- The Washington Times - Thursday, October 6, 2005

The widespread devastation in the Gulf States caused by Hurricanes Katrina and Rita could leave the federal government with a tab for rebuilding of as much as $200 billion — a sum many experts believe could increase significantly in the months ahead. Managing such a massive concentration of resources poses formidable challenges for any organization. After all, the rapid influx of $200 billion is tantamount to a start-up company rocketing to the number three position on the Fortune 500 list of companies in a mere two months.

With the emotion of the disaster, the huge inflow of money and the need to distribute it quickly, there is the potential for another disaster, one in which taxpayer monies are misspent, misallocated or simply stolen by unscrupulous people. Good financial management is far more efficient and effective than oversight, since it is easily understood that once money goes out, it costs far more to recover — if it can be recovered at all.

With nearly 30 agencies administering programs, the federal government needs to establish a comprehensive system to ensure financial control, financial integrity and fraud detection, in addition to providing critical services such as reasonable cost assessments and claims management. The absence of such a system will invariably result in the gross mismanagement of taxpayer dollars, while offering inadequate relief — at best — to the victims of the hurricanes. The central elements of such a system are as follows:

• Develop a disaster relief council of federal CFOs and inspectors general. This body would develop and implement high-level internal controls over disaster assistance and standardize financial and program information requirements. Council members would define a cost-effective monitoring process, while providing oversight of federal financial assistance transactions and regulatory filings for assistance. The Department of Homeland Security (DHS) has dispatched a team of 30 professionals from the Inspector General’s (IG) office, but far more leadership is needed.

• Establish a process for claims administration. A significant use of federal funds will likely be payments to hundreds of thousands of individuals to rebuild their homes. A sound process for managing these claims must be established. Protocols for determining need and eligibility need to be developed, as does a market-based valuation model to ensure that people are fairly compensated. In addition, a user-friendly system is needed that will enable claimants to secure the funding they require. (Opening walk-in centers and establishing toll-free help lines to provide immediate claimant assistance are two options.)

• Establish a process for grant management. Another significant use of federal funds will be grants awarded to victims of the hurricanes, many of whom are business owners. The purpose and selection criteria of these grants need to be clarified along with a process for verifying the needs of individual applicants. Also, a system for tracking the disbursement of funds needs to be instituted, as do compliance reporting requirements leading up to and including the closeout of all grants.

• Closely monitor the performance of contractors. Contractors hired by the federal government need to be closely monitored to ensure that rebuilding efforts are completed on time and on budget. Agencies need to establish accounting systems to track payments, including invoice and contract verification, and to analyze vendor invoices against completed work. Finally, periodic audits of projects should be completed to determine the extent to which they are in compliance with appropriations or grant requirements.

Much of this can be done through existing IG oversight and internal financial management structures, but it will take resources and additional personnel which many agencies simply don’t have.

In our nation’s heartfelt response to this tragedy, it is critical that federal financial managers and inspectors general have the proper resources to manage this effort. The absence of adequate financial control resources will invariably result in the mismanagement of taxpayer dollars, while offering uneven relief at best to the victims of Hurricane Katrina. As stewards of the taxpayers’ dollars, every effort should be made to ensure that the funds appropriated actually find their way to rebuild the lives and livelihoods of our citizens and the infrastructure of the Gulf region.

R. Carter Pate is the U.S. Managing Partner of PricewaterhouseCoopers’ Federal Government Practice.

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