With this week’s GAO release of Financial Management: Improvements Needed in National Flood Insurance Program’s Financial Controls and Oversight, there is no longer a need for a juggling act to find the truth of claims made in earlier reports and the evidence policyholders present the courts – and, in the interest of judicial economy, the qui tam defendants should just kiss their arguments goodbye:
FEMA’s Bureau and Statistical Agent (BSA) serves as a liaison between the government and WYO insurance companies. GAO identified weaknesses at three levels of the NFIP transaction accountability and financial reporting process.
- First, at the WYO level, our internal control testing of a statistical sample determined that almost 71 percent of WYO company claims loss files did not have the necessary documents to support the claims, or reports were filed late.
- Second, incomplete BSA-level premium data files (lacking key information such as insureds’ names and addresses) prevented an assessment of the reliability of reported NFIP premium amounts. Further, BSA-level internal control activities were ineffective in verifying the accuracy of WYO-submitted data.
- Lastly, FEMA’s financial reporting process uses summary data that is overly reliant on error-prone manual data entry.
Apparently, the Branch Defendants decided no one would notice the OIG only examined .0062% of total claims and decided they would try and pass off Hurricane Katrina: Wind versus Flood Issues (Exhibit A, Response to the Branch Proposed Discovery Plan) as a statistically reliable report and sell it to Judge Vance:
Branch seeks to replicate—and second guess—an investigation already conducted by the Government pursuant to the Department of Homeland Security Appropriations Act, 2007. Indeed, the Government has already audited and analyzed a sample of Hurricane Katrina flood claims for the precise fraud Branch alleges…None of the reports contained evidence that wind damage had been attributed to flooding.
The sheer absurdity of their claim is equaled only by the sheer absurdity of the methodology used in the report:
There were 209,404 NFIP flood insurance claims filed for Hurricane Katrina, according to the table on page 6 of the OIG report.
- 98-100 paid claims were reviewed prior to the interim report released July 2007.
- The number of paid claims reviewed increased to 131 – .0062% of total claims -in the final report.
- 123 of the 131 paid claims also received payment for wind damage – 94% of those reviewed
…the sampling technique selected by the OIG is indicative of the larger problem created by the “F” word following Hurricane Katina, it is important to point out the 131 paid claims were a Judgmental Sample…used primarily when there is a limited number of people that have expertise in the area being researched.
Sop, who actually conducts investigative GAAS audits and prior to specializing in construction performed Single audits for certain state governemntal entities, followed my post with one explaining our collective opinion on the disconnect we found between reported data and the OIG’s findings (Results of Review, page 5) – for example, how data show 1.5 % of the NFIP claims paid for wind damage while the related finding states, Based on the files in our sample, NFIP did not pay for wind damage…
You see, when I audit cash for one of my clients for instance, I understand going in there is a high inherent risk that it will sprout legs and walk off. Cash tends to be like that and that inherent risk associated with it does not differ much between organizations. Thus when an auditor examines details relative to cash that basic fact must underpin the entire approach. Did the OIG take that approach? Let’s start with what they found:
44 out of 131 cases (34%) included errors that related to cause of damage resulting in some degree of duplication, e.g., flood and homeowners policies paying for the same type of damage (ceiling repair, loss of personal property), only two (1.5%) of these cases clearly identified wind as the preponderant cause of damage, thus resulting in an improper payment by NFIP in the amount of $432,600.
That’s right, an error rate of 34% including 2 that were clear cut example of claims dumping. Now if an experienced auditor instead of a prostitute had conducted the OIG exam we could rightfully expect a conclusion somewhere along the lines of there being systemic problems with internal controls covering claims payments made by the National Flood Insurance Program. Instead Richard Skinner and his employees Gina Smith, Cliff Melby and Raul Adrian take the Roxanne path and associate their hereto for good names with this conclusion:
Based on the review of files in our sample, we did not find material evidence that the NFIP paid for wind damage.
That is an amazing conclusion, especially considering the level of bias in their sample. Insurers by law did not have to share their wind payment data with FEMA. We find the total sample drawn by OIG was 227 NFIP claims files. However they could only test 131 because that was the extent of the response they received to the administrative subpoenas they issued. Given what they found in the 131 files they actually tested it is impossible to conclude anything about the population except that it manifests major problems, especially the two instances where claims dumping was clear cut.
Beyond the silly conclusions not supported by their own data, this report was a complete waste of taxpayer dollars spent to prepare it. These problems and their solutions will have to wait a few more months for the next (Obama) administration to tackle.
It’s been more than a new months that we’ve had to wait (h/t CLS) but things are popping and Sop and I both have more to say – including this reminder about that State Farm shredder truck.