FEMA halts Katrina retrofit money after irregularities found

FEMA will suspend reimbursement of nearly $30 million to Mississippi for disaster-mitigation work because of lax state oversight and financial irregularities in a program to strengthen homes against wind damage following Hurricane Katrina.

An audit report by the Office of Inspector General for the Department of Homeland Security claims the Mississippi Emergency Management Agency has been unable to provide documentation for $30.5 million supposedly paid to contractors for work on 945 homes in Hancock, Harrison and Jackson counties as part of the state’s Coastal Retrofit Program.

The contractor invoices are now being held by MEMA because Mississippi is investigating the program and looking for documents to validate the payments.

Because the state could still seek nearly $30 million in federal reimbursement for the expenditures, the inspector general called on FEMA to put the brakes on further payments for the program.

“We recommend that FEMA deobligate or suspend the entire $29.9 million (in reimbursements) until Mississippi provides proper oversight of the program and reasonable assurance that federal funds can be properly accounted for and expended in accordance with federal regulations and FEMA guidelines,” the report said.

In a July 14 response, a FEMA regional administrator, Gracia Szczech, said the agency will suspend payments until proper documentation is provided. The agency will also require Mississippi to verify the contractors’ work has been completed and complies with federal regulations. And FEMA will require Mississippi to explain cost overruns in the program.

In a statement, MEMA Executive Director Lee Smithson said MEMA “has ongoing audits of the entire Coastal Retrofit Mississippi Program. We cannot comment on the OIG report until those audits are complete.”

After Katrina in 2005, FEMA approved nearly $29.9 million for the program, designed to shore up 2,000 homes against wind damage from future disasters. The first fix-ups began in February 2012.

But despite state guidelines that call for more than one person to oversee the program in order to reduce fraud and error, the state department of finance — which oversaw the program for MEMA — gave one employee total control, including approving contractors’ work and authorizing payment, the audit said.

Made aware of the improper oversight in December 2014, state officials didn’t take action “to stop or mitigate the problem until February 2016 — after we initiated this audit,” the report stated.

This lone employee, while working for MEMA and the finance department, “approved and influenced other state employees to process nearly $31.5 million in payments — more than the amount of the grant.” Doing so “may have circumvented the state’s accounting controls,” the report found.

Even though the $31.5 million surpassed the amount FEMA would reimburse, it repaired only 945 of the estimated 2,000 homes slated for improvement.

In addition, MEMA claimed the work on the 945 homes was completed by May 2015. But finance department records through May 2016 show MEMA had paid only $20.5 million for the program — not $31.5 million as reported.

The state has sought FEMA reimbursement for only about $958,000 of the contractor payments, leaving $30.5 million unaccounted for because the employee “did not allow a contracted accounting firm to reconcile payments of $30.5 million in invoices,” the report said. “However, no one above the employee’s authority questioned the situation.”

The program estimated each of the retrofits would cost, on average, nearly $15,000. The actual cost to repair the 945 homes averaged more than $33,000 apiece — about 123 percent more than estimated.

The report said MEMA provided no substantial evidence to support the cost increases and the employee “would not allow us or Mississippi officials access to the contractors’ invoices totaling $30.5 million.”

“The lack of access to documents prompted us to question MEMA and other Mississippi officials and led the newly appointed executive director of MEMA (Lee Smithson) to contact the Mississippi State Attorney General’s Office,” the report said.