FEMA Gets Tongue-Lashing Over Fraud

A FEMA official angered lawmakers Wednesday, after she cast doubt on a congressional study that concluded up to $1.4 billion of the individual aid doled out after Hurricanes Katrina and Rita was spent for bogus reasons.

Donna Dannels, acting deputy director of recovery for the Federal Emergency Management Agency, told a House hearing the congressional conclusions "represent a fraction of the overall assistance provided."

Congress' Government Accountability Office used a statistical analysis to estimate the fraud may have totaled 16 percent of the individual assistance after the two hurricanes last year.

But Dannels told a House Homeland Security subcommittee that the GAO looked only at .01 percent of the 2.5 million applications for assistance, and said FEMA only learned of the new estimates last week.

In a sharp exchange, Rep. Christopher Shays, R-Conn., told Dannels: "The amount of fraud outlined in this report ... I don't think it's refutable."

Rep. Michael McCaul, R-Texas, the investigations subcommittee chairman, added the GAO had been working with FEMA since February on the study, and accused Dannels of "failing to respond" to the fraud allegations.

Dannels' response also was criticized by Gregory Kutz, managing director of forensic audits and special investigations for the GAO. He said FEMA may be having trouble accepting the results because its director, R. David Paulison, previously testified the fraud rate was only 2 to 3 percent.

"They did not do a representative, statistical sample," Kutz said.

The GAO concluded that FEMA was hoodwinked to pay for season football tickets, a tropical vacation and a sex change procedure. Prison inmates, a supposed victim who used a New Orleans cemetery for a home address and a person who spent 70 days at a Hawaiian hotel all were able to get taxpayer help, according to evidence that gives a new black eye to the nation's disaster relief agency.

But all the outrage in Washington does not compare to the frustration in the Gulf Coast —especially in New Orleans, reports CBS News correspondent Byon Pitts.

"This money equals somebody's grief," says Oliver Thomas, New Orleans City Council president. He added, that it's despicable "that people are taking advantage of death, loss, grief, and displacement … people needed those funds, they were wasted"

Rep. Charles Dent, R-Pa., made a brief reference to the sex change procedure, commenting, "I don't understand how this could happen."

GAO special agent John Ryan, while not elaborating on the incident, said that once an applicant receives the assistance, there's no control over how it's spent.

To dramatize the problem, investigators provided lawmakers with a copy of a $2,358 U.S. Treasury check for rental assistance that an undercover agent received using a bogus address. The money was paid even after FEMA learned from its inspector that the undercover applicant did not live at the address.

FEMA spokesman Aaron Walker said Tuesday that the agency, already criticized for a poor response to Katrina, makes its highest priority during a disaster "to get help quickly to those in desperate need of our assistance."

"Even as we put victims first, we take very seriously our responsibility to be outstanding stewards of taxpayer dollars, and we are careful to make sure that funds are distributed appropriately," Walker said.

FEMA said it has identified more than 1,500 cases of potential fraud after Katrina and Rita and has referred those cases to the Homeland Security Department's inspector general. The agency said it has identified $16.8 million in improperly awarded disaster relief money and has started efforts to collect the money.

The GAO said it was 95 percent confident that improper and potentially fraudulent payments were much higher — between $600 million and $1.4 billion.

The investigative agency said it found people lodged in hotels often were paid twice, since FEMA gave them individual rental assistance and paid hotels directly. FEMA paid California hotels $8,000 to house one individual — the same person who received three rental assistance payments for both disasters.

In another instance, FEMA paid an individual $2,358 in rental assistance, while at the same time paying about $8,000 for the same person to stay 70 nights at more than $100 per night in a Hawaii hotel.

FEMA also could not establish that 750 debit cards worth $1.5 million even went to Katrina victims, the auditors said.

Among the items purchased with the cards:

An all-inclusive, one-week Caribbean vacation in the Punta Cana resort in the Dominican Republic.

Five season tickets to New Orleans Saints professional football games.

Adult erotica products in Houston and "Girls Gone Wild" videos in Santa Monica, Calif.

Dom Perignon champagne and other alcoholic beverages in San Antonio.

"Our forensic audit and investigative work showed that improper and potentially fraudulent payments occurred mainly because FEMA did not validate the identity of the registrant, the physical location of the damaged address, and ownership and occupancy of all registrants at the time of registration," GAO officials said.

FEMA paid millions of dollars to more than 1,000 registrants who used names and Social Security numbers belonging to state and federal prisoners for expedited housing assistance. The inmates were in Louisiana, Texas, Alabama, Mississippi, Georgia and Florida.

FEMA made about $5.3 million in payments to registrants who provided a post office box as their damaged residence, including one who got $2,748 for listing an Alabama post office box as the damaged property.

The GAO told of an individual who used 13 different Social Security numbers — including the person's own — to receive $139,000 in payments on 13 separate registrations for aid. All the payments were sent to a single address.