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FEMA hurricane cards bought jewelry, erotica
Federal audit finds $1 billion in potential fraud

Wednesday, June 14, 2006; Posted: 9:25 a.m. EDT (13:25 GMT)

WASHINGTON (CNN) -- A $200 bottle of champagne from Hooters and $300
worth of "Girls Gone Wild" videos were among items bought with debit
cards handed out by FEMA to help hurricane victims, auditors probing $1
billion in potential waste and fraud have found.

The cards -- given to people displaced by Hurricanes Katrina and Rita
-- also bought diamond jewelry and a vacation in the Dominican
Republic, according to the Government Accountability Office audit.

The GAO uncovered records showing that $1,000 from a FEMA debit card
went to a Houston divorce lawyer; $600 was spent in a strip club and
$400 was spent on "adult erotica products," all of which auditors
concluded were "not necessary to satisfy legitimate disaster needs."

The GAO found that at least $1 billion in disaster relief payments by
the Federal Emergency Management Agency were improper and potentially
fraudulent because the recipients provided incomplete or incorrect
information when they registered for assistance.

The GAO said the scope of the problem may be even larger, because it
only looked at the validity of registration information and not at
other forms of potential fraud.

FEMA acknowledged its shortcomings late Tuesday.

Spokesman Aaron Walker said FEMA has "revamped the registration
process" and has a contract with a company that will verify immediately
the identity and address of anyone for assistance.

"We are confident in the system we have in place at this point," Walker
said. "We are prepared for the upcoming season."

The GAO also found that FEMA provided housing assistance to people who
were not displaced, including at least 1,000 prison inmates, and also
provided rental assistance to people who were simultaneously living in
free hotel rooms.

Results of the GAO's audit will be presented Wednesday to an
investigative panel of the House Homeland Security Committee. FEMA is
part of the Department of Homeland Security.

The GAO also found that FEMA lost track of 750 debit cards, worth a
total of $1.5 million.

After inquiries from the GAO, FEMA recovered about half of that money,
which had not been distributed by JPMorgan Chase, the bank hired to run
the program. But the agency still cannot account for 381 cards, worth
about $760,000 total, which JPMorgan Chase says it distributed,
according to the GAO.

GAO investigators estimated that 16 percent of FEMA's disaster relief
payments were made to people who submitted invalid registrations, to
the tune of about $1 billion. Because the figures were calculated using
a statistical sample, however, the agency said the amount could range
from $600 million to as much as $1.4 billion.

Among other problems found with the registrations, according to the GAO
study:

# People signed up for assistance using Social Security numbers that
didn't exist or belonged to other people.

# Aid applications contained bogus addresses for damaged property, or
gave addresses for damaged property where the applicants did not live
when the hurricanes struck. In one case, FEMA paid nearly $2,360 to a
man whose allegedly damaged property was in a cemetery.

# Payments were made to people who listed post office boxes as their
damaged residences.

# People submitted duplicate registrations, which FEMA did not detect.

# More than 1,000 registrations used the names and Social Security
numbers of prison inmates. According to the GAO, in one instance, FEMA
paid $20,000 to a Louisiana prisoner who listed a post office box as
his damaged property.

As part of its audit, the GAO used an undercover registrant who
submitted a vacant lot as a damaged address.

FEMA paid the registrant $6,000 and even made payments after being
notified by one its own inspectors, as well as an inspector for the
Small Business Administration, that the damaged property could not be
found, the GAO investigators found.

The GAO concluded that the potentially fraudulent payments were made
because FEMA did not validate registrants' identities and the locations
and ownership of purportedly damaged property.

While conceding that FEMA acted out of the need to provide assistance
quickly, GAO investigators said the agency's own policies required
additional verification before continuing payments.

The GAO study also found FEMA improperly provided rental assistance to
people who were staying in hotels paid for by FEMA because the agency
did not require hotels to collect Social Security numbers and FEMA
registration information.

Without that information, FEMA could not verify if people were staying
in hotels when they applied for rental assistance.

And because that information doesn't exist, GAO auditors said they
could not determine how many people might have double-dipped -- or how
much it cost the government.

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contributed to this report.