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Highlights

Extraordinary recent flood events raise serious questions about the solvency of the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA). The NFIP is largely implemented by private insurance companies that sell and service policies and adjust claims under the Write Your Own (WYO) Program. This report, prepared under the authority of the Comptroller General, examines (1) how much FEMA paid the WYO companies in recent years for operating costs and how FEMA determined payment amounts; (2) how FEMA's approach to determining operating costs assures that payments are reasonable estimates of companies' expenses; and (3) how FEMA assures that financial and management controls are in place for the WYO program and operate as intended. To do these assessments, GAO interviewed FEMA and insurance officials, and analyzed statutes, regulations, payment data, methodologies, and audits of WYO companies.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Homeland Security To improve financial accountability over payments the NFIP makes to the WYO insurance companies, to strengthen controls over expenditures of policyholders' and taxpayers' dollars, and to provide assurance that payments made to the WYO insurance companies are proper and in accordance with program requirements, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to ensure that its approach to establishing a schedule of operating costs is based on a reasonable estimate of actual expenses by taking such actions as FEMA deems necessary such as working with NAIC to ensure consistency in the way all WYO insurance companies compile and report data on expenses allocated to their federal flood business.
Closed - Implemented
According to officials, the Federal Emergency Management Agency (FEMA) is working with the National Association of Insurance Commissioners (NAIC) and has obtained expense data submitted by all insurance companies to the NAIC in February 2010. They said FEMA has begun the preliminary analysis of this data to assure its completeness and will work with the NAIC to assure that the Write Your Own companies reliably and accurately report their Federal Flood data. Initial analyses are anticipated to be completed by October 2010. However, they said it might take one or two more years before all companies are consistently reporting the Federal Flood expenses.
Department of Homeland Security To improve financial accountability over payments the NFIP makes to the WYO insurance companies, to strengthen controls over expenditures of policyholders' and taxpayers' dollars, and to provide assurance that payments made to the WYO insurance companies are proper and in accordance with program requirements, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to ensure that biennial financial statement audits of WYO insurance companies are conducted by independent CPA firms as required by FEMA regulation, and that FEMA reviews the audits to ensure that payments made are proper and in accordance with program requirements.
Closed - Implemented
In April 2010, Federal Emergency Management Agency (FEMA) officials said they had developed a new system to track all Write Your Own (WYO) Financial Control Plan activities and monitor company performance. They said that, in response to our recommendation, they monitor, review and follow-up on all WYO company biennial audits. They offered to provide copies of spreadsheets that track biennial report submissions for 2008,2009, and 2010. The GAO team responsible for the fiscal year 2010 financial management review of the National Flood Insurance Program (GAO-10-66) is working with FEMA to verify that the database established to track biennial audits and operational reviews, and rate companies is fully operational in order to close their recommendation that FEMA review the results of biennial audits, as well as operational reviews, and claim reinspections. Therefore, we consider our prior recommendation closed as implemented.

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