WASHINGTON - Weaknesses in FEMA's response system during Hurricane Katrina were just one symptom of major management challenges at the Homeland Security Department, an internal report issued Wednesday concludes.

The report by the department's inspector general also questions Homeland Security's ability to properly oversee billions of dollars worth of contracts it awards annually.

The inspector general's findings were issued as the nearly three-year-old department struggles to revamp its programs and resources to prioritize top risks.

The Federal Emergency Management Agency, an arm of the Homeland Security Department, was singled out as a top concern by investigators who pointed to the agency's “overburdened resources and infrastructure” in dealing with the double-whammy of hurricanes Katrina and Rita.

Investigators found that several key FEMA programs - distributing aid to disaster victims, emergency response information systems, modernizing flood maps and managing contracts and grants - remain inadequate.

“Based on our work related to prior emergency response efforts, we have raised concerns regarding weaknesses” within those programs, the audit by Homeland Security Inspector General Richard L. Skinner said.

Moreover, “when one considers that FEMA's programs are largely administered through grants and contracts, the circumstances created by hurricanes Katrina and Rita provide an unprecedented opportunity for fraud, waste and abuse,” the report found.

Katrina slammed into the Gulf Coast on Aug. 29, followed by Rita on Sept. 24.

Department officials responded to the audit with an 11-page point-by-point analysis, acknowledging and explaining shortcomings in some areas and defending actions in others.

Homeland Security spokesman Russ Knocke said Wednesday the department is working to make programs more efficient and effective. He also called changes to FEMA “one of our greatest and most urgent priorities.”

“The American public will be hearing from us, in short order, about how we intend to build the capability of FEMA into a 21st century agency, focusing on the agencys core response and recovery mission,” Knocke said.

As of last week, the most recent data available, Homeland Security had awarded $4.1 billion in Katrina-related contracts - mostly for construction and housing. By comparison, the department awarded nearly $10 billion in contracts on all projects last year, the audit found.

In its response, the department said it has created a procurement office to give strict oversight to the hurricane contracts process, and has brought in outside advisers to help.

The findings were part of an audit by Skinner's office, which is tasked with assessing Homeland Security's management challenges each year.

Homeland Security, the third-largest Cabinet-level federal department, has made progress since it was created in 2003 by merging 22 disparate agencies, the audit found.

However, “it still has much to do to establish a cohesive, efficient and effective organization.”

Other areas of concern, as reviewed in the report, include:

€ Financial reporting problems, especially at U.S. Immigration and Customs Enforcement, which failed to properly maintain its accounting records.

€ Delays in creating and installing a new personnel system that replaced salaries based on workers' seniority with a merit pay system. The delays were caused, in part, by a federal lawsuit challenging the proposed regulations.

-Poor coordination between border patrol officers and immigration investigators, contributing to security vulnerabilities at borders. Earlier this year, Skinner recommended merging the two entities to improve coordination, but Homeland Security Secretary Michael Chertoff has rejected that idea.