Review of the Claims Processing Procedures of the National Flood Insurance Program

GAO was asked to review the Federal Emergency Management Agency's (FEMA) response to the recommendations in an earlier GAO report on the National Flood Insurance Program (NFIP). GAO also reviewed the adequacy of accounting controls over flood insurance claims processing and examined whether flood insurance policies were in effect when the losses occurred.

In general, claims are processed so that their payment and recording is valid and accurate. However, Electronic Data Systems Federal Corporation (EDSF), which administers the NFIP, does not follow control techniques which accurately account for disbursement drafts. Duties for the processing of annual drafts at headquarters and flood disaster sites are not adequately separated, nor are reissued and voided drafts properly accounted for. In addition, EDSF has not been reducing claim losses and liabilities for voided drafts that will never be reissued. EDSF needs to strengthen controls over aspects of its automated claims processing. Policy effective dates were not always adhered to, resulting in questionable insurance claim payments. The number of questionable payments declined somewhat in 1981 after stricter federal regulations took effect. In response to earlier GAO recommendations, FEMA took the following actions: (1) created an Office of Comptroller and assigned an accountant to correct financial reporting deficiencies; (2) proposed a provision to the EDSF fifth year contract requiring maintenance of an acceptable accounting system; and (3) assigned a certified public accountant to monitor the NFIP financial activities. In addition, EDSF undertook several projects to improve the NFIP financial reporting, including procurement of an automated general ledger system and reconciliation of disbursement records with bank statements. FEMA needs to respond more fully to GAO recommendations if corrective actions are to be completed for fiscal year 1983.