The US government gave up to $1.4bn (£760m) in assistance to bogus victims of Hurricanes Katrina and Rita last year, congressional inspectors say.
More than 80% of New Orleans was flooded when Katrina hit
The Federal Emergency Management Agency was tricked into funding hundreds of fraudulent schemes, the report said.
Money was spent on American football tickets, a holiday, a divorce lawyer and a sex change operation, it said.
The agency has acknowledged mistakes, but says it has only found evidence of fraud worth $16m (£8.6m).
More than 1,300 people died when Hurricane Katrina swept across five states last August and more than three-quarters of New Orleans was flooded.
Rita also wrought extensive damage after hitting Texas and Louisiana in late September.
Debit cards handed out by Fema to people displaced by the storms bought diamond jewellery, champagne and erotic videos, the congressional audit discovered.
Investigators also found hundreds of claims from false addresses and rental assistance paid to prisoners.
A supposed victim who used a New Orleans cemetery for a home address and a person who spent 70 days at a Hawaiian hotel were among the claimants, the report said.
The chairman of the House of Representatives subcommittee overseeing the investigation called the bogus spending "an assault on the American taxpayer."
"Prosecutors from the federal level down should be looking at prosecuting these crimes and putting the criminals who committed them in jail for a long time," Michael McCaul said.
Fema officials said the agency was serious about ensuring that public money is spent wisely.
Spokesman Aaron Walker said Fema had "revamped the registration process" and had a contract with a company that would verify immediately the identity and address of anyone for assistance.
"We are confident in the system we have in place at this point," Mr Walker said. "We are prepared for the upcoming season."