- Flood victims settle with Treasury on an erroneous disaster payment
- A senator releases a "hold" on nominations he was using as leverage
- FEMA admitted its mistake, but settlement details are not revealed
- Steps are being taken to reduce such errors, officials say
The Treasury Department has agreed to settle with a couple who had been asked to return a $27,000 disaster payment the government said it should not have granted them.
The terms of the settlement were not revealed, but a U.S. senator who intervened said he hopes the couple will not have to repay the money they had accepted in good faith.
The Federal Emergency Management Agency admitted it made the mistake, but said the law requires it to try to recover money paid in error.
The problem was that Gary Guglielmana and his wife had already spent the money rebuilding after a 2008 flood around their home at Mountain View, Arkansas, by the time FEMA realized their area was not qualified to receive such aid.
U.S. Senator Mark Pryor, D-Arkansas, intervened earlier this year when FEMA handed the collection over to the Internal Revenue Service, which in turn added $10,000 in penalties, interest, and other fees.
Frustrated that the couple was left to answer for the government's mistake, Pryor in recent days placed a hold on seven candidates nominated for high-level positions at the Treasury Department, the agency that oversees the IRS.
"The leverage came at a good time," Pryor told CNN. A hold is an informal procedure allowing senators to halt the nominating process if the lawmaker has concerns. In this case, the concerns were not about the candidates, but about what Pryor considered a matter of fairness.
"This was all on FEMA. The people didn't know," Pryor told CNN. "They had the government in their house, they're walking through, they're filling out paperwork," and the officials said "you're entitled to this money."
Three years later, Pryor said, "FEMA sends them a letter and says, 'You weren't eligible in the first place," and began trying to take the money back.
Pryor said he believes hundreds of other claims across the country could be subject to the same collection process.
"This is really a mistake that this administration inherited from the previous FEMA administration," the senator said. Since then, he said, FEMA has improved its training and the validation process for claims.
"This FEMA is still trying to clean up from the last FEMA's mess," Pryor said.
FEMA officials Wednesday insisted the agency was willing to negotiate with the couple, and any others, before a case involving a mistaken payment is sent for collection.
FEMA spokeswoman Rachel Racusen told CNN that "since last January, FEMA has worked closely with Senator Pryor's office and other stakeholders to explain the recoupment process we are required by law to undertake, and the options survivors have to appeal their case, request a payment plan or seek debt forgiveness."
Pryor earlier told CNN the chance for negotiation closed when FEMA turned the collection over to the IRS.
After talks last week with Treasury Secretary Timothy Geithner, Pryor released two of the seven nominations, telling CNN he was satisfied Treasury officials were working to address his concerns. He now has released the other five after word that the department had settled with the couple.
A Treasury Department spokesman, Matthew Anderson, confirmed the settlement Wednesday and told CNN that it was a "compromise amount." He cited privacy law in declining to reveal how much it was.
Pryor last week had said he hoped "that the debt will either go away completely, or that it'll be a very small amount, hopefully some sort of token payment, and it'll be all square."
FEMA Deputy Director Rich Serino said that in the time since the Arkansas floods, the agency has taken steps to reduce the number of errors made in the application review process. Serino, testifying last week before a hearing the Arkansas senator held, said the agency fielded thousands of calls daily from flood victims in August during the aftermath of Hurricane Irene in Vermont, and the system of quickly granting aid has worked well.
Confirming that assessment Wednesday, Rep. Peter Welch of Vermont said, "Our experience is that they've been good so far," with no reports of mistaken payments in his state. Welch had called together an "Irene Coalition" of congressional lawmakers in the affected region, to coordinate between state relief efforts and those of FEMA.
Racusen, the agency spokeswoman, said that "FEMA has made it a priority to significantly reduce the percentage of improper payments, which in FY 2010 was less than 1%, on average."
Pryor said he plans to consider legislation that would treat disaster payments as a contract, under which the government would not try to take the money back when it was granted in error on an otherwise good-faith, honest application.
In the Arkansas case, the couple lives in a county that was not part of FEMA's disaster program, a prerequisite a claims processor should have confirmed before the money was approved.