WASHINGTON — FEMA exposed taxpayers to significant waste — and possibly violated federal law — by awarding $3.6 billion worth of Hurricane Katrina contracts to companies with poor credit histories and bad paperwork, investigators say.

The new report by the Homeland Security Department's office of inspector general, set to be released later this week, examines the propriety of 36 trailer contracts designated for small and local businesses in the stricken Gulf Coast region following the 2005 storm.

It found a haphazard competitive bidding process in which the winning contract prices were both unreasonably low and high. Moreover, FEMA did not take adequate legal steps to ensure that companies were small and locally operated, resulting in a questionable contract award to a large firm with ties to the Republican Party.

"Based on our analysis, we concluded that FEMA contracting officials exposed the agency to an unacceptable level of risk," according to the report by the office of inspector general Richard Skinner.

The report also comes after FEMA acknowledged this month that it would not have a federal plan ready for responding to emergencies before the approaching hurricane season, which begins June 1.

In the immediate aftermath of Katrina, FEMA handed out lucrative no-bid contracts for cleanup work to large, politically connected firms such as Shaw Group Inc., Bechtel Group Inc., CH2M Hill Companies Ltd. and Fluor Corp.