Scammers Scooped Up $500M in Katrina Aid

The Bush administration now acknowledges it is trying to recover nearly $500 million from people who improperly received federal aid money intended to help victims of two deadly hurricanes, Katrina and Rita, along the Gulf Coast two years ago. It said the amount may increase further.

"This is a moving target and not finite," said James McIntyre, a spokesman for the Federal Emergency Management Agency.

The government's newest estimate of improper aid represents $494 million FEMA paid to 134,000 people who were ineligible for the aid they received. More than half the money went to people who couldn't prove residency, according to FEMA figures. Overpayments and duplicate payments account for most of the remainder.

The amount had exceeded $500 million, but the agency wrote off nearly $27 million because of appeals or hardship waivers. The $500 million figure would represent nearly $1 of every $10 in government aid intended to help storm victims.

Congressional investigators determined people provided false addresses, other people's social security numbers and Gulf Coast addresses that did not exist. Because of the chaotic situation and loose controls, nearly half the 11,000 people who received emergency debit cards also received FEMA checks, investigators said.

The Homeland Security Department's inspector general said its Office of Emergency Management Oversight will continue to audit how FEMA dispensed aid to hurricane victims, including new uses of data-mining programs to identify duplicate payouts.

So far, FEMA has recovered about $13.6 million. The agency itself doesn't have authority to investigate suspected fraud. It steers cases to the Department of Homeland Security, which then can refer them to the U.S. Justice Department for prosecution.

The Justice Department has prosecuted about 800 people for charges stemmed from hurricane fraud, with the largest number occurring in southern Mississippi, according to its Hurricane Katrina Fraud Task Force.

An Associated Press analysis earlier this year reported that after Katrina and Rita smashed into Louisiana and Mississippi, the federal government handed out financial aid to more homes in some neighborhoods than actually existed. People claiming to live in as many as 162,750 homes that did not exist before the storms may have improperly received as much as $1 billion in tax money, the AP's analysis found.

A Government Accountability Office report released in February estimated between $600 million and $1.4 billion was improperly spent on Katrina-related relief alone. The GAO, a congressional watchdog agency, said money was used for guns, strippers and tattoos, among other improper items.

While a substantial amount of the misspent money handed out after the killer storms can be chalked up to the chaos that ensued after tens of thousands fled their homes, some cases pointed to a breakdown in the system.

On Tuesday, for example, a U.S. district judge in southern Mississippi handed down a sentence for Danny Gene Hale, who received more than $10,000 from FEMA for damage to a residence where he no longer lived when the storms struck.

At the time, Hale was in federal custody for forging money orders. Hale was ordered to serve four years and repay $10,400, a court clerk said.

FEMA officials say they established safeguards to prevent taxpayers from being bilked again so badly. When the storms struck, an online system that allowed people to apply for aid provided multiple checks against fraud. Agency officials believe much of the fraud occurred via a telephone system that didn't have as many safeguards.

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