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Audits: Millions of dollars in Katrina aid wasted

The scope of fraud and waste tied to hurricane relief efforts widened Monday, as officials announced charges against 212 people and investigators questioned decisions ranging from $438-a-day lodging to mobile homes sinking in mud.
FEMA Orders Mobile Homes For Katrina Victims
These mobile homes being prepared last September in Riverside, Calif., were among the 26,000 ordered by FEMA for Hurricane Katrina victims but which cannot be used because FEMA's own rules ban them in flood plains.David Mcnew / Getty Images file
/ Source: staff and news service reports

In its rush to provide Katrina disaster aid, the Federal Emergency Management Agency wasted millions of dollars and overpaid for hotel rooms, including $438-a-day lodging in New York City, government investigators said Monday.

Reports released by the Government Accountability Office and the Homeland Security Department’s office of inspector general detail a series of accounting flaws, fraud or mismanagement in their initial review of how $85 billion in federal aid is being spent.

The two audits found that up to 900,000 of the 2.5 million applicants who received aid under FEMA’s emergency cash assistance program — which included the $2,000 debit cards given to evacuees — were based on duplicate or invalid Social Security numbers, or false addresses and names.

Separately, the Justice Department said Monday that federal prosecutors have filed fraud, theft and other charges against 212 people accused of scams related to Gulf Coast hurricanes. Forty people have pleaded guilty so far, the latest report by the Hurricane Katrina Fraud Task Force said. Many defendants were accused of trying to obtain emergency aid, typically a $2,000 debit card, issued to hurricane victims by FEMA and the American Red Cross.

Thousands of additional dollars appear to have been squandered on hotel rooms for evacuees that were paid at retail rather than the contractor’s lower estimated cost. They included $438 rooms in New York City and beachfront condominiums in Panama City, Fla., at $375 a night, according to the audits.

The two audits were released by the Senate Homeland Security Committee as the panel wrapped up its investigation into the federal government’s preparation and response to the disaster.

Some audit findings
The audits included these findings:

  • The $2,000 debit cards issued to hurricane evacuees for emergency supplies were often used for purchases unrelated to disaster aid, including: adult entertainment, gambling, a $450 tattoo, a .45-caliber handgun for $1,300 and a diamond engagement ring for $1,100.
  • There was little or no verification of the names, addresses or Social Security numbers of applicants registering by phone or the Internet for the $2,000 in aid, resulting in thousands of checks issued to those with duplicate or bogus information.
  • Duplicate payments were made to about 5,000 of the nearly 11,000 debit card recipients who received Katrina aid, first with debit cards and then again via electronic bank transfer.
  • Although FEMA says it bought 114,341 trailers for $1.7 billion, discrepancies abound in FEMA’s documentation of the number ordered, received and occupied, making it difficult to ascertain the exact units available or whether government-owned property was otherwise accounted for.
  • FEMA may have bought too many temporary homes — 24,967 manufactured homes obtained for $857.8 million and 1,295 modular homes at $40 million — resulting in 10,777 such homes sitting empty in Hope, Ark., in sinking mud without proper storage. “It was unclear how the decision was made,” the Homeland Security audit stated.

Collins: FEMA ‘failed to prepare’
Sen. Susan Collins, who chairs the committee, decried the findings, noting that a series of audits and hearings after hurricanes in Florida in 2004 highlighted similar accounting problems and had called on then-FEMA director Michael Brown to make immediate changes.

“The problem, once again, is that FEMA failed to prepare for the very type of disaster that happens every year,” said Collins, R-Maine. “This ’pay first, ask questions later’ approach has been an invitation to unscrupulous behavior.”

The audits do not try to estimate a total dollar figure on abuse, but GAO auditor Gregory Kutz told senators it was “certainly millions of dollars; it could be tens or hundreds of millions of dollars.”

“FEMA has a substantial challenge in balancing the need to get the money out quickly to those who are actually in need and sustaining public confidence in disaster programs by taking all possible steps to minimize fraud and abuse,” he said.

FEMA spokeswoman Nicol Andrews said Monday the audits were still preliminary. The agency is working closely with auditors to make sure money is wisely spent and is committed to helping disaster victims, she said.

$2,000 aid called ‘calculated risk’
Offering the $2,000 emergency aid “was a calculated risk taken in a catastrophic situation where many people were forced from their homes, often without any identification or basic necessities,” she said. “It was the right thing to do.”

On the plus side, an initial review by Homeland Security inspector general Richard Skinner found that FEMA’s decision to sign a contract with Carnival Cruise Lines for Hurricane Katrina housing shortly after the Aug. 29 storm “was reasonable under the urgent circumstances.”

The six-month, $236 million deal with Carnival for three full-service cruise ships — which initially sat half empty for several weeks on the Gulf Coast — had been criticized by lawmakers of both parties as a prime example of wasted spending in Hurricane Katrina-related contracts.

However, Skinner said the decision to use cruise ships appeared to be a wise economical choice “in a high-cost area such as New Orleans so long as occupancy remains high.” A review of the contract’s specific terms was continuing.

“While we have found many instances where contractors performed their work efficiently and in good faith, we have also found instances where there were problems,” Skinner said. “In some cases, the government will have little legal recourse to recoup payments to contractors for payments under questionable contracts.”

Theft at Red Cross center
The GAO report said the largest investigation of hurricane-related fraud centered on a Red Cross call center in Bakersfield, Calif., in which some employees schemed to steal the emergency money for themselves and others. Prosecutors said 53 people have been charged in this probe.

The prosecutions and a public education campaign appear to have persuaded some people to return money to which they may not have been entitled, the Justice Department report said.

FEMA and the Red Cross reported receiving more than $8 million in returned funds, along with letters confessing to fraud or seeking to arrange installment plans to pay back the money, the report said.

Five dozen Web sites that either asked for money or sought to harvest personal information for identity theft also have been shut down, the report said.

A separate GAO report released Monday also found a handful of instances in which hurricane victims improperly sold free military foodstuffs known as Meals-Ready-to-Eat on eBay. In a one-day “snapshot” investigation, eight of 12 eBay sellers GAO investigated were selling MREs.

“If military MREs are sold to the general public on eBay, then they are clearly not reaching their intended recipients and represent a waste of taxpayer dollars and possible criminal activity,” the audit stated.