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Lawmaker: Hurricane aid spent on jewelry, erotica an 'affront'Federal audit finds $1 billion in potential fraud in storm relief
 In this FEMA-supplied photo, a person holds one of the debit cards distributed after Hurricane Katrina. SPECIAL REPORT
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YOUR E-MAIL ALERTSWASHINGTON (CNN) -- Lawmakers expressed outrage Wednesday over a federal audit report that debit cards handed out to hurricane victims last year were used to buy such items as a $200 bottle of champagne from Hooters and $300 worth of "Girls Gone Wild" videos. The cards -- given to people displaced by Hurricanes Katrina and Rita -- also bought diamond jewelry and a vacation in the Dominican Republic, according to the Government Accountability Office audit. The GAO, the investigative arm of Congress, found at least $1 billion in disaster relief payments by the Federal Emergency Management Agency were improper and potentially fraudulent because the recipients provided incomplete or incorrect information when they registered for assistance. (GAO report) The GAO uncovered records showing $1,000 from a FEMA debit card went to a Houston divorce lawyer, $600 was spent in a strip club, and $400 bought "adult erotica products," all of which auditors concluded were "not necessary to satisfy legitimate disaster needs." (Watch how the money was used to buy diamonds, vacations and strippers -- 2:42) "This is an affront to the American taxpayer, who has been fleeced by the actions of these criminals and the lack of FEMA fraud prevention," said Rep. Michael McCaul, chairman of a House subcommittee investigating how the agency distributed aid. "If FEMA doesn't fix it, Congress will," said McCaul, a Republican from Texas whose investigative panel of the House Homeland Security Committee heard testimony on the report Wednesday. FEMA is part of the Department of Homeland Security. In FEMA's defense, top official Donna Daniels testified the agency was simply overwhelmed by the scale of the disasters, forcing it to choose between providing help quickly or delaying aid until information could be verified. "We just made the calculated decision that we were going to help as many people as we could, and that we would have to go back and identify those people who we either paid in error or that defrauded us, and deal with that," said Daniels, FEMA's acting director of recovery operations. Rep. Bob Etheridge of North Carolina, the House panel's ranking Democrat, said he appreciated FEMA and other relief agencies were under "tremendous pressure to register storm victims as quickly as possible." "However, that is no excuse for the lack of preparation, the lack of internal controls and the lack of decisive and professional leadership," Etheridge said. McCaul said FEMA should not have to choose between providing assistance quickly and assuring the money is going only to people who qualify. "I think we can have both, and I think that's what the American people deserve," he said. McCaul had sharp words for FEMA Director David Paulison for sending Daniels to the hearing rather than coming to testify himself. "Given the lack of management controls at FEMA and the obvious need for reform, it is unfortunate that he is not here to help us fix this problem," McCaul said. Potential larger problemThe GAO report said the scope of the problem may be even larger, because it looked only at the validity of registration information and not at other forms of potential fraud. The GAO found, for example, that FEMA provided $10 million in housing assistance to people who were not displaced, including more than 1,170 inmates in state and federal prisons, and provided rental assistance to people simultaneously living in free hotel rooms. In one instance FEMA paid $20,000 to a Louisiana prisoner who listed a post office box as his damaged property, the report said. GAO investigators estimated $1 billion of FEMA's $6.3 billion in relief payments were made to people who submitted invalid registrations, including incorrect Social Security numbers and bogus addresses. Because the figures were calculated using a random sample of 247 applications out of about 2.6 million submitted, however, the GAO said the amount could range from $600 million to as much as $1.4 billion. The GAO also found that FEMA lost track of 750 debit cards, worth a total of $1.5 million. After inquiries from the GAO, FEMA recovered about half of that money, which had not been distributed by JPMorgan Chase, the bank hired to run the program. The agency still cannot account for 381 cards, worth about $760,000 total, which JPMorgan Chase says it distributed, according to the GAO. Daniels said FEMA has strengthened its internal controls, including a new system to immediately check the validity of Social Security numbers of applicants. The agency also is referring fraud cases to the Justice Department, she said. Daniels said FEMA would no longer distribute debit cards to disaster victims. Double-dipping unaccounted forGreg Kutz, a GAO forensic auditor, told lawmakers that while the "vast majority" of the money FEMA distributed went to people who should have received it, "a substantial amount of individuals took advantage of the opportunity to commit fraud." Kutz said in one case, a "fraudster" in West Virginia received a rental assistance check by using the address of a New Orleans cemetery. And when the GAO tested FEMA's systems by submitting an application with an address that was a vacant lot, FEMA not only paid $2,358 in rental assistance but also sent a letter "saying that their inspection showed damage to our home and personal property," Kutz said. In one case, FEMA paid $8,000 for an aid recipient to stay in a resort hotel in Honolulu, Hawaii, from October to December 2005, while providing $5,000 in rental assistance, Kutz said. In fact, the recipient should not have gotten any money because he lived in North Carolina when the hurricane hit, he said. The GAO said the double-dipping happened because FEMA did not require hotels to collect Social Security numbers and FEMA registration information. Without that information, FEMA could not verify if people were staying in hotels when they applied for rental assistance. Thus, GAO auditors said they could not determine how many people might have double-dipped -- or how much it cost the government. Copyright 2006 CNN. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed. Associated Press contributed to this report. 
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