A federal oversight agency has released a scathing review of the way FEMA handled a second look at a batch of damage claims from superstorm Sandy, saying the process lacked internal controls, took two years longer than expected and cost over $150 million more to run than initial estimates.
The Department of Homeland Security’s Office of the Inspector General report on the Sandy Claims Review Process (SCRP) was released late last month.
It analyzes FEMA’s handling of a portion of 144,540 claims filed for damages due to the 2012 storm in more than six states, including New York and New Jersey. Those two states alone bore 91 percent of the 144,540 claims and 96 percent of the $8.2 billion in damages, the OIG said.
The audit found that FEMA offered an additional $270 million to 14,751 policyholders who filed claims starting in May 2015 under the special second-look program or SCRP designed to review the 144,540 claims filed in the wake of the storm under FEMA’s National Flood Insurance Program.
State Sen. Todd Kaminsky (D-Long Beach) bemoaned FEMA’s handling of claims as slow and inefficient.
“It is a farce that nearly 5 1⁄2 years after Sandy a significant number of victims have still not received their award,” he said. “It is important, however, that FEMA not attempt to claw back any funds from victims as they have suffered enough and should not pay for FEMA’s bumbling bureaucracy.”
But the inspector general’s report, conducted from September 2016 to December 2017, said the program was administered sloppily and may have resulted in overpayments to policyholders. It makes seven key recommendations to reduce cost overruns and increase efficiency, including establishing new procedures and re-evaluating existing policies.
David Bibo, FEMA’s associate administrator, said in a response that his agency agrees with the recommendations.
“FEMA did not rely on certain legislatively mandated internal controls designed to ensure appropriate payments for flood victims,” said the report. “These omissions resulted in policyholders receiving unsupported additional payments, excessive costs to operate the SCRP and time delays processing the claims.”
Specifically, the audit found, FEMA abandoned its own controls of periodic financial audits, which are independent assessments of insurance providers, and regular operation reviews, another control measure. Both processes are oversight mechanisms that are staples for processing FEMA’s Standard Flood Insurance Policy (SFIP) claims, the report said.
But the OIG audit found that one random sample of 39 claims reviewed first under the SFIP guidelines identified only 10 percent of the claims as overpayments while the second SCRP process determined that 35 of the same 39 claims were underpaid, requiring the program to pay out an additional $745,000.
“Had FEMA relied on its internal operation reviews, it would have had confidence that policyholders received adequate compensation for Hurricane Sandy claims per the SFIP guidance,” the audit said. “Rather than serving as an effective tool for re-review, the SCRP operated at odds with established FEMA controls...”
A similar wave of payouts occurred because FEMA adopted a “hands-off” approach to SCRP and allowed many claims of damages to be paid out without proper documentation, said the audit, which examined another random sample of 50 claims of the 14,751 and determined that FEMA paid out an additional $12,300 per claim than the original assessment required.
“Had FEMA required the SCRP to follow the same standards that apply to the insurance providers, the majority of these policyholders would not have received additional compensation,” it concluded.
The report also said that FEMA’s own “test” to determine whether payments were properly distributed found that less than 1 percent of the first round of payments was improper. The audit found the test administered to a random sample of 91 claims during the first review process before the SCRP was established found only one policyholder was underpaid by $1,260.
The SCRP process — or the second look at claims — however, found 78 underpaid policyholders of the 91 reviewed and paid out an additional $2.1 million to settle those claims.
Auditors found that the review process not only paid out much more than expected but that it also cost much more to run than estimated because FEMA did not provide adequate guidance and oversight of the claims review process.
Staffing limitations and a failure to establish contractor expectations, the audit said, caused the budget for the review process to skyrocket: It was initially estimated to cost $37 million and to end in December 2015 but the administration of the SCRP has cost $196 million and is still in operation, two years past the date it was expected to expire.