Almost three years ago, the federal government began its largest reorganization in half a century, creating the Department of Homeland Security. Today, the department is hampered by “major management challenges” which, for instance, hampered its response to Hurricanes Katrina and Rita, according to the inspector general’s report released Wednesday.

“While DHS has made progress, it still has much to do to establish a cohesive, efficient and effective organization,” the report says.

The report (PDF) sharply criticized the department’s response to the hurricanes, saying that “the circumstances [provide] an unprecedented opportunity for fraud, waste and abuse” and that “the sheer size of the response and recovery efforts will create an unprecedented need for oversight.”

Yes, they seem stuck on the word “unprecedented,” but the situation is indeed so.

The audit is the latest in a series of tough assessments of the beleaguered department, which has been widely criticized since it was formed in March 2003 by combining 22 disparate agencies. In a final “report card” issued earlier this month, for example, the former members of the Sept. 11 commission gave the DHS low or failing grades in many key areas, including airline passenger screening and border control.

Earlier this week, a group of House Democrats issued a report alleging that the department had failed to follow through on 33 promised improvements to border security, infrastructure protection and other programs.

In an 11-page response to the inspector general’s findings, homeland security officials acknowledged problems but disputed some of the criticisms and offered explanations for others. For example, the department said it has created a special procurement office to oversee hurricane contracts and is using consultants to monitor the process.

Department spokesman William R. “Russ” Knocke said that “retooling FEMA is one of our greatest and most urgent priorities.”

“We continue to make programs more efficient, effective and results-oriented,” Knocke said, adding that “the department is making substantial progress in implementing several core management initiatives,” including improvements in personnel policies and financial accountability.

Homeland Security Secretary Michael Chertoff, who took over the department this year, is in the midst of implementing a broad reorganization of the 180,000-employee department and has announced initiatives in border security and other areas.

But the department’s bumbling after Katrina prompted widespread criticism — along with the resignation of FEMA’s director — and many lawmakers have since questioned whether DHS is capable of handling recovery efforts along the Gulf Coast. White House homeland security adviser Frances Fragos Townsend is reviewing the hurricane response by DHS and other agencies. — Washington Post

But that’s not all that’s in this report. It also criticizes DHS’s accounting (yep, the books suck, too), its lack of effective oversight, the fact that their computer systems suck, the fact that it still hasn’t created a national threat database, and much more.