of people with nowhere else to turn.
Fraud, Waste and Abuse
The Red Cross treats its obligation to deter and detect fraud or
abuse with the utmost seriousness and where appropriate seeks
prosecution of fraudulent activity to the fullest extent of the law. To
stop those that attempt to cheat the system, the Red Cross participates
in the Department of Justice's Hurricane Katrina Fraud Task Force,
which also includes members from the FBI, the United States Secret
Service, the Federal Trade Commission, the Postal Inspector's Office,
and the Executive Office of the United States Attorneys, among others.
The Red Cross is assisting in hundreds of investigations now in
progress. Every resource, whether in-kind, financial or people, is
precious to the Red Cross and we are taking every measure to
aggressively pursue any illegal activity. To date, there have been 76
indictments and 55 convictions.
At this time, we are investigating 7,109 cases of suspected and
actual fraud. These represent a combination of cases turned over to law
enforcement and cases being investigated internally. We estimate the
potential of some $9.5 million in cases stemming from this fraud. While
we recognize that these numbers are very high, it is important that we
put them into context. While no misuse or waste of donated dollars can
be tolerated, fraudulent activity will likely be less than one-half of
one percent (0.5%) of total operational costs. It is important,
however, that this is put in the appropriate context. To add further
context, a 2005 report by the Association of Certified Fraud Examiners
entitled ``National Occupational Fraud and Abuse'' cited the industry
fraud average at 6% of revenue collected.
Additionally, there were instances where individuals or families
received duplicative assistance that was neither fraud nor abuse on
behalf of our clients, but rather a simple oversight or human error. I
am pleased to report to this Committee today that as of May 1, 2006,
the American Red Cross had collected $2.3 million in returned
assistance from clients who had received duplicate payments.
American Red Cross: Ready for 2006
To better prepare for the coming season, and to mitigate fraud,
waste and abuse, we have undertaken a long list of projects. For this
hurricane season, we have created:
Client Assistance System (CAS) software and reporting
enhancements to provide a single system of record to support
the delivery of assistance to those in need. Enhancements to
CAS and an upgraded information technology infrastructure will
allow the Red Cross to speed emergency assistance to one
million affected families within a 10-day period, with the
capacity to process a total of two million cases over the long
term.
Cash-enabled client assistance cards (CAC), which can
be used as a vehicle for providing emergency assistance. One
million National Headquarters CAC cards will be pre-stocked so
that the cards can be efficiently distributed to families
displaced by large-scale disasters.
Emergency assistance call centers that can be used
during large-scale events to handle a capacity of one million
cases in 10 days, or 100,000 completed cases per day.
A web-based shelter management application based on
the Coordinated Assistance Network (CAN), developed in
conjunction with FEMA and the Department of Homeland Security.
When fully implemented, we will have the ability to track
shelter inventory, facility survey data, and population counts
of the shelter population nationwide.
Fourteen dedicated Red Cross staff to coordinate
closely with state emergency management agencies in high-risk
areas, including the states of Louisiana, California,
Mississippi, Alabama, Florida, Tennessee, Georgia, Maryland,
Virginia, North Carolina, South Carolina, New York, Arkansas,
and Texas.
Increased stockpiling of supplies (food, cots,
blankets, comfort kits, etc.) in key risk states to enable the
Red Cross to serve one million meals a day and to shelter
500,000 people per day in the initial days after a disaster
strikes.
Improvements to the Disaster Services Human Resources
(DSHR) system to track in real-time staff assigned to relief
operations and strengthen the process used for registering
spontaneous volunteers. The DSHR system software is also being
modified to accommodate DSHR ID Smart Card technology. These
improvements will provide better information about available
resources.
Addition of six on-staff disaster relief operation
directors to provide leadership to major relief operations as
well as mentor and coach chapter and multi-chapter relief
operation directors. This will improve the skill sets of
administrators and managers in the DSHR system.
Development of national partnerships that chapters can
implement on a local level to engage underserved groups in
their communities.
Delivery of ``Introduction to Disaster'' training to
over 400 members across six NAACP conferences.
A ``Disaster Welfare Information'' system for chapters
to provide ``safe and well'' status information to the families
and loved ones of disaster victims.
Response Center Network expansion for a group of
chapters that staff the 1-866-GET-INFO line. We will have 250
simultaneous workers in chapters nationwide supporting the
information center's work.
An enhanced Volunteer Match Portal to help manage
expectations of large numbers of spontaneous volunteers and
provide updated guidance.
Improved chapter advance procedures and new monitoring
and control processes to support the use of the CAC.
A national Disaster Field Supply Center warehousing
system with increased capacity and more critical supplies. We
are greatly expanding our warehouse space from about 300,000
square feet to over 1,000,000 square feet (new warehouses are
located in Montgomery, AL; Reserve, LA; Charlotte, NC;
Pensacola, FL; Reno, NV; Atlanta, GA; Richmond, VA; and
Hattiesburg, MS).
Pre-positioned redundant communications equipment such
as phones, computers, radios, and satellite equipment in 21
cities in nine coastal states.
Closing Remarks
In summary, despite the problems that challenged us all last year,
I am extremely proud of the actions of the more than 225,000 American
Red Cross workers in responding to the devastating effects of Katrina,
Rita, and Wilma.
I am confident that the actions we have taken internally and in
conjunction with our federal, state, local, other NGO, and private
sector partners will result in an even better response for the next
disaster.
Thank you for your time and attention.
APPENDIX A: High-level Chronology of Events
----------------------------------------------------------------------------------------------------------------
Year Event Outcome/Results
----------------------------------------------------------------------------------------------------------------
1881 Michigan Forest Fires Clara Barton provides food, clothing, medical
supplies, and lumber for disaster victims.
----------------------------------------------------------------------------------------------------------------
1905 Congressional Charter Charter recognized the role of the Red Cross in
disaster relief ``to continue and carry on a system
of national and international relief in times of
peace and apply same in mitigating the sufferings
caused by pestilence, famine, fire, floods, and other
great national calamities, and to devise and carry on
measures for preventing the same.''
----------------------------------------------------------------------------------------------------------------
1906 San Francisco Earthquake ARC provides loans to victims. Court decision found
against the Red Cross stating that loaning money
which had been donated for relief was ``improper''.
BoG adopted a policy making only grants, not loans to
disaster victims.
----------------------------------------------------------------------------------------------------------------
1906-1913 50 domestic disasters ARC assisted with emergency needs, repairing and
rebuilding homes, providing household furniture and
rehabilitating small businesses. Policies and program
guidance continued to evolve and included:
Whatever is done to meet family needs
advance the welfare of both the individual and the
community.
Relief is proportioned to need, not loss.
The Red Cross should make greatest possible
use of community resources.
----------------------------------------------------------------------------------------------------------------
1918 Influenza Epidemic ARC adjusted the disaster program and recruited
18,000 nurses, furnished equipment and supplies for
hospitals, convalescent homes and convalescent
kitchens.
----------------------------------------------------------------------------------------------------------------
1919+ Local Disaster preparedness committees formed and program
expands to chapters providing assistance to local
calamities. Affected chapters established local
advisory committees to help ARC carry out its relief
obligations.
----------------------------------------------------------------------------------------------------------------
1930-1933 Depression ARC responds to President's request and participates
in drought relief by distributing excess government
foods and supplies and acting as a government agent
through the signing of the Agency Service Agreement.
----------------------------------------------------------------------------------------------------------------
1964 Alaskan Earthquake First individual government assistance provided to
disaster victims.
----------------------------------------------------------------------------------------------------------------
1965 Hurricane Betsy Government individual assistance expanded. ARC
chapters authorized to provide relief assistance
during civil disorders, if necessary.
----------------------------------------------------------------------------------------------------------------
1968 Civil Disorders NHQ suggested that chapters plan for civil disorders
as part of their emergency relief function.
----------------------------------------------------------------------------------------------------------------
1969 Hurricane Camille Disaster Relief Act of 1969 expands the scope of
federal individual assistance, adds grants, food
stamps, unemployment compensation.
----------------------------------------------------------------------------------------------------------------
1976 E. Mississippi Tornadoes and Typhoon ARC resumes its additional assistance role
Pamela (rehabilitation work) as federal individual
assistance is not timely.
BoG establishes a special Disaster Services program
review subcommittee to determine if the program was
adequate for the immediate future and how it would be
financed.
----------------------------------------------------------------------------------------------------------------
1982-1983 Unprecedented disaster activity $33 million exhausts Disaster Services budget and
Disaster Revolving Fund.
----------------------------------------------------------------------------------------------------------------
1995 Oklahoma City Bombing Red Cross response includes creation of a long term
mental health counseling and referral program for
victims' families and local residents. In addition,
we created an off-site mental health recovery zone
for workers and first-responders.
----------------------------------------------------------------------------------------------------------------
2001 September 11 Terrorist Attacks Provided financial assistance to victims families and
to those affected economically. Post-event review led
to establishment of greater transparency in
accounting practices and changes in our fundraising
approach to communicate needs more clearly and
immediately to the public.
----------------------------------------------------------------------------------------------------------------
Mr. McCaul. Thank you, Mr. Becker.
The chair now recognizes the ranking member.
Mr. Etheridge. Mr. Chairman, I ask unanimous consent that
Mr. Taylor, whose State was hard hit in this, be allowed to sit
in the panel with us.
Mr. McCaul. Without objection, so ordered.
Let me say, first, I recognize the magnitude of the
challenges these hurricanes presented, and I applaud the good
work that was done in terms of assistance. My home State of
Texas was indirectly impacted by Katrina and directly impacted
by Rita, and I understand the need that was there to respond
quickly with assistance. Where I have an issue is the
accountability in the system and the lack of controls.
I think one of the points of this hearing is, looking
forward, what can we do to prevent this from happening again as
we enter into another hurricane season? So I do applaud you for
what was done, the Red Cross and FEMA.
At the same time, I want to applaud Mr. Kutz and Special
Agent Ryan for the work that they did. In working with me and
the subcommittee, they disclosed and uncovered something that
may never have been uncovered, and that is a billion dollars,
possibly more, of these benefits were fraudulently obtained,
and I think that is important for the American people to know
that.
I agree with you, Mr. Kutz, the ultimate victim in this
case was the taxpayers. At a time where we are cutting Homeland
Security grants by 50 percent, we can't afford as a Nation to
have a billion dollars of fraud, and then we don't even know
how much more, just the magnitude of the fraud that is out
there. So it is important that we in the Congress fix this
problem. It is important that FEMA fixes this problem.
And when I look at, you know, these--this FEMA letter from
the director and from Governor Blanco saying, inspection was
done on their home, the inspection showed damage to your home
and personal property, and I see a vacant lot, and then I see a
check from my hometown of Austin, Texas, going to the applicant
for this empty lot--worse yet, when I see a Federal
prosecutor--a Federal prisoner holding benefit checks that he
received and applied for while he was in prison at the time of
Katrina, I am appalled at this. And I want something done about
it, and I think the American people do as well. And then when I
look at a cemetery that was used as a damaged property, when
the person didn't even live in the State of Louisiana, and he
is receiving money at the taxpayers' expense; I have got to
tell you, this has to stop. I don't even know where to start
with all this. I think I have done a fairly succinct job giving
you an overview of my concerns with this.
And Ms. Dannels, I want to hear from you directly. First,
how did this happen? And what are you doing to prevent this
from happening again? Because if you don't fix it, if FEMA
doesn't fix it, Congress will.
And then I would like to hear from the GAO and their
response.
Ms. Dannels. Thank you. And I do want to talk about some of
the specific things that we have done and that were in process
when Hurricane Katrina struck. First, though, I would like to
say that every organization, whether it is private industry,
Federal Government, whether it is producing a product or
delivering a service, is designed to a particular level of
capability, and that principle agrees to us as well. There is
no question that the hurricanes of 2004 tested and in some
instances overwhelmed our systems and processes and clearly, in
2005, overwhelmed our processes in many, many, many respects.
Because of that, we were in a position--and it again goes back
to my statement of striking a balance of how--between having
complete accuracy and fraud prevention, and having expediency
and delivering assistance. We were in the position, I think, as
Mr. Thompson said, of making some very tough decisions during
some impossible times, and we were faced with our capabilities,
our systems and processes, how we traditionally do business,
not being able to meet the catastrophic event that we
experienced, and we did in fact put in place never before used
and untested processes and methodologies that clearly, because
they were untested, were more subject to error and fraud. We
are in the process of reviewing them. We welcome the GAO
reviewing them.
I would also say that, because we knew what we were facing,
we had the Office of Inspector General embedded with us from
nearly day one, looking at these situations with us so that we
could have the benefit of their advice and expertise in
determining how best to try to approach the impossible
situations that we found ourselves in.
Mr. McCaul. Thank you. If I could just comment, as we in
the Congress appropriate billions of dollars towards this
disaster relief assistance, and as we, even this week, look at
this issue, we and the American taxpayer want to know that it
is being spent wisely. And I think, anytime you have that kind
of money thrown out there, there are people who are going to
milk the system. There are bad actors, but I don't think it has
to be a choice between fraud prevention and expediting claims.
I don't think it has to be either/or. I think we can have both,
and I think that is what the American people deserve, and that
is what we want to get after this hearing.
I would like to hear from Special Agent Ryan if that would
be okay.
Mr. Ryan. That is fine. Thank you, Mr. Chairman.
In this particular case, when we started looking at this
problem, we wanted to know what had been done prior to us
getting involved. We wanted to know if they did in-depth
audits, in-depth investigations. We didn't find a lot of that.
So we decided to test the system. We wanted to see what upfront
controls were going to be in place to stop us from being able
to get into the system and have an opportunity to commit fraud.
Fraud is a crime of opportunity. If given the opportunity and
the upfront controls aren't in place, you are going to have
people that are going to take advantage of the situation. And
that is what we did to test the system. I believe that if you
are going to go ahead and deal with the taxpayers' money, you
have to learn from your mistakes. You need to debrief as to
what went right, what went wrong, and you have to prepare going
forward. You have to practice what you are going to put into
place if you don't have something to fall back on, and know
where the weaknesses are and where you need your manpower if
you have a problem going forward. And I think that is exactly
what happened in this situation.
Mr. McCaul. Mr. Kutz, do you have any comments?
Mr. Kutz. Yes, I would agree with you on the choice issue.
I don't think our Nation's fiscal condition allows us a choice
between allowing a billion or so dollars in fraud and getting
money out quickly. I think FEMA needs to protect all taxpayers
at the same time as they take care of disaster victims. We are
very sympathetic to that issue.
A couple of points, I don't think Ms. Dannels' opening
statement addressed anything from my testimony today. Her
opening statement addresses a report we are issuing related to
our February testimony before Senator Collins and Lieberman
related to expedited assistance. I think our testimony today
shows the problems are much, much broader than what she
discussed in her opening statement. So I would be interested in
knowing what they are going to do about the new issues today. I
think putting in place--she mentioned putting in place untested
methods, and some of the recommendations we have related to our
prior work talk about--I think Mr. Ryan alluded to this--is
that you have to field test these controls and not wait until a
disaster happens to test them because that is a recipe for
disaster.
So whatever fraud prevention controls they put in place for
this disaster season related to identities and damaged property
addresses and other types of upfront controls do need to be
tested before they are implemented to see if they work because
the other risk here of tightening controls is legitimate
victims not getting disaster assistance.
Mr. McCaul. Thank you. And I think what I was most appalled
with is not only the magnitude of the amount of money, the
fraud, but where it was spent, and it would be the goal of this
subcommittee and the full committee to get recommendations as
to how to fix the system.
The Chair now recognizes the Ranking Member.
Mr. Etheridge. Thank you Mr. Chairman. You know, as has
already been stated, everyone here today is focused on waste,
fraud and abuse, which, unfortunately, as we have heard today
is a problem after every disaster. But I want you to know that
the career employees of FEMA and the Red Cross and the
thousands of volunteers that help out in every disaster, they
do a magnificent job. They did a magnificent job with Katrina
and Rita, and we thank them for that.
But that being said, that is no excuse for the people who
steal, whoever they are, whether they wear suits and ties or
blue jeans. And I think the most tragic aspect of this disaster
is the effort of the career employees of FEMA and all the
volunteers of the Red Cross, a lot of their good effort got
frittered away because of a few political appointees who had no
experience in disasters. And then they want to pass it down to
career employees who come before this committee and answer the
questions.
I hope, Mr. Chairman, we get the political appointees to
come before this committee and answer the questions, because I
think that is important.
Ms. Dannels, I understand that you are a career employee
with FEMA, and many of your coworkers praise your experience
and your dedication, and we thank you for that.
And as you know, fraud, in the aftermath of this disaster
or other disasters, is nothing new. However, as I said before,
there is no excuse for having it. The Department of Homeland
Security's Inspector General has reported that, as I have said
earlier, the south Florida residents got millions of dollars,
and they weren't even in the hurricane's path and weren't
affected by it. Today you have told us about some of the steps
FEMA has taken to address those issues for the 2006 hurricane
season. What I want to know is: steps, number one, taken
sooner, and was it a leadership issue? Was it a budgetary
issue? Or was it a staffing issue?
Ms. Dannels. Thank you. And there are a number of questions
on the table for me to address, and I will try to get to all of
them.
I appreciate your comments about the career employees. In
fact, I have been with FEMA for 23 years, and I have been
through several pendulum swings, and I have a great deal of
history and perspective on what has happened before and what we
are going through now.
I would like to also address Mr. Kutz. You are correct, my
testimony has to do with the expedited assistance which was
what we were under the impression this hearing was about. We
received your statement of fact on Thursday afternoon. Our
testimony was due prior to that, and we, of course, since
Friday, have been involved with Tropical Storm Alberto.
However, I am more than happy in my questions and answers to
address your statement of fact.
On the Florida situation, 2004, Mr. Etheridge, in fact, we
have implemented a great number of the recommendations in that
IG report, and we were in the process of continuing that when
Hurricane Katrina struck. That report was issued in May 2004--
2005. And we had accomplished a number of those
recommendations, and they in fact did strengthen a lot of the
processes that had been identified as weak during the 2004
hurricane. That does not--and I understand, and in no way do I
mean to imply that FEMA is asking for a pass on any fraud that
took place, in no way am I suggesting that. But I think that we
do have to put this in some sort of context that we have
systems and resources in place, and I, as a career person,
can't debate whether they are at the appropriate level, why
they are, or why they are not, but the fact remains that we
have a certain level of capability in place. And when that is
exceeded, as it was this year, we are faced with doing things
and going back.
And I also would suggest, Mr. Ryan, that he is saying that
at the point that they started looking to see if we were doing
anything about some of those new technologies and processes we
used, we were operating 24/7 until March; we were--I worked
seven days a week until May 1. We have been very operational
with the size of this event, and we are now looking at a great
number of those things and have been working with EIG in
looking at these things. Again, we welcome those reviews. We
find them very valuable, and we will continue to make process
improvements.
We have in place now one of the recommendations that the IG
or that the GAO made back in their earlier expedited assistance
report. We, in fact, did put in place the identity verification
not only on their online registration but also on our 1-800
registration so that many of the things that occurred that they
have talked about in their report cannot happen now; those
Social Security numbers that were invalid would be caught.
We are not doing debit cards this year. We did that in a
very--I don't want to call it a pilot, but we did it in a very
confined fashion last year because we knew that we were at risk
and that it was vulnerable that we had not tested it, and we
only distributed I believe 10,000 of those cards out of those--
of the number of people who had registered, and we did it on a
very small scale. We will go back and look at that. We are not
going to do debit cards this year. We also, on expedited
assistance, we have used them on six occasions--
Mr. Etheridge. That is good.
Ms. Dannels. Six occasions, and it was never at $2,000. It
had always been at $500. We will go back to a more conservative
amount. However, again, our systems were overwhelmed. People
could not get through on our 1-800 number, much of what was
occurring with Joe Becker and the Red Cross. So we just made
the calculated decision that we were going to help as many
people as we could, and that we would have to go back and
identify those people who we either paid in error or that
were--defrauded us and deal with that.
I would also mention, in the 2004 hurricane season, we were
concerned that some of what we had done, what the IG had
uncovered, had put us at risk, and we implemented under the
Improper Payments Act a review and found out that in fact our
overpayments still fell below that threshold that was
acceptable. We have already implemented this year a review
under the Improper Payments Act via a contractor to come in and
look at all of those payments, identify in our systems where
were the weaknesses and vulnerabilities, make those
recommendations so that we can mitigate future risks.
Mr. Etheridge. Thank you.
Thank you, Mr. Chairman. I have a follow up if we have
another round. I just want to get my question in before--
Mr. McCaul. Chair now recognizes the sherriff from
Washington State, my colleague, Mr. Reichert.
Mr. Reichert. Thank you, Mr. Chairman.
First, I want to talk about what we are going to do. I
think we are going to try and help you. We are from the Federal
Government, and we are here to help. Last month, Chairman
McCaul and I and our friends on the other side of the aisle,
Mr. Thompson, Mr. Pascrell and Mr. Etheridge, have been working
on a bill. We passed this bill through the full committee, and
this legislation deals with waste, fraud and abuse, and some of
the things that we are going to be helping you with are
developing and maintaining proper internal management controls,
mandates that databases collect information from applicants.
And I understand from today's testimony that that is a process
that has already started, but now it will be a part of
legislation.
We will have the security inspector general review such
databases and payment systems, evaluate the existence of and
implementation of internal controls. Directs the Secretary to
certify annually to Congress that proper internal controls are
in place and operating. I just wanted to throw that out there.
This is the National Emergency Management Reform Enhancement
Act of 2006. It has been passed through the full committee, and
hopefully, in the next 2 weeks, you will see this on the floor
of the House of Representatives so that we can be of some help
to you.
I want to focus--I was the sheriff of Seattle for 8 years
and 33 years in law enforcement prevention. I mean, that is
just the bottom line on anything, prevention and then
enforcement. Who has the primary--this is my first question.
Who has the primary responsibility for enforcement in this
area, investigative authority for waste, fraud and abuse when
it comes to FEMA?
Mr. Ran.
Mr. Ryan. Under the situation that we are presently in
right now, there was an agreement that they would form a task
force which the Attorney General was going to head. Alice
Fisher was put in charge of it. David Dugas, who is the U.S.
Attorney from Louisiana, is someone that I speak to on a
regular basis about him heading up the task force.
There is a multi-agency task force, which we are dealing
with on a regular basis. I might add that the postal inspectors
have been absolutely wonderful in regard to pursuing cases. The
DHSIG is involved, the Social Security IG, and along with a lot
of other inspector generals. So it is something that Justice
has recognized. They have identified a zero tolerance policy,
and also being in law enforcement for 30 years, I understand
exactly what you are saying, who is going to do what?
Mr. Reichert. Gets you fired up a little bit; doesn't it?
Mr. Ryan. It does primarily because law enforcement gets
blamed for not doing enough at the end when people are stealing
it. And my problem is, I think there needs to be more done with
the upfront controls.
Mr. Reichert. Yes.
Mr. Ryan. If you take away the opportunity to commit fraud,
you are going to cut down the number of cases you have to
refer.
Mr. Reichert. Right.
Mr. Ryan. If you talk about the money that's going to
prosecute somebody for $2,000 when you could have put controls
in place to stop that, I think we could utilize the law
enforcement personnel in a different way.
Mr. Reichert. So we are following up on these cases that
these crooks ripped off the American public.
Mr. Ryan. Yes, sir.
Mr. Reichert. We are also looking at some employees?
Mr. Ryan. I think that is a question that needs to be
addressed in regards to being able to get the data on
employees.
Mr. Reichert. Okay. I just want to ask another question
about what--what happened prior to September 11? Did you have
these sorts of things happening, on a much smaller scale
obviously, but were these things happening, fraud, abuse and
waste, before September 11? And the answer is--
Ms. Dannels. Are you addressing me, sir?
Mr. Reichert. Yes, ma'am.
Ms. Dannels. Our fraud rate and, what I would say, our
overpayment rate is typically very low. We do a review process
after every single disaster. I would say it ranges between 1
and 3 percent. That is not just fraud. That is simply
overpayments.
Mr. Reichert. But you have experienced the fraud, waste and
abuse prior to September 11. It happens when you go into an
area and you try to help people. Some people are there to take
advantage of the system.
Ms. Dannels. I think it is inevitable. Our job is to
minimize it.
Mr. Reichert. Have you ever experienced bad Social Security
numbers being presented to your office before? Have you ever
experienced bogus addresses before? Have you ever experienced
invalid primary addresses before? Have you ever experienced
duplicative registrations before? I imagine the answer would be
yes. I compare this to--and I know this is an extreme, extreme
situation when you look at Katrina. I was involved in an
investigation. The largest serial murder investigation in this
Nation's history. We had things in place before this
investigation began that we broadened out and used and knew
could support a larger event. We knew these things might happen
as we went into this investigation. Did you not know that as
you went into Katrina, as you went into Rita, that these things
that you had experienced before--because you talked about, we
had a choice to make? Did you not know already those things
were going to happen and you could build that system around
what you already did pre-September 11?
Ms. Dannels. Sir, I don't think that we did know that the
levies would break, and there would be hundreds of thousands of
people who would be airlifted from rooftops without any
identification and would be displaced and living all over the
country and not be able to return to their homes for months at
a time. That, in fact, had we had the opportunity and the time
to develop--
Mr. Reichert. The question that I wanted answered, please,
was, you had systems in place before September 11, is that not
true, to address some of the issues that we just talked about?
Bogus addresses, the Social Security numbers.
Ms. Dannels. We have those systems in place. They continue
to be improved upon, and they generally work very well. Again,
the level of overpayments is 1, 2 or 3 percent in a disaster.
Mr. Kutz. Congressman, can I clarify something there?
Because you have a big reconciliation problem. She is saying 1
to 2 to 3 percent, which is what they have testified before, as
their fraud rate for this disaster, not prior ones. I am
talking about this disaster. I have just testified to you that
the rate is 16 percent. There is a huge reconciliation problem
we have to explain here. We did a random statistical sample of
the entire population and projected our sample items to the
population. So ours is a valid fraud projection. I don't
believe this is an apples and apples discussion. They are
talking about recoupment after the fact. Not going out and
doing systemically--
Mr. Reichert. Yes.
Mr. Kutz. So I think we need to clarify the prior fraud
rates if we are talking about the same things for prior
disasters. That would not represent a fraud rate for prior
disasters.
Mr. Reichert. Mr. Chairman, if I could just follow up very
quickly.
Sir, you mentioned call centers and Western Union and new
innovative ideas and new ways you wanted to help individuals.
Did you not think, though, as you put these systems in place
some of the issues that might occur regarding fraud, waste and
abuse, before you put these systems in place, and begin to work
on solving those problems before they even occurred?
Mr. Becker. Yes, sir, we did, and the conversations that we
had in the earliest days to deliver service, we were focused on
that issue. And we knew that for us to move as fast as those
people expected us to move, we had some exposure. Our exposure
was a little bit different. Our exposure was, you might be able
to go to multiple places and receive assistance before we
figured out that you did that, and what we knew at the earliest
was that was a possibility where people could take advantage of
us, so we would put a robust system in place to comb the data,
and we had each client sign, I have only received this
assistance for the first time; I understand that I received
assistance to meet these needs. And what we then did was put a
team together of paralegals and investigators to go back and go
through all the cases and figure out who actually got
assistance that shouldn't have, and we have had pretty good
success with that.
And we have also had great success working with the task
force that Mr. Ryan referred to in getting prosecutions where
people did take advantage of us.
Mr. Reichert. Thank you.
Mr. McCaul. Thank you.
I would say, the submitted 16 percent equals $1 billion or
more dollars to the taxpayers, 7,000 cases referred for
prosecution. Out of this investigation, and we are just getting
started, I submit we could have a more robust system.
I now would like to recognize the gentleman from
Mississippi, the Ranking Member, Mr. Thompson.
Mr. Thompson. Thank you very much, Mr. Chairman.
Ms. Dannels, I personally think you have been put under the
bus by being brought here. We absolutely need, at a minimum,
the FEMA director, and optimally, we need the Secretary to
answer these questions. They absolutely are the ones who should
be made accountable for this.
You made the point that, up until May 1, you worked 7 days
a week. Last week, I met with the chief human capital officer,
who, by the way, is gone. And he said that FEMA is still only
up to 82 percent staffing. How can we adequately respond to the
issues of waste, fraud and abuse or anything else with only 82
percent of our staff in place, or do you think we can
adequately respond to waste, fraud and abuse being short-
staffed?
Ms. Dannels. I think that we are making great strides on--I
am sorry. I don't remember who made the comment about lack of
internal controls. We have had a contract, looking at all of
our internal controls; again, making recommendations. There is
a matrix that is developed with follow up where we are
implementing corrective actions, and so we are taking many
steps--
Mr. Thompson. I recognize you are under the bus. So now you
know--
Ms. Dannels. So now you are going to drive a little faster.
I understand.
Mr. Thompson. Yes. Do you think we can do it with 82
percent staffing? Yes or no?
Ms. Dannels. I don't know the answer to that question.
Mr. Thompson. Well, I am going to have to speed up on the
bus then.
Ms. Dannels. You are going to put it in reverse. I can
tell.
Mr. Kutz. Congressman, can I make one point on that just--
and I think Ms. Dannels could probably add to this. A lot of
the fraud prevention efforts are also provided for by
contracts.
Mr. Thompson. I am coming to that.
Mr. Kutz. All right.
Mr. Thompson. We have a contract. Did you participate in
the contracting that is presently in force?
Ms. Dannels. We have a great number of contracts.
Mr. Thompson. ChoicePoint.
Ms. Dannels. ChoicePoint, yes.
Mr. Thompson. You did.
Ms. Dannels. Yes.
Mr. Thompson. Any reason that was a sole source contract?
Ms. Dannels. That was my understanding while I
participated--
Mr. Thompson. What was the reaction now for it being a sole
source contract rather than competitively bid?
Ms. Dannels. My understanding is we accessed that from a
schedule where DHS already had that under contract. So we were
leveraging something that was already in place, and it was not
a sole source contract, is my understanding, but we can
certainly get--
Mr. Thompson. How is it not a sole source contract? Was it
competitively bid?
Ms. Dannels. The Department of Homeland Security used a
schedule that was in place that allows--my understanding is
that there is qualifying that is done in advance, and it is
there specifically so that we can make--
Mr. Thompson. Why did we pick ChoicePoint if--were there
any other people on the schedule?
Ms. Dannels. That was already in place in DHS. We simply
used what was in place. FEMA used what was in place at DHS, so
I don't know the answer as to how DHS selected ChoicePoint.
Mr. Thompson. So you see--you are still under the bus. Can
you tell me if it is in place with this contract that if they
perform poorly and we identify a 16 percent fraud rate, can we
recoup our money based on this contract?
Ms. Dannels. I don't know the answer to that question, but
the 16 percent doesn't relate back to ChoicePoint either.
Mr. Thompson. You mean to tell me, if we hire a
contractor--
Ms. Dannels. That was not--that contract was not completely
in place. It was in place only on Internet registrations and
not those on the 800 number at the time that they had done this
work.
Mr. Kutz. Congressman, I think that is an important point
because ChoicePoint had a menu of options for them to pick that
included many more comprehensive controls than just the
Internet validation of identities, and they did not pick all of
them. Again, I don't know who is responsible for deciding to
pick one small aspect of a bigger menu, but one of the
fundamental problems here is they didn't effectively use
ChoicePoint. So that is one of the key issues.
Mr. Thompson. Can you tell me why we didn't exercise the
menu before us, Ms. Dannels?
Ms. Dannels. I have to ask Mr. Kutz for clarification on
the menu. Are you referring to not doing it on the 800 number?
Mr. Kutz. No. Also, they have, address validation is
another menu item. The identity validation, she is correct; I
mean, they have hired them to do it just on the Internet, not
for the call-ins, but they also have services where they have
postal addresses, information and other things that they
purchased; they have a database of insurance information so
they can check for insurance fraud. So there is a whole choice
of things ChoicePoint actually sells.
Ms. Dannels. We now have home ownership occupancy with
ChoicePoint also in place. The reason we did not before is
because we accomplished that at the point of an onsite
inspection, and so we felt that we didn't need it. Clearly, we
have learned that we cannot always do an onsite inspection, as
was the case with hundreds of thousands of homes in inundated
areas last year.
Mr. Thompson. Last question, Mr. Chairman.
Ms. Dannels, can you tell me how many people have been
terminated for approving vouchers for payment or anything like
that consistent with what has been exposed here today?
Ms. Dannels. Are you talking about Federal employees?
People terminated--
Mr. Thompson. Well, if somebody inspected a cemetery and
said that that cemetery met the criteria for payment, somebody
should have been fired.
Ms. Dannels. First of all, I can't address the specific
situations that are in their statement of fact. Again, we
received it just Thursday. What I would go back to, again, is
that the--some of the new processes and technologies we used
opened us up to this. This may have done--been done through
geospatial work and satellite imagery that we use where we
could not go in and inspect. So we identified, those five
parishes in three counties in Mississippi, those most affected
areas, identified those addresses. We matched them with the
registrations that we had, and then we ran them through a
verification like ChoicePoint to validate their identity.
Clearly, some of those failed. So this may not be an inspector
went out and did something wrong.
Mr. Thompson. Well, the only thing I am saying is, we have
testimony that somebody certified that an inspection had
occurred, that approved the payment.
Ms. Dannels. That may have been done through technology and
not an inspector onsite, which we do not normally do. That is a
new technology we used this year, and we are reviewing that,
looking for improvements.
Mr. Thompson. And if you would bear with me, Mr. Chairman,
can the GAO people explain?
Mr. Kutz. There may not have been a physical inspection of
that cemetery. I think one of the cemeteries received expedited
assistance. Another one received rental assistance. So there
should have been, for rental assistance, some additional
validation, and obviously, it was not effective.
Ms. Dannels. We will go back and look at each and every one
of these cases with them to determine what went wrong and
improve those processes.
Mr. Thompson. Thank you, Mr. Chairman.
Mr. McCaul. Thank you.
I would also like to indicate to the ranking member that we
did invite Director Paulison to testify, and he declined.
As a former career guy, I respect what you are doing, and
understand the notion of not wanting to be thrown under the
bus.
So, having said that, I would like to ask unanimous consent
that my colleague from Pennsylvania, Mr.Dent be allowed to
participate in this hearing. Without objection, so ordered.
Mr. Shays. He has a right to object.
Mr. McCaul. So ordered.
The Chair now recognizes the gentlelady from Florida,
Ms.Ginny Brown-Waite.
Ms. Brown-Waite. Thank you very much.
Ms. Dannels, when I first heard your testimony, I was a
little concerned that maybe your staff hadn't properly briefed
you on what this meeting was all about. And you certainly have
a very, very difficult task. But if I read this correctly, you
are acting deputy. Is that correct?
Ms. Dannels. That would be of the recovery programs, not
the agency.
Ms. Brown-Waite. Okay. Well, this hearing has been noticed
as a hearing on fraud, waste and abuse in the aftermath of
Katrina, and my concern is that you really weren't addressing
that, but rather the February report. I mean, clearly, the GAO
presentation was about rental assistance and hotel costs and
repairs. Knowing that the GAO report was out there, it almost
seems like you were a day late and a dollar short, with all due
respect. And I keep hearing that we are reviewing that.
As somebody whose district dodged the bullet again because
of the hurricane that came onshore yesterday at Cedar Key, I
have many, many concerns about what is going on in the agency,
and can you help me to understand why you didn't know this
hearing was about fraud, waste and abuse?
Ms. Dannels. Yes. I did know it was about fraud, waste and
abuse. What was just shared with us on Thursday was the
statement of fact, GAO statement of fact, which has been the
basis of their testimony. We did not have that until Thursday
afternoon. So I was not aware that they had another preliminary
report of findings they were releasing. They met with us and
delivered that to us Thursday.
Ms. Brown-Waite. Did you have a draft of what they were
doing before that?
Ms. Dannels. No.
Ms. Brown-Waite. Well, knowing what--
Ms. Dannels. However, I am prepared to talk about more of
what is in that statement of fact. I welcome the opportunity to
talk about some of their conclusions and concerns on the
hotels.
Ms. Brown-Waite. Well, submitted your testimony in advance,
it just seems to me, as if knowing it is really about fraud,
waste and abuse, the entire testimony that you had prepared
could have been submitted to the record, and then you could
have updated it. And I think the lack of responsiveness to the
topic of waste, fraud and abuse should be of concern to every
member here.
Let me ask a question. When any checks are sent out or
debit cards, is there any sort of accompanying warning in the
application process even that, if any sort of fraudulent
information is submitted, that restitution and/or prosecution
will be pursued? And I don't care who answers it.
Ms. Dannels. I will gladly answer that question. Before I
do, we will gladly update the testimony. Again, we were busy
with Tropical Storm Alberto this weekend and really didn't have
the time or opportunity to update it.
Your question is that, yes, people are told. They are told
in a number of fashions, and they have to--they are advised of
that in writing, and they have to sign something to us that
also states that they have to be truthful and what they are
saying is correct and use the funds appropriately, and if they
don't, that we will take action against them. So the answer to
that is, yes.
On the debit cards, again, I would say that that was one of
those things that we did that was not used before. It was
untested. We had--it was not well developed. I think that we
will gladly acknowledge that. We are not going to use it this
year, and it did not work particularly well in some respects.
Apparently, there was not guidance that was provided to people
when they received those debit cards.
However, we don't intend to use them this year, and we do
think the debit cards are a valuable tool to have in our
toolbox, but we will not use them until we develop a well
thought out program that will ensure that we don't have some of
the errors that we had last year.
Ms. Brown-Waite. Thank you.
Mr. Kutz, how long ago did FEMA meet with you about your
report?
Mr. Kutz. The final testimony meeting was last week. But we
have ongoing discussions with them about various aspects of
what we are doing. They grant us access to their database which
is where we look for examples on all of the statistical
samples, so they have known from the beginning we were going to
do a statistical sample. We didn't have time to get it done by
February of 2006, so this was the earliest we could actually do
a comprehensive statistical sample. So, again, we have tried to
do ongoing briefings, which is the biggest part of this
testimony that is new, and so they got the final results last
week.
Ms. Brown-Waite. But they were aware that it was ongoing?
Mr. Kutz. I believe they were, yes, and they may have been
confused about what that was, but yes, we have told them very
clearly we were going to do a statistical sample, it was
ongoing, and they did grant us access to the system for us to
look at all 247 of our sample items.
Ms. Brown-Waite. Two other quick questions. WhoSec. t those
checks away from this convicted person in prison?
Mr. Ryan. Actually, those checks were cashed. Those are
copies. In order for us to find out exactly where the funds
went, we needed to go to Financial Management Services Treasury
to get copies of those checks and then track down where those
checks were cashed and who signed them. So those are actually
copies of checks that have already been cashed and negotiated.
Ms. Brown-Waite. So will the person who is in jail get
additional jail time for this fraudulent act?
Mr. Ryan. It will be 1 of 6,000 to 7,000 cases we will be
referring to the Department of Justice for action, yes.
Ms. Brown-Waite. My understanding is there was also fraud
at the call centers where there was collusion between some of
the employees at the call center and people who were calling
in. What steps were taken to ensure that that doesn't happen
again?
Ms. Dannels. GAO has not shared those findings with us. So
I am not sure that we can respond specifically to what you have
an understanding from them on.
However, last year, as with other systems that were
overwhelmed, our security background check process was as well.
We have in place this year requirements on all contracts that
fingerprints be done through the FBI process and do a full
background check before anyone has access to a FEMA facility or
a FEMA information system. Last year, because there was the
desire to have people available to take registrations, we used
the--and I am sorry I don't remember what the acronym stands
for NCIC, national agency--
Ms. Brown-Waite. NCIS?
Mr. Ryan. Yes.
Ms. Dannels. Check first to give them limited access, and
then after the fingerprint check was adjudicated, we would make
a final determination. We will not be doing that this year,
which I am assuming will address some of what they have
expressed to you. Again, I am not aware of the details. They
have not discussed it with me.
Ms. Brown-Waite. Ms. Dannels, please do update your
response to the GAO report. I yield back the balance of my
time.
Mr. McCaul. I would like to make a correction to the record
that I know personally that FEMA was not blindsided last
Thursday, but rather, there has been an ongoing dialogue
between the GAO investigators and FEMA on this issue. And I
believe that the response is to the February report, not to
this report that just came out, and I would hope that the
director would see the magnitude of this issue and the
importance of it and attend and testify during the next
hearing.
With that, I am going to go ahead and yield to the
gentleman from New Jersey, Mr. Pascrell.
Mr. Pascrell. Mr. Chairman, from what I have heard so far
today, reinforces my thoughts about this being a pervasive
situation not only in FEMA but beyond. There is a pattern here.
In many instances, we talk about a lack of preparation and a
lack--we have poor intelligence of what is coming, what is
happening. And I am thinking of all those people who have been
hurt down in the gulf area, either because we did not prepare
properly or I can imagine them listening to this hearing. I can
picture it. It is clear.
And Mr. Chairman, you have done a great thing bringing us
together today. I believe we are going to have to use subpoena
powers on this issue. We are talking about a lot of money here.
We are not even talking about contractual fraud yet. Wait until
we get into that. We contracted out, the Federal Government, if
I am not mistaken--Mr. Kutz, I mean, I am looking at your
testimony. These are estimates here. We are dealing with
individuals. What about all the fraud dealing with the
contracts that were let by FEMA before and after Katrina hit?
Am I correct in saying that?
Mr. Kutz. You are correct.
Mr. Pascrell. Correct.
Mr. Kutz. We're not addressing fraud today on the
contracts.
Mr. Pascrell. Thank you.
The GAO reports, your agency, that four of the 24 Federal
agencies have issued disclaimers on their agency's fiscal year
2005 financial statements. The Inspector General of the
Department of Homeland Security, for the Department of Homeland
Security, in regard to that fiscal year 2005 financial report,
financial statement, stated this: Unfortunately, the Department
of Homeland Security made little or no progress to improve its
overall financial reporting in fiscal year 2005. KPNG,
contractor, was unable to provide an opinion on the Department
of Homeland Security's balance sheet, unquote.
Is that accurate, Mr. Kutz?
Mr. Kutz. Yes. They are one of the four agencies that have
disclaimers.
Mr. Pascrell. We have not only a pervasive mix with the
entire Department but many other Departments we are not
discussing today. We are not just talking about FEMA here
because FEMA is under an umbrella--
Mr. Kutz. Correct.
Mr. Pascrell. Put there by yours truly around this table,
and that is a fact of life. We are talking about the inability
of the Federal Government to stay on top of those people who
had the authority to give out checks and to pay other people.
That is what we are talking about. Not very good in terms of
accountability here. Who is accountable?
Ms. Dannels, we know and with all due respect, ``you'' did
cause this mess, but it is a mess, but it goes far beyond you,
and it goes far beyond the entire Department of Homeland
Security. This is not just a FEMA issue. But I have some
questions to ask you, if I may.
Fraud in the aftermath of a disaster is deplorable. We saw
it after the four Florida hurricanes in 2004, and we have seen
it after other disasters. Yet when Katrina struck, FEMA did not
have appropriate safeguards in place even to do the most basic
checks on telephone applicants.
Today you have told us about some of the steps that FEMA is
taking for this hurricane season. In fact, you gave me the
impression that you were making improvements. I must tell you,
I believe you, but I don't believe there is any improvement. So
I don't know who is telling you there is improvement.
First of all, why weren't these steps taken sooner? And was
it a leadership issue? Was it a budgetary issue? Yes, this is
like the question, did you stop beating your wife? But I would
like the response. What is it? Is it a leadership issue? Is it
a budgetary issue, or is it a staffing issue? I've covered the
gamut of folks. I have asked you already. Which is it?
Ms. Dannels. I would say it has now become a fleet of
buses. I would say that there are a large number of things that
contribute.
Mr. Pascrell. Ms. Dannels, which is it, a leadership issue,
a budgetary issue or a staffing issue?
Mr. Chairman, the question is clear.
Ms. Dannels. Sir, I think that is a very difficult question
to ask a career person.
Mr. Pascrell. I think you have answered the question. My
final question, if I may--Mr. Chairman, do I have time?
Mr. McCaul. Well, you don't, but I will give it to you.
Mr. Pascrell. Thank you. Very good.
Mr. McCaul. Keep it short.
Mr. Pascrell. I want to finish with this point by GAO. I
like GAO. I like the work you do. We don't follow up because we
don't really mean what we say. Twenty five billion--billion
dollars of taxpayer money went unaccounted for in fiscal year
2004. That would fund the entire Department of Justice. What
did we do, Mr. Lutz, what did the government do? I know what
you did. What did the government do to act upon your findings?
Mr. Kutz. Could you explain the $25 billion? Is that
related to the financial statements of the Federal Government?
Is that what you are talking about?
Mr. Pascrell. Yes.
Mr. Kutz. Yes, that is a problem with the government not
being able to reconcile its checkbook, basically. That would be
an example, if your checkbook was, in fact, out by $25 billion.
Mr. Pascrell. Minor problem.
Mr. Kutz. Minor problem, yes. You know, with a budget of
$1.6 trillion, you could say that is still significant.
Mr. Pascrell. Well, these things contribute to the $8.3
trillion debt we have, too.
Mr. Kutz. True.
Mr. McCaul. The Chair now recognizes the gentleman from
Connecticut, Mr. Shays.
Mr. Shays. Thank you all for being here. In my capacity as
Chairman of the National Security Subcommittee of Government
Reform, we have oversight over Defense, State Department and
the Department of Homeland Security. And this obviously is an
issue that a lot of committees are looking at. Also, I was on
the Select Committee to look at FEMA and the Department of
Homeland Security and the White House--and, and, and--about
Katrina. We determined that the White House was in a fog as it
related to Katrina. We determined that DHS, particularly Mr.
Chertoff, was missing in action. And we determined that Mr.
Brown was derelict. I mean, that was our conclusion.
And there is no way that you, Ms. Dannels, should have to
take the heat for a storm of almost biblical proportions. I
will tell you, though, where I am getting troubled--and I also
realize that there is no way that it is fair to ask a career
employee whether their political appointees have done their
job. I mean, we can ask it, but it is just not something that
you can be honest about because you, in fact, have to let us
come to that conclusion. That is not your conclusion. But what
troubles me is that I feel like you are--because of this and
because no one should take the burden of what happened with
Katrina. I mean, it was an absolute disaster all the way
around. I am troubled that you haven't readily agreed with
GAO's report, because it is accurate; that you haven't said, we
have a huge challenge to deal with. And I feel like there is an
effort to try to minimize it.
My understanding is, the GAO continually interacts with the
Department--that 19 years of seeing them operate, and they warn
you, and they tell you, this is what we are concluding and so
on. Was there anything about their report you found shocking or
surprising?
Ms. Dannels. First, let me tell you, if I in any way have
given the impression that I am trying to minimize it or the
agency is, that is not the case at all. I have said more than
once, we welcome their involvement. We are.
Mr. Shays. That is not--welcoming involvement doesn't go
half the way.
Ms. Dannels. We are anxious to have their recommendations.
Mr. Shays. That doesn't cover it either.
Let me ask you this, do you believe the GAO report is
accurate?
Ms. Dannels. While you can say that they have interacted
with us over a period of months, that may be true, but they
have also interacted with probably 200 different people.
Mr. Shays. Finish your sentence. The statement of fact.
Ms. Dannels. The statement of fact I received on Thursday.
We have not had an opportunity--
Mr. Shays. That is not what I am even asking you about.
Ms. Dannels. I don't know whether 16 percent is reasonable
not, whether a billion dollars is accurate or not. Any amount
is unacceptable.
Mr. Shays. That is true, but that doesn't get at it. My
view is you would be way up here with me if you basically said
the report is accurate because it is--secondly, it is accurate
logically because we don't have any mechanism to prevent the
fraud, which you don't. We just gave out checks all the way
around.
So there is nothing surprising about this report. It is
just kind of distasteful for us to have to come to grips with
the amount. You don't have in FEMA the kind of controls that
would have prevented this.
Ms. Dannels. I will go back to an earlier statement, that
some of the untested technologies and processes that we used
this time because our systems were exceeded absolutely did not
have those controls in place.
Mr. Shays. Is that a yes?
Ms. Dannels. I knowledge that. However, I think it is also
apparent--and Mr. Kutz himself said that he can't testify that
that cemetery had an eyes-on inspection, that eyes-on
inspection and adequate control.
Mr. Shays. I am giving you an opportunity to not have to
take the blame for this. All I am asking you is the following:
You are acknowledging--I don't want you to sound like a
bureaucrat, and a bureaucrat is I am going to go to my last
statement and so on. I would feel better and I would be willing
as a Member of Congress, because I think we take some blame
here as well, to share in this blame. But, to me, if we haven't
reached you, who is in charge, then we have further to go than
we need to.
The GAO report is pretty basic. It is pretty clear. There
aren't many refutable facts to it. They are saying it is
statistical. It could, in fact, be more.
So it would strike me what you would say is the GAO report
is alarming but not surprising. We don't have the kinds of
controls in place to prevent it, and we all know we need to get
on with it and deal with it. That, to me, would be the most
comforting thing.
Is there anything that I just said that you would find
untrue?
Ms. Dannels. Absolutely not. We have been completely
cooperative with them; and, again, we look forward to the
recommendation so we can make those improvements.
Mr. Kutz. Congressman, can I say one thing? I think you
came in after we had the discussion. FEMA has also testified,
Mr. Paulison, that the actual fraud rate is 2 to 3 percent.
That is their own numbers, and they represent that onSec.
Mr. Shays. I was here.
Mr. Kutz. I think there is a real problem with them
digesting and understanding the bigger number, because they
have always gone out and said it is 2 to 3 percent, and they
did not do a representative, statistical sample to come to that
conclusion.
Mr. Shays. You just gave my summary point. It might have
been more effective if I had done it, since you are basically
talking about yourself. I was here when you made the point, and
I think that is the point I want to leave. I am less
comfortable than when I came because the report still stands,
it is valid, but I still see push-back from FEMA, and until we
stop getting the push-back, then we will start to see that we
are going to solve this problem.
Ms. Dannels. Could I just say that I don't know what
context Director Paulison said the 2 to 3 percent for this
particular event. In my opinion, we don't yet know what it is.
And the real indication, initial indication that we have had
was the statement of fact that we had Thursday as far as the
magnitude of it.
From my perspective, I think we absolutely expected it to
be higher than traditionally it has been because of the
untested technologies that we did use. So I am not surprised by
it. I am certainly displeased by it. And we are committed to
following up, doing our evaluations, working with the IG and
GAO to take corrective actions.
Mr. Shays. I am going to conclude by saying that I still
don't think you are hearing me. The amount of fraud that was
outlined in this report is pretty, pretty clear. I don't think
it is refutable. I think that you had been notified before that
this report had these kinds of numbers, and I would just say
that what would have been most comforting is to say the report
stands.
The issue is how we deal with it, and we will work with GAO
to make sure that we do our best to prevent it in the future.
That, to me, is the comment that should be made.
Thank you.
Mr. McCaul. To exercise the privilege of the Chair and
follow up on the gentleman's comments, I think you are
absolutely on point. The problem I see with this hearing is
there has been absolutely--FEMA has wholly failed to respond to
the GAO report that just came out. And last Thursday--your
testimony about last Thursday, in my view, my personal view,
based on experiences, that is incorrect, as they had been
working with FEMA since February on this. Perhaps we need
another hearing to hear what FEMA's response is to the report.
With that, I will--the Chair will recognize the gentlelady
from Texas, Ms. Jackson-Lee.
Ms. Jackson-Lee. Let me thank the chairman and the ranking
member, Mr. Etheridge, very much for this hearing and the
opportunity to participate in this hearing as well.
To all of the panel, you might recognize that Congress
tries not to use the words angry and frustrated, but there is a
great deal of anger and frustration and concern, and,
obviously, there is also a great deal of recognition of the
responsibilities of Congress.
Tomorrow, we will be debating the question of the Iraq war;
and I frankly think that many will accept the fact that
Congress in some instances failed there as well. With that in
mind, it means that there is a heavy burden for Congress to try
and fix some of these problems.
I will say to you, Ms. Dannels, that I worked alongside of
some very dedicated and committed FEMA workers. Most people
don't realize a lot of these people are, if you will, part-time
or hurricane by hurricane and leave their families and go to
places way beyond their home residence to try to be of help.
Coming from Houston, I saw a lot of that; and I applaud it.
At the same time, you have to accept the complete outrage
on a billion dollars, as the GAO has determined. So to give us
a sense that you are going to get to it is what really causes
the rising tide.
I just want to, in addition to the billion dollars, just
put into the record something that--because I saw the
desperation. Because in walking through the Reliant Arena,
where I saw thousands of evacuees, I know that you could argue
that the bulk of your work treated people who did leave without
any means of identification and were sincerely devastated. At
the same time, you seem to be defending ChoicePoint and maybe
some others that were on the list, and I don't think we need to
do things the same way when we are in the midst of the crisis.
I would associate myself with my colleagues to say more so
than Director Paulison, who was interim for a period of time,
but Secretary Chertoff was right at the seat of action; and I
would hope that he would get a message that we need to have the
Secretary front and center to respond directly to the GAO's
work. You can't, because policy determines whether or not we
begin to overhaul the financial structure of FEMA.
So let me just say that some poor soul was at the Pagoda
Hotel in Honolulu, Hawaii; and no one could find the fact that
they were not legitimate from October to December. That is a
good time to be in Hawaii. I guess my question is, desperate as
this person is, they were able to get across oceans of water to
Hawaii, desperate as they were. And not only that, they stayed
not weeks but months.
So there is either a basic disregard--and October to
December, albeit we were still in crisis with dealing with
people, it was after the immediacy of the moment. So we should
have been getting our thoughts together and our orderly process
together.
Let me just ask Mr. Kutz, what do you think about that? Was
there a moment that they could have gotten themselves together?
You realize the hurricane came at the end of August, the levees
broke. I see my good friend from Mississippi. There is no
detailing how enormous the disaster was.
This person lived in North Carolina. Was there a moment
they could have begun to look toward not only serving but
making sure that these abuses were not happening?
Mr. Kutz. There are two things I would say. There was
probably moments after the immediate crisis, but the real
effective way to do fraud prevention is before the storm. So I
think the real issue is, FEMA has been around for a while. Why
weren't these controls in place in 2004, 2003, 2002? Some of it
is very, very basic. Making sure that the people that register
have valid Social Security numbers, that is really, as I said
in the Senate, that is Fraud Prevention 101. That seems so
basic, but that is something that they were not doing.
Same thing with addresses. Is the address in the affected
area and did the person live there? That is very, very basic.
So I think there was probably a time after the immediate
issues they could have done better.
I will use the hotels as an example, because I think they
inherited some of the hotel issues from the Red Cross or took
it over from the Red Cross at some point in time. But they
could have started requiring people to give Social Security
numbers or registrations so they could have been able to check
to make sure that the people that got the free hotels didn't
also get money for out-of-pocket rental that they weren't
incurring.
Ms. Jackson-Lee. My last question, Mr. Chairman.
Ms. Dannels, would more money have helped you?
Mr. Becker, could you have used more local people rather
than what you came and did as a Red Cross, which you know is
one of the arguments we have made, that the Red Cross did not
work with the local community as it should have.
Ms. Dannels, could you have used more money, as Mr. Kutz
has said, beforehand? Even at your level, could you have used
more money to put systems in place?
Ms. Dannels. Systems were not in place.
Ms. Jackson-Lee. Would that have taken some resources?
Ms. Dannels. It would have.
There is something very important, a point to make here,
and that is the Red Cross--and I am not throwing my good
friend, Mr. Becker, here under the bus, but the Red Cross did
in fact place the people in hotels. It did not go through any
of FEMA systems.
Then we assumed responsibility for that contract in
October. We were, in fact, trying to end that program and
assure we did not duplicate that assistance and identify every
person that was in every hotel room so that we could get
exactly to these points when a class action lawsuit was filed
against the agency and we were compelled by the court to
suspend all of our activities to, A, identify people in those
hotels and, B, end any of that assistance.
Ms. Jackson-Lee. I understand that you said you needed more
resources, and I understand that it was a contract with Red
Cross. I have already said to Mr. Becker--one of his issues was
that he came in on the national level and didn't engage in any
of the local entities, any of the local organizations, at least
initially. We now know that you are reassessing what your
situation is.
More resources, and I don't know--Mr. Becker, this is my
last question.
Mr. Becker. I would agree with your assessment. One of the
big learnings we had in Hurricane Katrina was partnerships
can't happen in the middle of a disaster. They need to be
there, solid and done well in advance.
One of our big organizational-changing strategies going
forward is not just partnering but reaching out to the right
community partners, offering to train, offering to equip, and
in fact, in time of disaster, offering to financially support
them if they are feeding and sheltering and doing our work.
That is what we have been about since last fall, try to, with
our local chapters, create those partners. People from another
community serving here don't know the people as well as the
people right here in the community, and we need to become
better at that.
Ms. Jackson-Lee. Mr. Chairman, I hope you will persist, and
the ranking member, on securing the Secretary of Homeland
Security if we are to go forward and fix what I think is an
embarrassment. Not because they haven't tried to serve people,
not because people in Houston are still suffering and need your
services, but because we want to do better at this.
I thank you very much. I yield back.
Ms. Dannels. May I also just quickly add for the record
that we do have a process in place now that would prevent that
from happening again. The people, before they go into a hotel,
they have to go through us. They have to register with us. We
have to validate their identity, and the hotel will not be paid
unless they have that authority from us in advance. So we have
this in place right now, all of the processes and systems to
prevent that from happening again.
Ms. Jackson-Lee. Taking into consideration that some people
may not have identification because they have been so
devastated, you do have that part in place as well?
Ms. Dannels. Yes.
Ms. Jackson-Lee. Thank you. Thank you very much.
Mr. McCaul. We may have votes as early as 1:30, so I would
like to move forward.
Recognizing the gentleman from New Mexico, Mr. Pearce.
Mr. Pearce. Thank you, Mr. Chairman.
Mr. Kutz, FEMA has testified that they think the fraud is
in the range of 2 to 3 percent. You all are saying basically 16
percent. Just a yes or no, because I have got a lot of
questions. Is it a possibility that your method of sampling and
the attributing of fraud across different classes of payments
has contributed to an overestimation on y'all's part? Are you
willing to get in front of the railroad train and lay on the
tracks based on your 16 percent?
Mr. Kutz. I have done dozens of samples before. I am pretty
confident that the statistics are--
Mr. Pearce. Thank you. You are embedded from day one, GAO.
That is what Ms. Dannels testified.
Ms. Dannels. That would have been the OIG, Inspector
General.
Mr. Pearce. I am sorry. Did the OIG ever bring to your
attention, Ms. Dannels, there are things that are happening
that maybe should not be happening?
Ms. Dannels. I am sure--we spent hours together. I am sure
that there were many things brought to our attention.
Mr. Pearce. They didn't send formal memos?
Ms. Dannels. I can't guarantee that, because I can't
guarantee I would have necessarily seen them all. They have
brought things to our attention, and we have started taking
action on them, yes. There is an ongoing process with the IG,
yes.
Mr. Pearce. So if we looked at a continuum of problems from
the beginning to the end, that continuum of problems, Mr. Kutz,
started out huge and decreased down. Or some of the more
offensive things that you testified today, were they occurring
deep into the timeline?
Mr. Kutz. Yes, they were deep in the timeline.
Mr. Pearce. So, Ms. Dannels, with all due respect, you
testified that many of your problems came because you were kind
of overwhelmed with the flood and overwhelmed. At some point,
the system should begin to catch up. Mr. Kutz is saying that
the system was not catching up, that the mistakes were just as
deep right at the end of the measurement period as early on. Is
that something you would affirm?
Ms. Dannels. I would say that it does take more time than a
matter of 1 month, 2 months or 3 months to make some of the
systems corrections that are required.
Mr. Pearce. What systems corrections are required, Ms.
Dannels, for-- doesn't someone have to approve or disapprove
payments? You have got this--
Ms. Dannels. A lot of that is done via automated business
rules. Those are the systems I am talking about. The system
that is in place had to go through a complete acceptance
testing process that at that time included general counsel,
financial folks.
Mr. Pearce. I understand that, but my question is a little
bit different. You get someone who has got to key in things for
the computer to even measure it, for the automation to measure,
is that right? Somebody has got to key in these requests. For
that payment for the Dom Perignon at the Hooter's, it has got
to be keyed in by somebody.
Mr. Kutz. That was a preloaded card. Once they got the
card, they could spend the money however they wanted.
Mr. Pearce. Are there any instances where things are not
preloaded, where they had to request a payment?
Mr. Kutz. Yes, everything else. The debit cards were
preloaded, but all the rental assistance, personal property
repair--
Mr. Pearce. So people were keying in rental assistance from
the guys from prison, and I suspect somebody--
Ms. Dannels. Actually, I suspect that the rental
assistance--again, we need to go back and look at these
specific cases, but the rental assistance for the prisoners and
I suspect for the people with the cemetery addresses were done
not with on-site inspections but were done all with technology
which was the geospacial imagery. I suspect that is what we
would find. That was a brand-new, untested technology that we
acknowledged did not have adequate controls; and we are
addressing that.
Mr. Pearce. Do you think there is any sloppy work on the
behalf or have you detected any sloppy work on the behalf of
people or is it all systems?
Ms. Dannels. No, I suspect there is sloppy work, also.
Again, we hired people and put them into doing jobs that
ideally would have had more training than they would have had
the opportunity to receive. Again, a matter of our systems and
resources being overwhelmed; and we are taking corrective
actions.
Mr. Ryan. If I could add something to this. We talked about
these up-front controls. The problem is that they were not
applied equally. You have a situation in which we attempted to
use the Internet. Once we couldn't get into the Internet, the
system told us to go by phone. So we used the same information
that we were going to put on the Internet, and we used it on
the phone and got through. As a result, we were able to get EA
payments. We were able to get rental payments. Even after we
received a letter from the SBA asking us to apply for a loan,
in which we filled out the documents, we gave them permission
to look at our tax records, which we obviously knew they
weren't going to find any because we never filed, we actually
got a call from the SBA inspector that says, hey, we can't find
your property. It doesn't exist.
Shortly thereafter, we get a letter from FEMA saying that
they inspected our property and that everything is fine. Got
not only one rental check but two rental checks.
So the point is that if you are going to put controls in
place, they have to apply both ways. You can't have a weakness
at one end. You talk about up-front controls, these up-front
controls of Social Security numbers, using P.O. boxes as damage
addresses, these should be system changes that don't allow to
you do that. I don't think anything of this was done or thought
of; and I don't even know, based on the previous audits, if
they did any--if these things were even taken into
consideration.
Mr. Pearce. Thank you, Mr. Chairman. I see my time has
expired.
Mr. McCaul. The Chair recognizes the gentleman who knows
more about this subject matter than any Member, the gentleman
from Mississippi Mr. Taylor.
Mr. Taylor. Thank you, Mr. Chairman, for letting me
participate today.
I do appreciate the panel. I appreciate the Red Cross's
generosity. I very much regret that people misused it. I
appreciate FEMA's generosity and, again, I regret that there
were some people who misused it, but that includes corporate
America.
I was wondering if, in the course of your investigation,
you looked into the whole FEMA trailer fiasco, where one
company, Bechtel, was given a noncompete cost plus contract for
38,000--I am sorry, 35,000 trailers. Every mistake they made,
the taxpayer paid for; every new cost they wanted to throw in
there, the taxpayer paid for.
I am still wondering--I remember one day walking on their
property and finding 50 what had been brand-new trailers that
had been cannibalized. You pull a window out of this one to fix
that one; you leave the trailer open to the elements. You pull
the air conditioner off, which is rooftop, take it off to stick
it on another one; you leave that space open. Within a couple
of rain storms, that particle board floor in the travel trailer
is now a piece of sponge and that approximately 14 to $19,000
trailer is a piece of junk.
The first question is, did you look into that?
Mr. Kutz. That was Inspector General Skinner, so that was
the DHS Inspector General.
Mr. Taylor. I would very much like to see that report,
because I think we as a Nation were taken for a lot of money on
that.
The second one is even bigger fraud, though; and it goes
back to the National Flood Insurance Program, what is referred
to as the Write Your Own Insurance. We as a Nation when we
started the National Flood Insurance Program turned the day-to-
day activities of that over to the private sector. We were
going to back those claims, but we count on Allstate or State
Farm and Nationwide to write the policy. But, much more
foolishly, we count on that same company to adjudicate the
claim.
Now let's walk through this. Mr. Dent is not a Member of
Congress but an upcoming executive with one of these three
insurance companies, and we sent him out as a claims adjuster.
He is going to walk into what is now a slab close to
Mississippi or Louisiana. There is nothing left. And he is in a
position to say, well, it could be wind damage, which means it
might not look good on my next promotion. My employee stock
owner plan will be hit for that claim. The shareholders who pay
my salary may not be happy with my performance. Or I can say it
was all flood and stick it to the taxpayer.
Now two things happen there. In thousands of instances,
claims adjusters who were shown bits of roof up in trees that
flew there or bits of roofs a quarter of a mile from a person's
house that flew there ignored all that evidence and assigned
all of the claim to flooding. That does a couple of things. For
the individual, most individuals had a lot more wind insurance
than flood insurance. You are maxed out at $250,000 on your
flood insurance. Even if you had a million dollar house, you
can only insure it up to $250,000. But you can buy all the wind
insurance you wanted, up to the value have your home.
So if they blame it all on flooding, they have told the
individual you are only going to get part of your money back.
So that hurt the individual. But they stuck it to the taxpayer.
Mr. Chairman, I truly believe that we as a Nation will have
let the citizens of this Nation down if we don't have an
Inspector General of Homeland Security look into that whole
process of letting a private-sector company decide whether
their company is going to pay this claim or whether they are
going to stick it to the taxpayer.
Mr. Ryan, I am going to quote you a thousand times in the
next year. When you say fraud is a crime of opportunity, I
agree entirely. We have created an opportunity where the
insurance industry can create a fraud of a billion dollar level
and stick it to the taxpayer, hurt the individual and walk away
from it. Because, at the moment, it is apparently perfectly
legal; and we as a Nation don't even bother to look over their
shoulder. We don't even, as a Nation, look over that claims
adjuster's shoulder and say, wait a minute, maybe there was
some wind damage. Maybe half of this ought to be paid by the
insurance company and half of it by the flood company.
We assume those guys are shooting straight with us every
single time, and--correct me if I am wrong--there is no one in
our Nation that bothers to check to see if even one of those
claims was wrong. Now something is weird here.
You have got a U.S. Senator by the name of Trent Lott, five
Federal judges who are suing their insurers just in south
Mississippi--I don't even know what is going on in Louisiana--
because they feel like they were abused by their insurance
industry when they assigned all the blame to water, when we
know from the Navy Oceanographic Lab there was 6 to 8 hours of
hurricane-force winds before the water ever got there. But
because the water destroyed the evidence, they were in a
position to say it was all water.
Mr. Chairman, again, you are very kind to even let me sit
in here. You are particularly kind to let me say my piece. But
I would really hope if we are sincere--
I do appreciate these guys going after the people who bilk
the citizens out of 1,000 or 15,000 or 20,000. That is wrong.
But if you want to look into the biggest fraud of all in
Hurricane Katrina, look into that. Because we will find that
the taxpayers got stuck for not thousands, not hundreds of
thousands, not millions, my gut tells me the taxpayers were
stuck for billions of dollars.
The next couple of weeks we are going to have a vote on the
House floor to pump about 20 additional billion dollars into
the National Flood Insurance Program because we had that many
more claims than what the premiums are going to pay for. And I
am convinced, having seen what I saw of the insurance industry
in south Mississippi, that one of the reasons we have to pump
so much taxpayer money into this is because of claims that
should have been paid by State Farm, by Allstate, by
Nationwide, by other companies out there were stuck to the
taxpayer.
Thank you very much.
Mr. McCaul. The Ranking Member and I visited your State on
a delegation and saw the devastation, which was horrible, and
the lack of coverage, which ultimately the taxpayer does have
to pick up the tab. I appreciate your comments; and I would
like to now recognize the gentleman, from Pennsylvania Mr.
Dent.
Mr. Dent. Thank you, Mr. Chairman; and I thank you for
holding this hearing.
Sometimes--I have been in the political business now for a
long time, and it can make you a little cynical, and I thought
nothing would ever surprise me anymore. But as I was brushing
my teeth this morning I had the TV on, and I heard on the news
talk show people talking about somebody had used Katrina relief
dollars for a sex change operation, for going to Hooters and
buying--I guess it was--Dom Perignon and things like; and I
almost swallowed my toothbrush.
My point is this, these FEMA recovery problems are not new.
The Tribune did an extensive series on waste, fraud and abuse
with respect to the aftermath of various hurricanes over the
past several years and other weather incidents. I recall one up
in Michigan, in Detroit, where there was all kind of fraud. I
remember reading stories about communities or counties not
declared a state of emergency where somehow claims were being
made.
So this is not a new problem, and I guess my first question
to GAO would be that I suspect you had done reports on these
previous weather incidents in the past, is that true?
Mr. Kutz. Not with respect to this program. This is the
first time we have looked at this program.
Mr. Dent. I guess the question that I have for the GAO is
that I would like you to discuss the recommendations that I
believe you will be making very shortly with respect to the
massive amounts of fraud that has occurred down there. And I
guess what really bothers me is, when you see somebody like Mr.
Taylor over here who, along with thousands of his constituents
who have suffered terribly--that every dollar that is wasted,
that is spent for something it ought not to be spent on, is one
less dollar going to somebody who is truly out there in need
and in dire need of assistance.
So I guess the question is, could you please discuss those
recommendations and what do you recommend that we do about this
problem? Because it is not a new problem, and with Katrina I
suspect it is a bigger problem because there is more damage and
more false claims than we have seen in recent years.
Mr. Kutz. The primary recommendations relate to the up-
front validation process, the identity validation and damaged
property address validation and a combination of making sure
that the person actually lived at that address at the time of
the hurricane. That is what I think Ms. Dannels' has talked
about. They have taken some action to try to improve that and
have a broader swath of Internet and telephone coverage and
damage address coverage.
I do think, though, that this is going to take some time.
Because the depth and breadth of the problem is significant,
and there are a lot of people that are going to get through
regardless. So they probably have to take a top-to-bottom look
at all the aspects of control, whether it be inspection
process, the phone centers or whatever the case may be.
Our recommendation is primarily identity validation,
damaged property, looking into arrangements to have data
sharing with Social Security and the Postal Service. And I
think they have said they are not going to hand out debit
cards, but if they do--and, again, I want to clarify I don't
see anything wrong with the debit card. It is how it was
managed. The debit card has some effective way to disperse
money, and they have used it for other things like the census,
so it has been used effectively before.
So that is the kind of nature of some of the
recommendations we have on record.
Also, she has addressed one of the other ones as part of
additional recommendations in the future, keep track of who is
actually checking into the hotels and making sure you don't
send them rental assistance payments if you are already paying
for their hotel room. That is something she has talked about
they are trying to put in place for the next set of disasters.
Ms. Dannels. We have put in place.
Mr. Dent. I guess I would like to see what changes we have
made or are making now in response to Katrina versus what
changes we made in response to the previous weather incidents.
I realize that we are using new technologies and methods of
distributing money that you probably didn't use in previous
situations, but I think we need to understand that as a
committee.
Finally, I don't know what you can say about this, but it
really irks me. How could somebody pay for a sex change
operation? There has got to be some kind of control. Can
anybody comment on that?
Ms. Dannels. What I would say and one of the reasons we are
not doing debit cards again this year is we don't have a
program that has enough adequate controls. When we do roll it
out, which will be sometime in the future, not in the immediate
future, we will block certain codes. He tells me MCC codes. We
will block certain purchases so that people simply can't have
those things.
Mr. Dent. Was that purchase made out of housing assistance
or IHP program?
Ms. Dannels. That would have been out of IHP. That is
correct.
Mr. Dent. That would have been considered a medical
service, clearly not hotel or some kind of temporary residence.
I just don't understand how this could have happened.
Mr. Ryan. When they get these checks, they can spend it for
whatever they want as long as they cash it. They can use it for
that. They can use it to go on vacations. They can use it to
gamble. It is a matter that the Government has dispersed the
funds. FEMA has determined that they are entitled to the funds.
They can either get a check or EFT transfer; and, after that,
there is no visibility what they are doing with the spending of
the cash.
In a lot of the cases that we are talking about, in the
fraud cases, they use multiple names, multiple Social Security
numbers, multiple damage addresses. But one of the common
denominators is they all have the money sent to the same place.
So it was a good start for us to work on these investigations.
But in interviewing the people or talking to the people on
the street that are actually doing the investigations, a lot of
the postal inspectors, the money is spent on almost anything.
So that is what they are doing.
Ms. Dannels. Mr. Dent, I would like to also mention to you
and the rest of the committee that the hearing that we had with
the GAO before the Senate in February, they had some initial
findings there. We acted on those and had implemented many of
the recommendations of their report which was issued in June,
prior to their report ever having been issued.
If you go back and look at the IG--you asked if they had
done other investigations with us, and they have not on natural
disaster events. The IG has done many. I think if we go back
and look at those reports and the recommendations you will see
an excellent track record of FEMA taking those recommendations
very seriously, following up and implementing them. We are
committed to this.
Mr. Dent. Thank you.
It gets a little depressing. Because, on the one hand, we
want to be compassionate and help the people like Mr. Taylor
and his constituents. When you hear these stories, it just
makes you question what you are doing sometimes.
Thank you, and I yield back.
Mr. McCaul. Thank you.
I want to thank the witnesses for your testimony. We are
going to keep this hearing open for 10 days, allow the members
to ask questions in writing.
I have a request to make as Chairman, that FEMA provide a
full, fair and honest response to the GAO report.
I would also like from all the panelists recommendations
for legislation on the issue of waste, fraud and abuse so this
will never happen again.
Thank you so much; and, without objection, the committee
stands--
Mr. Etheridge. Mr. Chairman, I think the issue that Mr.
Taylor raised is important to this committee; and I would hope
in the near future we invite the IG of Homeland Security here
so we can talk about that. Because that is a huge transfer of
dollars from the taxpayer to somebody else, and we ought to at
least get an answer on it.
Mr. McCaul. Without objection, the committee stands
adjourned.
[Whereupon, at 1:32 p.m., the subcommittee was adjourned.]
A P P E N D I X
----------
FOR THE RECORD
Questions From the Honorable Michael McCaul For Donna Dannels Responses
Question: 1. Describe the forensic audits conducted by FEMA in
order to determine internal control weaknesses in benefit disbursement
systems.
In the aftermath of Hurricane Katrina, DHS and FEMA undertook an
effort to conduct an internal controls assessment related to processes
surrounding certain areas of the Disaster Relief Fund (DRF) and the
National Response Plan (NRP) Financial Management Support Annex. The
purpose was to perform an analysis to determine if the design of the
stated controls addressed significant risks as well as complied with
Federal regulations surrounding the Individuals & Households Program
(IHP). The assessment was conducted by a contractor from November 16,
2005 to January 19, 2006, in accordance with OMB Circular A-123,
Management's Responsibility for Internal Controls. As a result of this
assessment FEMA is implementing corrective action plans designed to fix
weaknesses in its benefit disbursement systems.
Question: 2. What process is FEMA using to detect and prevent fraud
in benefit disbursement systems?
In order to effectively respond to the unprecedented disaster
activity and severity of the 2004 and 2005 hurricane seasons, FEMA
revised its existing disaster assistance processing procedures. The
importance of verifying applicants? identities outside the traditional
method of an on-site inspection became a priority.
Identity Proofing: In June 2005, FEMA implemented Identity Proofing
for its Internet registration intake application. Identity verification
is intended to guarantee that the individual applying for assistance is
a `real' person. FEMA employs the following checks of an individual's
Social Security Number (SSN) during the identity verification process:
The submitted SSN is valid based on SSA algorithms.
The submitted SSN matches the applicant name.
The submitted SSN does not belong to a deceased
individual.
The submitted SSN is not associated with multiple
individuals.
In February 2006, FEMA implemented identity verification for
applicants registering via the FEMA call centers, thereby subjecting
ALL FEMA disaster assistance applicants to the identity verification
process. Additionally, all applicants from the Hurricane Katrina
disaster forward who had not previously been subjected to identity
verification were subsequently verified.
Owner / Occupancy Verification: Traditional FEMA processing
involves an inspector visiting an applicant's damaged home or residence
address and verifying ownership and occupancy first hand. For many
Katrina and Rita victims, on site inspections were not possible. For
the 2005 hurricane season, FEMA implemented an interface with an
outside vendor to verify ownership and occupancy for identified groups
of applicants whose residences could not be inspected. In June 2006, a
real time interface with FEMA's identity verification vendor was
implemented for ALL disaster applicants to confirm owner / occupancy
status making the information available for any necessary future award
decisions.
In addition, FEMA continues to strengthen its internal controls and
work closely with the DHS Office of Inspector General and other
Government oversight/investigative elements to limit the risk of fraud
in its benefit disbursement systems. TThis past spring, FEMA engaged a
contractor to conduct a formal assessment of the Hurricane Katrina DRF
IHP payments to identify improper payments, assess the reasons for
them, and to develop corrective action plans to mitigate the risk of
future occurrences of erroneous payments. This effort is ongoing and
includes DRF IHP payments valued at approximately $5.3 billion made
during the time period September 1, 2005 through March 1, 2006.
Duplicate Payment Prevention: During hurricanes Katrina and Rita,
the NEMIS system cross checked for registrations with the same SSN,
EFT, or Damaged Phone between Katrina and Rita to prevent EA from going
to the same person for both events. Traditional NEMIS controls to
prevent duplication within the same disaster check for these same
matching data points in order to prevent payment without a manual case
review to determine which person(s) in the household is eligible for
payment. In October of 2005, the Internet registration application was
updated so that applications with any duplicate criteria listed above
would be refused. In June of 2006, FEMA removed the manual override
feature in the call center application for applicants applying with the
same SSN, thereby eliminating duplicate applications in the same
disaster with the same SSN. In August of 2006, the call center
application was updated to also show the registrar when an applicant
was using the same damaged address as another applicant in the same
disaster. The registrar is still able to accept the new application
based on additional interview questions with the potential applicant.
Question: 3. What internal controls have historically been in place
to prevent fraud? What controls have been put in place in the aftermath
of Katrina and Rita?
In the past, FEMA controls on fraud included--
Duplicate application checks (within the same
disaster) on applicant social security number, co-registrant
social security number, electronic funds transfer information,
and damaged dwelling phone number. Duplicate applications
identified during the registration process generated advisory
popup messages to attempt to guide registrars to not complete
exact duplicate applications. Additionally, an application
could not be processed for payment until a caseworker reviewed
the case and determined that the application was not an exact
duplicate with another application and was potentially eligible
for payment.
An automated check against National Flood Insurance
Program data to identify insured applicants who did not report
flood insurance when they registered.
Inspector onsite verification of losses including
photographic evidence of damage.
Verification of receipts for reimbursement of disaster
related expenses.
Applicant identity verification on Internet
registrations.
Since Katrina and Rita, the following additional steps have been
implemented:
Applicant identity verification is applied to all call
center registrants.
External vendors are used to assist the agency in
verifying ownership and occupancy claims of applicants.
Enhanced checks for duplicate applications have been
implemented. Exact duplicates on registrant social security,
banking information or phone numbers are now blocked on the
Internet (as of October 2005) and call center (as of June
2006). Warning ``pop-ups'' during the call center registration
process will allow the registrars to prevent more duplicate
registrations.
Question: 4. Does Choice Point capture data on Internet
registrations that fail?
No. ChoicePoint stores the inquiry and the input data provided to
process the transaction. The information is accessed for customer
service purposes by authorized personnel only according to
ChoicePoint's information security and privacy policies. This
information is not stored on the FEMA side for Internet registrations.
ChoicePoint has indicated that they have the capability to incorporate
advanced analytics and ``alerts'' to notify FEMA of any fraudulent
patterns associated with the use of identity information. This
capability is under consideration.
Question: 5. What field tests were run or are being run to verify
the accuracy/efficacy of Choice Point?
FEMA staff tested the identity verification process by entering
accurate personal information to confirm whether they were identified
as valid. Fictional information was also entered to confirm that the
registration was identified as invalid. Information for deceased
individuals was also entered to validate that portion of the
ChoicePoint check. Additionally, field inspectors are instructed to
confirm the identity of individuals who receive a housing inspection.
This information then can be compared to ChoicePoint verifications.
Some analysis has been done to compare the Ownership and Occupancy
verification rates between the on-site inspectors and FEMA's data
vendor on those applications that had both verifications performed. The
overall accuracy rate between the two verification mechanisms exceeds
90%.
Question: 6. What data points are used by Choice Point to verify
identity of applicants for federal disaster assistance?
FEMA sends ChoicePoint the following applicant information: First
Name, Last Name; Social Security Number; Phone Number; Address: Street,
City, State, Zip; Date of Birth (DOB)(month, day, year). ChoicePoint
uses a broad range of sources to verify identity, including credit
headers, driver's license records, vehicle registration records, real
property records, utility records, phone records and others. Credit
header information is the single most comprehensive source of identity
verification information. Credit headers do not contain credit
information. In addition to being used for identity verification and
authentication, credit headers are used to prevent and detect fraud and
in law enforcement investigations.
Question: 7. In the aftermath of Katrina did Choice Point or FEMA
capture registrations that failed on the internet? Were these failures
used to reject phone registrations?
No, this information from online registrations was not able to be
cross referenced with registrations taken by phone on the 800#. The
intent was to deploy the identify verification capability to
registrations taken by phone which would have rendered such a cross
reference unnecessary. The information technology (IT) development
resources required to build the cross reference capability into the
system would have detracted from other high priority system changes.
Unfortunately, the volume from Hurricanes Katrina and Rita created
demands on the processing system for several months, which prevented
the deployment of several system changes (such as ID proofing on the
800#).
Identity verification failure is not used to block or reject
registrations altogether, since individuals who fail identity proofing
may fail for valid reasons not related to fraud. For example, someone
who just turned 18 years old and has had very few public records
created may not have sufficient information available to verify his or
her identity. Another example is someone who recently married and may
not have sufficient information available under the new last name.
Rather than block these types of applications, they are sent for
inspection and a field inspector performs an ``eyes on'' identity
verification. Applicants who fail identity verification are not
eligible for payment without documentation and manual review.
Question: 8. What was the fraud percentages of applications taken
through the internet as compared to the fraud experienced with
applications taken over the phone?
FEMA receives raw data from the OIG on fraud cases, but has not
conducted an analysis to determine the percentage of fraud committed
via internet versus telephone registration. The lack of front-end
identity verification controls on telephone registrations contributing
to fraud was apparent. Analysis was not necessary to understand what
actions needed to be taken. FEMA has implemented a number of improved
identity and occupancy verification controls.
The GAO has produced a number of reports and statements of fact on
the Individual and Household Program. In May of 2006, GAO conducted a
broad data sweep of NEMIS Katrina and Rita payments and provided FEMA
with an extensive list of potential duplicate and/or improper payments.
GAO did not, however, indicate which of these payments represented the
fraudulent cases cited as part of GAO Report 07-300. Although FEMA has
made several requests for more specific information related to GAO 07-
300, GAO has refused to provide FEMA with additional information. If
FEMA had received the requested data, it may very well have proven to
be helpful in conducting post-disaster analysis to determine what
improvements could be made to our systems and processes to minimize
fraudulent disaster claims.
Question: 9. How are duplicate registrations for federal disaster
assistance being prevented? Describe how this has been field tested.
Registrants that match a previous registrant's social security
number in the same disaster are prevented altogether. If, during
registration, a co-registrant is entered, and their social security
number matches a previous registrant or co-registrant, the registration
intake agent taking the call is directed to identify the possible
duplicate, and to determine whether the application should be
completed. Even if the agent does continue, the completed registration
will be flagged for further investigation and resolution prior to
provision of any financial assistance. Duplications of social security
numbers, banking information, and telephone numbers are rejected on the
Internet application altogether and the person must register by phone.
Regarding field testing, FEMA is testing hardware, software, and
re-engineered procedural processes prior to their release and
implementation to end-users in the production environment to ensure
effectiveness. Additionally, we are completing validation analysis
throughout the course of testing to confirm that requirement compliance
is fulfilled and is traceable to system specifications.
Question: 10. Describe the background checks in place, during the
aftermath of Katrina, on those taking registrations over the phone.
Describe the background checks in place now.
During Katrina, the individual's information was submitted to the
National Crime Information Center (NCIC) for a preliminary background
check. At the same time, fingerprints were obtained and FEMA then
processed the fingerprints through the FBI Criminal History system.
For contractors, should negative information or history come back
from the NCIC check, the contractor was advised that access to FEMA
facilities or information systems could not be granted. Only favorable
NCIC checks would allow these individuals to receive FEMA contractor
badges and begin working. Fingerprints returned from the FBI would be
adjudicated and a favorable or unfavorable decision for continued
employment was made.
NCIC checks are no longer being used as an interim step. The
contractor is required to have fingerprints taken, sent to the FBI
Criminal History system, returned and adjudicated by FEMA Security
prior to beginning work with the Agency.
Question: 11. Provide the following background information on the
Expedited Assistance program.
When was it created? ``Fast Track'', the predecessor to Expedited
Assistance, was first used in 1992 in response to Hurricane Andrew and
was also implemented during the 1994 Northridge earthquake, which prior
to the hurricanes of 2004 and 2005 had been FEMA's largest disaster in
terms of the number of applicants. In 1998, FEMA issued Response and
Recovery Directorate Policy No. 4430 A/C which formally codified
Expedited Assistance.
What is the legal basis for the program? Expedited Assistance (EA)
is simply the name given to supplying assistance otherwise available
under Section 408 of the Stafford Act (42 U.S.C. Sec. 5174) in an
expedited manner. It is not a separate program. In our view, this
provision of the Stafford Act is sufficiently flexible to permit the
provision of EA in a situation such as Katrina and Rita where FEMA is
unable to provide shelter as quickly as it is needed and where impacted
individuals and households are able to find housing on a temporary
basis themselves. EA may also be used to provide Other Needs Assistance
(ONA) under section 408(e) for ``other expenses.''
What was the programmatic justification for the program? The
General Accountability Office (GAO) concluded in its October 1997
report (GAO/RCED-98-1) that the legal authority for expediting disaster
assistance is implicit in the Stafford Act and that FEMA has the
discretion to expedite the delivery of disaster assistance in order to
``assist the largest number of disaster victims in the shortest
possible amount of time.'' FEMA issued the EA policy in January 1998,
in coordination with FEMA's Office of General Counsel. FEMA's Inspector
General also endorsed the need for an expedited approach of this nature
in the review of the Federal response to Hurricane Andrew in 1992 in
its January 1993 report titled FEMA's Disaster Management Program: A
Performance Audit After Hurricane Andrew (H-01-93).
Provide the legal memo authorizing its creation; please provide any
documents in support of your answers. A copy of the 1997 GAO report and
1998 FEMA original EA policy is attached.
Question: 12. How many times has EA been used historically? Please
provide: the number of disasters and description of each; the disaster
location; the total amount of the Expedited Assistance paid; the number
of recipients of Expedited Assistance; description and information on
forensic audits of the program each time it was used.
Following is the EA Report for specific disasters.
% of EA
mon/yy of EA Amount Valid Recipients to
Dstr Decl ST Incident EA Recipients Per EA Award Amt Registrations Total Valid
Recipient Registrations
1401 Feb `02 OK Ice 2,472 $300 $741,600.00 26,786 9.2%
1402 Feb `02 KS Ice 1,065 $300 $319,500.00 10,457 10.2%
1403 Feb `02 MO Ice 3,128 $300 $938,400.00 19,422 16.1%
1422 Jun `02 AZ Fire 60 $503 $30,180.00 8,207 0.7%
1545 Sep `04 FL Hurricane 38,233 $569 $21,772,274.60 457,010 8.4%
1548 Sep `04 LA Hurricane 744 $530 $394,515.00 9,345 8.0%
1549 Sep `04 AL Hurricane 16,007 $418 $6,694,064.34 165,332 9.7%
1551 Sep `04 FL Hurricane 20,715 $472 $9,774,234.76 146,317 14.2%
1552 Sep `04 PR Hurricane 4,021 $384 $1,542,894.20 196,429 2.0%
1553 Sep `04 NC Hurricane 757 $398 $301,121.00 7,696 9.8%
1554 Sep `04 GA Hurricane 297 $653 $193,928.00 2,674 11.1%
1555 Sep `04 PA Svre Storm 69 $435 $30,002.00 1,440 4.8%
1556 Sep `04 OH Svre Storm 1,405 $381 $534,652.00 8,986 15.6%
1557 Sep `04 PA Svre Storm 3,549 $494 $1,752,276.00 37,105 9.6%
1558 Sep `04 WV Svre Storm 1,143 $367 $418,916.00 7,240 15.8%
1561 Sep `04 FL Hurricane 36,073 $551 $19,889,827.60 356,506 10.1%
1563 Oct `04 NJ Hurricane 48 $909 $43,644.00 734 6.5%
1565 Oct? 04 NY Hurricane 41 $512 $20,990.00 1,151 3.6%
1603 Aug `05 LA Hurricane 618,754 $2,020 $1,249,575,377.00 1,077,673 57.4%
1604 Aug `05 MS Hurricane 161,555 $2,001 $323,229,566.00 515,808 31.3%
1605 Aug `05 AL Hurricane 22,856 $2,000 $45,715,296.40 112,702 20.3%
1606 Sep `05 TX Hurricane 210,131 $2,000 $420,278,933.00 476,206 44.1%
1607 Sep `05 LA Hurricane 141,391 $2,000 $282,804,839.00 316,689 44.6%
The above chart does not include statistics on ``fast track''
housing assistance that was used on a limited basis in the aftermath of
Hurricane Andrew and the Northridge Earthquake. Both disasters
displaced hundreds of thousands of people, compelling FEMA to expedite
housing assistance (termed fast track at the time) to individuals to
meet their emergency housing needs, as the traditional methods for
providing such assistance were inadequate to meet such a high demand.
At this time applications for disaster assistance were taken on paper,
and the average time to complete and process an inspection in many
cases was 21 to 30 days.
FEMA targeted the highest impacted areas and provided one month of
rental assistance to individuals applying from zip codes located in
these areas. This assistance was tagged and paid from the rental
assistance funds allocated in each of these disasters. The system used
for processing disaster assistance during each of these events (ADAMS)
is a legacy DOS based program that would only give us information as to
the number of individuals paid rental assistance. As a result, it is
not possible to separate out ``fast track'' payments from standard
rental assistance paid post housing inspection. The only historical
information we were able to find in reference to ``fast track''
assistance was in relation to Northridge. Specifically, a 1997 FEMA OIG
memo to Senator John McCain, which indicated that 48,302 Northridge
applicants received ``fast track'' payments totaling $143 million.
Provide description and information on forensic audits of the
program each time it was used.
Regarding information on audits of the EA program, there is no
distinction between program close-out for an individual disaster and
EA. As a result, no specific audit information on EA is available.
13. How many people received EA during Katrina?
803,165 Katrina registrants received EA.
14. Questions regarding FEMA's recoupment efforts. . .
Please provide an overview of FEMA's recoupment effort.
As part of its mission to maintain close oversight on the
distribution of disaster assistance, FEMA is performing a detailed
review of applications and awards, and where appropriate, notifying
individuals by letter about necessary repayments, payment plan options
and the appeals process.
FEMA's recoupment effort begins with the identification of
applicants that need additional review to determine if a recoupment
action is appropriate. This identification of applications comes from a
wide range of sources to include but not limited to referrals from
other Agencies, caseworker identification upon additional review of an
individual's case, and performing searches for overpayments through
NEMIS reports.
Upon identification that an applicant may need additional review
for possible recoupment action, the case is reviewed by a caseworker
trained to process these types of cases. Additionally, if the
determination is made that a recoupment is appropriate for the
individual, the case is forwarded to a secondary review for
concurrence. Once the determination is made that the applicant has to
return funds, the recoupment letter is sent to the applicant and the
case is referred to Disaster Finance.
As in all housing determinations, individuals who have been
notified that they are in recoupment status have the right to contact
FEMA to further discuss their case, request information from their
file, or appeal FEMA's determination. Instructions are provided to
individuals in their letter outlining the recoupment and appeals
process, as well as information on setting up repayment plans.
How much money has been recouped to date for Hurricanes Katrina and
Rita? As of 6/9/2006, over $770,000 has been recouped.
How many recoupment actions have been initiated for Katrina and
Rita? As of 5/11/2006, 5,450 Katrina and Rita applicants have been
approved for recoupment; in each of these, the Collection Disaster
Housing (CDH) letter was sent and their files were transmitted to
FEMA's Disaster Finance Center.
How many recoupment letters have been sent? As of 5/11/2006, 5,450
CDH letters have been sent.
What is the response rate of the effort?--Response rate data is
unavailable at this early stage in the recoupment effort. FEMA could
provide a status update in the coming months as it becomes available.
How many recoupments have been initiated in relation to EA? A total
of 1,457 recoupment actions (Katrina only) have been initiated due to
either multiple payments or overpayments of EA for.
How much money has been recouped? As of 6/9/2006, over $770,000 has
been recouped.
15. Please provide any and all historical data on recoupment
efforts, by disaster.
Apps Assisted APPS Recoup Initiated
DR-1539-FL (2139,392 1,422
DR-1545-FL (2277,537 2,054
DR-1551-FL (2100,447 1,268
DR-1561-FL (2227,732 3,170
For additional information, please reference FEMA recoupment
reports which are currently submitted to the IG, GAO, and DOJ on a
monthly basis.
16. Questions related to FEMA work with other departments with
regard to background/identity verification checks. . .
Describe the work FEMA is doing to work with other Departments/
agencies with regard to background/identity verification checks.
FEMA continues to work closely with Federal agencies to detect
fraud. We have put in place a Memorandum of Agreement (MOA) with the
Katrina Fraud Task Force (Fraud Task Force), headed by the U.S.
Department of Justice's (DOJ) Criminal Division and the Assistant
United States Attorneys, which consists of numerous Federal agency
Offices of Inspector General (OIGs). FEMA has trained and granted
authorized Fraud Task Force employees limited access to FEMA's Privacy
Act ``Disaster Recovery Assistance Files'' (``Disaster Assistance'')
system of records for the purpose of identifying and investigating
fraud cases. FEMA is also currently working closely with the U.S.
Department of Housing and Urban Development (HUD) and has entered into
a Matching Agreement that has been published in the Federal Register to
help identify FEMA applicants who may also be receiving a duplication
of disaster housing benefits from both FEMA and HUD and for fraud
purposes. Because the information and the records sought by other
Federal agencies are ``individually identifiable information'' of
applicants to FEMA for Disaster Assistance protected by the Privacy Act
of 1974, FEMA is obligated to protect the privacy of each Katrina and
Rita disaster victim. In addition, FEMA is required to follow all of
the Privacy Act requirements, as mandated by the Office of Management
and Budget and can therefore release records only as permitted by the
Privacy Act. FEMA is permitted to share each disaster victim's personal
information only to other parties who demonstrate a legitimate,
statutory need to obtain FEMA's information that conforms with the
Privacy Act. Because all Federal agencies are charged with this
responsibility, most understand the Privacy Act's requirements and the
necessity to articulate their legitimate need and legal authority to
obtain FEMA's information on Katrina and Rita disaster victims.
When did FEMA begin this work?
FEMA began working with these agencies in the immediate aftermath
of the 2005 Hurricane season; however, the agreements with these
agencies were formalized on--
March 1, 2006--for the Katrina Fraud Task Force
June 21, 2006--for the HUD Matching Agreement
Which Departments/agencies has FEMA contacted?
FEMA's Recovery Division has been working closely with the FEMA
Office of Chief Counsel (OCC) on the Memoranda of Agreement and
Matching Agreement due to the complex legal requirements. After meeting
and discussing with the Federal agencies, FEMA's Recovery Division has
worked very closely with not only FEMA OCC, but also with the FEMA
Chief Information Officer (CIO) to address system technical and
security access issues that may arise from other Federal agencies'
access to information. Outside of FEMA, agencies include DOJ, HUD, and
OIGs, based on the description above.
When will the Department/agency agreements be finalized?
The agreements with these agencies were formalized on--
March 1, 2006--for the Katrina Fraud Task Force
June 21, 2006--for the HUD Matching Agreement
As indicated above, the Recovery Division works very closely with
FEMA OCC to ensure that we are proactive in efforts to prevent fraud,
waste, and abuse. FEMA welcomes the opportunity to work closely with
other agencies to utilize various Federal agency's systems and
processes to proactively address potential fraud. It is difficult to
estimate the date upon which agreements will be finalized as several
steps and requirements remain:
Review and concurrence from each agency's Offices of General
Counsel;
Review and concurrence by each agency's Data Integrity
Boards;
Approval by the Office of Management and Budget;
Publication in the Federal Register for a period of 40
calendar days before the Matching Agreement goes into effect as
required by the Privacy Act; and
Notification to Congress.
17. What employee/contractor training related to fraud prevention
is provided?
All call center and processing staff (whether FEMA or contract
employees) are provided clear instruction during training classes on
how to report suspected fraud by applicants or by FEMA/contract staff.
The suspected fraud may be reported to them by the public or the staff
may suspect it as a result of their phone discussions with an applicant
or their work with an applicant's case. Instructions are also given to
members of the public wishing to report suspected fraud directly to the
OIG. Refresher and updated information and reminders are provided
periodically during in-person pre-shift meetings and issued in
bulletins.
The contract housing inspection staff is often in the best position
to detect applicant fraud. Inspector trainers discuss possible fraud in
the areas where the opportunities are most prevalent so that the
inspectors are more sensitive to recognizing potential fraud. For
example, identifying deferred maintenance and pre-existing conditions
the applicant claims as disaster damage as well as simple applicant
exaggeration; awareness is emphasized in the training when the covering
Occupancy and Ownership verification; Personal Property ``Verbal Unable
to Verify'' (the applicant has already disposed of damaged items); and
actually testing appliances the applicant claims were damaged. The
Fraud Hotline number and instructions for reporting suspected are
provided to inspectors during training. FEMA audits the contractor
training classes to ensure appropriate training is conducted, including
fraud detection discussions. Additionally, FEMA in coordination with
OIG is developing a specific module to include in FEMA's training for
inspectors under the new contracts to be awarded this summer.
After inspectors are deployed to a disaster area, the detection and
reporting of fraud are specifically emphasized during the field
briefings as they begin conducting the actual inspections.
The contract requirements related to fraud prevention which are
covered in training include--
Inspectors photograph damaged dwelling (currently 2
photos; new contract will require 5)
Inspectors verify addresses onsite.
Inspectors verify ownership and occupancy at the time
of the inspection.
Inspectors verify applicant's identity at the time of
the inspection.
Inspectors are now required to list in comments which
personal property items the applicant is claiming as damaged
when the item wasn't present at the time of the inspection.
Inspectors are required to test appliances before
recording damage to them.
Inspectors are required to identify categories of
deferred maintenance (DF). Identifying DF is a factor that
makes the inspectors distinguish true disaster-related damage
vs. something the applicant has not maintained.
Inspectors are required to support their decision when
the home needs repairs. They must record the categories of
damage that made the home unsafe; i.e. roof, electrical,
windows.
Inspectors are required to identify what caused the
disaster-related damage to vehicles; i.e. wind blew tree onto
car.
Inspectors now view receipts for generators and
chainsaws verifying date of purchase to coincide with FEMA's
eligibility timelines.
Inspectors must recuse themselves from an inspection
if there is a conflict of interest; e.g., inspector's relative
owns damaged dwelling.
Inspectors suspecting fraud must call OIG Fraud
Hotline, or their Field Supervisor, who then provides
information to the OIG at the Joint Field Office.
18. Ms. Dannels testified on June 14, 2006 that FEMA is adopting
``a more systematic use of technology'' to prevent fraud. Describe such
technology and how it will prevent and detect fraud. Has this
technology been field tested? Please describe such field testing.
FEMA's focus on more stringent policy enforcement for applicants
who cannot substantiate their identity, along with enhancements for
identity verification and authentication, will prevent and detect
fraud. Our response to Question #2 includes specific criteria utilized
for identity verification.
The following safeguards have been proposed and are undergoing
analysis of feasibility, desirability, and cost-benefit to the agency.
Some projects are waiting funding and software development; others are
currently under development and will be deployed as soon as feasible.
These improvements include--
Enhancing services and data sharing from government
and commercial data providers.
Implementing additional verification measures before
providing Expedited Assistance.
Implementing new system constraints to prevent
inaccurate or over-payments.
Integrating voluntary, local and government assistance
data to ensure that the FEMA IHP is not duplicating benefits
with other parts of the organization or other agencies.
Regarding field testing, FEMA is testing hardware, software, and
re-engineered procedural processes prior to their release and
implementation to end-users in the production environment to ensure
effectiveness. Additionally, we are completing validation analysis
throughout the course of testing to confirm that requirement compliance
is fulfilled and is traceable to system specifications.
19. In FEMA's May 19, 2006, response to the GAO draft report, with
regard to rental assistance, the letter stated ``$2,358 was provided to
those registrants that lived in one of the 5 hardest hit LA parishes or
3 counties in MS. Verification of occupancy at a valid address was
established by utilizing a FEMA contractor.'' If verification of
occupancy at a valid address was established before benefits were
disbursed, then explain how each of the registration scenarios below
took place:
a. thousands of federal and state prisoners apply for and
received benefits;
Some applicants provided their pre-incarceration residential
address and the FEMA mail was forwarded to them. Any assistance
provided under these means would not prove that the pre-
incarceration residence was not their primary address or that
they did not own the residence. For applicants who did provide
prison addresses, our address correction and existing data
sources did not automatically identify the applicant as a
federal or state prisoner; only that the applicant had a valid
address. FEMA is working with its data vendor to provide flags
as to the type of address (residence, business, prison, etc.)
so that FEMA may limit payments to only those addresses that
are primary residential addresses.
b. how an applicant using a cemetery as a damaged address
received benefits;
FEMA's address correction and existing data sources did not
identify the address as belonging to a cemetery; only that it
was for a valid address. There are times when a cemetery
address is a valid registration address. For example, if a
cemetery caretaker is affected by a disaster, he/she may
register for assistance using the cemetery address. However,
FEMA is working with its data vendor to provide flags as to the
type of address (residence, business, prison, etc.) so that
FEMA may limit payments to only those addresses that are
primary residential addresses.
c. how a vacant lot used by GAO as the damaged address receive
benefits;
FEMA's address correction and existing data sources did not
provide that an address was for a vacant lot; only that it was
for a valid address. FEMA is working with its data vendor to
provide flags as to the type of address (residence, business,
prison, etc.) so that FEMA may limit payments to only those
addresses that are primary residential addresses. This should
include vacant lot information, as the vendor can tell whether
taxes were paid on a lot or structure or both.
d. how PO Boxes used as damaged addresses receive $5.5 million
in benefits?
FEMA's address correction and existing data sources did not
provide that an address was for a PO Box; only that it was for
a valid address. Since August 2006, the FEMA registration
system no longer allows PO Boxes as a damaged address during
the registration.
20. What controls has FEMA put in place to prevent such fraud in
future disasters? Describe how these controls have been field tested.
Coordination is underway to obtain data verifications
for individuals that are incarcerated.
Coordination is underway to obtain data verifications
for locations that are not residential.
PO Box addresses will no longer be accepted as valid
for a Damaged Dwelling address.
Regarding field testing, FEMA is testing hardware, software, and
re-engineered procedural processes prior to their release and
implementation to end-users in the production environment to ensure
effectiveness. Additionally, we are completing validation analysis
throughout the course of testing to confirm that requirement compliance
is fulfilled and is traceable to system specifications.
21. The May 19, 2006 letter states that changes are being made to
the NEMIS software. In particular, ``NEMIS will conduct verification of
ownership and occupancy through FEMA's data contractor during the
application process.? Describe what is done to verify ownership and
occupancy. Have these procedures been field tested?
In February 2006, FEMA implemented identity verification for
applicants registering via the FEMA call centers, thereby subjecting
all FEMA disaster assistance applicants to the identity verification
process. Additionally, all applicants from the Hurricane Katrina
disaster forward who had not previously been subjected to identity
verification were verified in April 2006.
Identity Authentication: Identity authentication takes the
verification process a step further and ensures that the person
presenting the credentials is the actual ``owner'' of the data. This is
accomplished by presenting the applicant with a set of personal
questions only they should be able to answer based on the demographic
information they have submitted. Currently, FEMA requires identity
authentication only for individuals who request an account to access
their data via the Internet.
Owner / Occupancy Verification: Traditional FEMA processing
involved an inspector visiting an applicant's damaged address and
verifying ownership and occupancy first hand. For many Katrina and Rita
victims, on site inspections were not possible. For the 2005 hurricane
season, FEMA implemented an interface with an outside vendor to verify
ownership and occupancy for identified groups of applicants who could
not be inspected. In June 2006, a real time interface with FEMA's
identity verification vendor was implemented for ALL disaster
applicants to confirm owner / occupancy status, making the information
available for any necessary future award decisions.
Regarding field testing, FEMA is testing hardware, software, and
re-engineered procedural processes prior to their release and
implementation to end-users in the production environment to ensure
effectiveness. Additionally, we are completing validation analysis
throughout the course of testing to confirm that requirement compliance
is fulfilled and is traceable to system specifications.
22. The May 19, 2006 letter states ``FEMA continues to develop
guidance and control measures to prevent the inappropriate use of these
funds.'' Describe guidance and control measures that FEMA is
developing. Also describe the field tests conducted on these guidance
and control measures.
Existing controls in damage assessments performed by trained
inspectors use commercial and insurance industry standard protocols to
review and record disaster-related damages. Only those applicants
suffering damage related to a Presidentially declared disaster are
eligible for payment. As a result of investigations from the 2004
hurricane season, inspectors now are required to photograph each home
they visit depicting the extent of damage and the house street number
to validate against the registration address data. Inspection
contractors are required to review these photographs as a part of their
Quality Control process.
Inspectors are also required to view and record information on any
insurance the applicant has, specifically those coverages relating to
home, personal property, and vehicle damages. Applicants are also asked
about insurance coverage during the Registration process. Based on the
damages incurred and the type of insurance on the home, NEMIS will
disallow any payment that is potentially duplicative of insurance
benefits. Caseworkers follow the same guidelines upon an appeal by the
applicant. Additional automated insurance checking is a priority for
future development. In all flooding events, FEMA uses an automated
interface with the National Flood Insurance Program (NFIP) database to
determine if an applicant has flood insurance coverage on the home that
they are registering. If a policy is found, the NEMIS database is
updated with this information and the applicant is deemed insured for
flood damages, whether or not the applicant listed this insurance
during the registration process.
Internal reviews are also performed when applicants request
additional assistance. When an applicant requests additional rental
assistance, the applicant is required to submit rent receipts/
substantiation that funds have been exhausted and used appropriately.
If there has been a misuse of funds, the applicant is not eligible for
further housing assistance and his or her case may be sent to
Recoupment for recovery of funds if warranted.
23. The May 19, 2006 letter states ``Based on the address provided,
NEMIS will `correct' it to the most acceptable form based on USPS
data.'' Explain what ``correct'' means.
NEMIS utilizes GEOSTAN software that provides an ``address
correction'' or ``address matching'' capability and geo-coding. Address
correction/matching is the process of matching an input address against
a postal or geo-coding database. Most address matching solutions work
by breaking an address into components such as street name and street
type to find a close match to the data source. The returned information
identifies the accurate damaged dwelling and mailing address as it is
recorded with USPS. Geo-coding is the process of appending the
longitude and latitude to an address.
24. FEMA's June 14, 2006 testimony states Expedited Assistance
program ``allows for a pre-inspection disbursement of funds to an
individual household, based on information gathered from the applicant
during the registration process that meets the following criteria: the
registration must be for the primary residence only; the registrant
must be displaced due to the disaster; and the registrant is in need of
shelter.'' Describe the fraud detection and prevention controls FEMA
uses to verify such information.
At the time of implementation, FEMA had to balance the requirements
of preventing fraud with those of assisting hundreds of thousands of
evacuees with immediate and essential needs in a timely manner. The
only way to ensure both requirements were being met to the best of our
abilities was to tie the eligibility criteria for EA outlined by the
Recovery Division Director, to specific questions on the disaster
application. An applicant's affirmative response to these questions
resulted in immediate, automated Expedited Assistance awards. If an
application was found eligible for EA, it was then run through existing
NEMIS business rules (Duplicate Investigation) to prevent multiple
payments to the same individual or household. For purposes of
preventing as many inappropriate payments as possible, the specific
questions triggering EA were never publicized to individuals either
within or outside the agency.
25. FEMA's June 14, 2006 testimony states ``FEMA, in fact, has gone
to great lengths to ensure they are good stewards of the taxpayers'
dollar by deterring fraud, while still allowing applicants who are in
serious need of assistance to receive it quickly and appropriately.''
Describe FEMA's efforts to deter fraud.
In June 2005 FEMA added Identity Authentication to the
Internet Applicant Inquiry application in order to protect
applicant data and ensure that the person logging in was the
``owner'' of that data.
In June 2005, FEMA implemented identity proofing to
the Internet registration application.
In October 2005, FEMA launched a new internet
registration application that disallows any duplicate
registrations;
In February 2006, FEMA added identity proofing to the
call center registration application to ensure all IHP
Registrations are subjected to the same criteria as online
applications.
FEMA amended systems to ensure no automated payments
are sent to applicants who failed the identity proofing
process;
FEMA began sending all applications taken over the
phone from August 2005 until February 2006 to FEMA's data
contractor for identity proofing and reviewing those that
failed for possible recoupment or referral to the DHS Office of
the Inspector General;
FEMA began data-marking any applications in NEMIS that
fail identity proofing so they may be flagged for review and
denied automated payment;
FEMA has implemented enhanced processes related to
real-time interaction between the FEMA service representative
and the applicant during registration to ensure data is entered
correctly before accepting the application.
In June 2006, FEMA implemented Occupancy and Ownership
verification during the registration process.
FEMA is working with a data vendor to flag addresses
that are not residential so that they may be reviewed prior to
payment.
In August 2006, the registration module started
preventing applicants from using a PO Box address as a damaged
address.
26. Describe the ``significant improvements,'' as stated in the
June 14, 2006 testimony, FEMA has made to its delivery process to
prevent fraud, waste and abuse. See response to question #25.
27. FEMA's June 14, 2006 testimony states ``Through effective
planning, enhanced internal controls and a more systematic use of
technology, FEMA can limit waste, fraud, and abuse.'' Specifically,
describe in detail the effective planning methods, enhanced internal
controls and the systematic use of technology FEMA is employing to
detect and prevent waste, fraud, and abuse in federal disaster
assistance programs. See response to question #25; also--
INFORMATION DATABASE: The following changes are being made to
FEMA's processing software and have been made available for the
start of the 2006 hurricane season:
No registration will be accepted when that registrant
has the same SSN as another registrant in the same disaster
EXPEDITED ASSISTANCE: Hurricanes Katrina and Rita presented FEMA
with extraordinary circumstances, where it was critical to answer the
call of hundreds of thousands of individuals who often had no
identification, money or even clothes on their backs. In this instance,
the Expedited Assistance (EA) program served as an appropriate tool to
provide assistance to victims who had been displaced by the
catastrophic event. Although there were problems within the EA program
during the 2005 hurricane season, FEMA has already taken steps--and
continues to do so--to limit waste, fraud and abuse should this program
be used for future disasters including reducing the amount of
assistance provided in this initial payment, providing the assistance
under the ``other needs'' category which allows for a federal/state
cost share, and eliminating the use of debit cards.
RECOUPMENTS: Starting in March 2006, FEMA began the review process
to recoup any disaster relief money that was inappropriately awarded
following the 2005 hurricane season and as such has already recouped
more than $770,000. As part of its mission to maintain close oversight
on the distribution of disaster assistance, FEMA performs detailed
reviews of applications and awards, and where appropriate, notifies
individuals by letter about necessary repayments, payment plan options
and the appeals process, and refers cases of suspected fraud to the DHS
Office of the Inspector General.