$700 Million in Katrina Relief Missing, Report Shows

PHOTO: Warren Schexnader stands on the steps of his old home in front of another destroyed home, right, and the FEMA trailer he is currently living in, left, June 8, 2007 in New Orleans.
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A new inspector general's report found that about $700 million awarded to help Hurricane Katrina victims fortify their homes from future floods is unaccounted for, which Congressional leaders say is a troubling sign of the need for tighter controls as Superstorm Sandy rebuilding efforts intensify this spring.

The Department of Housing and Urban Development is pressing the state of Louisiana to recover the money given to homeowners to elevate their houses. But David Montoya, the inspector general of the agency, told ABC News that the likelihood of reclaiming the money was "slim, at best."

"We have $700 million that we can't account for and that certainly did not go to elevating homes and preventing future damage from storms," Montoya said in an interview in his office in Washington.

"This is money we can't afford to lose. This is money that we don't get back and this is money that we can't put toward other disaster victims."

The cases of government waste and fraud have steadily piled up since Hurricane Katrina ravaged the Gulf Coast in 2005. Federal prosecutors are pursuing criminal charges in New Orleans, including one instance last week in which a New Orleans woman pleaded guilty to making false statements after taking government grants and failing to fix her home.

The Louisiana Road Home program, which allocated $1 billion to elevate and repair homes to protect them from flooding and storms, was part of the $29 billion Hurricane Katrina relief effort approved at the time by Congress. The government investigation found that 70 percent of the money has not been accounted for. More than 24,000 homeowners who each accepted grants of $30,000 were unable to show they used the money to fix their houses.

"There is fault all the way around. Clearly the homeowner accepting up to $30,000 to elevate their home is at fault for not using the money that it was intended for," HUD's Montoya said.

He added, "Clearly the state's at fault for not doing a better job of due diligence if you will for ensuring that these homes were being elevated."

The state of Louisiana acknowledges that hundreds of millions of dollars from the program have not been accounted for, but officials told ABC News they are working to recover the money and pushing homeowners to restore their houses in hopes of minimizing damage from the next round of floods and storms. Since the federal investigation began last year, the state says that it has already tracked down 5,000 more people who have fixed their homes.

"We are working aggressively with HUD to get the remaining 19,000 homeowners in compliance," said Pat Forbes, who oversees disaster recovery in the administration of Gov. Bobby Jindal of Louisiana.

Sen. Tom Coburn, a member of the Homeland Security and Governmental Affairs Committee, said the lessons from Hurricane Katrina's relief efforts should stand as a stark warning as Hurricane Sandy rebuilding efforts intensify this spring in New Jersey and New York. He said the Obama administration should take steps now to avoid repeating the mistakes of Hurricane Katrina.

Coburn, an Oklahoma Republican who is among the loudest critics on Capitol Hill of government waste, outlined his concerns this week to Housing Secretary Shaun Donovan. In a two-page letter obtained by ABC News, he bluntly declared: "HUD must work to not repeat mistakes from previous programs."

Coburn said HUD should have a plan in place to ensure that people who receive grants use the money for its intended purpose. He said one area of particular concern is the $16 billion community development block grant program in the Hurricane Sandy aid package, which was signed into law earlier this year by President Obama after intense debate in Congress.

Senior officials at the Housing Department told ABC News that tighter controls are already in place for the Sandy rebuilding effort that were not operative during Hurricane Katrina.

"In the years since Hurricane Katrina, HUD has already implemented a number of the recommendations made by the Inspector General, including additional controls to ensure recovery funds are used properly," said Jerry Brown, a spokesman for the Housing Department.

But the call for stricter accountability in government spending rings hollow in the Gentilly neighborhood of New Orleans, where dilapidated houses remain an eyesore for Felicia Higgins, who said she went through a very "arduous process" to qualify for a government grant to elevate her home.

She believes some of her former neighbors are guilty of fraud.

"It hits you in the face every time you walk out the front door," Higgins said in an interview this week, standing outside her house that sits near abandoned and dilapidated property. "If they aren't going to spend the money for what it was intended, then they need to give it back."

Tina Marquardt, who works at Beacon of Hope, a community organization created to help New Orleans residents rebuild after Hurricane Katrina, said the people who received money from the Road Home Elevation Program should have been monitored to see if they were following the guidelines of the program.

"There needs to be a physical inspection of every property that received Road Home money," Marquardt said, adding that the damage is still taking a toll on New Orleans. "It decreases the quality of life in the neighborhood. It's an eyesore and it decreases the value of your own property."

More than seven years after Hurricanes Katrina and Rita struck the Gulf Coast, the rebuilding still continues, but the effort is underway with more urgency for the victims of Hurricane Sandy. Complicated bureaucratic rules that made it difficult for some homeowners to follow the guidelines of the program have been streamlined, officials said.

In an interview with ABC News, the inspector general said the home elevation programs were valid, but perhaps the owners should receive the money after they have completed their work on their property.

"Before you pay out funding such as this, up to $30,000 with a promise to do something," Montoya said, "we'd like to see the disbursement of these funds happen after the projects are done; almost a reimbursement to the state where inspections have been done to ensure that the homes were elevated."

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