Federal Emergency Management Agency:

Weaknesses Exist in the Cerro Grande Fire Assistance Claim Validation Process

GAO-01-848: Published: Jul 13, 2001. Publicly Released: Jul 13, 2001.

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While the federal government has accepted responsibility for the Cerro Grande fire and enacted the Cerro Grande Fire Assistance Act (CGFAA) to expeditiously compensate those injured by the fire, it is incumbent on the Federal Emergency Management Agency (FEMA) as the administering agency to establish an effective system of internal control to safeguard the funds appropriated for the Cerro Grande program. The act lays a framework to establish such accountability by requiring FEMA to determine that victims' injuries and losses occurred as result of the fire and to determine the amount of allowed compensation. FEMA has established a process to review all claims submitted. However, this process as currently implemented does not provide adequate assurance that only valid claims were paid or that the amounts paid were reasonable because there is insufficient documentation of the steps taken to determine the validity and reasonableness of the claim amounts. In addition, policies and procedures for paying claims have either not yet been developed or have not been formally and centrally documented.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On August 19, 2002, OCGFC provided its corrective action plan, which states that it has implemented new documentation procedures and renegotiated its claims processing contract to provide greater detail in documenting claims reviewers' action to substantiate losses. The contract was revised in Task Order number 2. This task order required that certain documentation or attempts the claims reviewer made to obtain documentation be placed in each claim file. The task order also required evidence of supervisory review, with the signatures of the claims manager and approving official on the Approval for Payment form. Based on the results of tests performed as part of our fiscal year 2002 audit, we found that all claim files submitted after implementation of the new task order contained the required documentation and supervisory review.

    Recommendation: In order to strengthen the claim review and approval process, the Director of FEMA should direct the Office of Cerro Grande Fire Claims (OCGFC) to require claims reviewers to document all steps and procedures they perform to determine the validity of a claim and the amount recommended for payment.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response

  2. Status: Closed - Implemented

    Comments: In OCGFC's action plan, submitted to GAO on August 19, 2002, OCGFC stated that it has developed its policy manual. In April 2002, FEMA revised its guidelines to ensure that all existing informal guidance was incorporated into a set of formally documented policies and procedures and distributed them to all staff responsible for the claim review and award determination process. FEMA stated that the revised guidelines were distributed to all staff and that it now has a process to review its policy manual monthly and incorporate new policies or policy changes into it as needed. As part of our fiscal year 2002 audit, we reviewed the new guidelines and verified that the previously informal and unofficial policies that the claim reviewers used had been incorporated.

    Recommendation: In order to strengthen the claim review and approval process, the Director of FEMA should direct OCGFC to review and consolidate all existing informal guidance and incorporate this guidance into a set of formally documented policies and procedures that are regularly updated and distributed to all staff responsible for the claims review and award determination process.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response

  3. Status: Closed - Implemented

    Comments: In OCGFC's corrective action plan that was provided to GAO on August 19, 2002, OCGFC stated that it has procedures in place to formulate policy when a claim is identified that cannot be resolved under pre-existing policy and procedures. FEMA developed various policies and procedures where none previously existed. Policies and procedures were also developed to address the unique aspects of compensation under the Cerro Grande Fire Assistance Act (CGFAA). As part of our fiscal year 2002 audit, we reviewed the new guidelines and verified that such policies and procedures were incorporated.

    Recommendation: In order to strengthen the claim review and approval process, the Director of FEMA should direct OCGFC to establish standardized policies and procedures to address claims for which no policy currently exists as expediently as possible.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response

  4. Status: Closed - Implemented

    Comments: OCGFC officials stated that in the fall of 2001, an actuarial study was contracted and performed to determine whether sufficient funds were available to pay all claims. The study estimated the OCGFC's claims total claim liability would be increased by $54 million to $491 million. OCGFC received additional data and claims since the study and revised its estimate on the total claims to $535 million, an added claims increase of $44 million. As a result of these estimates, FEMA requested an additional $80 million appropriation to cover claims for the remainder of the program in March 2002.

    Recommendation: In order to strengthen the claim review and approval process, the Director of FEMA should direct OCGFC to, based on the information currently available, re-estimate the remaining claims to determine if there is insufficient funding available to fulfill the objectives of the CGFAA. In the future, update the estimate as necessary to reflect new claims information or changes in key policies and procedures.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response

 

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