The Federal Emergency Management Agency awarded $250 million in disaster assistance to more than 29,000 superstorm Sandy victims who may have received duplicate payouts from private insurance in violation of federal law.
Many of the cases included payouts for damaged vehicles where both FEMA and car insurers paid claims, according to a report released this month by the inspector general for the Department of Homeland Security, which oversees the agency.
"FEMA needs to solve this insurance verification problem as soon as possible," Inspector General John Roth said in a news release. "Until it does, federal funds invested in disaster relief will continue to be at risk of widespread fraud, waste and abuse."
Other aid recipients who received duplicate benefits were homeowners, the report said.
Fifty-one cases totaling about $1.2 million were referred to FEMA's fraud and investigations division, as well as a federal Sandy funding oversight board.
"It's an astonishing number," said Robert Hartwig, president and economist of Insurance Information Institute, a nonprofit in Manhattan funded by the insurance industry.
By law, federal disaster grant money cannot be used to cover costs that would otherwise be paid by private insurance, loans or other assistance programs. It's considered a duplication of benefits, which is barred by the Stafford Act.
The auditors said FEMA relies solely on applicants to provide insurance information and does not verify when people say they do not have private homeowners or auto insurance. And despite federal regulations requiring FEMA to have a verification process, the agency has been unable to do so.
In a response to the audit, FEMA said it had researched using private sector insurance databases but they are limited because participation is voluntary and not all companies provide information. "A comprehensive database does not exist for FEMA to independently verify applicants' insurance coverage, which is an issue especially when applicants self-certify as having no insurance," the agency said.
In the aftermath of Sandy, FEMA paid out $1.45 billion in aid to more than 180,000 households in New York, New Jersey, Connecticut, Rhode Island and Maryland. If the inspector general's report is correct in determining duplicate benefits were paid, that would mean nearly 18 percent of aid money was improperly paid.
But FEMA thus far has sought only to recoup $23.9 million from 3,644 households that the agency believe it overpaid or improperly paid.
FEMA spokesman Rafael Lemaitre would not say whether the agency planned to reopen its review of cases or whether it agreed with the inspector general's conclusions.
The agency did say it would revise procedures to better inform people that taking duplicate money is prohibited.
"We agree we can do more during the application process to stress to applicants their responsibility to disclose insurance information, but it must balance this with the ease of use of the application process," Lemaitre said in a statement.
After Sandy, FEMA's individual assistance program could grant up to $31,900 to help with rental assistance, replace damaged property, contents of a home and other costs. It's meant to be a quick way to get money into the hands of disaster survivors to help with immediate needs.
Other rebuilding programs follow, such as Build it Back in New York City and the state's New York Rising. Both of those programs verify insurance to ensure there are no improper payments. NY Rising spokeswoman Barbara Brancaccio said the agency matches grant applications to a database containing private insurance policy information, as well as policies written under the National Flood Insurance Program, which is overseen by the federal government and available to homeowners in flood zones.
"This is not an issue directly related to insurance," Hartwig said. "It is a shortcoming of the federal aid process. . . . There needs to be much tighter controls when the next significant event occurs."