Moreover,  it has yet to adequately address managing the day-to-day operations when  deploying staff to respond to federal disasters. Unless it takes further steps  to address these management challenges, FEMA will be limited in its  ability to manage NFIP’s operations or ensure program effectiveness. However, FIMA has not had a set of strategic goals and objectives to guide  its administration of NFIP. FEMA has also faced challenges in the acquisition and oversight of its  contractors, which are critical to NFIP. While these steps need to  be taken, the extent to which they will ensure effective oversight of  FEMA’s acquisition activities remains to be seen. A number of acquisition management weaknesses contributed to  the project’s failure and cancellation, and as FEMA begins anew to  modernize the existing legacy system, it plans to apply lessons learned  from its NextGen experience. As mentioned earlier in this report, FEMA  has already implemented some changes to its acquisition management  practices. FEMA Cancelled Its NextGen Project in November 2009 and Continues to Rely on Outdated Existing System

NFIP currently uses a flood insurance policy and claims processing system  that was developed 30 years ago. Acquisition Management Weaknesses Led to the Cancellation of NextGen

Weaknesses in several key system acquisition areas led to NextGen’s  failure and cancellation. NFIP’s Operating Environment and External Factors Complicate Administration of the Program, and FEMA Lacks Authority in Areas Critical to Its Long-term Financial Health

NFIP’s operating environment differs from that of traditional insurers and  limits FEMA’s ability to keep the program financially sound. In particular,  NFIP assumes and retains all of the risks for the policies it sells, is  required to accept virtually all applicants for insurance, and cannot deny  coverage for potentially high-risk properties. These include lapses in NFIP’s authorization, the role of  state and local governments, fluctuations in premium income, and  structural and organizational changes that have been made. Finally, as  noted in past GAO reports, NFIP also faces external challenges that will  continue to threaten the program’s long-term financial health if they are  not addressed. Conclusions

While FEMA has begun to take steps to address its issues, it faces  significant management challenges in areas that affect NFIP, including  strategic planning, human capital planning, collaboration among offices,  records management, financial management, acquisition management, and  business processes. Without this direction, NFIP lacks a strategic  focus, and the agency is limited in its ability to develop effective  performance measures to measure NFIP’s progress. In addition, FEMA has spent about 7 years and $40 million in its latest  attempt to modernize NFIP’s insurance policy and claims management  system. To improve FEMA’s policies, procedures, and systems for achieving  NFIP’s program goals, we recommend that the Secretary of DHS direct the  FEMA Administrator to take the following four actions:    While waiting for DHS to implement an agencywide electronic  document management system, consider the costs and benefits of  implementing an interim system for FEMA and updating its document  management policies and procedures. Matters for Congressional Consideration

As Congress considers NFIP reforms and reauthorization, it should  consider ways to better ensure the long-term financial stability of the  program, such as 1) allowing NFIP to charge full-risk premium rates to all  property owners and providing assistance to some categories of owners to  pay those premiums; 2) authorizing NFIP to account for long-term flood  erosion in its flood maps; and 3) clarifying and expanding FEMA’s ability  to increase premiums or discontinue coverage for owners of repetitive loss  properties who do not mitigate their properties or refuse FEMA’s  mitigation offers. Develop protocols for collaboration between program and support  offices. Finally, DHS concurred with our last two recommendations for improving  NFIP’s flood insurance policy and claims processing system. Appendix I: Objective, Scope, and Methodology

Significant management challenges affect the Federal Emergency  Management Agency’s (FEMA) ability to administer the National Flood  Insurance Program (NFIP). Our  objectives were to (1) analyze the extent to which FEMA’s key  management practices—including strategic planning, human capital  planning, records management, financial management, acquisition  management, and intra-agency collaboration—affect the agency’s ability to  administer NFIP; (2) identify lessons to be learned from the Next  Generation Flood Insurance Management System (NextGen) program’s  cancellation, including to what extent key acquisition management  processes were followed on NextGen; and (3) describe factors that are  relevant to NFIP operations and analyze limitations on FEMA’s authority  that could affect its financial stability. Further, we reviewed relevant legislation, internal  control standards, best practices, and external studies of FEMA’s  management challenges. GAO-10-860. GAO’s High-Risk Program.
Why GAO Did This Study

The National Flood Insurance Program (NFIP) has been on GAO's high-risk list since March 2006 because of concerns about its long-term financial solvency and related operational issues. Significant management challenges also affect the Federal Emergency Management Agency's (FEMA) ability to administer NFIP. This report examines (1) the extent to which FEMA's management practices affect the administration of NFIP; (2) lessons learned from the cancellation of FEMA's attempt to modernize NFIP's insurance management system; and (3) limitations on FEMA's authority that could affect NFIP's financial stability. To do this work, GAO reviewed internal control standards and best practices, analyzed agency documentation, reviewed previous work, and interviewed relevant agency officials.

What GAO Found

FEMA faces significant management challenges in areas that affect NFIP, including strategic and human capital planning; collaboration among offices; and records, financial, and acquisition management. For example, because FEMA has not developed goals, objectives, or performance measures for NFIP, it needs a strategic focus for ensuring program effectiveness. FEMA also faces human capital challenges, including high turnover and weaknesses in overseeing its many contractors. Further, FEMA needs a plan that would ensure consistent day-to-day operations when it deploys staff to federal disasters. FEMA has also faced challenges in collaboration between program and support offices. Finally, FEMA lacks a comprehensive set of processes and systems to guide its operations, in particular a records management policy and an electronic document management system. FEMA has begun to address some of these challenges, including acquisition management, but the results of its efforts remain to be seen. Unless it takes further steps to address these management challenges, FEMA will be limited in its ability to manage NFIP's operations or better ensure program effectiveness. FEMA also faces challenges modernizing NFIP's insurance policy and claims management system. After 7 years and $40 million, FEMA ultimately canceled its latest effort (NextGen) in November 2009 because the system did not meet user expectations. As a result, the agency continues to rely on an ineffective and inefficient 30-year old system. A number of acquisition management weaknesses led to NextGen's failure and cancellation, and as FEMA begins a new effort to modernize the existing legacy system, it plans to apply lessons learned from its NextGen experience. While FEMA has begun implementing some changes to its acquisition management practices, it remains to be seen if they will help FEMA avoid some of the problems that led to NextGen's failure. Developing appropriate acquisitions processes and applying lessons learned from the NextGen failure are essential if FEMA is to develop an effective policies and claims processing system for NFIP. Finally, NFIP's operating environment limits FEMA's ability to keep the program financially sound. NFIP assumes all risks for its policies, must accept virtually all applicants for insurance, and cannot deny coverage for high-risk properties. Moreover, additional external factors--including lapses in NFIP's authorization, the role of state and local governments, fluctuations in premium income, and structural and organizational changes--complicate FEMA's administration of NFIP. As GAO has previously reported, NFIP also faces external challenges that threaten the program's long-term health. These include statutorily required subsidized premium rates, a lack of authority to include long-term erosion in flood maps, and limitations on FEMA's authority to encourage owners of repetitive loss properties to mitigate. Until these issues are addressed, NFIP's long-term financial solvency will remain in doubt.

What GAO Recommends

GAO makes 10 recommendations to improve the effectiveness of FEMA's planning and oversight efforts for NFIP; improve FEMA's policies and procedures for achieving NFIP's goals; and increase the usefulness and reliability of NFIP's flood insurance policy and claims processing system. GAO also presents three matters for congressional consideration to improve NFIP's financial stability. DHS concurred with all of GAO's recommendations.