Pay Me Twice. Thank You.
Does FEMA really overpay by 20%?
19 May 2021
You’re not supposed to get paid for the same thing twice. You’re not supposed to sell the same thing twice either. Basic rules of honest business states you don’t sell the same chicken twice. Poor form to sell the same bushel of potatoes or the same peck of apples to two separate customers and collect from them both. Yes, I live in farm country. All represent variations of theft or fraud. The same holds true when getting money from the United States government. If entitled to moneys, then collecting once is permitted; criminal to collect twice.
Uncle Sam drafted reams of rules to protect our public funds. Some rules relate to the eligibility or entitlement of the funds. You can’t take money designed for payroll to buy jewelry and fancy cars. Other rules strive to prevent the overpayment of funds – overpayment is a weak word; I’ll use it here, on purpose, so I tie back to a recent government report. Together let’s admit that overpayment of funds hints at underlying fraud or waste or abuse of public trust. Some organizations and some people get paid twice for the same effort, the same services, the same products. Whether at a farmer’s market selling bushels of potatoes or pecks of apples, all parties demand fairness in the exchange.
Uncle Sam writes complicated rules.
Complicated rules complicate.
Complicated rules get hard to understand and hard to follow.
When blending complicated rules with competing objectives, and poor communication Uncle makes himself damned hard to understand.
I thought I’d harvest this month’s DHS OIG report, stir in a couple of topical issues related to “selling the same chicken twice”. Frustratingly, the one OIG report out this month landed precisely on point thrice. First, it appears to address the same topic I’d already picked (except without chickens, potatoes, and apples). Second, the language entirely obscures the topic. I barely understand it. If I could untangle it then comprehend it then communicate it, I may just find a big headline to shout out. Alas, I’m still lost on my fifth reading of the 22-page document. Whilst I know none of you are reading along at home, this is report OIG-21-33. Somehow like when I am reading French and Spanish, I think I may just possibly understand the message, maybe. Third, given the axiom that complicated rules complicate – the disaster recovery grants are so complicated for FEMA staff and fund recipients that this report states the funding program suffers an error rate over 20%. For hundred dollars spent, FEMA appears to pay out $120 or more. Someone is selling their chicken twice, or someone is committing fraud, or something else.
In this episode of “The History of Now”, I explore duplication-of-benefits. Those in the know toss the phrase into conversation so easily and readily. Please treat duplication-of-benefits as one word. This word is a noun describing a crime. Duplication-of-benefits is the administrative and financial equivalent of selling the same chicken twice, or getting paid for the same chicken twice, or asking for the money for that one chicken twice. When done without intent, it may not be a crime although the action still results in the defrauding of public funds. When executed with intent, we witness fraud, or theft.
The United States response to the Coronavirus pandemic can also be measured in terms of cash. The CARES Act and subsequent funding effort are releasing over $4 trillion to the economy.
I have three questions:
Will someone make mistakes resulting in duplication-of-benefits?
Will someone endeavor to cheat the process?
Are the rules clear?
Let’s explore that together, now.
Farm Stand Honesty
When standing at a farm stand, one doesn’t think about duplication-of-benefits. If you find a chicken in the freezer, you put your money in the cashbox then take the chicken. It is how we do it here in the country. We do the same with eggs and beef and veggies. If you need a chicken and no chicken is present, you leave a note or call the farmer. Sometimes, you may leave cash for a chicken departing with only the hope of a future chicken – that’s rare. One expects an even trade between chicken and money. Both parties, farmer and neighbor expect fairness and transparency.
We share the United States with 330 million people. Unlike a tiny town in Vermont with 500 year-round residents, laws governing fairness in trade must be written down. We expect enforcement and appropriate protection of our public fund and our public trust. How do we codify, write down, then enforce laws of fairness and honesty? Complexity eventually become necessary then the norm. Occasionally, the complexity and language describes normal with Orwellian contradictions.
I prefer the integrity and neighborliness of the farm stand economy. My family shops and lives within these confines. On the other hand, from 7am to 4pm Monday to Friday, I cross the threshold of my office stepping into contradictory, complicated, confusing landscape beyond my tiny town. I must face the laws as they are written. I must understand government reports for what they mean to say.
When looking at the government’s response to COVID, these contradictory, complicated, and confusing elements stand boldly in front of me, in front of you, and in front of us all.
The U.S. federal government committed to spent at least $4 trillion to assist with the response, management, and recovery from the coronavirus pandemic. Funding for government responses; funding for research and vaccine development; funding for vaccine distribution; funding now for personal funerals; funding for state, county, and municipal responses; funding for personal protective equipment; funding to hospitals and first responders. These funds, like so much of what the U.S. governments funds, become grants. Nearly every agency administers grant programs while distributing grant funds.
Why every federal agency (or nearly all) are involved in providing federal grants for COVID response? Because agencies and their cabinet secretary each want to participate in solutions and progress. Imagine saying to some random agency – you have no role in the response and recovery from the global pandemic? Well, gee, you just basically identified an agency with no role in helping people, helping the economy, or helping anything. Instead, the public funds winds through the labyrinth of federal and state agencies. Everyone has a role in helping us respond to and recover from the pandemic. It’s Tuesday. Everybody works on Tuesday (a line from the movie “Dave”).
My focus for this podcast episodes is with most others in this series “The History of Now” explores the intersection of public funding and fraud. We have yet to approach the margins of COVID fraud.
Do the rules, laws, oversight, and management of these funding programs strive towards clear objectives? Three objectives I understand clearly are:
1) Save lives;
2) Prevent illness;
3) Keep America’s economic systems viable.
I’d love it if an objective included sincere efforts of bringing reliable highspeed internet to rural peoples – that’s me being selfish.
My dual purposes involve helping someone avoid trouble and helping someone identify fraud. To this end, I will explore two programs. One familiar and oft discussed on the news (or was). Another, less familiar but the biggest financial engine in the response and recovery operations. The first program is the PPP or Paycheck Protection Program. The second involves various funding streams for public entities and public health research. Y’know the funding that went to the vaccine development and vaccine distribution processes, the funding that went to buying PPE for first responders, even the newer funding for funerals.
I’ll start with the Paycheck Protection Program administered by the Small Business Administration. In 2020, the PPP garnered a lot of news coverage and generated enthusiasm then some dread in nearly every community in the United States.
Our congress drafted the COVID response laws then authorized the executive branch to implement the programs and disburse the funding. Like any emergency response, we foul up on timing. We’re late when we need to be on-time. We get priorities wrong. And we provide incomplete and inaccurate instructions.
We do this because we are human.
Should we expect that a certain percentage of the loans/grants go directly into the pockets of crooks? Is that percentage 20%, 10%, 5%, 1% or 0%? Is there a standard or expected loss rate? I want to think 0%. Public Law 114-204 expects something less than 10%. The farm stands around our community may have some small losses from their cash boxes. With larger losses the honor system would not work. And only the most naïve amongst us believe that zero losses are the rule. Larger, commercial retail environment have a budget for loss protection. The cost of cameras and things that buzz-n-beep likely costs them the same as the cost of expected theft.
With government funding programs money is lost to fraud. Money is lost to waste and money is lost to abuse. Fraudsters fraud. Crooks steal. The PPP provides a hint of what is yet to come.
Will someone endeavor to cheat the process? Well, yes. Fraudsters fraud.
Will someone make mistakes resulting in additional benefits to themselves? Well, yes.
Are the rules clear? No. Complicated rules are complicated.
Four trillion dollars, the value of our COVID response, is just about the gross domestic product of Germany. The GDP for the UK, India, and France all approximate $3T. The GDP for Italy, Canada, and Korea approximately $2T.
Our $4T response is greater than the GDP of Italy and Canada added together.
Our $4T COVID response is greater than the GDP of Germany.
U.S. has the highest GDP at $22T followed by China at $16T. Japan is third with $5T.
If our COVID response were a nation, it would have the fourth largest GDP.
If I had $4trillion to buy local free-range chicken from farm stands in Vermont, I’d have to find a way to store about 500 million chickens. That’s a bit more than 1 whole chicken for everyone in the United States. $4T buys every American one fresh, mildly-expensive, free-ranged chicken plus a few potatoes and a couple of apples.
Instead, $4T is buying us vaccines, PPE, and ensuring payroll for some businesses for 2 ½ months and queuing up to pay for funerals for the nearly 600,000 people who died during this pandemic.
$4T is a lot of money.
Willie Sutton, bank robber and accidental philosopher, suggests bank robbers may likely rob banks because banks is where we put money. If you are going to steal money, go to where the money is.
Some people will attempt to steal money from the COVID programs – a basic corollary to Sutton’s Law. Let’s accept that as a premise. Let’s also accept that any theft of these funds is a theft from all of us. We should not allocate any portion of these public funds as lost to theft. While we may expect that people will attempt to defraud the government of COVID money, they each are committing crimes. Every theft of every dollar is crime.
Therefore, we need techniques, processes, procedures, and oversight in place to detect fraud and corruption. When observed, we must have mechanisms to gather evidence, then arrest, then try the crooks. This requires transparency in the funding programs. This requires an acknowledgment that corruption exists, and we actively engage law enforcement to protect taxpayer funded programs like our COVID response.
Frankly, our funding programs create a bewildered and confused cadre of grant recipients.
Those getting the moneys have few ideas what is expected of them. This I can guarantee. I am one of them and I am an expert.
Download DHS OIG PDF
Paycheck Protection Program
I own a small business and I received (my firm received) benefits from the Paycheck Protection Program. Within weeks, fraudster were frauding. Some got caught. Some made the news. The program provided almost $1T in loans to businesses. A portion of these loans may become forgiven under certain conditions. The portion of the loan that gets forgiven maybe referred to as a grant.
Initially, the rules appeared clear and obvious. We, the government, intended to help small businesses. If a company had access to capital, or made more than $5 million over two years, or had more than 500 employees, then these firms did not qualify.
Instead, 50% of the money went to 5% of the recipients. To restate: half of the money from the PPP went to bigger business.
Our clear laws included sufficient ambiguity in the definition of small to permit wild skewing of the distribution of the money. Picture the graphical curve describing this distribution with 5% of the companies getting 50% of the money. $500 million dollars went to a few “small” businesses – and I had to put small in quotes because it defies my definition of small.
Let’s continue down the path of ambiguity.
The law states that the loans mature at 10 years, the SBA says 2 years.
We, the fund recipients clearly need to account for the funds and their use, but these details were not delineated ahead of time. The funds were capped at the value of 2.5 months of payroll and some basic operational expenses. The loan included a lot of rules about retaining staff. No amount of effort stretches 2.5 months of expenses into 12 or 18 months of hardship. When my firm had staff leave us, we could not afford to replace them. The program didn’t protect paychecks beyond 2.5 months.
The PPP came from the Small Business Administration. Prior to PPP, business could apply for Economic Injury Disaster Loan (EIDL). The SBA made attempts to consolidate the programs a little bit. We know that you cannot sell the same chicken twice; you cannot get funding from Uncle Sam for the same effort twice. That is theft – that is duplication-of-benefits. Accepting two grants for the same effort is fraud. If an organization submits invoices or labor costs twice – the same invoice or the same labor costs to two grant programs or loan programs, then they have requested a duplication-of-benefits. It is the same as asking two customers for money for one chicken.
After EIDL then after PPP other funding streams opened up to businesses. Each striving to help their constituency. Each agency needs to show how much they helped the American people. The application forms for these programs tended to ask:
Question Number 1: What is your normal operating income for X period?
Question Number 2: What is your normal expenses for this same period?
Question Number 3: What is the economic cost of the pandemic to you? In other words, identify your lost revenue or your increased costs?
Question Number 4: How much money are you asking this program for?
Question Number 5: How much money have you received from this or other government programs?
If the local economic development agency is offering funds, then you must deduct the SBA funds you received. This makes sense – you can’t get paid for the same effort twice. You can’t sell the same chicken twice.
Here is what is happening…
First, organizations are filing multiple applications simultaneously. They can honestly say that they got no money from X or from Y. The grant application processes all run on their own little timelines. It appears as if grant and loan programs are competing while not actually competing. In some cases, programs hyper-segment their constituency: this loan program is for left-handed dyslexic business owners. This program exists for traditional brick-and-mortar business on main street. In some cases, the funding purposes get segmented. If PPP covered payroll and rent, then this program covers facility improvements to prevent the spread of airborne illnesses. This program buys you plexiglass for your sales counter. If the new money is not spent on payroll, then the benefits are not duplicated. You get both. Small business owners must track these funds separately – as if each dollar bill came through the system with a different color. The pink dollars can go to payroll and rent. The yellow dollars for plexiglass. The red dollars for air filtration systems. The blue dollars for PPE. We live in a world where most business owners struggle with existent administrative burdens related to payroll reporting, tax reporting, and bank balances. Now they must keep the red money and the blue money and the pink money and the yellow money separate.
As organizations apply for public funding support, they must identify other public funding they got – they must keep the colors of the money separate. The government is trying to communicate that duplication-of-benefits if not going to be tolerated. The burden weighs on the shoulders of the small business owner.
The funding sources are segmented. The programs may or may not compete. Each funding agency wants to prove they helped real people. Now someone is yelling, you can’t spend your blue money on payroll even if you are sinking under water.
Duplication-of-benefits is the crime to prevent as our nation strives to meet our objectives:
1) Save lives;
2) Prevent illness;
3) Keep America’s economic systems viable.
The pink money helped with payroll and rent for 2.5 months. And the red money intended for the air filtration system can’t be used because you’ve run out of money for payroll and rent. You can’t use the red money for payroll to help staff pay bills, buy food, and such.
When we think of federal money helping business towards the three objectives the way forward seems clear. When we distribute money, each painted with a different color, each color tied to a different mission, each travelling in its own lane we’ve added complexity.
Complicated rules make things complicated.
Uncle Sam forgets to inform us of rule changes prior to the rules changing. We barely understand the rules and they change.
Wait, let me restate that again. The federal agencies don’t understand the rules and then the rules change. We have federal agencies offering programs with similar goals such as the EIDL and PPP from the Small Business Administration. The SBA did try to deconflict them. But, I know that someone is still stuck between the two programs.
My firm did not pursue any funding beyond the PPP. We did help state agencies manage federal grants during this year. My expertise level hovers around 9 on a 10-point scale.
Business owners faced decisions with these funding programs:
Option One: Accept federal assistance then embrace the complexity and associated constraints.
Option Two: Do not accept federal assistance.
Neither option ensured survival of a business during the pandemic. Business failed with and without assistance. 2.5 months of paycheck support did help, but very little. The pandemic continued longer than expected with greater economic insult than anticipated. Hard to stretch 2.5 months of payroll and rent support over a 12-month slog.
My firm took federal funds. We embrace complexity and minutia yet; I still wonder if we did the right thing.
Years ago, a client spent months completing two grant applications processes. One through FEMA and one through Housing and Urban Development (HUD). The rules of these two grants allow, in some cases, funding from both agencies to work together on the same project. They cannot overlap on costs or benefits but they can each cover a portion of the costs. Red money from FEMA pays for x, y, and z. The blue money from HUD pays for t, u, v. After a year, this organization withdrew from both programs walking away from hundreds of thousands in “free” money. The money came with rules restrictive and contradictory that could not achieve the necessary objectives. The executive director of the organization gave up. I sympathized with this person and the organization. This executive director engaged with five teams through the hurricane recovery process. When FEMA grants and HUD grants work together, the applicant must work with both FEMA and HUD. Each FEMA and HUD channel their moneys through state agencies. 2 federal agencies, 2 state agencies, plus the applicant and her board of directors – that’s five organizations coordinating the reconstruction following a hurricane. The executive director saw the complexity of maintaining the separately colors money in separate money streams with not-quite-but-almost-competing reporting needs.
The SBA employees 3,000 people. The trillion-dollar PPP initiative is the largest in their history. Do they have the necessary staffing, expertise, and resources to provide the detailed support needed?
Under normal circumstances, the SBA plunks along towards their missions. I’ll bet they barely keep up. Now we shall ask the SBA staff to manage nearly $1T in loans-slash-grants. We’ll ask them to help prevent fraudsters from frauding. Now, we’ll ask them to embed sufficient monitoring and controls to safeguard our tax dollars.
Can they do that?
I honestly don’t know. It is a challenge.
4.5 million businesses received money from the program by June of 2020. At that point, the secretary of the treasury stated that the identities of the recipients was both proprietary and confidential. We have the Small Business Administration withhold these data from the Government Accountability Office. The agencies have fussed at each other over access to these data. Organizations filed Freedom of Information Act requesting for data.
We had elements of our government actively working to reduce transparency of the data. These actions hinder investigation into fraud. I love numbers. I see patterns in number. Data tells us stories if we chose to look and study. That’s for another day, another podcast episode.
Today, we are exploring duplication-of-benefits. Is it possible that fund recipients sought reimbursement or loans for the same work, same effort, same expenses? Do we have people who got PPP funding who either intentionally or accidentally attempted to sell the same chicken twice?
It is a tough investigation and less egregious than buying expensive sports cars, jewelry, and lavish trips instead of paying staff and rent. It’s all theft. It’s all theft of our shared tax dollars.
I’ll now transition to grants provided to public entities such as state and local governments.
Disaster Relief Fund
In the previous section, when discussing the PPP, I stated that the Paycheck Protection Program followed another SBA program then other federal agencies released moneys designed for business. To avoid duplication-of-benefits, each program carved its own niche. Niches and programs plus agencies created multiple streams of cash each flowing with their own colors, their own rules-ish, their own reporting process, etc., etc., etc.
With no surprise, we’ll find the same with the public funding streams.
The normal lead on any disaster response and recovery process is FEMA, the Federal Emergency Management Agency. Their mission statement reads: To help people before, during and after disasters. COVID19 and the resulting pandemic is a disaster. The president declared disasters in all 54 states and territories.
For some moment in 2020, FEMA was the lead agency for the disaster, then it wasn’t. For a moment some of us thought most of the funding would go through FEMA, then CARES Act funding flowed through other agencies.
During the summer of 2020, we encountered an odd issue. While we expected that hospitals and other medical agencies would pull funds from FEMA, they decided to accept money from Health and Human Services. We heard a variety of reasons for this. Top of the list was that FEMA’s reimbursement plan for disaster grants was then 75%. HHS was reimbursing at a higher level. Also, hospitals thought they understood HHS grant programs. HHS often pays for research and such. I attended a conference call with a hospital that stated they were asking for a billion dollars. They will just put their payroll records on memory sticks and print other stuff into boxes then ship them to HHS. To them, the HHS grant program would be just that simple.
FEMA has a reputation for complicated.
The HHS grant programs and the FEMA grant programs fall under the same body of law called 2CFR200. Hospitals and health agencies opted away from FEMA taking money from HHS.
In 2021, FEMA increased their reimbursement rates to 90% in some cases and 100% in other cases. Now FEMA is more attractive than HHS. Both reimburse for PPE. Both fund similar actions within these eligible entities.
Remember you can’t sell that same chicken twice. No one can accept federal funds for the same action, the same expense, the same payroll, the same product twice. If you submitted your expenses to HHS through an HHS grant, then you should not submit those expenses to FEMA. Humm… Duplication-of-benefits.
During the decade, my team and I have studied DHS OIG reports. Our analysis shows that 75% of FEMA fund recipients make significant errors. I admit that the underlaying data sample is not randomized. My anecdotical experience support at least a 75% error rate. In short, organizations make mistakes when managing disaster grant funds.
FEMA releases information about their big-dollar and bold initiatives publicly. They want to show us all they are actively helping us all.
The last five FEMA press releases for the State of Vermont read thus:
- FEMA Awards over $1m to Vermont for COVID-19 Response (31 March 2021)
- FEMA Provides Over $9.6 Million to the University of Vermont Medical Center (same date)
- FEMA Provides Over $46.6M to the Vermont Agency of Human Services (14 April 2021)
- FEMA Provides over $104.4M to the Vermont Agency of Human Services for COVID-19 Vaccines in 2021 (15 April 2021)
- Vermont’s Emergency Feeding Program Receives grant for more than $1.9M (29 April 2021)
Every state has similar headlines. FEMA is feeding people. FEMA is providing vaccines. FEMA is funding research. FEMA is funding hospitals. FEMA buys PPE for people.
And so is HHS.
Imagine yourself as a hospital administrator – you’ve never had more patients in your facility. Funding flows for bills you’ve struggled to pay. You are competing now with other hospitals for staff, for equipment, for PPE.
You decide to stick with HHS type funding. That’s familiar, the reimbursement rates seem good. You apply and supply documents then slog through that mess. You decide not to chase money from FEMA.
Then FEMA changes the rules. You apply and supply documents to FEMA. You slog through that mess. You don’t know which agency is reimbursing you and you need to keep the lights on.
What could possibly go wrong?
Is a mistake possible?
Is it possible that you accidently submitted the same expenses for the same moment to two grant programs? Is it possible you accidently sold the same chicken twice?
Whose fault is it? If in doubt, look in the mirror. It is your fault, not matter what else you think or desire – it is your fault.
Let’s circle back to that impenetrable OIG report #21-33. I said I would. I am still struggling to understand it. Before I even attempt the title, let’s acknowledge that month after month, year after year, OIG finds fault with FEMA’s procurement, contracting, and oversight practices. Each review finds significant errors that cost the American taxpayer money. OIG writes “FEMA is failing to provide required training”; “FEMA is failing to provide adequate oversight”; etc. The headlines become similar and familiar over a decade.
FEMA routinely response to regional disasters chasing hurricanes, tornadoes, and fires. They struggle keeping up with their mission as the OIG reports show and as the media occasionally illustrates.
Now FEMA is managing the single largest disaster in their history. Last year’s hurricane season tied for the worst on record (a storm got upgraded during May of 2021).
During the winter and spring of 2021, the executive branch swapped leadership and changed the heads of nearly every agency including FEMA.
Here is the background for the OIG report called 21-33.
The title of this beast is:
“Department of Homeland Security’s FY 2020 Compliance with the Payment Integrity Information Act of 2019 and Executive Order 13520, Reducing Improper Payments”
In the cover letter, I can read this:
“The report contains two recommendations aimed at enhancing the Department’s compliance with the Payment Integrity Information Act of 2019. Your office concurred with both recommendations.” I’ll translate: we found 2 issues. You agree. The letter then informs the department to submit a letter when problems are fixed.
Boom, done. Just that simple. Oh, by the way, these reports are public and went to the appropriate oversight committees.
I know I have strayed a long way from my farm stand chickens. You know I would.
Really this does come down to chickens, potatoes, and apples. It comes down to the essentials of life and the taxes we pay. We pay taxes. Federal programs exist to help us fight pandemics, build bridges, and such. Overly simplified, but we expect a fair deal. Money for services. I put money in the cash box and take my frozen free-ranged chicken from the neighboring farm. Money for goods. Money for services.
The OIG found that during a statistically valid process of auditing, they found 31% of the programs they audited had significant improper payments. Stated plainly the Department of Homeland Security makes significant errors while paying bills and making reimbursements. Federal law strives to keep error rates less than 10%. Check. 10%!
My statements shall be bold and declarative and based on this research. Please question my assertion and please verify my data. I welcome it. Go look at DHS OIG Report 21-33 and the table found on pages 7 and 8.
Of course, OIG examined the biggest programs at FEMA including the disaster supplemental funding programs such as Public Assistance. I did not use the title “Public Assistance” above. It is the FEMA funding program I have discussed in this episode. It is the one I most often discuss. It is the primary tool for disaster response. It provides assistance to public and public-like entities hence the name Public Assistance.
According to the OIG, according to this table on page 7 of this report:
Public Assistance has an error rate of 22.30%.
OIG found an 18.56% error rate with the Urban Search and Rescue program. Big error, but smaller dollar values.
Just for comparison: Coast Guard: 1.21%.
Immigration and Customs Enforcement: 0%
Federal Protective Service payroll: 1.87%
The headline is that the statistically random analysis performed by auditors from the inspectors general office showed that the singled biggest program that FEMA runs historically has a 22% error rate.
FEMA’s Disaster Relief Fund (think of this as the disaster recovery budget) for COVID19 is $52 Billion. If we accept a 22.3% error rate, that something over $11B in errors.
Want context on $11B?
New York City’s annual budget is $100B. So imagine making 10? or 11% errors on that? 10 or 11 billion dollar mistakes with New York City’s budget.
City of Boston’s annual budget: $3.5B.
City of Los Angeles? $10Billion. The possible errors from FEMA roughly equal the City of Los Angeles’ budget.
You get the picture. If FEMA has an error rate of 20% for COVID disaster relief, the cost of errors is enough to fund major U.S. cities.
What is your action?
I dunno. I don’t even know what do to myself. We can figure this out together though, right?
Be safe, be well. Until next time.