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Wednesday, April 11, 2007

Katrina Fraud: FEMA and Army Corps of Engineers Ripped Off

Hurricane Katrina was truly one of the most horrific natural disasters to ever hit American soil. Thousands killed, injured, and left homeless. Unless you've experienced this type of loss first hand, it's probably meaningless to even try to fully understand the suffering these families went through.

And, during this time of emergency and national outreach to the victims, FEMA and the US Army Corps of Engineers rushed to open their wallets to the rightful victims. Billions of dollars of Federal Disaster relief funds poured into the region to help feed the hungry, put clothes on the homeless, and to shelter those without the capacity to shelter themselves. Regardless of all the stories written about either agency's preparedness levels or ability to actually respond to such a catastrophe, these agencies truly pushed the envelope of financial management and controls to put mission and operational necessity first - before bureaucracy. We applaud them for that.

But, take a look at the attached link to some of the recent stories related to the rampant fraud associated with these relief efforts. It's absolutely atrocious. And, if you want more insight, go to for the entire GAO report released this past summer.

What you will notice is that somewhere between $600M and $1.4B (yes, Billion) was lost just to improper payments associated with individual assistance. Think about this for a moment, $600M to $1.4B lost to just one category of risk. And, that’s not the only shocking finding. This loss represents between 10-20% of the total funds spent on individual assistance. Wow! 10-20% of all funds intended for people in need went to the lowliest types of fraudsters in the world... those that would steal from starving and homeless children so they might be able to enjoy a night at the strip club (actual case study info).

If you dig into the fraud then carried out associated with actual reconstruction and what the US Army Corps of Engineers may have been swindled out of, the cost is surely too staggering for most of us to really appreciate.

I do have one major recommendation though, in many many of the reported cases of fraud, simple continuous monitoring-based controls would have prevented the fraud.

For example: 16% of the fraud could have been prevented with a better individual assistance registration procedure. Simple monitoring-based controls that alerted FEMA of invalid social security numbers, bogus addresses, invalid registrant to address matches, and duplicative registration data amongst multiple recipients would have shut down the majority of this type of fraud.

If Oversight was in place, the impact would have been between $96M and $224M. What could FEMA have done with these funds if they had not made their way into the fraudsters hands?

posted by Zeleon @ 11:57 PM   0 comments


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