	Fraud, Waste, and Abuse Prevention Controls

Prevention is the most effective and efficient way to minimize fraud,  waste, and abuse in any federal program, including disaster assistance,  and is also a key element described in the Standards for Internal Control in  the Federal Government. Figure 2 displays how preventive  controls fit within a larger fraud, waste, and abuse prevention program. However, our work related to FEMA’s  management of the IHP program for hurricanes Katrina and Rita found  that their limited use of a third-party validation process left room for  substantial fraud. However, within the FEMA IHP program we found  significant fraud related to expedited assistance payments that were made  prior to any physical inspection being performed. Adhering to existing control procedures is therefore also crucial when  maintaining effective fraud prevention. Fraud Training and Field Testing

Beyond the uniform recording and validation of data, other controls,  including a well-trained work force that is aware of the potential for fraud,  can help prevent fraud. Detection and Monitoring

Even with effective preventive controls, there is substantial residual risk  that fraudulent registrants are likely to gain access to a disaster relief  program and begin to receive payments. Detection  and monitoring efforts are addressed in the Standards for Internal Control  in the Federal Government and include such activities as data-mining  registrations, which have received payments, ensuring accountability over  funds and monitoring how the disaster assistance is being spent, and  establishing mechanisms to identify the existence of fraud. Also, setting up hotlines to identify potential frauds is  an important activity that should be in place when distributing disaster  funds. Finally, any lessons learned from detection and monitoring efforts  should be used to improve preventive controls to reduce the risk for fraud,  waste, and abuse in the future. The data-mining we performed on FEMA’s IHP program showed how  important constant monitoring and detection can be. Investigations and Prosecution of Offenders

The final aspect of a program designed to reduce fraud in a disaster  assistance program is the investigation and aggressive prosecution of  individuals who have fraudulently received disaster assistance. In the course of our work performed on IHP fraud for hurricanes  Katrina and Rita, we identified tens of thousands of potentially fraudulent  registrations. This included one individual indicted for fraudulently obtaining over  $25,000 from FEMA based on bogus registrations. While investigations and prosecution can be the most visible means to deal  with fraudsters, they are also the most costly and should not be used in  place of other more effective controls. Still, by successfully prosecuting  fraudsters, agencies can deter others who are thinking of taking advantage  of disaster programs. Concluding Comments

Managers of federal disaster assistance programs face a dual challenge— delivering aid as quickly as possible while at the same time ensuring that  relief payments go only to those who are truly in need. Implementing an effective system of fraud prevention  controls including upfront controls, post payment detection and  monitoring, and prosecuting those who have exploited control weaknesses  are crucial to building the American taxpayer’s confidence that federal  disaster assistance is given to those in need.
Why GAO Did This Study

Federal agencies spend billions of dollars annually to aid victims of natural and other disasters and acts of terrorism. Managers of federal disaster assistance programs face a dual challenge--delivering aid as quickly as possible while at the same time ensuring that relief payments go only to those who are truly in need. Due to the very nature of the government's need to quickly provide assistance to disaster victims, federal disaster relief programs are vulnerable to significant risk of improper payments and fraudulent activities. On February 13, 2006, and on June 14, 2006, GAO testified concerning extensive fraud, waste, and abuse in the Individuals and Household Program (IHP), a component of the Federal Emergency Management Agency's (FEMA) disaster assistance programs. GAO identified significant internal control weaknesses that resulted in FEMA making tens of thousands of Expedited Assistance payments that were based on bogus registration data. GAO also found numerous other internal control failures in FEMA's IHP disaster assistance program, resulting in an estimate that FEMA made $600 million to $1.4 billion in improper and potentially fraudulent payments to registrants. The purpose of this testimony is to establish a framework for preventing, detecting, and prosecuting disaster assistance fraud.

What GAO Found

Recent GAO audits have illustrated the importance of an effective fraud, waste, and abuse prevention system in federal disaster assistance programs. GAO's Standards for Internal Control in the Federal Government provide a framework for internal control that can be used to minimize fraudulent, wasteful, and abusive activity regardless of whether dealing with the effects of natural disasters like hurricanes Katrina and Rita, or coping with the destruction left by the terrorist attacks of September 11, 2001. A well-designed fraud prevention system should consist of three crucial elements: (1) upfront preventive controls, (2) detection and monitoring, and (3) investigations and prosecutions. Upfront preventive controls can help screen out the majority of fraud, and are the most effective and efficient means to minimize fraud, waste, and abuse. Detection and monitoring, and aggressive prosecution of individuals committing fraud, while also crucial elements of an effective system, are less effective and generally cost more. Audit work has long confirmed that upfront preventive controls are most effective when they require validation of data provided by disaster registrants against other government or third-party sources, and physical inspections when possible. Preventive controls should also include procedures designed to identify problem registrants prior to payments. Training personnel on fraud awareness and potential fraud schemes is also an integral component in preventive controls. Collectively, these preventive controls can help improve program integrity and safeguard tax dollars. An effective fraud deterrence program must also include resources to continually monitor and detect potential fraud, and aggressively investigate and prosecute individuals who received assistance fraudulently. Monitoring and detection include data-mining for suspicious registrations and payment usage, and setting up fraud hotlines. Finally, program integrity is enhanced by investigating and prosecuting individuals who take advantage of program weaknesses. However, the high costs of prosecutions highlight our conclusion that upfront preventive controls are most effective in preventing fraud, and that lessons learned from detection and prosecutions should be used to improve preventive controls.