FEMA Did Not Implement Controls to Prevent More than $3.7 Billion in Improper Payments — DHS OIG (OIG-22-69)
Summary
Audit report OIG-22-69 from the Department of Homeland Security Office of Inspector General, dated September 16, 2022, addressed by Inspector General Joseph V. Cuffari to FEMA Administrator Deanne Criswell. The report examines FEMA's Lost Wages Assistance (LWA) program, which a presidential memorandum of August 8, 2020 directed FEMA to implement with up to $44 billion. It finds that FEMA did not implement controls that may have prevented 21 state workforce agencies from distributing more than $3.7 billion in improper payments, including $3.3 billion flagged as potentially fraudulent, $21.6 million in overpayments and $403 million paid without required self-certifications. The report makes seven recommendations; the memorandum states FEMA concurred with three. Appendix C breaks down improper payments by state, totaling $3,744,943,964.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
FEMA Did Not Implement
Controls to Prevent More
than $3.7 Billion in
Improper Payments from
the Lost Wages Assistance
Program
September 16, 2022
OIG-22-69
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Washington, DC 20528 / www.oig.dhs.gov
September 1, 2022
MEMORANDUM FOR: The Honorable Deanne Criswell
Administrator
Federal Emergency Management Agency
FROM: Joseph V. Cuffari, Ph.D. Digitally signed by
Inspector General
JOSEPH V JOSEPH V CUFFARI
Date: 2022.09.15
CUFFARI 17:04:51 -04'00'
SUBJECT: FEMA Did Not Implement Controls to Prevent More than
$3.7 Billion in Improper Payments from the Lost Wages
Assistance Program
Attached for your action is our final report, FEMA Did Not Implement Controls to
Prevent More than $3.7 Billion in Improper Payments from the Lost Wages
Assistance Program. We incorporated the formal comments your office
provided.
The report contains seven recommendations aimed at improving the Federal
Emergency Management Agency’s (FEMA) Lost Wages Assistance program.
Your office concurred with three recommendations. Based on the information
provided in your responses to the draft report, we consider six
recommendations to be open and unresolved, and one recommendation, open
and resolved. As prescribed by the Department of Homeland Security Directive
077-01, Follow-Up and Resolutions for the Office of Inspector General Report
Recommendations, within 90 days of the date of this memorandum, please
provide our office with a written response that includes your (1) agreement or
disagreement, (2) corrective action plan, and (3) target completion date for each
recommendation. Also, please include responsible parties and any other
supporting documentation necessary to inform us about the current status of
each recommendation. Until your response is received and evaluated, six
recommendations will be considered open and unresolved and one will be open
and resolved. Please send your response or closure request to
OIGAuditsFollowup@oig.dhs.gov.
Consistent with our responsibility under the Inspector General Act of 1978, as
amended we will provide copies of our report to congressional committees with
oversight and appropriation responsibility over the Department of Homeland
Security. We will post the final report on our website for public dissemination.
Please call me with any questions, or your staff may contact Bruce Miller,
Deputy Inspector General for Audits, at (202) 981-6000.
www.oig.dhs.gov
DHS OIG HIGHLIGHTS
FEMA Did Not Implement Controls to Prevent More
than $3.7 Billion in Improper Payments from the
Lost Wages Assistance Program
September 16, 2022 What We Found
Why We Did The Federal Emergency Management Agency (FEMA) did not
implement controls that may have prevented the 21 state
This Audit workforce agencies (SWA) in our review from distributing more
than $3.7 billion in improper payments through its Lost
On August 8, 2020, the Wages Assistance (LWA) program. These 21 SWAs distributed
President directed FEMA to more than 80 percent of the $36.5 billion of LWA —
implement a $44 billion approximately $30 billion in total — and later detected
LWA program to ease the $3.3 billion in potentially fraudulent payments. In addition,
economic burden for we identified $21.6 million in overpayments and $403 million
people who lost work in payments made without obtaining claimants’ required self-
because of coronavirus certifications of eligibility for LWA.
disease 2019 (COVID-19).
Fifty-four SWAs offered This occurred because FEMA launched the LWA program in
LWA to their residents 11 days, in response to the unprecedented pandemic, without
during the 6 weeks the developing and implementing clear guidance for the program
program was active. or verifying and monitoring the SWAs’ controls to ensure they
prevented and mitigated improper payments. Instead, FEMA
We conducted this audit to integrated LWA into SWAs’ unemployment insurance (UI)
determine to what extent program. Many SWAs did not have sufficient controls to
FEMA ensured that states prevent fraudulent activities or overpayments, and they relied
and territories distributed on self-certifications. Despite repeated warnings from the
LWA to eligible recipients. Department of Labor and our office that self-certifications are
not reliably accurate and may lead to improper payments,
What We FEMA did not require controls to mitigate the unreliability of
self-certifications to determine claimants’ eligibility.
Recommend
By relying on the states’ UI programs (which are susceptible to
We made seven fraud) to determine claimants’ eligibility and distribute LWA,
recommendations for FEMA lost an opportunity to safeguard $36.5 billion in
improving FEMA’s disbursed LWA, directly affecting its ability to respond to
management of its Federal future emergencies and disasters. As a result, we question
assistance programs and the more than $3.7 billion in improper payments distributed
for recovering LWA by the 21 SWAs that we reviewed.
improper payments.
For Further Information: FEMA Response
Contact our Office of Public Affairs
at (202) 981-6000, or email us at
DHS-OIG.OfficePublicAffairs@oig.dhs.gov FEMA concurred with three of the seven recommendations.
Appendix B contains FEMA’s complete management response.
www.oig.dhs.gov OIG-22-69
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Table of Contents
Background .................................................................................................... 1
Results of Audit .............................................................................................. 3
FEMA Did Not Implement Controls to Prevent More than $3.7 Billion in
Improper Payments................................................................................ 3
Conclusion.................................................................................................... 10
Recommendations ......................................................................................... 11
Management Comments and OIG Analysis .................................................... 11
Appendixes
Appendix A: Objective, Scope, and Methodology .................................. 17
Appendix B: FEMA Comments on the Draft Report .............................. 20
Appendix C: Breakdown of Improper Payments .................................... 27
Appendix D: Report Distribution .......................................................... 28
Abbreviations
CARES Act Coronavirus Aid, Relief, and Economic Security Act
C.F.R. Code of Federal Regulations
COVID-19 coronavirus disease 2019
DOL U.S. Department of Labor
FEMA Federal Emergency Management Agency
LWA Lost Wages Assistance
NASWA National Association of State Workforce Agencies
SWA state workforce agency
U.S.C. United States Code
UI unemployment insurance
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OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Background
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act),1 which provided unemployment insurance
(UI) benefits to individuals who lost work due to the coronavirus disease 2019
(COVID-19) pandemic. On August 8, 2020, the President issued a
memorandum directing the Federal Emergency Management Agency (FEMA) to
provide up to $44 billion in lost wages assistance (LWA) from the U.S.
Department of Homeland Security Disaster Relief Fund to individuals
unemployed or partially unemployed because of the pandemic. 2 This program
was authorized under the Other Needs Assistance category of FEMA’s
Individuals and Households Program. 3
Obtaining Lost Wages Assistance
FEMA did not make LWA payments directly to claimants. Instead, FEMA
provided funding to the state workforce agencies (SWA) of the participating
state and territories, which delivered the LWA in conjunction with the SWAs’
existing UI systems, as required by the Presidential Memorandum.
Oversight and direction of the national UI program falls under the purview of
the U.S. Department of Labor (DOL). 4 The DOL Office of Inspector General
conducts independent oversight of the UI program through audits to
strengthen the integrity and efficiency of the program and criminal
investigations to detect and deter large-scale fraud.
For a state or territory to participate in the LWA program, its SWA applied to
FEMA for a grant. As part of the application, the SWA completed a state
administrative plan, based on a FEMA template, and submitted the plan to
FEMA for approval. The administrative plan described the policies and
procedures the SWA would use to deliver assistance to eligible individuals.
Additionally, each SWA was required to collect claimants’ self-certifications that
they were unemployed due to the COVID-19 pandemic. FEMA approved LWA
grant applications totaling more than $37.3 billion in grant obligations for
1 Pub. L. No. 116-136.
2 Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster
Declarations Related to Coronavirus Disease 2019, Aug. 8, 2020.
3 According to Title 42, United States Code (U.S.C.) § 5174(a)(1), after a disaster, the Individuals
and Households Program provides financial assistance to cover necessary expenses and
serious needs not paid by insurance or other sources.
4 Congress created the Federal-State UI program in 1935, allowing each state to establish its
own laws in accordance with broad Federal requirements.
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Department of Homeland Security
49 states, 4 territories, and the District of Columbia. 5 As of April 2022, $36.5
billion was expended by the SWAs.
The program paid for a maximum of 6 weeks, from the week ending August 1,
2020, through September 5, 2020, and paid eligible claimants $300 or $400 in
weekly benefits.6 Over the 6-week program period, claimants received weekly
LWA to supplement their UI benefits. Claimants did not need to apply
separately for the LWA program to receive the supplemental benefits. Instead,
they only needed to receive at least $100 per week from one of nine existing UI
programs7 and to self-certify that they were unemployed or partially
unemployed due to disruptions caused by the pandemic. Eligible claimants
could receive as much as $1,800 in LWA.
Fraudulent Unemployment Insurance Claims and Identity Theft
Since the enactment of the CARES Act, states have experienced a surge in
fraudulent unemployment claims involving cyber scams and identity theft.
Many of these claims are filed by organized crime rings using stolen identities
accessed or purchased from past data breaches, most of which involved larger
criminal efforts unrelated to unemployment. Criminals use these stolen
identities to fraudulently collect benefits across multiple states.
According to the DOL, most victims of UI program identity theft are unaware
that claims have been filed or that benefits have been collected using their
identities. Many people only find out they are the victim of UI program identity
theft when they receive documentation in the mail, such as UI benefit
payments or state-issued 1099-G tax forms that are incorrect or reflect benefits
not received.8
We conducted this audit to determine to what extent FEMA ensured that states
and territories distributed supplemental LWA to eligible recipients.
5 South Dakota was the only state that did not apply for or participate in the LWA program.
The U.S. territories that participated were the Commonwealth of the Northern Mariana Islands,
Guam, Puerto Rico, and the U.S. Virgin Islands.
6 The Commonwealth of the Northern Mariana Islands, Guam, Kentucky, and Montana elected
to provide $400 in weekly LWA benefits. All other participating States and territories elected to
provide $300.
7 Eligible UI programs included standard Unemployment Compensation (UC), UC for Federal
Employees, UC for Ex‑Service Members, Pandemic Emergency Unemployment Compensation,
Pandemic Unemployment Assistance, Extended Benefits, Short-Time Compensation, Trade
Readjustment Allowance, and Payments under the Self-Employment Assistance.
8 U.S. Department of Labor, US Department of Labor Launches Website for Victims of
Unemployment Fraud (Press Release), March 22, 2021.
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Results of Audit
FEMA did not implement controls that may have prevented the 21 SWAs in our
review from distributing more than $3.7 billion in improper payments through
its LWA program. These 21 SWAs distributed more than 80 percent of the
$36.5 billion of LWA — approximately $30 billion in total — and later detected
$3.3 billion in potentially fraudulent payments. In addition, we identified
$21.6 million in overpayments and $403 million in payments made without
obtaining claimants’ required self-certifications of eligibility for LWA.
This occurred because FEMA launched the LWA program in 11 days, in
response to the unprecedented pandemic, without developing and
implementing clear guidance for the program or verifying and monitoring the
SWAs’ controls to ensure they prevented and mitigated improper payments.
Instead, FEMA integrated LWA into SWAs’ UI program. Many SWAs did not
have sufficient controls to prevent fraudulent activities or overpayments, and
they relied on self-certifications. Despite repeated warnings from the
Department of Labor and our office that self-certifications are not reliably
accurate and may lead to improper payments, FEMA did not require controls to
mitigate the unreliability of self-certifications to determine claimants’ eligibility.
By relying on the states’ UI programs (which are susceptible to fraud) to
determine claimants’ eligibility and distribute LWA, FEMA lost an opportunity
to safeguard $36.5 billion in disbursed LWA, directly affecting its ability to
respond to future emergencies and disasters. As a result, we question the
more than $3.7 billion in improper payments distributed by the 21 SWAs that
we reviewed
FEMA Did Not Implement Controls to Prevent More than $3.7
Billion in Improper Payments
FEMA did not prevent the 21 SWAs we reviewed from distributing more than
$3.7 billion in improper payments for the LWA program. According to Office of
Management and Budget (OMB) Circular A-123, Management’s Responsibility
for Enterprise Risk Management and Internal Control, Appendix C (June 26,
2018),9 “An improper payment is a payment that should not have been made or
that was made in an incorrect amount under statutory, contractual,
administrative, or other legally applicable requirements.” 10 In addition,
Appendix C states, “Improper payments fall into three categories: intentional
fraud and abuse, unintentional payment errors, and instances where the
9 We relied on the version of Appendix C that was in effect at all relevant times during our
review period.
10 OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and
Internal Control, Appendix C, June 26, 2018, p. 8.
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documentation for a payment is so insufficient that the reviewer is unable to
discern whether a payment is proper.”!!
See Table 1 for a breakdown of improper payments by the number of SWAs
affected, amounts paid, and number of recipients who received the benefit. See
Appendix C for a breakdown of improper payments by SWA.
Table 1. Total Improper Payment Amounts and Recipients
Improper
Payment No. of SWAs : No: of Total Payment
Recipients
Type
Potential 20 2,290,844 $3,320,233,495
Fraud
Overpayments 14 14,801 21,576,048
Missing Self- ia 294,762 403,134,421
Certifications
Total Improper Payments $3,744,943,964
Source: Department of Homeland Security Office of Inspector General analysis of SWA UI and
LWA data
Potential Fraud: Of the $3.7 billion in improper payments for LWA, FEMA did
not implement controls to prevent the 21 SWAs from disbursing more than
$3.3 billion in payments that the SWAs later flagged as potentially fraudulent.
According to the Robert T. Stafford Disaster Relief and Emergency Assistance
Act (Stafford Act), FEMA must institute
adequate policies and internal controls to
prevent waste, fraud, and abuse before e e
approving applications for Other Needs S 3 e 3 B t li re) n
Assistance programs. !?
In addition, FEMA did not ensure SWAs in potentially fraudulent
promptly reported allegations of fraud to LWA payments
the DHS OIG Office of Investigations as
required by the Code of Federal
Regulations, which states that DHS grant recipients must promptly report
allegations of fraud, waste, and abuse to DHS OIG and, if requested,
investigate such allegations independently or in conjunction with DHS OIG. !8
1 Id. at 5.
12 42 U.S.C. § 5174(f)(3)(D).
13 44 Code of Federal Regulations (C.F.R.) § 206.120(d)(3)(ix) and (x).
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OFFICE OF INSPECTOR GENERAL
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Due to the immediate and serious threat of fraud, we issued a management
alert14 with recommendations to correct this issue.
Overpayments: Fourteen of the 21 SWAs made overpayments totaling
$21.6 million to 14,801 claimants. The memorandum authorizing LWA
provides up to $300 per week in LWA to eligible claimants beginning the week
ending August 1, 2020, and ending no later than the week ending December
6, 2020. Additionally, FEMA approved 6 weeks of full LWA funding from the
week ending August 1, 2020, through September 5, 2020 — a maximum
Federal contribution of $1,800 per claimant. 15 We determined that states paid
these claimants more than the maximum allowable amount, with the highest
payment total equaling $30,600.
Missing Self-Certifications: Eleven of the 21 SWAs distributed $403 million in
improper payments to 294,762 claimants for whom the SWAs could not
produce the required self-certifications for eligibility. According to the
Presidential Memorandum, claimants must self-certify that they were
unemployed or partially unemployed due to disruptions caused by the COVID-
19 pandemic.
FEMA’s Quick Launch of LWA Led to $3.7 Billion in Improper Payments
FEMA launched the LWA program without developing and implementing clear
guidance for the program or verifying and monitoring the SWAs’ controls to
ensure they prevented and mitigated improper payments. As shown in Figure
1, FEMA obligated the first LWA grant funds within 11 days of being made
aware of the President’s intention to further assist individuals unemployed as a
result of COVID-19.
14 Management Alert: Reporting Suspected Fraud of Lost Wages Assistance, OIG-22-28, Feb. 28,
2022.
15 Six weeks of benefits were approved for all SWAs except for the Commonwealth of the
Northern Mariana Islands, which requested 3 weeks of benefits; Florida requested 4 weeks; and
Idaho requested 5 weeks of benefits for the LWA program.
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Department of Homeland Security
August 4
FEMA senior
leadership
learns of the
presidential
memorandum
for the LWA
program.
Days Elapsed:
0
August 5 - 7
FEMA provides
input on the
memorandum.
Days Elapsed:
1
August 8
The President
signs and
issues the
memorandum
authorizing the
LWA program.
Days Elapsed:
4
August 9
FEMA issues
initial guidance
for
implementing
the LWA
program.
Days Elapsed:
5
August 12
FEMA receives
the first LWA
grant
application.
Days Elapsed:
8
August 14
FEMA awards
the first LWA
grant and
updates
LWA program
guidance.
Days Elapsed:
10
August 15
FEMA obligates
funds for the
first LWA grant
awards.
Days Elapsed:
11
Source: DHS OIG analysis of FEMA milestones
According to FEMA officials, their goal was to expedite LWA benefits by fitting
LWA program requirements into the SWAs’ existing UI processes.
Consequently, FEMA relied on the SWAs’ existing UI processes to determine
claimants’ eligibility and issue payments even though UI programs, prior to
LWA, had an 11 percent improper payment rate — one of the highest rates of
all Government programs.!© Due to the high probability of improper payments,
DOL has warned repeatedly that state UI controls, including self-certifications
of eligibility, might not be effective at preventing improper payments.
Self-Certifications Are Unreliable for Verifying Eligibility
Before FEMA implemented the LWA program, DOL OIG reported that the
Pandemic Unemployment Assistance program!’ was susceptible to fraud,
concluding that solely relying on self-certifications leads to increased improper
16 Advisory Report: CARES Act: Initial Areas of Concern Regarding Implementation of
Unemployment Insurance Provisions, DOL OIG Report No. 19-20-001-03-315, April 21, 2020, p. 10.
17 The Pandemic Unemployment Assistance program was created as part of the CARES Act in
March 2020 to assist individuals who would not normally be eligible for UI benefits (i.e., self-
employed people, independent contractors, and freelancers). To receive Pandemic
Unemployment Assistance program benefits, claimants merely needed to self-certify they were
unemployed or unable to work because of the pandemic and that they did not qualify for
regular UI benefits under Federal law.
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payments.18 As DOL OIG explained in its report, Pandemic Unemployment
Assistance claimants generally only needed to “check a box” to receive benefits.
DOL OIG also issued an advisory report 19 raising concerns over the
implementation of the CARES Act’s UI provisions. DOL OIG’s concerns covered
areas such as initial eligibility determinations, benefit amounts, improper
payment detection and recovery, and program monitoring. The findings
represent years of oversight work related to DOL’s UI oversight program,
including the use of prior stimulus funds and DOL’s response to past natural
disasters. DOL OIG’s findings are directly related to the LWA program because
claimants need to be eligible for state UI programs to qualify for LWA.
The use of self-certifications cannot be written off as a one-time pandemic-era
solution that will not be relevant in future crises. We have issued two recent
reports warning FEMA that relying on self-certifications without requiring
documentation and verification may lead to susceptibility to fraudulent or
improper payments.20 Further, after FEMA administered the LWA program,
the Small Business Administration’s OIG reported that reliance on self-
certifications for a similar pandemic program, the Economic Injury Disaster
Loan program, resulted in entities receiving millions in potentially ineligible
benefits.21 Finally, the Pandemic Response Accountability Committee reported
in February 2022 that ambiguous Federal guidance about administering UI
payments to claimants who self-certify unemployment has hampered the
SWAs’ ability to prevent UI fraud. 22
FEMA Did Not Assess Fraud Risk before Implementing the LWA Program
Although UI program risk is well documented, FEMA did not conduct the
necessary internal reviews or studies on fraudulent activity in UI programs
before launching its LWA program. If it had, FEMA would have been better
positioned to identify potential areas of concern in UI programs and reduce
fraud in the LWA program.
A FEMA official informed us that after obtaining the Presidential Memorandum,
18 Alert Memorandum: The Pandemic Unemployment Assistance Program Needs Proactive
Measures to Detect and Prevent Improper Payments and Fraud, DOL OIG Report No. 19-20-002-
03-315, May 26, 2020.
19 Advisory Report: CARES Act: Initial Areas of Concern Regarding Implementation of
Unemployment Insurance Provisions, DOL OIG Report No. 19-20-001-03-315, April 21, 2020.
20 FEMA Has Made More than $3 Billion in Improper and Potentially Fraudulent Payments for
Home Repair Assistance since 2003, OIG-20-23, Apr. 6, 2020; and FEMA Has Paid Billions in
Improper Payments for SBA Dependent Other Needs Assistance since 2003, OIG-20-60, Aug. 12,
2020.
21 Inspection of Small Business Administration’s Initial Disaster Assistance Response to the
Coronavirus Pandemic, SBA No. 21-02, Oct. 28, 2020.
22 Best Practices and Lessons Learned from the Administration of Pandemic-Related
Unemployment Benefits Programs, PRAC, Feb. 16, 2022.
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FEMA had internal discussions about fraud risk assessments. However, a full
risk assessment did not occur before the program launched and was not
completed until at least a full year after the LWA program was initiated. A
FEMA official stated that FEMA took a few “shortcuts” while planning the
program, but said the shortcuts were deemed manageable.
Two days before implementing LWA, FEMA sent an internal communication
identifying potential LWA risks, but the communication did not mention fraud.
Instead, it focused on the impact of LWA on FEMA’s mission, funding
availability for other disasters, and the time it would take to implement the
program. Officials from 18 of the 21 SWAs we interviewed confirmed that
FEMA did not discuss fraud risk with them before implementing the LWA
program. Consequently, we identified potentially fraudulent claims in 20 of the
21 SWAs reviewed, and none of those SWAs reported the fraud to FEMA.
FEMA Did Not Develop and Implement Clear Program Guidance
According to FEMA officials, FEMA’s goal was to expedite LWA benefits by
fitting the program requirements into existing UI processes. A FEMA official
told us FEMA instructed the SWAs to follow their existing procedures because
FEMA did not want to create an “additional burden” for them. However,
officials from 10 of the 21 SWAs we interviewed stated that FEMA did not
provide formal guidance on implementing the LWA program. Additionally, 7 of
21 SWAs did not believe FEMA provided enough guidance for verifying LWA
claimants’ eligibility.
Although FEMA implemented the LWA program quickly, it should have
prioritized clear guidance for the SWAs. The SWAs have not always
successfully prevented and mitigated improper UI payments, which had a
direct impact on their ability to determine eligibility for LWA. DOL OIG has
reported that SWAs have generally been slow to modernize their UI systems,
leading to inaccurate payments.23 DOL OIG has also noted that SWA systems
do not always prevent fraud during initial eligibility determinations or detect
fraud later if those determinations fail. In addition, DOL OIG identified that
SWAs’ systems may allow activities that are high risk or that are common fraud
indicators, such as filing of unemployment claims in multiple states, auto-
populating UI applications with claimants’ employment history, allowing claims
to be filed through anonymous Internet Protocol addresses, providing benefits
through non-state-issued prepaid debit cards, and allowing inconsistent or
unstructured communication between state tax and employment departments.
Finally, DOL OIG reported that SWAs do not have sufficient systems,
alternative controls, and oversight in place to ensure appropriate payment
23 Advisory Report: CARES Act: Initial Areas of Concern Regarding Implementation of
Unemployment Insurance Provisions, DOL OIG Report No. 19-20-001-03-315, April 21, 2020.
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durations and amounts. For the 21 SWAs we reviewed, we determined the
improper payment rate for LWA to be approximately 13 percent, which exceeds
the 11 percent improper rate for UI programs.
FEMA Did Not Verify That SWAs’ Controls Existed
FEMA did not verify that SWAs had included activities in their administrative
plans that would effectively prevent improper payments. Additionally, FEMA
did not include a fraud prevention requirement; it only required the SWAs to
report and investigate fraud after assistance was disbursed.
Moreover, FEMA did not ensure that the states’ UI systems could limit the
maximum LWA payment per claimant. The SWAs’ administrative plans listed
the allowable payment amounts, but FEMA only required states to have
procedures to disburse the funds to eligible claimants, not to limit the total
payment amount per claimant.
Officials from all 21 SWAs stated that they tested their UI systems to ensure
that only eligible claimants received LWA payments and that they received the
correct amounts. However, 17 SWAs still paid claimants who were not eligible
to receive LWA because they did not have the required self-certification on file
or had already received the maximum LWA benefit amount.
Further, one SWA UI system could not capture the self-certifications required.
An official from that SWA stated that although it could provide indicators from
one of its pandemic-related unemployment systems, the regular UI system does
not capture self-certifications. This SWA made $341 million in LWA payments
to claimants with no self-certifications — more than 85 percent of the
$403 million total paid to claimants with no self-certifications.
FEMA Did Not Monitor SWAs’ Implementation of Existing Controls
FEMA did not monitor the SWAs to ensure that the SWAs followed the existing
controls described in their administrative plans to mitigate the risk of improper
payments, especially fraudulent payments. Because of FEMA’s lack of
oversight, SWAs did not always comply with the fraud reporting requirement or
use fraud prevention and investigative tools, such as the National Association
of State Workforce Agencies’ (NASWA) Integrity Data Hub. 24
Of the 54 SWAs’ approved administrative plans, 38 did not include the
regulatory requirement to promptly report fraud allegations to the DHS OIG
Office of Investigations. According to a FEMA official, FEMA had omitted the
requirement from the original template on which the SWAs’ plans were based.
Although FEMA later updated the template to include the requirement, it did
24 DOL gives the SWAs free access to the data hub through a grant.
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not direct the 38 SWAs to update their approved plans. Moreover, FEMA
officials said they did not reinforce the reporting requirement or other fraud-
prevention actions to the SWAs, nor did FEMA verify the adequacy of the
actions the SWAs provided in their plans. Our February 2022 management
alert included recommendations to correct these issues. 25
In addition, FEMA did not require SWAs to use NASWA’s Integrity Data Hub,
which allows SWAs to crossmatch UI data to identify and prevent payment of
claims filed in more than one state or territory. 26 Just 10 of the 54 SWAs’
administrative plans included the data hub, and our analysis of NASWA data
revealed that just 4 of those 10 SWAs used the data hub between July 25 and
September 5, 2020. Only one of those 4 SWAs used the data hub consistently
during all 6 weeks LWA was available, and we did not identify any instances of
multistate claims from this SWA. Had FEMA required SWAs to use this tool,
the number of claims made in multiple states might have been reduced.
When asked whether FEMA had verified that the SWAs took the actions they
listed in their plans, a FEMA official responded that FEMA “had not conducted
enhanced monitoring” to verify the SWAs’ actions. FEMA’s only monitoring of
LWA was through receipt and review of daily U.S. Treasury reports, weekly
reports, and quarterly financial reports.
Conclusion
By relying on states’ UI programs to distribute LWA funds, FEMA lost an
opportunity to solidify controls over a multi-billion-dollar program that was
already susceptible to fraud. FEMA also did not protect the Disaster Relief
Fund from improper payments. Recovering these funds may be difficult,
directly affecting FEMA’s ability to respond to future emergencies and
disasters.
As a result, we question the more than $3.7 billion in improper payments
distributed by the 21 SWAs we reviewed. In addition, we reiterate that self-
certifications are insufficient documentation of claimants’ eligibility for
financial assistance.
25 Management Alert: Reporting Suspected Fraud of Lost Wages Assistance, OIG-22-28, Feb. 28,
2022.
26 Alert Memorandum: The Pandemic Unemployment Assistance Program Needs Proactive
Measures to Detect and Prevent Improper Payments and Fraud, DOL OIG Report No. 19-21-002-
03-315, Feb. 22, 2021.
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Recommendations
Recommendation 1: We recommend the FEMA Administrator develop and
implement a standard risk assessment process before initiating new Federal
grant programs. This risk assessment should focus on identifying and
evaluating program risks that may affect FEMA’s ability to prevent waste,
fraud, and abuse in its programs and mitigating those external risks to the
extent practical.
Recommendation 2: We recommend the FEMA Administrator, when
mandated to rely on eligibility determinations of non-FEMA programs, develop
a process to assess the program controls and identify risk to the extent
practical.
Recommendation 3: We recommend the FEMA Administrator update the
State Administrative Plan template to incorporate a requirement for grantees to
include a description of the steps to prevent improper payments.
Recommendation 4: We recommend the FEMA Administrator develop and
implement a process to monitor whether grantees implement and use the
controls attested in FEMA-approved State Administrative Plans.
Recommendation 5: We recommend the FEMA Administrator work with state
workforce agencies to evaluate the Lost Wages Assistance program payments
and verify that all recipients who received payment have a self-certification on
file, as required; to determine whether the claimant meets eligibility
requirements if no self-certification is on file; and, if not, to recover the
payment.
Recommendation 6: We recommend the FEMA Administrator conduct an
after-action study of the Lost Wages Assistance program and update FEMA’s
Individuals and Households Program based on the lessons learned from the
study.
Recommendation 7: We recommend the FEMA Administrator de-obligate and
recover any monies determined to have been obtained fraudulently or other
improper payments through Lost Wages Assistance from the state workforce
agencies.
Management Comments and OIG Analysis
FEMA provided written comments to our draft report in which senior FEMA
leadership disagreed with our conclusion that FEMA did not implement fraud
prevention controls and contends our conclusion of $3.7 billion in improper
payments is extrapolated. FEMA considers the LWA policies and procedures it
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developed to be sufficient; FEMA asserts it coordinated with external parties,
including NASWA, to identify areas of potential risk; and FEMA’s Individual
Assistance Division issued a memo alerting the SWAs of their obligation to
investigate allegations of fraud, waste, and abuse and report those activities to
us. We have reviewed FEMA’s comments, as well as technical comments
submitted under separate cover, and updated the report as appropriate.
Appendix B contains FEMA’s complete management response. FEMA
concurred with recommendations 1, 2, and 7, but did not concur with
recommendations 3, 4, 5, and 6. The following is our analysis of FEMA’s
comments and response to each recommendation.
OIG Response to Overall Management Comments
Although we applaud FEMA’s efforts to implement the LWA program in 11
days, it came at the expense of implementing thorough fraud prevention
controls. As noted, FEMA’s senior leadership disagreed with our conclusion.
FEMA’s response emphasizes its focus on detection controls as a means to
mitigate fraud. However, we have presented strong evidence that supports our
findings and the value of implementing preventative controls as an inherent
part of the program planning process, instead of relying upon detection
controls. FEMA’s policies did not require SWAs to implement controls to
prevent fraud from occurring. Instead, SWAs focused on detecting fraud after
the fraudulent activity had already occurred. FEMA’s reactive approach to
fraud prevention is in direct contradiction to its Stafford Act responsibilities
and thus jeopardized approximately $44 billion in disaster relief funding.
FEMA asserted it coordinated with external parties, including NASWA, to
identify areas of potential risk. Unfortunately, those coordination efforts did
not lead to implementation of additional preventative controls, and FEMA did
not provide any quantifiable evidence that the coordination prevented fraud or
identity theft. For example, NASWA’s Integrity Data Hub is a free tool available
to SWAs aimed at preventing fraudulent payments of UI benefits in multiple
states. Despite coordinating with NASWA, FEMA missed an opportunity to
incorporate this tool into the LWA program as a fraud prevention layer.
Further, FEMA’s coordination largely focused on differentiating LWA program
payments from the underlying UI payments, which does not constitute a
preventative control.
In addition, FEMA’s Individual Assistance Division did not issue its memo
alerting the SWAs of their obligation to investigate allegations of fraud, waste,
and abuse to the DHS OIG until 18 months after the program began, and not
until we brought the issue to FEMA’s attention. 27 Further, even then, FEMA
did not interact directly with SWAs, but instead relied on the DOL to
27 Management Alert – Reporting Suspected Fraud of Lost Wages Assistance OIG 22-28 (Feb. 28,
2022).
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disseminate the guidance. Although FEMA’s actions were an appropriate
response to the management alert, the communication would have served more
effectively as a preventative control if it had been issued at the start of the
program.
Finally, we disagree with FEMA’s assertion that our $3.7 billion improper
payments figure is extrapolated. The amount we identified is based on our
analysis of raw data and is not an inference of a statistical sample.
FEMA did not implement appropriate controls to prevent fraud before it
occurred and did not monitor SWAs to ensure they implemented the controls
they attested to as a condition of receiving the LWA grant. As FEMA did not
implement preventative controls, it did not protect the Disaster Relief Fund
from more than $3.7 billion in improper payments identified in this report.
FEMA Response to Recommendation 1: Concur. Senior FEMA leadership
believes FEMA already has adequate internal controls in place to provide an
equivalent level of assurance of mitigating fraud, waste, and abuse as would be
provided by a risk assessment. For example, FEMA expressly informed all
recipients and subrecipients of grants that they are subject to specific fraud
prevention and detection measures. Additionally, FEMA’s Recovery and Fraud
Investigations and Inspections Division coordinated with internal and external
stakeholders to mitigate LWA program risks, such as ensuring the grant award
included the responsibility and requirement of states to reimburse FEMA for
benefits deemed to be improper. FEMA asked us to consider this
recommendation resolved and closed, as implemented.
OIG Analysis: Although FEMA concurred with the recommendation, its actions
are not fully responsive. FEMA asserted it already has adequate controls in
place, but we found FEMA’s risk assessment of the LWA program was ad hoc
and did not result in clear preventative and mitigating controls. FEMA also
provided no evidence that it has a methodical risk assessment process to
ensure new grant programs’ processes mitigate fraud. Finally, we do not
consider recovery of assistance awards obtained improperly, as already
required by 44 C.F.R. 206.120(f)(5), to be a part of a programmatic risk
assessment. This recommendation will remain open and unresolved until
FEMA provides documentation showing a standard risk assessment process for
future grant programs.
FEMA Response to Recommendation 2: Concur. FEMA’s Recovery and
Fraud Investigations and Inspections Division concluded that assessing the
program controls on every state unemployment system was neither practical
nor reasonable. Consequently, FEMA’s Individual Assistance Division relied on
guidance from its partners at DOL to put in place fraud prevention measures in
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a timely manner at the start of the program. FEMA asked us to consider this
recommendation resolved and closed.
OIG Analysis: Although FEMA concurred with the recommendation, its actions
are not fully responsive. FEMA asserts that assessing the eligibility
determinations of every participating state’s unemployment system is
unrealistic. However, our recommendation’s intent is to provide reasonable
assurance that FEMA considered and mitigated the risks associated with
external programs. For example, we found well-known weaknesses with the
Pandemic Unemployment Assistance program’s reliance on self-certification
statements, which were reported before the LWA program was implemented.
This recommendation will remain open and unresolved until FEMA provides
documentation showing that it developed and implemented a process to assess
the eligibility controls of non-FEMA programs when it is required to rely on
them.
FEMA Response to Recommendation 3: Non-Concur. Senior FEMA
leadership believes FEMA already administers a monitoring program that
oversees the process of grantee routine financial reporting, such as submitting
and reviewing the Federal Financial Report (SF–425), as well as desk reviews
and site visits. FEMA asked us to consider this recommendation resolved and
closed.
OIG Analysis: We do not consider FEMA’s actions responsive to this
recommendation. FEMA asserted it reviews SF–425s as part of its monitoring
process. However, FEMA’s process for reviewing SF–425s does not address the
intent of the recommendation, which is to require grantees to describe their
actions for preventing improper payments. This recommendation will remain
open and unresolved until FEMA updates the state administrative plan
template with a requirement for grantees to include a description of the steps
that they plan to take to prevent improper payments.
FEMA Response to Recommendation 4: Non-Concur. Senior FEMA
leadership believes FEMA currently has sufficient internal controls to support
fraud prevention and detection. For example, all recipients and subrecipients
of FEMA grant awards are informed they are subject to fraud prevention
measures. In addition, FEMA’s Recovery and Grants Program Directorate
provides notice to grantees that programmatic monitoring must be performed
to ensure effective grants management. FEMA asked us to consider this
recommendation resolved and closed, as implemented.
OIG Analysis: We do not consider FEMA’s actions to be responsive to this
recommendation. FEMA asserted that providing notice to grant recipients of
their responsibility to perform programmatic grant monitoring is a sufficient
fraud prevention measure. However, this is not a substitute for monitoring
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SWAs to ensure they implemented the controls attested to in their state
administrative plans. Further, FEMA’s response does not acknowledge its
responsibility to monitor grantees’ implementation of Other Needs Assistance
programs, as required in the Stafford Act. Finally, as shown in the audit
report, FEMA did not identify that 60 percent of SWA’s did not use NASWA’s
Integrity Data Hub, despite their attestation to the contrary in their
administrative plans. Monitoring grant recipients’ controls is a best practice.
This recommendation will remain open and unresolved until FEMA provides
documentation showing that it developed and implemented a process to
monitor grantees to ensure implementation of the controls attested to in state
administration plans.
FEMA Response to Recommendation 5: Non-Concur. Senior FEMA
leadership stated that each individual SWA is responsible for maintaining
proper documentation and determining eligibility requirements. FEMA asked
us to consider this recommendation resolved and closed, as implemented.
OIG Analysis: We do not consider FEMA’s actions to be responsive to this
recommendation. Contrary to how FEMA responded to this recommendation in
its written management response, during a meeting to discuss our findings, a
FEMA official stated that FEMA plans to conduct an internal review to identify
improper payments. FEMA plans to satisfy this requirement during the grant
closeout process to satisfy improper payment reporting as required by the
Payment Integrity Information Act. Specifically, FEMA plans to review a
statistical sample of LWA payments to determine whether the payments meet
the LWA program requirements laid out in the Presidential Memorandum. Part
of this testing, according to FEMA, would be verifying whether self-
certifications are on file. Additionally, FEMA concurred with recommendation
7, which indicates that FEMA knows it has some responsibility for improper
payments. This recommendation will remain open and unresolved until FEMA
provides documentation showing that it has verified recipients who received
payment have a self-certification on file.
FEMA Response to Recommendation 6: Non-Concur. Senior FEMA
leadership does not believe that conducting an after-action study would be a
prudent use of its limited resources because (1) the LWA program was a one-
time form of assistance during an unprecedented national pandemic, (2) FEMA
does not anticipate being directed to implement this form of assistance again,
and (3) all LWA awards are currently in closeout. FEMA asked us to consider
this recommendation resolved and closed.
OIG Analysis: We do not consider FEMA’s actions fully responsive to this
recommendation. FEMA’s position on the value of an after-action study is
inconsistent with internal and external priorities. Specifically, FEMA’s 2023
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congressional budget justification 28 requests funding for COVID-19 pandemic
after-action studies. Additionally, in an August 1, 2022, letter 29 to DHS,
Congress explicitly inquired how DHS, as the White House National Monkeypox
Coordinator, is applying lessons learned from the COVID-19 pandemic to the
response to the monkeypox outbreak. Finally, this recommendation aligns
with the 2022–2026 FEMA Strategic Plan for quickly adapting to atypical
Stafford Act disaster categories. This recommendation will remain open and
unresolved until FEMA provides after-action study results on the LWA
program.
FEMA Response to Recommendation 7: Concur. Senior FEMA leadership
stated that ongoing investigations prevent the Recovery Division from working
with the SWAs to help them recover funds from individuals. In addition,
FEMA’s Individual Assistance Division requires SWAs to identify overpayments
as part of the LWA closeout process and repay identified improper payments
not otherwise waived. Moreover, FEMA cannot act until appeal rights
associated with ongoing investigations are concluded and final amounts owed
are determined. Currently, the final amounts owed back to FEMA are
unknown. FEMA asked us to consider this recommendation resolved and
closed.
OIG Analysis: FEMA’s actions are responsive to this recommendation. The
recommendation will remain open and resolved until FEMA has formally closed
out all LWA grants and quantified the improper payment amounts it plans to
recover and provides documentation showing that all planned corrective
actions are completed.
28 FEMA Budget Overview, Fiscal Year 2023, Congressional Justification, page 81.
29 U.S. House of Representatives, Committee on Homeland Security, Letter to Department of
Homeland Security, Aug. 1, 2022.
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Appendix A
Objective, Scope, and Methodology
DHS OIG was established by the Homeland Security Act of 2002 (Public Law
107−296) by amendment to the Inspector General Act of 1978.
We conducted this audit to determine to what extent FEMA ensured that states
and territories distributed LWA to eligible recipients. To answer this objective,
we reviewed the Presidential Memorandum on Authorizing the Other Needs
Assistance Program for Major Disaster Declarations Related to Coronavirus
Disease 2019 and Federal laws and regulations related to Other Needs
Assistance and applicable underlying UI programs. We reviewed FEMA’s
internal control processes, fraud risk processes, policies, procedures, and
guidance related to the LWA program. Additionally, we reviewed congressional
testimony and prior audit reports related to our audit objective, including
reports from DHS OIG, the Government Accountability Office, DOL OIG, the
Small Business Administration OIG, and the Pandemic Response
Accountability Committee. We relied on the work of DOL OIG and the Small
Business Administration OIG. We obtained these agencies’ peer reviews to
ensure that any work cited was reliable for our audit objective.
In planning and performing our audit, we identified the internal control
components and underlying internal control principles that were significant to
the audit objective. Specifically, we reviewed FEMA’s organizational structure,
policies and procedures, and monitoring controls. We identified internal
control deficiencies that could adversely affect FEMA’s ability to ensure only
eligible recipients received FEMA’s disaster relief funds for supplemental LWA.
However, because we limited our review to these internal control components
and underlying principles, it may not have disclosed all internal control
deficiencies that may have existed at the time of our audit.
We conducted eight interviews with personnel from FEMA’s Individual
Assistance Division, Office of the Chief Financial Officer, Office of Chief
Counsel, and Grant Programs Directorate to understand their roles and
responsibilities over the LWA program. Additionally, we interviewed officials
from 21 SWAs to understand the guidance FEMA provided during the
program’s implementation and the policies and procedures in place to ensure
LWA was provided to only eligible recipients. Due to COVID-19 travel
restrictions, we held virtual meetings and interviews to answer our audit
objective and substantiate claims made throughout the audit.
We judgmentally selected 21 of the 54 SWAs that participated in LWA for our
testing to identify improper payments. We based our judgmental selection on
the amount of funding each state received from FEMA under the LWA program.
We selected 18 of the 19 SWAs that received the most funding in the program,
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as well as 3 of the 5 SWAs that received the least funding (to ensure coverage of
the small SWAs). We believe the coverage was adequate for our judgmental
selection because the 21 SWAs accounted for 81 percent of the total dollar
obligations in the LWA program and covered both larger and smaller LWA
funding recipients.
We coordinated with each of the 21 SWAs to obtain the most recent LWA
payment data, and we tested 100 percent of the LWA payments in the data to
identify improper payments made to ineligible recipients. Our tests were to
identify LWA funds paid under potentially fraudulent claims, paid more than
the maximum allowable LWA amount per recipient, and paid to applicants who
did not self-certify they were unemployed due to COVID-19.
Each data set provided by the SWAs contained a fraud indicator, which the
SWA used to flag any potentially fraudulent payments. We considered a claim
potentially fraudulent if an SWA flagged the claim for fraud within its
unemployment system. We analyzed the data to pull all claims the SWA
flagged as potentially fraudulent, and we calculated the total amount of LWA
paid under these claims and the number of recipients associated with the
potentially fraudulent claims for each SWA.
Additionally, each data set provided by the SWAs contained a self-certification
identifier. We considered a claim to lack self-certification if the SWA could not
provide a self-certification or if claimants did not state they were unemployed
or partially unemployed due to COVID-19. We removed from this data set any
payments flagged as potentially fraudulent to avoid double counting funds
when we identified improper payments. We then analyzed the data file to
identify all LWA funds paid by SWAs to recipients who did not self-certify they
were unemployed due to COVID-19. We calculated the total amount of LWA
paid under these claims and the number of recipients associated with the
claims for each SWA.
We also analyzed each data set to identify whether the SWA paid more than the
maximum allowable amount in LWA funds to any recipient. We considered a
claim to be an overpayment if the state paid an LWA claimant more than $300
for every week eligibility was claimed. We first removed from this data set any
payments flagged as potentially fraudulent and any payments missing a self-
certification to avoid double counting the funds when we identified improper
payments. We then added the total LWA funds received by each Social
Security Number. We calculated the overpayment by subtracting the
maximum allowable LWA amount for each recipient from the total amount paid
to each recipient.
Finally, we analyzed the approved administrative plans for each SWA that
participated in the LWA program. We reviewed each approved administrative
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plan to determine whether the SWAs provided sufficient information about the
necessary procedures for interacting with eligible individuals.
In addition, we performed data reliability testing on the LWA datasets provided
by SWAs. Specifically, we matched the SWA datasets against LWA expenditure
data from FEMA’s Integrated Financial Management System, the official
accounting and financial system used for internal and external financial
reporting, to determine the completeness of the SWAs’ datasets. We also
interviewed officials with all 21 SWAs to learn about the system controls they
had in place to ensure data reliability. After our assessments, we concluded
the data was sufficiently reliable to support the findings, recommendations,
and conclusions in the report.
We conducted this performance audit between June 2021 and July 2022
pursuant to the Inspector General Act of 1978, as amended, and according to
generally accepted government auditing standards. Those standards require
that we plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objective.
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Appendix B
FEMA Comments on the Draft Report
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Appendix C
Breakdown of Improper Payments
SWA-IDENTIFIED POTENTIAL OVERPAYMENTS SELF-CERTIFICATIONS
FRAUD
State/Territory Total Number of Total Number of Total Number of
Amount Recipients Amount Recipients Amount Recipients
California $ 1,032,079,200 701,308 $ 4,500 6 $ 5,996,100 6,149
Michigan 820,397,732 529,267 4,039 4 589,492 435
Ohio 332,156,880 198,570 2,913,240 1,768 2,163,690 1,494
New Jersey 245,094,600 140,766 $0 0 0 0
Arizona 216,345,426 216,534 3,822,834 2,769 341,216,289 248,114
Texas 206,018,520 134,966 1,800 1 0 0
Florida 175,519,860 170,431 1,200 3 0 0
New York 128,784,482 93,957 408,125 547 0 0
Maryland 88,313,700 56,037 2,481,900 1,539 30,714,600 16,750
Illinois 41,421,600 26,746 6,619,500 4,430 0 0
Tennessee 12,822,750 8,570 192,630 183 0 0
Pennsylvania 11,674,200 7,483 4,646,520 3,288 1,391,700 860
Minnesota 2,905,200 1,760 5,400 8 0 0
Massachusetts 2,646,345 1,793 0 0 0 0
Georgia 1,295,100 779 0 0 7,076,100 8,972
North Carolina 1,105,200 833 0 0 10,453,800 9,230
Virginia 903,300 550 0 0 0 0
Washington 714,900 467 0 0 68,700 41
Wyoming 25,500 22 213,300 156 887,700 588
USVI 9,000 5 0 0 0 0
Guam 0 0 261,060 99 2,576,250 2,129
Total $3,320,233,495 2,290,844 $21,576,048 14,801 $403,134,421 294,762
Total Improper
$3,744,943,964
Payments
Source: DHS OIG analysis of SWA UI and LWA data
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Appendix D
Report Distribution
Department of Homeland Security
Secretary
Deputy Secretary
Chief of Staff
Deputy Chiefs of Staff
General Counsel
Executive Secretary
Director, GAO/OIG Liaison Office
Under Secretary, Office of Strategy, Policy, and Plans
Assistant Secretary for Office of Public Affairs
Assistant Secretary for Office of Legislative Affairs
FEMA Administrator
Office of Management and Budget
Chief, Homeland Security Branch
DHS OIG Budget Examiner
Congress
Congressional Oversight and Appropriations Committees
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Additional Information and Copies
To view this and any of our other reports, please visit our website at:
www.oig.dhs.gov.
For further information or questions, please contact Office of Inspector General
Public Affairs at: DHS-OIG.OfficePublicAffairs@oig.dhs.gov.
Follow us on Twitter at: @dhsoig.
OIG Hotline
To report fraud, waste, or abuse, visit our website at www.oig.dhs.gov and click
on the red "Hotline" tab. If you cannot access our website, call our hotline at
(800) 323-8603, fax our hotline at (202) 254-4297, or write to us at:
Department of Homeland Security
Office of Inspector General, Mail Stop 0305
Attention: Hotline
245 Murray Drive, SW
Washington, DC 20528-0305
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