2IÀFHRI,QVSHFWRU*HQHUDO FEMA s Efforts To Collect a $23.1 Million Debt from the State of Louisiana Should Have Been More Aggressive OIG-14-134-D September 2014
Washington, DC 20528 / www.oig.dhs.gov September 8, 2014 MEMORANDUM FOR: Edward Johnson Chief Financial Officer Federal Emergency Management Agency FROM: SUBJECT: John V. Kelly Assistant Inspector General Office of Emergency Management Oversight FEMA s Efforts To Collect a $23.1 Million Debt from the State of Louisiana Should Have Been More Aggressive Audit Report Number OIG-14-134-D Attached for your information is our final letter report, FEMA's Efforts To Collect a $23.1 Million Debt from the State of Louisiana Should Have Been More Aggressive. We audited the Federal Emergency Management Agency s (FEMA) efforts to collect a $23.1 million Bill for Collection due from the State of Louisiana (State). We discussed the results of this audit with FEMA officials and provided a draft report to them on October 28, 2013. The report contains two recommendations. Within 90 days of the date of this memorandum, please provide our office with a written response addressing our concerns with your response that includes your (1) agreement or disagreement, (2) corrective action plan, and (3) target completion date for the recommendations. Also, please include the contact information of responsible parties and any other supporting documentation necessary to inform us about the current status of the recommendations. Until we receive and evaluate your response, we will consider the recommendations open and unresolved. Consistent with our responsibility under the Inspector General Act, we will provide copies of our report to appropriate congressional committees with oversight and appropriation responsibility over the. We will post the report on our website for public dissemination.
Major contributors to this report are Christopher Dodd, Acting Director; Paige Hamrick, Audit Manager; and David B. Fox, Auditor-in-Charge. Please call me with any questions at (202) 254-4100, or your staff may contact Tonda L. Hadley, Deputy Assistant Inspector General for Audit Services, Office of Emergency Management Oversight, at (214) 436-5200. Attachment www.oig.dhs.gov 2 OIG-14-134-D
Background During2004,theLouisianaLegislativeAuditorandourofficeissuedauditreportsonthe State smanagementofthehazardmitigation,unmetneeds,andfloodmitigation Assistancegrantprograms.Thescopeofour2004auditincludedfundingfortheHazard MitigationGrantProgramandUnmetNeedsprogramstotaling$40,524,912indirect projectcostsandadministrativeandmanagementcostsfromeightdisastersdeclared betweenseptember1998andoctober2002. 1 Werecommendedthat,amongother actions,femaidentifyanddeobligateanyineligible,unsupported,orduplicatefunding. InMarch2005,asaresultofourrecommendations,FEMARegionVIstartedtheprocess ofrecouping$30.4millionfromthestate. 2 ByMay2007,theStatehadprovidedFEMA RegionVIwithsufficientdocumentationtoreducetheoriginaldebtfrom$30.4million to$26.6million.injuly2010,theregionaladministrator,afterapplyingcostoverruns, reducedthedebtto$23.1millionandreferredittothefemafinancecenterin September2010forissuanceoftheBillforCollection.InJanuary2012,theFEMA FinanceCentertransferredthedebttoTreasury.AsofMay2014,Treasurystillheldthe uncollecteddebt. ResultsofAudit FEMA seffortstocollectthe$23.1milliondebtfromthestatewerenotadequate becausefemadidnotaggressivelycollectthisdebt.federalregulationsandfema guidelinesrequirefematoaggressivelycollectitsdebts,yetmorethan8yearsafter initiatingrecoupmentefforts,femahasnotcollectedthismoney.asofmay2014,the StateowedtheU.S.Government$23.1millionplus$6.2millionininterest,penalties, andadministrativefees,or$29.3milliontotal. 3 FEMA soutdateddebtcollectionpoliciesandprocedurescauseddelaysand uncertainties.bothfemaregionviandfemaheadquartersofficialswereuncertainas towhoshouldberesponsibleforrecoupingthedebtandhowtolegallyrecoverit.in 1 LouisianaLegislativeAuditor sreport,louisianaofficeofhomelandsecurityandemergency Preparedness,NewOrleans,Louisiana,issuedMarch3,2004,andOIGreportDDͲ02Ͳ05Grant Management:Louisiana'sComplianceWithDisasterAssistanceProgram'sRequirement,issued November30,2004.ThesetwoauditsconcludedthattheStatehadnotadministeredseveralgrants accordingtofederalregulations;failedtomonitorsubgranteeexpendituresrelatedtotheflood MitigationAssistanceprogramandtheHazardMitigationGrantProgram;andhadnotproperly accountedforfemaprogramfunds. 2 Recoupmentisaspecialmethodthatagenciesusetoadjustdebtsarisingunderthesame transactionoroccurrence(31cfr900.2(d)). 3 Inadditionto$5.9millionininterest,penalties,andadministrativefeesFEMAFinanceCenter charged,italsoaddeda1percentadministrativefeeof$290,310totheoutstandingbalanceasof May31,2014,inanticipationofTreasury scollectionfeetofema. www.oig.dhs.gov 3 OIG-14-134-D
addition,femafinancecenterofficialsdidnotpromptlytransferthedebttotreasury forcollectiondespitefederalstatutesandregulationsthatrequiredebtsdelinquentfor morethan180daystobetransferredtotreasuryforcollection.femaofficialshadthe toolstoaggressivelycollectthisdebt;however,itremainsuncollectedaftermorethan 8years(seeExhibitA,DebtCollectionToolsAvailabletoFEMA). OutdatedDebtCollectionPoliciesandProceduresCausedDelaysandUncertainties FEMARegionVIandFEMAHeadquartersofficialsdelayedcollectioneffortsbecause FEMA sdebtcollectionpoliciesandprocedureswereoutdated,whichcaused uncertaintiesastowhoshouldrecoupthedebtandhowfemacouldlegallyrecover themoney.asaresult,regionvitook5½yearstotransferthedebttothefema FinanceCenterforissuanceofthe$23.1millionBillforCollection,plusinterest, penalties,andadministrativefees.abillforcollectionisaformalnoticetoadebtor indicatingtheamountdue,descriptionofthecharges,apaymentduedate,and remediesavailableupondefault. OutdatedDebtCollectionPoliciesandProcedures UntilApril2013,FEMA smostcurrentdebtcollectionauthoritywasfemamanual 2610.1,DebtCollection,issuedmorethan24yearsagoonNovember30,1988. FEMAdesignedthemanualtoprovideguidancetoFEMAemployeesinvolvedinthe recording,collecting,andreportingofdebts.italsoincludedproceduresforfemato assessinterestandpenalties,offsetdebtsagainstotherfundingsources,request hearings,establishrepaymentplans,andreferappealstothedeputyagency CollectionOfficer.BecauseoftheageofFEMA s1988debtcollectionmanual,much ofthelawineffectatthattimewasobsolete(reserved,repealed,orotherwise rescinded)atthetimefemabegancollectingthisdebt.asaresult,femanolonger followedthemanualand,instead,usedthedebtcollectionimprovementactof 1996andFederalClaimsCollectionStandardsforguidance. Accordingto31CodeofFederalRegulations(CFR)901.1(a)andOfficeof ManagementandBudget(OMB)CircularAͲ129,Federalagenciesmustaggressively collecttheirdebts,haveafairbutaggressiveprogramtorecoverdelinquentdebts, andestablishcollectionstrategiesconsistentwiththeirstatutoryauthority.on March7,2013,wereneweddiscussionswithFEMA sofficeofchieffinancialofficer abouttheageofits1988debtcollectionmanual.shortlythereafteronapril15, 2013,FEMAissuedanewdirectiveentitledSubmissionofDebttotheFEMAFinance Center:State,Local,Tribal,andTerritorialDebts,DirectiveNumberFD116Ͳ1. 4 4 PerFEMAofficials,thisdirectivewasFEMA sfirststepindevelopingandrevisingtheoutdated1988 DebtCollectionManual. www.oig.dhs.gov 4 OIG-14-134-D
Althoughthisdirectiveisapositivesteptowardcollectingitsdebts,FEMAneedsto developfurtherguidanceaddressingtimeframesandadditionalproceduresonhow tospecificallyuse internaloffsets. Internaloffsetsarecollectionsofdebtsagainst outstandingrequestsforreimbursementsoradvancepaymentsotherwiseduethe debtorfromthecreditoragency. UncertaintiesastoWhoShouldbeResponsible FEMA suncertaintyastowhowasresponsibleforrecoupingthedebtcontributedto the8ͳyearoutstandingdebt.thedebtcollectionimprovementactof1996requires thatallagenciestrytocollectaclaimoftheunitedstatesgovernmentformoneyor propertyarisingoutoftheiractivities.inaddition,thefederalclaimscollection StandardsrequireFederalagenciesto aggressivelycollect alldebtsarisingoutof activitiesofthatagencyandtoundertakecollectionactivities promptlywithfollowͳ upactionasnecessary. BelowisachronologyofsignificanteventsfollowingFEMARegionVI sfebruary 2004initialrequesttotheState,tosubmitdocumentationpertainingtothegrants thatthelouisianalegislativeauditorandourofficeaudited: 1. May2004 StatesubmittedaportionofitsdocumentationtoFEMA. 2. March2005 AfterreviewingtheState sdocumentation,regionviofficials initiatedeffortstorecoverthestate sinappropriatelymanagedmitigation funds.regionviallowedthestate90daystosubmitadditional documentationandinformedthestatethatthefinancial&acquisition ManagementDivision,DisasterFinanceBranchwouldissueaBillfor Collectionuponfinalresolution. 3. July2005 InresponsetoRegionVI srequest,thestateprovidedsomeofits documentation.however,itwasnotuntilmay2007 morethan22months later thatthestateprovidedregionviwithitsfinalsummaryof information. 4. March2007 RegionVIofficialsreferredtherecoupmentefforttoFEMA HeadquartersbelievingHeadquarterswasbestabletoresolvethedebt. However,FEMAHeadquartersreferredtherecoupmenteffortbacktoRegion VIaboutayearlater(April2008)recommendingthatRegionVIrecoupthe funds. www.oig.dhs.gov 5 OIG-14-134-D
5. July2009 FEMAHeadquartersofficialsinformedRegionVIthattheyhad discussedwhowouldneedtobeinvolvedintherecoupmenteffortandthat theheadquartersgrantsprogramdivisionshouldtakethelead. 6. July2010 TheFEMARegionVIAdministrator,adjustingforcostoverruns, reducedthetotalcollectionamountto$23.1million. 7. August2010 FEMAHeadquartersdeterminedRegionVIwasresponsibleforthe recoupmenteffort. 8. September2010 BecauseofuncertaintiesatRegionVIastowhichdivision withinregionviwouldberesponsiblefortherecoupmenteffort,theregionvi AdministratoraskedhisMissionSupportstafftocloseouttherecoupmenteffort. MissionSupportstaffthentransferredthedebttotheFEMAFinanceCenterto issuethebillforcollection. 9. November2010 TheFEMAFinanceCenterissuedtheStateademandfor payment(withattachedbillforcollection)intheamountof$23.1million.the letterdemandedpaymentͳinͳfullandprovidedthestateformalnoticeoffema s abilitytotakecollectionactionsthatincludedadministrativeoffsetand submittingthedebttotreasuryforcollectionifthestatefailedtopaywithin30 days.thedemandforpaymentalsoprovidedthestate60daystoappealthe collectionaction.thestatedidnotrespond. RegionVIshouldhavetakenaggressiveactionstocollectthedebtassoonastheState owedthedebtinmarch2005.failingthat,regionvishouldhavetransferredthedebt tothefemafinancecenterforissuanceofthebillforcollection,whichtriggersthe accrualofinterest,penalties,andadministrativefees. RegionVIofficialsattributedthedelayincollectingtheState sdocumentationtoseveral factorsincludinghurricaneskatrinaandritain2005,changesinleadership(atboth RegionVIandtheState),andFEMA sreluctancetotakemoneybackfromastatehit hardbyrecenthurricanes. 5 Inaddition,bothFEMARegionVIandHeadquartersofficials saidtheydelayedcollectionbecause(1)thiswasthefirstcollectionofitstype;(2)they wereuncertainabouthowtocollectadebtofthiscomplexity;and(3)therewasno guidance,writtenorotherwise,availableonhowtocollectthistypeofdebt. 5 AccordingtoFEMAofficials,floodingdestroyedmanyofthedocumentstheStateneededto substantiateitscostsandmanyparishbuildingsalsoflooded,whichpreventedthestatefromobtaining documentsfromsomeoftheparishes. www.oig.dhs.gov 6 OIG-14-134-D
UncertaintiesastoHowtoLegallyRecovertheMoney During2009and2010,FEMAcontactedtheStateonmultipleoccasionstodiscuss variousproposalstooffsetthestate sdebt.femaofficialsdidnotacceptanyofthe State sproposalseitherbecausetheproposalwasnotlegal,didnotinvolvetheuseof thestate sownfunds,orpotentiallypunishedinnocentapplicantsbyreducingtheir Statefunding.Forexample,tooffsetthedebt,FEMAcouldhavedeobligatedgrant fundsearmarkedtorepairpreviousdisasterdamagesormitigatefuturedamages. However,doingsowouldtakefundsawayfrominnocentdisastervictimswhenitwas thestatethatmismanagedfema shazardmitigationgrantprogram,unmetneeds, andfloodmitigationassistanceprogramfunds. 6 Therefore,webelieveFEMAshould offsetthisdebtagainstfederalfundsthestatereceivedtomanagefederallyͳdeclared disasters.thiswouldensurethestateuseditsownfundstorepayitsdebts,insteadof PublicAssistanceandHazardMitigationgrantfundsFEMAobligatedtoassistdisaster victims. FederallawandFEMAregulationsat31UnitedStatesCode(USC) 3716(a)and44CFR 13.52,respectively,allowFEMAtherighttoreduceitsdebtbymakingadministrative offsetsagainstotherrequestsforreimbursementsandwithholdingadvancepaymentsif adebtisnotpaidwithinareasonabletime.inaddition,fema s1988debtcollection ManualspecificallystatesthatFEMAmayoffsetdebtsagainst anyfundstowhichthe debtorisentitled whenthedebtordefaultsorotherwisefailstorespondtotheinitial BillforCollectionletter. 7 AlthoughTreasuryhasgrantedFEMA srequesttoprohibittreasury sfinancial ManagementServicefromoffsettingagainstportionsofFEMA sdisasterreliefand emergencyassistanceprograms,thisprohibitiondoesnotapplytofema sabilityto internallyoffset thosefunds.femashouldoffsetthisdebtinternallyincluding evaluatingtheavailabilityoflouisiana srequestsforstatemanagementadministrative Costs(FEMACategoryZcosts).FEMAshouldtakethisactionpromptlypursuantto31 CFR901.1(a). 6 InresponsetotheOIGandRegionreview,theRegiondeterminedthattheStatedidnotprovide sufficientevidencetoestablishthelegitimateuseofprojectfundsunderthehazardmitigationgrant Program,UnmetNeedsprogram,andFloodMitigationAssistanceprogram. 7 FEMA sapril15,2013,directive(femadirectivenumberfd116ͳ1,submissionofdebttothefema FinanceCenter:State,Local,Tribal,andTerritorialDebts)doesnotspecificallyaddressinternaloffset otherthanbyflowchartsfoundatappendixes3and4thatindicatetheprogramofficerepresentative mayuseinternaloffsetaspartofitsinformaldebtresolutionprocess.instead,thedirective snarrative statesthat,onceadebtisvalidated,itistransferredtothefemafinancecenterwhereitwilluse additionaldebtcollectionmeasures,consistentwithallauthoritiesincludingthedebtcollection ImprovementActof1996andsubmissionofthedebttoTreasury,untilthedebtiscompletelysatisfied. FEMA snewestdirectivedoesnotsupersedeanypriordebtcollectionmanuals. www.oig.dhs.gov 7 OIG-14-134-D
Louisianahasspentmorethan$200millioninFEMAStatemanagementcoststo administeritspublicassistancegrantprogramsforhurricaneskatrinaandrita. 8 The Statealsoprojectedthatitwillneedanadditional$195millioninStatemanagement coststhrough2020tomanagepublicassistancegrantprogramsforthesetwodisasters. Therefore,FEMAcouldoffsetthe$23.1milliondebtplusinterest,penalties,and administrativefeesagainstthestate srequestsforkatrina/ritastatemanagement costs. FEMAFinanceCenterDidNotPromptlyTransferDebttoTreasury Federallawrequiresagenciestotransfertheirnontaxdebtsdelinquentmorethan180 daystotreasuryfordebtcollection. 9 However,theFEMAFinanceCenterdidnot transferthe$23.1milliondebtuntiljanuary4,2012,morethan1yearafterthedebt becamedelinquent. 10 WhenweaskedFEMAwhetherthedebtfellwithinanyofthe law sexceptionstotransferringthedelinquentdebttotreasuryenumeratedin31 U.S.C. 3711(g)(2)(A)(i)through(v),FEMAFinanceCenterofficialssaidthatitdidnot.In fact,itwasnotuntilrecentlythatthefemafinancecenterevenbeganreferringstate debtstotreasury.asofoctober2011,theofficeofchieffinancialofficerauthorized thefemafinancecentertobeginissuingcollectionletters,butonlyforthosedebts delinquentformorethan1year.femafinancecenterofficialsacknowledgethatthis practiceviolatedfederallaw,butemphasizedthatfema snewdebtcollectiondirective nowrequiresthefemafinancecentertoforwarddelinquentdebtstotreasurywithin 180daysofbecomingdelinquent. Conclusion FEMA seffortstocollectthe$23.1milliondebtfromthestatewerenotadequate becausefemadidnotaggressivelypursuecollectionasfederalregulationsandfema guidelinesrequire.asaresult,thestatecurrentlyowestheu.s.government$23.1 million,plus$6.2millionofaccruedinterest,penalties,andadministrativefees,or$29.3 million.femashouldhaveactedquicklytocollectthesefunds,butdelayedaggressive actionbecauseofuncertaintiesregardinghowtoproceed.femahasalwayshadthe legalauthoritytooffsetthisdebtagainstfemafundsduetothestate.therefore,fema 8 StateofLouisianaNeedsaStrategyToManageHurricanesKatrinaandRitaPublicAssistanceGrants MoreEffectively,DHSOIGReportNumberDDͲ13Ͳ15,issuedSeptember26,2013. 9 31U.S.C. 3711(g),31CFR901.1(e),31CFR901.3(b),31CFR285.12(c),UnitedStatesGeneral AccountingOffice,OfficeoftheGeneralCounsel,PrinciplesofFederalAppropriationsLaw,ThirdEdition, VolumeIII,September2008. 10 Adebtbecomes delinquent ifithasnotbeenpaidbythedatespecifiedintheagency sinitialwritten demandforpayment.inthisparticularinstance,becausethestatefailedtorespondwithin30days,the debtbecamedelinquentonthedatefemamailedthedemandforpayment,november15,2010. www.oig.dhs.gov 8 OIG-14-134-D
shouldtakeimmediateactiontoadministrativelyoffsetthesefundsagainstthe amountsowedtothestateandnotifytreasuryasitcollectsthedebt. Recommendations WerecommendthattheFEMAOfficeofChiefFinancialOfficer: Recommendation#1:Takeimmediateactiontoadministrativelyoffsetthe$23,131,010 debtplus$6,190,310inaccruedinterest,penalties,andadministrativefees,totaling $29,321,320. Recommendation#2:Developimprovedcollectionpoliciesandprocedurestoprovide FEMAemployeeswithspecificguidanceonhowtocollectdebts. DiscussionWithManagementandAuditFollowup WediscussedourfindingsandrecommendationswithFEMAofficialsandincludedtheir commentsinthisreportasappropriate.wealsoprovidedadraftreportinadvanceto theseofficialsanddiscusseditatanexitconferenceonoctober28,2013.attheexit conference,femaofficialswithheldcommentonourfindingsandrecommendations. However,onJanuary13,2014,andagainonJuly28,2014,FEMAprovideduswritten responses,whichappearintheirentiretyasexhibitsbandc,respectively.inthe followingparagraphswesummarizeandanalyzefema scommentsoneachofour recommendationsaswellasprovideadditionalinsightintothevalidityandnatureof thisparticulardebt. ValidityandNatureoftheDebt ThereisnodisputeregardingthevalidityofthisdebtbecauseFEMAidentifiedthedebt asaresultoftheoig sauditandinvestigationthatbeganin2004.wereportedthat certainlouisianaparishesusedhazardmitigationgrantprogramandunmetneeds fundstomitigateprojectsthatfemahadnotproperlyapproved.theu.s.attorneyand OIGOfficeofInvestigationsconductedcriminalinvestigationsintothemisuseofthese FEMAfundsthatresultedinthreeLouisianaStateOfficialsbeingprosecutedand convictedand,inonecase,incarcerated,formakingfalsestatementstoafederal investigatorandcommittingperjury. Therefore,giventhe(1)indisputableamountofthedebt,(2)thecriminalactionsthat ledtothisdebt,and(3)omb sandtreasury sassurancesthatfemaretainstherightto www.oig.dhs.gov 9 OIG-14-134-D
internallyoffsetthisdebtevenafterturningitovertotreasuryforcollection,fema s responsestothisreportareunacceptable.femaistheonlyfederalagencyinaposition tocollectthedebt.femaacknowledgesthatitnowretainstherighttointernallyoffset thisdebt,butisdeferringanyactionuntilafteritreceivesguidanceandtrainingfrom Treasury.FEMA sreluctancetocollectthisdebtimmediatelyviolatesitsfiduciary responsibilityoverthedisasterrelieffund. Recommendation#1:Takeimmediateactiontoadministrativelyoffsetthe$23,131,010 debtplus$6,190,310inaccruedinterest,penalties,andadministrativefees,totaling $29,321,320. Intheirinitialresponse,FEMAofficialsdisagreedwithRecommendation#1andsaid theyhadtransferredthedebttotreasuryforservicinginaccordancewiththedebt CollectionImprovementAct.FEMAofficialsalsosaidthat,aftertheytransferredthe debttotreasury,treasurywasresponsiblefortakingappropriatedebtcollection actions.intheirsubsequentresponse,femaofficialsreiteratedpartsoftheirinitial responsebutexplainedthat,whentheytransferredthedebttotreasuryforservicing, theybelievedtheyhadactedinaccordancewiththedebtcollectionimprovementact andombaͳ129guidance.femaofficialsfurtherstatedthatbasedonthenew clarificationfromtreasuryandombonusingpassivecollection,femanowagreesthat passivecollection isa newpotentialtoolforfurtherdebtcollectionactionsafter referraltotreasury. Weagreeinpartanddisagreeinpart.Federalregulationsmakeadistinctionbetween activecollectionandotheractionsthatfemaisnotprecludedfromtaking.specifically, pursuantto31cfr903.3(b)(3),althoughanagency sterminationofcollectionactivity ceasesactivecollection,itdoesnotprecludethatsameagencyfromtakingother actions.theseactionsinclude Offsettingagainstfutureincomeorassetsnotavailable atthetimeofterminationofcollectionactivity. Inaddition,accordingto31CFR 285.5(a)(3),thereceiptofTreasury scollectionsviacentralizedoffset doesnot precludeafederalagency[fema]frompursuingotherdebtcollectionremediesin conjunctionwithcentralizedoffset[emphasisadded]. However,Federalregulations31 CFR903.3and31CFR285.5arenotnewregulations,eachhavingbeenpromulgatedin November2000andDecember2002,respectively.Therefore,FEMA sassertionthat passivecollectionisa newstandardbasedontreasury sclarificationandthusis prospectiveratherthanretrospective isclearlyerroneous.femahasalwayshadthe legalauthoritytooffsetthisdebtagainstfemafundsduetothestate. Next,FEMAofficialsacknowledgedthattheyretaintherighttointernallyoffsetthis debtbutwilldeferactiononanyinternaloffsetsuntiltheyreceiveadditionalguidance andtrainingfromtreasurytoavoidoverlappingandconflictingdebtcollectionactions. www.oig.dhs.gov 10 OIG-14-134-D
Wedisagree.WhenFEMAreferredthedebttoTreasuryforcollection,thedebt remainedadebtowedtofema,andfemaisstillresponsibleformaintainingallofficial records,includingaccountingrecords,pertainingtothedebt. 11 FEMAmustreportany paymentsitreceivedtotreasury. 12 Conversely,TreasurymustnotifyFEMAofany offsetsitmadetocollectthedebt. 13 Therefore,FEMA sconcernthattherewouldbe overlappingandconflictingdebtcollectionactionsiswithoutmerit.moreover,although FEMAofficialsstatedtheyagreewithRecommendation#1,theirplannedcourseof actionindicatesotherwise.werecommendedimmediateaction.however,bydeferring collectionactionuntilaftertreasuryprovidesfurtherguidance,femahaseffectively postponedinternallyoffsettingthisdebtindefinitely. DespiteFEMAhavingbeenapprisedofTreasury sandomb sresponsestoitsconcerns, havingacknowledgeditsrighttointernallyoffsetthisdebt,andafederalregulationand Treasurypolicythatrequireeachpartytonotifytheotherofanycollection,FEMA remainsunwillingtoimmediatelyinternallyoffsetthisdebt.therefore,weconsiderthe recommendationtobeopenandunresolved,andfemashouldimmediatelyinternally offsetthis$23.1million8ͳyearͳolddebt. Recommendation#2:Developimprovedcollectionpoliciesandprocedurestoprovide FEMAemployeeswithspecificguidanceonhowtocollectdebts. FEMAofficialsconcurredwithRecommendation#2andsaidthattheyrecognizethe OIG sconcernswithfema snewestdirective,submissionofdebttothefemafinance Center:State,Local,TribalandTerritorialDebts,issuedApril15,2013.Theysaidthat FEMAwilladdressourconcernsbyupdatingthedirectiveandfinalizingitinfiscalyear 2015.Morespecifically,thereviseddirectivewillprescribespecifictimeframeswithin whichprogramofficerepresentativesshouldactinidentifyingapotentialdebt.in addition,femastatedthatitwilladdressitsabilitytousepassivecollectionmethodsto offsetdebtstotheextentthattreasuryprovidesfurtherguidanceonpassivecollection. WedonotconsiderFEMA splannedactionssufficienttoaddressourrecommendation. FEMA scurrentdirectivedoesnotspecificallyaddressfema sabilitytointernallyoffset debts(otherthanbyflowchartsfoundatappendixes3and4ofthedirective).italso doesnotprovideguidanceonhowtospecificallyuseoffsets;norwillituntiltreasury providesadditionalguidanceonpassivecollection.merelyupdatingitsdirectiveisnot sufficientbecausefemahaseffectivelydeferredaddressinginternaloffsetindefinitely 11 Chapter3:FinancialManagementandAccounting,Section3.13NonͲTaxDebtCollection,Referraland WriteͲOff,U.S.DepartmentofHomelandSecurity,October16,2009,page5. 12 ManagingFederalReceivables,AGuideforManagingLoansandAdministrativeDebt,Departmentof thetreasury,financialmanagementservice,may2005,chapter6,page30. 13 31CFR285.5(h)(1). www.oig.dhs.gov 11 OIG-14-134-D
byrequiringtreasury,whichisundernoobligationtoact,tofirstprovidethemwith guidanceonpassivecollection. Finally,FEMA scurrentdirectivestatesthefemafinancecenterwillusealldebt collectionauthoritiesasappropriate.however,neitherthecurrentdirectivenorthe reviseddirective(asdescribed)specificallyaddresstherequirementthatfema aggressively collectitsdebtsotherthantoreferthedebttotreasurywithin180days ofadebtbeingdelinquent.simplystatingthatthereviseddirectivewillbein accordancewiththefederalclaimscollectionstandardsisnotsufficienttomeetthis requirement. Therefore,weconsidertherecommendationtobeopenandunresolveduntilFEMA developsandimprovesitsdebtcollectionpoliciesandprocedurestoincludespecific guidanceonhowtoaggressivelycollectitsdebts. www.oig.dhs.gov 12 OIG-14-134-D
ExhibitA DebtCollectionToolsAvailabletoFEMA Federallaw(seefootnote9)requiresagenciestotransfertheirnontaxdebtsdelinquent morethan180daystotreasuryfordebtcollection.however,thislawalsoencourages agenciestotransferdebtsthatarelessthan180daysdelinquenttotreasuryto accomplish efficient,costeffectivedebtcollection. Thefollowingdebtcollectiontools areavailabletofederalagencies,includingfema,beforethedebtbecomes180days delinquent:(1)demandforpayment,(2)centralizedadministrativeoffset,and(3)nonͳ centralizedadministrativeoffset. DemandforPayment Ademandforpaymentformallynotifiesthedebtorofthenatureandamountofthe debt.itincludes:thebasisforthedebt;anexplanationofhowinterest,penalties,and administrativecostsareaddedtothedebt;thedatebywhichthedebtorshouldmake paymentstoavoidlatechargesandenforcedcollection,i.e.,filesuittorecoverdebt; contactinformation;andanexplanationoftheagency sintenttoenforcecollectionif thedebtorfailstopay. CentralizedAdministrativeOffset TheTreasury sfinancialmanagementserviceadministersacentralizedadministrative offsetprogramtocollectdelinquentdebtsowedtofederalagencies.tocollect delinquentdebts,agenciesmayreferthemdirectlytotreasury sfinancialmanagement ServicetooffsetagainstotherFederalpaymentsduetothedebtor. 14 TheTreasury s FinancialManagementServicecanusetheTreasuryOffsetProgramforFederal paymentsthatinclude,butarenotlimitedto,federalwage,salary,andretirement payments;vendorandexpensereimbursementpayments;certainbenefitpayments, traveladvances,andreimbursements;andgrants,fees,refunds,judgments,taxrefunds, andotherpaymentsfederalagenciesmake. 14 Adebtiseligibleforreferralifthedebtisdelinquent,legallyenforceable,morethan$25,andnot securedbycollateralsubjecttoapendingforeclosureaction(31cfr285.5(d)(3)). www.oig.dhs.gov 13 OIG-14-134-D
ExhibitA(continued) Note,however,thatFederallawexemptscertaintypesofpayments,makingthem ineligibleforcentralizedoffsetbythetreasury sfinancialmanagementservice.in addition,thesecretaryofthetreasuryhasgrantedrequestsfromvariouspayment agencies,includingfema,toexemptspecifictypesofpaymentsunder31u.s.c. 3716(c)(3)(B). 15 NonͲCentralizedAdministrativeOffset Ifanagencycannotcentrallyoffsetapastdue,legallyenforceable,nontaxdelinquent debt,itcancollectthedebtthroughnonͳcentralizedadministrativeoffsets.these offsetsincludetreasury CrossͲServicing andothercollectioncentersandanagency InternalOffset. CrossͲServicingoccurswhenFederalagenciestransferdelinquentdebtstoTreasuryfor collectiongovernmentͳwide.treasurytakesappropriateactionstocollecttransferred debtsincludingsendingdemandletters,makingtelephonecalls,referringdebtorstothe TreasuryOffsetProgram,and,whenwarranted,referringaccountstotheDepartment ofjusticeforlitigation.anagencycantransferdebtstotreasuryatanytimeafter fulfillingdueprocessrequirements. Ifanagencythatisowedadebtisalsomakingpaymentstothedebtor,aswithFEMA andthestateoflouisiana,theagencymayuseinternaloffsettotheextentthat agency sstatutes,regulations,andthecommonlawpermit.whenadebtordoesnot payadebtwithinareasonabletimeafterdemand,federalregulationsgrantfemathe rightto(1)reduceitsdebtwithadministrativeoffsetsagainstotherrequestsfor reimbursements,(2)withholdadvancepaymentsotherwisedue,or(3)takeanyother actionthelawpermits. 15 SeePaymentsExemptfromOffsetbyDisbursingOfficials(NonͲtaxDebtCollection)at http://www.fms.treas.gov/debt/dmexmpt.pdfforacompletelistofpaymentsexemptedbyfederallaw andthesecretaryofthetreasury. www.oig.dhs.gov 14 OIG-14-134-D
ExhibitB FEMA sinitialresponse www.oig.dhs.gov 15 OIG-14-134-D
ExhibitB(continued) www.oig.dhs.gov 16 OIG-14-134-D
ExhibitC FEMA ssubsequentresponse www.oig.dhs.gov 17 OIG-14-134-D
ExhibitC(continued) www.oig.dhs.gov 18 OIG-14-134-D
ExhibitC(continued) www.oig.dhs.gov 19 OIG-14-134-D
AppendixA Objectives,Scope,andMethodology TheDepartmentofHomelandSecurityOfficeofInspectorGeneralwasestablishedby thehomelandsecurityactof2002(publiclaw107о296)byamendmenttothe InspectorGeneralActof1978.Thisisoneofaseriesofaudit,inspection,andspecial reportspreparedaspartofouroversightresponsibilitiestopromoteeconomy, efficiency,andeffectivenesswithinthedepartment. Ourauditobjectiveswereto(1)assesstheadequacyofFEMA seffortstocollectthe $23.1millionduefromtheState,and(2)determinewhetherFEMAfollowedFederal regulationsandfemaguidelinesinitseffortstocollectthisdebt. WereviewedthecircumstancessurroundingFEMA screationandsubsequentcollection effortsofthe$23.1millionbillforcollectionduefromthestate;interviewedofficials fromfemaofficeofchieffinancialofficer,femafinancecenter,femaheadquarters, FEMARegionVI,andtheUnitedStatesDepartmentoftheTreasury(Treasury);reviewed FederalstatutesandregulationsandFEMAguidelinesrelatedtodebtcollection;and performedotherproceduresconsiderednecessarytoaccomplishourobjective.wedid notassesstheoveralladequacyoffema sinternalcontrolsapplicabletoitsdebt collectionactivitiesbecauseitwasnotnecessarytoaccomplishourauditobjective.we did,however,gainanunderstandingoffema spoliciesandproceduresfordebt collections. WeconductedthisperformanceauditbetweenApril2013andOctober2013,pursuant totheinspectorgeneralactof1978,asamended,andaccordingtogenerallyaccepted governmentauditingstandards.thosestandardsrequirethatweplanandperformthe audittoobtainsufficient,appropriateevidencetoprovideareasonablebasisforour findingsandconclusionsbaseduponourauditobjective.webelievethattheevidence obtainedprovidesareasonablebasisforourfindingsandconclusionsbaseduponour auditobjective.weconductedthisauditbyapplyingthestatutes,regulations,and FEMApoliciesandguidelinesineffectatthetimethe$23.1milliondebtfromtheState becameduetofema. www.oig.dhs.gov 20 OIG-14-134-D
AppendixB ReportDistributionList DepartmentofHomelandSecurity Secretary ActingChiefFinancialOfficer UnderSecretaryforManagement AuditLiaison,DHS ChiefPrivacyOfficer FederalEmergencyManagementAgency Administrator ChiefofStaff ChiefFinancialOfficer ChiefCounsel AssociateAdministrator,ResponseandRecovery Director,RiskManagementandCompliance RegionalAdministrator,FEMARegionVI AuditLiaison,FEMARegionVI AuditLiaison,FEMA(JobCodeGͲ13Ͳ029) OfficeofManagementandBudget Chief,HomelandSecurityBranch DHSOIGBudgetExaminer RecoveryAccountabilityandTransparencyBoard Director,Investigations,RecoveryAccountabilityandTransparencyBoard Congress SenateCommitteeonAppropriations,SubcommitteeonHomelandSecurity SenateCommitteeonHomelandSecurityandGovernmentalAffairs HouseCommitteeonAppropriations,SubcommitteeonHomelandSecurity HouseCommitteeonHomelandSecurity HouseCommitteeonOversightandGovernmentReform HouseCommitteeonTransportationandInfrastructure www.oig.dhs.gov 21 OIG-14-134-D
ADDITIONAL INFORMATION 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 (OIG) Office of Public Affairs at: DHS-OIG.OfficePublicAffairs@oig.dhs.gov, or follow us on Twitter at: @dhsoig. OIG HOTLINE To expedite the reporting of alleged fraud, waste, abuse or mismanagement, or any other kinds of criminal or noncriminal misconduct relative to Department of Homeland Security (DHS) programs and operations, please visit our website at www.oig.dhs.gov and click on the red tab titled "Hotline" to report. You will be directed to complete and submit an automated DHS OIG Investigative Referral Submission Form. Submission through our website ensures that your complaint will be promptly received and reviewed by DHS OIG. Should you be unable to access our website, you may submit your complaint in writing to: Office of Inspector General, Mail Stop 0305 Attention: Office of Investigations Hotline 245 Murray Drive, SW Washington, DC 20528-0305 You may also call 1(800) 323-8603 or fax the complaint directly to us at (202) 254-4297. The OIG seeks to protect the identity of each writer and caller.