$1bn of Katrina funds stolen

About $1bn in relief meant for victims of Hurricane Katrina was lost to fraud, with bogus claimants spending the money on Hawaiian holidays, football tickets, diamond jewellery and Girls Gone Wild porn videos, the US Congress was told on Wednesday.

The fraud, exposed through an audit by the Government Accountability Office, found a staggering amount of abuse of the housing assistance and debit cards given out by the beleaguered Federal Emergency Management Agency as a way of granting relief to those who lost their homes to Katrina.

Testimony presented to the house committee on Homeland Security yesterday revealed that Fema paid housing assistance to people who had never lived in a hurricane-damaged property - including at least 1,000 prison inmates - and made payments to people who were living in free hotel rooms. In one instance it paid out on a property damage claim from a cemetery in New Orleans - to a person who had never lived in the city. In another it paid compensation for a vacant lot.
“Fema paid over $20,000 to an inmate who used a post office box as his damaged property,” Gregory Kutz, the GAO’s director of audits, told the committee.

The extent of the fraud was uncovered the day after the first tropical storm of this year’s hurricane season landed near Tallahassee, Florida. Concerns remain that despite the torrent of criticism and soul searching after Hurricane Katrina, the agency remains ill-equipped to deal with coming storms.

Predictions that this year will bring another season of severe storms has raised tensions along the Gulf coast, where, nearly one year after Katrina, tens of thousands of people continue to live in Fema trailers, their homes still in ruins. “It is key that Fema address weaknesses in its registration process so that it can substantially reduce the risk for fraudulent and improper payments before the next hurricane season arrives,” the GAO report said.

The audacity of the fraud exposed shocked the congressional committee yesterday. As much as 16% of the relief distributed by the agency was lost to fraud, the auditors said. They also said it was likely they were underestimating the scope of the fraud.

“We expected it, but we didn’t expect it on this magnitude,” Michael McCaul, the Republican chairman of the house homeland security investigations panel, told reporters. “It’s an assault on the American taxpayer.”

During the audit investigators filed their own bogus claims and used other undercover methods to discover that most of the improper payments occurred because Fema failed to verify the identity of those making claims, or to confirm their addresses.

In the largest instance of abuse by an individual, Fema made 26 payments to someone who submitted claims for damaged property at 13 different addresses in Louisiana, Mississippi, and Alabama, using 13 different social security numbers. Only one of the social security numbers was valid, and a search of property records revealed that the individual had never lived at any of the 13 addresses. In addition, only eight of the addresses actually existed.

Fema also paid rental assistance to people who were already enjoying luxurious hotel accommodation - footing an $8,000 hotel bill in Hawaii for someone who simultaneously received $2,358 in rental assistance.

Fema debit cards also turned out to be an easy mark for those bent on fraud. Among some of the charges the GAO found unnecessary to satisfy legitimate disaster needs were $3,700 on a diamond watch, earrings and ring, a one-week all inclusive holiday in the Dominican Republic, $200 of Dom Perignon champagne, fireworks, $1,000 for a Houston divorce lawyer, and a considerable amount for adult erotica.

Fema recovered some of the mis-spent funds. However, the agency remains unable to account for 381 debit cards worth about $760,000.

© Guardian Newspapers Limited 2006