We determined that FEMA did not have sufficient evidence to support its decision that Hurricanes Katrina and Rita directly caused damages to the roads and water distribution system. The demonstration of direct cause is necessary for work to be considered eligible for Federal disaster assistance funding, as required by the Stafford Act and FEMA’s own policies. As a result, FEMA should not have awarded the initial $785 million, or the additional $1.25 billion to complete the repairs. We recommended that FEMA disallow $2.04 billion in questioned costs —the initial award of $785 million, plus the additional $1.25 billion award. We made two recommendations and FEMA non-concurred with both of our recommendations.