Loss of Financial Control over the National Flood Insurance Program

The National Flood Insurance Program, which helps owners of real or personal property to purchase flood insurance, is administered by the Federal Insurance Administration (FIA) of the Department of Housing and Urban Development (HUD). Authorized insurance coverage is provided by the member companies of the National Flood Insurers Association. Weaknesses were noted in the Association's ability to generate accurate data, which cast doubt on the government's ability to determine reasonable amounts payable to the Association under the Flood Insurance Program. Since October 1975, the Association has been unable to prepare financial statements on the results of its operations or to prepare proper billings to HUD for its share of program costs and flood losses. A CPA review revealed that the computer system used did not meet criteria established by FIA and the Association. Because of inadequate financial controls, the government was unable to properly calculate the association's share of expenses reimbursable under the program, and the amount of the operating allowance to be retained under the program could not be properly determined.