[Congressional Record Volume 141, Number 129 (Friday, August 4, 1995)]
[Senate]
[Pages S11447-S11448]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                       FEMA DISASTER RELIEF FUND

  Mr. BOND. Mr. President, today I am releasing a report prepared at my 
request by the inspector general of the Federal Emergency Management 
Agency regarding the integrity of the disaster relief fund which raises 
some serious concerns about how disaster relief funds are being spent.
  Last week, the President signed into law a supplemental appropriation 
of $6.55 billion for the FEMA disaster relief fund. These funds are 
needed for expenses related to last year's Northridge earthquake as 
well as other disasters in 40 States, including my own. I'm pleased 
that the supplemental appropriation is now law, so that eligible 
expenses related to these catastrophic occurrences can be reimbursed.
  Ensuring that these funds are expended to meet the critical disaster-
related needs of individuals and communities, so that they can rebuild 
their lives and neighborhoods, is vital. However, ensuring that these 
funds don't serve as a slush fund for FEMA is absolutely essential, and 
the inspector general has raised questions about whether the disaster 
relief fund is indeed serving as a slush fund of sorts.
  Specifically, the inspector general found that charges to the fund 
totaling $87 million were for nonspecific disasters, some of which may 
be inappropriate. There are no explicit guidelines to define those 
activities that directly support disaster relief and are therefore 
legitimate charges.
  The FEMA Director must address this issue immediately to give us 
confidence that the funds are being spent consistently with the intent 
of the law.
  The inspector general also found that the disaster relief fund data 
are often unreliable, grants management is weak, disaster loan 
management is inadequate, and certain FEMA policies do not appear to 
encourage the prudent use of disaster dollars.
  Mr. President, let me make clear, I believe FEMA Director James Lee 
Witt has done a superb job of responding to each and every disaster he 
has been responsible for--from the Northridge earthquake to the 
Oklahoma City bombing. He and the Agency should be commended.
  But we must ensure that FEMA disaster relief funds--which now total 
about $7 billion FEMA's accounts--are spent carefully and judiciously. 
I intend to ask FEMA to come up with a plan for strengthening controls 
on disaster relief funds and issue explicit guidelines and criteria.
  Mr. President, I ask unanimous consent that a brief, 6 page executive 
summary of the FEMA inspector general's audit of FEMA's disaster relief 
fund be printed in the Record.
  There being no objection, the summary was ordered to be printed in 
the Record, as follows:

                  AUDIT OF FEMA'S DISASTER RELIEF FUND


                                preface

       This report presents the results of our audit of FEMA's 
     Disaster Relief Fund. It was prepared in response to a 
     request from Senator Christopher Bond and as part of our 
     ongoing efforts to improve FEMA operations.
       The report also addresses aspect of the Disaster Relief 
     Fund that Director Witt asked us to review. It contains 
     recommendations for corrective action. Accordingly, it is 
     being sent to the Director, Associate Directors, Regional 
     Directors, and the Chief Financial Officer. Copies of the 
     report are also being sent to Members of Congress.
       The Audit Division, Officer of Inspector General, prepared 
     this report. Questions may be addressed to Richard L. 
     Skinner, Assistant Inspector General for Audit, at (202) 646-
     3911.
                                                  George J. Opfer,
                                                Inspector General.
                           Executive Summary

       In response to a request by Senator Christopher Bond, the 
     Office of Inspector General undertook an audit of the 
     Disaster Relief Fund. We concentrated our efforts on the 
     financial management of the Fund and on issues that offered 
     an opportunity for improving operations and reducing costs. 
     Given the time available, we were not able to address every 
     issue that deserved attention. We plan to continue to devote 
     resources to the review of FEMA's use of the Fund.
       It is important to consider the environment in which FEMA 
     operated since the 1988 enactment of the Stafford Act. The 
     number of disasters has steadily increased. There have been 
     more average or ``garden-type'' disasters. In addition, the 
     United States has been struck by two major hurricanes, Hugo 
     and Andrew, the massive months-long Midwest floods, and the 
     catastrophic Northridge, California earthquake. Responding to 
     these disasters put tremendous pressure on FEMA's financial 
     and personnel resources.
       In this difficult environment, FEMA's performance in 
     assisting disaster victims has been criticized. In response 
     to this criticism FEMA has taken aggressive steps to improve 
     the delivery of services while trying to contain costs. To 
     illustrate, some of the more significant actions include:
       Acquisition of a new financial management system.
       Establishment of a Disaster Finance Center to process 
     payments.
       Establishment of National Processing Services Centers.
       Automation of Teleregistration and damage verification 
     inspections.
       Establishment of a Disaster Resources Review Board.
       Development of a new property management system.
       These initiatives should go a long way in improving 
     disaster relief operations and reducing disaster costs. 
     However these actions are only the first steps. Much more 
     work needs to be done. Clearly through, FEMA is on the right 
     road and given enough time and resources the problems can be 
     solved.
       We present numerous findings and recommendations that 
     should aid FEMA in its efforts to improve operations and 
     reduce costs. The following summarizes those findings.


                     reliability of financial data

       Disaster Relief Fund financial data are often unreliable. 
     The Fund balance does not accurately reflect either cash in 
     the Fund or amounts available to assist disaster victims. 
     FEMA's accounting system is inadequately controlled and 
     personnel lack the discipline necessary to ensure financial 
     data integrity. Budget requests are flawed because they are 
     based on unreliable financial data and projected disaster 
     costs that are not precise. (See Chapter 1, page 9.)


                    appropriateness of expenditures

       In fiscal year 1995, non-specific disaster charges are 
     expected to total $86.8 million, about four percent of total 
     fund expenditures. Many charges appear legitimate. Others, 
     however, fall into a ``gray'' area, i.e., depending on one's 
     interpretation of the Stafford Act and related FEMA 
     guidelines, they may or may not be appropriate charges to the 
     Fund. FEMA needs to develop explicit guidelines that define 
     those activities that directly support disaster relief 
     operations and, therefore, are legitimate charges to the 
     Disaster Relief Fund. (See Chapter 2, page 21.)


                           grants management

       FEMA has awarded Public Assistance grants totaling billions 
     of dollars to thousands of grantees without an adequate 
     grants management system to ensure funds are used properly. 
     Significant improvements are needed in pre-award and post-
     award processes to ensure that grantees are accounting for 
     and using funds properly. Policies and procedures for all 
     aspects of grants management are needed. (See Chapter 3, page 
     31.)


                  management of disaster loan programs

       FEMA's Disaster Loan Program includes State Share Loans and 
     Community Disaster Loans totaling over $179 million. FEMA has 
     limited recourse in collecting loans if borrowers misuse 
     funds. Loan agreements, and other contractual agreements are 
     not regularly executed. FEMA's interest, therefore, is not 
     protected. Better loan monitoring and tighter restrictions on 
     borrowers' use of funds are needed. (See Chapter 4, page 47.)


                  economy and efficiency of operations

       We reviewed FEMA's management of human resources at the 
     disaster site, use of mission assignments to task other 
     Federal agencies for goods and services, and management of 
     property acquired with Disaster Relief Funds. We also 
     reviewed certain grant policies that did not appear to 
     encourage the prudent use of disaster dollars.
       After the initial response to a major disaster, FEMA can do 
     a better job of managing resources to reduce travel related 
     costs. We estimate that $2 million dollars might have been 
     saved in Northridge by hiring locals in a more timely manner. 
     FEMA has recognized the need for improved staff management 
     and is taking steps to improve its management of human 
     resources at disaster sites.
       FEMA does not have a system to ensure that the States' cost 
     sharing requirements are satisfied for work done through 
     mission assignments. Also, untimely billings from other 
     Federal agencies are tying up disaster dollars for excessive 
     periods.
       Even though FEMA has taken several steps to improve 
     controls over property, more still needs to be done. 
     Additional training is needed to ensure the new property 
     management system will work effectively. Also, there is a 
     need to establish controls over property that is purchased by 
     other Federal agencies under mission assignments.

[[Page S 11448]]

       FEMA's policy on small public assistance projects is 
     resulting in unnecessary costs to disasters. Small projects 
     are those under $43,600 and are funded based on estimated 
     cost. Under FEMA's policy, grantees are only required to 
     certify that the project is completed; they are not required 
     to account for project costs. As a result, funds that have 
     not been used for disaster-related costs are not being 
     returned to FEMA.
       Grantees are not required to account for and are not 
     spending all the funds provided for administrative costs 
     associated with public assistance grants. There are two ways 
     grantees can receive funds for administrative costs: (1) a 
     statutory fee calculated as a percentage of public assistance 
     awards; and (2) a management grant. The management grants are 
     fulfilling much of the grantees' administrative requirements 
     leaving much of the statutory fees unspent. FEMA needs to 
     reexamine its policy for providing administrative fees to 
     grantees to ensure that the funds are accounted for and 
     actually needed for the delivery of disaster related 
     services.
       Considerable savings could be achieved by limiting the 
     Federal cost share for public assistance projects to 75 
     percent of estimated project cost. Since 1989 the cost share 
     for 22 disasters was 90 or 100 percent. We estimate that over 
     $1.5 billion could have been saved if the cost share had been 
     held to 75 percent.
                               BACKGROUND

       Since passage of the Stafford Act in 1988, FEMA has 
     obligated about $12 billion for disaster relief. FEMA 
     officials project that an additional $8 billion could be 
     obligated for disasters declared prior to July 1, 1995. The 
     Federal contribution for disaster assistance has increased 
     dramatically in the past 20 years, due in part to the greater 
     number and magnitude of disasters.
       There is growing Congressional concern over the spiraling 
     Federal outlays associated with FEMA's disaster assistance 
     programs and a desire to control future disaster spending, 
     FEMA, also, has recognized the need to control disaster 
     costs. It has several initiatives underway or planned to get 
     a better grip on the escalating costs.
       Among the major initiatives that FEMA is currently 
     developing or planning are: (1) a new financial system to 
     permit better identification and control of billions of 
     dollars of disaster related costs, (2) a property management 
     system that will allow for better accounting and control over 
     the millions of dollars of property purchased for disasters, 
     (3) improvements in staffing disasters to control personnel 
     and travel related costs, (4) centralization of support 
     services such as financial management and applicant 
     registration, (5) automation of labor intensive processes 
     such as damage inspections, and (6) Performance Partnership 
     Agreements with States that will limit the amount of disaster 
     assistance based on a per capita dollar amount. All of these 
     initiatives are underway, and if successful, should result in 
     better management and control over disaster dollars.
       Congress, however, remains concerned with the escalating 
     costs of disasters. On April 27, 1995, the Office of 
     Inspector General received a request from Christopher S. 
     ``Kit'' Bond, Chairman of the Appropriations Subcommittee for 
     Veterans Administration, Housing and Urban Development, and 
     Independent Agencies, to undertake a review of FEMA's 
     Disaster Relief Fund to identify ways that costs can be 
     reduced.
       This audit responds to the Senator's request by examining 
     the nature of costs charged to the Disaster Relief Fund, the 
     feasibility of converting loan programs to grants, the 
     economy and effectiveness of disaster operations, and 
     implications of increased cost sharing.
     

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