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Inspector: Millions in improper Katrina, Rita aid not yet recovered

By Mike M. Ahlers, CNN
A man on December 1, 2005, walks past debris left by Hurricane Katrina in New Orleans, Louisiana.
A man on December 1, 2005, walks past debris left by Hurricane Katrina in New Orleans, Louisiana.
  • FEMA disbursed more than $7 billion in aid after hurricanes Katrina and Rita hit in 2005
  • Later, FEMA estimated that about $643 million were improper payments
  • FEMA cited human error and fraud as the causes of improper payments
  • An inspector says FEMA "has not given final approval" on a process to recoup the money

Washington (CNN) -- The Federal Emergency Management Agency has not attempted to recoup some $643 million in payments that were improperly given to 160,000 individuals for housing and other aid following Hurricanes Katrina and Rita, an independent government investigator says.

In a letter to FEMA Administrator Craig Fugate, Inspector General Richard Skinner wrote that a federal court in 2008 ordered FEMA to change its process for recovering the money. But Monday, three years after that court ruling, "These payments remain uncollected because your office has not given final approval of a new recoupment process," Skinner wrote.

Following the back-to-back storms in 2005, FEMA disbursed more than $7 billion in assistance to survivors. At the time, the government placed a premium on distributing the money quickly because of the dire needs of residents of the Gulf Coast. The money was intended for rental assistance, home repairs, housing replacement, moving costs, medical costs and other individual assistance.

But in the storm's wake, FEMA estimated that approximately $643 million of the payments were improper due to human error and fraud.

Early efforts to recover the money were themselves flawed, and in June of 2007, a federal judge ordered FEMA to discontinue its debt collection until changes were made to the process. FEMA immediately complied, Skinner wrote, and in 2008 the agency announced that it was stopping its recoupment of improper disaster payments until it could establish new procedures. FEMA also announced it would review each case of suspected fraud to confirm the validity of the debt.

But, Skinner wrote, FEMA's new recovery process has been awaiting approval by the administrator since late 2008. While FEMA has established a strategy, identified the necessary staff and initiated a review of the 160,000 cases, "your office has not instructed the responsible parties to restart the recoupment process," Skinner wrote to Fugate. "Further delay only makes aging debts more difficult to collect," Skinner wrote.

In a statement to CNN, FEMA spokeswoman Rachel Racusen said FEMA is "committed to being responsible stewards of taxpayer dollars."

"Not only do we agree with the Inspector General's recommendation to recoup disaster assistance payments that were improperly disbursed... but we are and have been actively working with state and local leadership and other stakeholders to finalize plans to recoup misspent funds, while continuing to support Gulf Coast communities as they recover," she said.

"Under our current leadership, we have worked diligently to put protections in place that will safeguard against fraud and abuse, significantly reduce the percentage of improper payments, and develop a fair, open and transparent process for recovering these payments," Racusen said.

Racusen said she did not have a date for when Fugate would authorize collection of debts, but said, "We are well underway in taking the steps we need to begin this new process."

In Skinner's letter to Fugate, Skinner wrote Fugate should "promptly take action" to recover the money. Noting that President Barack Obama signed a presidential memorandum in March of 2010 asking departments to identify and reclaim misspent funds, Skinner said Fugate should "promptly authorize the collection of this debt," he wrote.