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Disaster Relief Needs Oversight to Stop Waste and Fraud

A Coast Guardsman looks out of a helicopter during search and rescue missions following Hurricane Harvey around Beaumont, Texas, Aug. 30, 2017.
A Coast Guardsman looks out of a helicopter during search and rescue missions following Hurricane Harvey around Beaumont, Texas, Aug. 30, 2017. (Photo: Petty Officer 3rd Class Brandon Giles / US Coast Guard)

In the wake of Hurricane Harvey, Houston and vast swaths of south and east Texas have been devastated. Wildfires currently rage in Oregon and Washington State, leading to mandatory evacuations in some communities. Hurricane Irma in the Atlantic has strengthened to a powerful Category 5 storm; it threatens U.S. territories in the Caribbean, as well as Florida and the southeastern United States.

Despite an outpouring of community support and neighborly charity, large natural disasters require billions of dollars in aid from the federal government for short-term and long-term needs such as housing, cleanup, and infrastructure rebuilding. The aid is spent directly by federal agencies like the Federal Emergency Management Agency (FEMA), funneled to state and local governments, and outsourced to contractors.

Congress is rightfully planning on passing legislation to provide disaster relief. However, Congress and the administration must ensure that our money is responsibly spent on assistance to communities in need rather than lining the pockets of disaster profiteers or otherwise wasted. For guidance on how to implement robust disaster aid oversight, policymakers might want to read POGO’s 2006 report on lessons from Hurricane Katrina, or the final report of Congress’s Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina.

The potential for waste and fraud is great. In an annual report issued in 2012, the Justice Department’s Disaster Fraud Task Force stated that, “In cases related to Hurricanes Katrina, Rita and Wilma alone, the task force through FY 2011 prosecuted 1,439 individuals in 47 federal districts throughout the country. These prosecutions involved a wide variety of fraudulent activity, including charity scams, government and private-sector benefit fraud, identity theft, contract and procurement fraud, and public corruption.”

The Justice Department continues those efforts. Its National Center for Disaster Fraud is based in Louisiana and is run by Corey Amundson, the Acting U.S. Attorney for the Middle District of Louisiana. He recently spoke with NPR about the risks of fraud in the wake of Hurricane Harvey.

“It starts with charity fraud, contractor fraud, emergency assistance fraud. And it evolves into program fraud as the monies come from the federal government,” Amundson said. He predicted that “this will likely be a 5- to 7-year odyssey and war against this fraud in its various iterations.”

A False Claims Act case prosecuted by Amundson’s office 5 years after Hurricane Katrina highlights how these fraud schemes work and provides lessons on how to prevent similar situations from occurring.

Less than a week after Katrina made landfall in Louisiana in 2005, C. Henderson Consulting, Inc. (CHCI), a small consulting company in Texas, won a $5.2 million contract from FEMA to provide ambulances to help medical personnel evacuate hospitals and nursing homes dealing with the flooding and devastation wrought by Katrina. The FEMA contract was awarded through the General Services Administration (GSA), initially for a period of 60 days. With subsequent amendments to the contract, its value shot up to nearly $19 million. The company would earn $3,100 per day for each ambulance provided.

CHCI was supposed to provide roughly half of the 100 ambulances FEMA contracted to help with the evacuation. Yet the company and its owners, Charles Henderson and Richard Bell, “had never before been in the ambulance business, and had no prior experience providing this type of service,” according to the complaint the U.S. Attorney’s office filed in the case.

“Despite this lack of experience, Henderson held himself out to GSA and FEMA as the owner of an ambulance company, i.e., (CHCI) and able to provide properly equipped ambulances and qualified staff to operate them,” the complaint alleged. According to the government, after winning the FEMA contract Henderson and his company quickly cobbled together relationships with subcontractors who were able to provide some ambulances and personnel, but not enough of either. However, CHCI proceeded to bill FEMA for ambulances it never provided. On September 4, 2005—six days after Katrina struck New Orleans—CHCI billed for 19 ambulances when it actually provided 11. On September 10, CHCI charged FEMA for 66 ambulances but only provided 27.

FEMA took them at their word and overpaid, according to the lawsuit. The government accused CHCI of bilking taxpayers of nearly $2 million.

Charles Henderson settled the lawsuit in 2011 by agreeing to pay the government nearly $3 million.

After Katrina, there was a widespread ambulance shortage in the region. Thus, disaster relief fraudsters not only put taxpayer dollars at risk, but lives as well.

Congress’s investigative arm, the Government Accountability Office (GAO), referred to the CHCI contract and other egregious instances of fraud and waste in a 2006 report that recommended ways to improve federal disaster recovery contracting practices.

“Our fieldwork identified examples where unclear responsibilities and poor communications resulted in poor acquisition outcomes,” the GAO reported. “FEMA tasked GSA to write three contracts in Louisiana for base camps, hotel rooms, and ambulances, with a total value of over $120 million. GSA contracting officers awarded the contracts, but could not tell us which FEMA officials would be responsible for overseeing contractor performance. The FEMA official identified as the main point of contact by GSA did not have any knowledge of these contracts or who was responsible for oversight.” [emphasis added]

In our 2006 report on Hurricane Katrina, POGO observed that “poor oversight in the award and monitoring stages of contracting is one of the most recurrent problems in the federal government's response to Hurricane Katrina.” In an era of Yelp, Angie’s List, and online Better Business Bureau listings, not to mention the government’s own digital databases on past performance and contractor responsibility, there is no excuse for awarding multi-million dollar contracts without performing adequate due diligence beforehand, even in the midst of an ongoing disaster.

Better oversight on the front end can prevent fraud and keep the government from doing business with dishonest or under-qualified contractors. On the back end, oversight offices such as the Department of Homeland Security’s Office of Inspector General (DHS OIG) are critical to catching bad actors. While the Justice Department prosecuted the CHCI ambulance fraud case, it was DHS OIG that investigated the matter and arrested the company’s owner, according to the Disaster Fraud Task Force’s 2012 report. According to the report, “through the efforts of DHS OIG, 81 persons were indicted or otherwise criminally charged, and 143 individuals were convicted, in disaster fraud investigations.”

But DHS OIG’s budget may be facing a cut, even as disaster-related spending at FEMA, in addition to spending on border security and immigration enforcement at other DHS offices, is ramping up.

As Congress appropriates disaster relief funds to help communities in need, it must put a high priority on oversight. A dollar lost to fraud or waste is a dollar that isn’t helping Americans struggling in the wake of a disaster.

By: Nick Schwellenbach
Director of Investigations, POGO

Nick Schwellenbach Nick Schwellenbach's areas of expertise include: Government Oversight, Wasteful Contractor Spending, Open Government, Financial Sector, Whistleblower Issues.

Topics: Government Accountability, Contract Oversight

Related Content: Federal Emergency Management Agency (FEMA), Homeland Security

Authors: Nick Schwellenbach

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