[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
AFTER KATRINA: THE ROLE OF THE DEPARTMENT OF JUSTICE KATRINA FRAUD TASK
FORCE AND AGENCY INSPECTORS GENERAL IN PREVENTING WASTE, FRAUD AND
ABUSE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
FINANCE, AND ACCOUNTABILITY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
MAY 10, 2006
__________
Serial No. 109-178
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
------ ------
David Marin, Staff Director
Lawrence Halloran, Deputy Staff Director
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Government Management, Finance, and Accountability
TODD RUSSELL PLATTS, Pennsylvania, Chairman
VIRGINIA FOXX, North Carolina EDOLPHUS TOWNS, New York
TOM DAVIS, Virginia MAJOR R. OWENS, New York
GIL GUTKNECHT, Minnesota PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
JOHN J. DUNCAN, Jr., Tennessee
Ex Officio
HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Tabetha Mueller, Professional Staff Member
Erin Phillips, Clerk
Adam Bordes, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on May 10, 2006..................................... 1
Statement of:
Fisher, Alice S., Assistant Attorney General, Criminal
Division, U.S. Department of Justice, and Chair, Hurricane
Katrina Fraud Task Force................................... 6
Jadacki, Matt, Special Inspector General for Gulf Coast
Hurricane Recovery, Department of Homeland Security; Ken
Donohue, Inspector General, Department of Housing and Urban
Development; Eric Thorson, Inspector General, Small
Business Administration; and Thomas Gimble, Principal
Deputy Inspector General, Department of Defense............ 31
Donohue, Ken............................................. 45
Gimble, Thomas........................................... 59
Jadacki, Matt............................................ 31
Thorson, Eric............................................ 74
Letters, statements, etc., submitted for the record by:
Donohue, Ken, Inspector General, Department of Housing and
Urban Development, prepared statement of................... 48
Fisher, Alice S., Assistant Attorney General, Criminal
Division, U.S. Department of Justice, and Chair, Hurricane
Katrina Fraud Task Force, prepared statement of............ 10
Gimble, Thomas, Principal Deputy Inspector General,
Department of Defense, prepared statement of............... 61
Jadacki, Matt, Special Inspector General for Gulf Coast
Hurricane Recovery, Department of Homeland Security,
prepared statement of...................................... 35
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 4
Thorson, Eric, Inspector General, Small Business
Administration, prepared statement of...................... 77
Towns, Hon. Edolphus E., a Representative in Congress from
the State of New York, prepared statement of............... 101
AFTER KATRINA: THE ROLE OF THE DEPARTMENT OF JUSTICE KATRINA FRAUD TASK
FORCE AND AGENCY INSPECTORS GENERAL IN PREVENTING WASTE, FRAUD AND
ABUSE
----------
WEDNESDAY, MAY 10, 2006
House of Representatives,
Subcommittee on Government Management, Finance, and
Accountability,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:10 p.m., in
room 2247, Rayburn House Office Building, Hon. Todd Russell
Platts, (chairman of the subcommittee) presiding.
Present: Representatives Platts and Towns.
Staff present: Mike Hettinger, staff director; Dan Daly,
counsel; Tabetha Mueller, professional staff member; Erin
Phillips, clerk; Adam Bordes, minority professional staff
member; and Jean Gosa, minority assistant clerk.
Mr. Platts. This hearing of the Government Reform
Subcommittee on Government Management, Finance, and
Accountability will come to order.
When Hurricane Katrina struck, our Nation's first priority
was to provide immediate help to our fellow citizens. In the
first 2 weeks after the storm, Congress appropriated more than
$60 billion, nearly twice the annual budget for the entire
Department of Homeland Security. Once the full scope of the
disaster became apparent, Federal, State and local governments
started the monumental task of helping Gulf Coast residents to
recover and rebuild. Having recently completed a tour of the
area, I must reiterate what I tell my constituents back home
and my colleagues that have not visited the area, that the
devastation is so massive and extensive that pictures cannot
begin to tell the story. The road to recovery will be long and
challenging.
After the initial push to provide emergency assistance, a
new and critically important priority arose, the need to ensure
that the financial resources provided for the recovery and
rebuilding efforts, which already amount to approximately $85
billion, are spent wisely.
In the immediate aftermath of Hurricane Katrina, by far the
worst natural disaster in U.S. history, the controls that are
normally in place to ensure accountability of disaster relief
benefits were suspended. This was an eminently reasonable
approach, given the urgency and magnitude of the situation. At
the same time, however, every dollar that is wasted through
fraud or mismanagement is a dollar that does not go to someone
who truly needs it. It is thus important to reestablish
controls as quickly as possible and to keep a close watch as
taxpayer dollars continue to be expended over the long term.
Now that we are in the more extensive recovery and rebuilding
phase, those controls are more important than ever.
Recovering from this disaster of unprecedented magnitude
involves nearly every agency in the Federal Government, and it
will continue for years to come. While FEMA is the most visible
of these agencies, providing immediate assistance. The bulk of
money for effective individuals will actually come from the
Small Business Administration in the form of low interest
disaster loans and grants from the Department of Housing and
Urban Development. The Department of Defense, with its
formidable resources and expertise, has also dedicated
significant personnel and dollars to the recovery effort.
Fortunately, each of these departments and agencies has a
built-in watchdog, an Office of Inspector General. As soon as
Katrina hit, the President's Council on Integrity and
Efficiency turned to its Homeland Security Working Group,
headed by the Department of Homeland Security, to coordinate
the efforts of all affected IGs. This working group continues
to operate and effectively leverage the collective knowledge
and resource that can be targeted to ensure accountability.
In the spirit of cooperation, the Department of Justice
established a Hurricane Katrina Fraud Task Force soon after
Katrina hit, drawing on the expertise of Inspectors General,
the FBI, and State and local law enforcement personnel. The
subcommittee is pleased today to hear from the Hon. Alice
Fisher, Assistant Attorney General of the Criminal Division at
the Department of Justice, and Chair of the Katrina Task Force.
We certainly look to our work today and our conversations, and
continue to work with the Task Force and its coordinated law
enforcement efforts.
We will also be pleased to hear from several of the
Inspectors General involved with the Hurricane Katrina
recovery. These IGs work not only to uncover and prevent fraud,
but also to ensure the integrity of the programs they oversee.
We will be hearing from Mr. Matt Jadacki, Special Inspector
General for Gulf Coast Hurricane Recovery, with the Department
of Homeland Security; the Hon. Ken Donohue, Inspector General
for the Department of Housing and Urban Development; Mr. Thomas
Gimble, Principal Deputy Inspector General at the Department of
Defense; and the Hon. Eric Thorson, Inspector General of the
Small Business Administration.
I traveled to the Gulf Coast with Mr. Jadacki and DOD-OIG
staff to learn firsthand exactly what controls are in place,
and what is being done to monitor the expenditure of Federal
funds. I was impressed by the level of coordination, not only
among Federal agencies, but also between Federal, State and
local governments, as well as private partners.
I certainly thank all of our witnesses who are
participating here today, for not just your testimony, but your
great leadership in this important oversight responsibility
regarding the recovery from this terrible natural disaster.
[The prepared statement of Hon. Todd Russell Platts
follows:]
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Mr. Platts. Our ranking member, Mr. Towns, is en route to
the hearing, and when he joins us, we will offer him an
opportunity for an opening statement. In the meantime, I think
what we will do is move to our first witness.
It is the practice of the committee, if I could ask, Ms.
Fisher, if you could stand to be sworn in.
[Witness sworn.]
Mr. Platts. Thank you. You may be seated. The clerk will
acknowledge that the witness answered in the affirmative.
We have a general timeframe, I think, probably set at 7
minutes, it looks like, but, please, your leadership has been
tremendous from the first weeks of this disaster, and the
importance of safeguarding the taxpayer funds as we provide
that very important and necessary relief to the citizens of the
Gulf Coast. So if you need more than that time, we want you to
take it. We are delighted to have you here and to have your
expertise shared with the committee and the public.
STATEMENT OF ALICE S. FISHER, ASSISTANT ATTORNEY GENERAL,
CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE, AND CHAIR,
HURRICANE KATRINA FRAUD TASK FORCE
Ms. Fisher. Thank you, Mr. Chairman, for your kind
comments. I am so pleased to be here today to share some of the
work of the Hurricane Katrina Fraud Task Force with you and the
rest of the committee.
It has been my honor and my pleasure to serve as chairman
of the Hurricane Katrina Fraud Task Force since its inception
on September 8th of last year when the Attorney General set it
up.
The task force has had one very clear mission, and that is
to have a coordinated law enforcement effort to make sure that
the dollars that Congress and the private sector intend to go
to the victims actually reaches the victims and not the
predators, who would seek to illegally divert it for their own
pockets. It has been a tremendous opportunity for me to work
with my colleagues from the FBI, Secret Service, Postal
Inspector, and the Inspector General community at large, some
of whom are here today, and see the dedication and commitment
and resolve that they have brought to this mission from the
very beginning.
It was an outpouring, as of September 8th, and has been
since that time, of a coordinated effort, not only among
Federal law enforcement agencies, but also with our State and
local law enforcement partners, to combat this fraud and
continue to combat this fraud.
I think that we have been very successful in this effort.
Since that time we have brought charges against over 263
defendants in 200 cases, and 24 judicial districts from Florida
all the way to California, in all types of cases. We've been
focusing on charity fraud, benefits fraud, procurement fraud,
public corruption, insurance fraud, identity theft, and all of
the fraud schemes that come out of Katrina.
But we've been moving beyond not only the benefits frauds
that were kind of the initial ones with the $2,500 FEMA
benefits, where people were applying for benefits that they
weren't entitled to, and into some of the more complex
contracting and public corruption cases as of late.
Let me give you a couple of examples of that. Just last
week, in the Middle District of Louisiana, we had a case where
a contractor from the Louisiana Department of Labor, allegedly
used his position in the Louisiana Department of Labor to have
Disaster Unemployment Assistance debit cards fraudulently
issued, and then he would go out and sell them for $100 or $150
to others that were not entitled to it. At the time of his
arrest last week, the defendant was accepting payment from
another man for a fraudulent benefit card that he issued at the
request of the other man.
In southern Mississippi last month, we obtained two guilty
pleas, one from a subcontractor and one from an official at the
Army Corps of Engineers Quality Assurance, relating to a
conspiracy to commit bribery in relation to debris removal
contracts in Mississippi. In this case, the Federal agents
recorded conversations between the contractor and the Corps
employee, in which the contractor paid the Corps employee $100
for false load tickets. When they pled guilty, they admitted to
at least 14 of these instances where the contractor would say,
``I hauled out this much loads of debris.'' It was completely
false, but the Army Corps of Engineer, for a kickback, would
agree that it was adequate. So we charged them and they have
now pled guilty.
Similarly, in April, in eastern Louisiana, we secured
guilty pleas from two former FEMA managers with regard to a
conspiracy and bribery scheme. In that scheme there were these
two FEMA managers who worked on a contract with an individual
who operated the base camp in Algiers, LA, and had a $1 million
meal service contract at the base camp. The FEMA managers asked
him to inflate the billing on that contract in return for a
kickback for $10,000 for the scheme, again, illegal bribes.
They have now pled guilty.
So we have been very aggressive in these cases. We've also
moved to fraudulent billing schemes by hotels. Last week in
east Texas we indicted a general manager of a hotel in
Texarkana on wire fraud charges. This defendant allegedly
billed the Red Cross for hotel rooms where evacuees were not
staying.
On March 2nd, similarly in Houston, we indicted the
principal owner of a Galveston hotel for a similar scheme of
false claims charges to FEMA, billing FEMA for hotel rooms that
were allegedly used for evacuees, but actually being used for
friends and family and others.
Even in the emergency assistance realm we're seeing more
complex schemes, where some people will go out and recruit
others to let them use their false names and then go apply for
benefits in these systems.
So we've seen a lot of patterns. We've seen a myriad of
different fraud schemes, and we're going after all of them very
aggressively and very pro-actively, again, because our mission
is to make sure that the money gets to the victims who need
them.
Now, I said that this has been a very well-coordinated law
enforcement effort, and I think that the reason that this task
force has been so successful is that from the beginning we have
been lucky enough to have the commitment and buy-in from so
many of the Federal and local law enforcement agencies in
supporting the task force and the mission. Everyone shares the
resolve to make sure that the money gets into the hands of the
victims, but that joint effort is critical to the success of
the task force.
A second thing that's been very critical is that we made
the decision to have a command center down in Baton Rouge, LA,
which I know you have been down in that area and have had the
pleasure of meeting Mr. Dugas, who is the executive director of
the command center, and also the U.S. Attorney for the Middle
District of Louisiana.
This command center is a place where our law enforcement
agencies can be co-located. And it's worked fantastically. They
go, they share data, they share information about
investigations, they coordinate their investigations, share
resources. They have weekly or biweekly meetings to talk about
patterns and trends and analysis that they're seeing. And it's
really been a boon.
So not only does the Inspector General community and the
task force have meetings up here in Washington, where we talk
about strategy and policy and what we're seeing and what we
should be doing to protect the money, but down on the ground we
have law enforcement meeting at the command center and sharing
information about investigations on a regular basis. They're
screening thousands of fraud complaints at the command center.
Third, I think we've been very committed in the task force
to get the training that is needed for the people to conduct
this mission. In October of last year we had a large meeting
down in New Orleans, where we brought people from headquarters
and people from on the ground--Mississippi, Alabama, Louisiana,
Texas--to come together, again talk about the statutes we were
going to prosecute and how to look for fraud trends, talk about
the mission, talk about the strategy, talk about the command
center and the importance of sharing information.
Then later, after that conference, we have sent experts
down to the Gulf region to train particularly on things like
bid-rigging and procurement fraud, so the auditors and the
investigators know what to look for from a perspective of when
they need to be referred for criminal prosecution. Now, this is
obviously something that investigators are trained for and the
Inspector General community is well trained for. But we sent
criminal prosecutors down there to work with them so they would
know exactly what we need and what to look for.
We have also been very aggressively proactive in that we're
not sitting back at the command center or here in Washington at
the task force and necessarily just waiting for a criminal
referral to be made to us before we prosecute. We've been
taking tips from the hotlines, we've been meeting with the
Inspector General community. For example--the Inspector General
of HUD is here--I've had meetings with him to talk about the
money that's going to go out in a proactive manner and how we
best can help to protect that and what we can do in that
effort. We've been proactive with things like identity theft,
where the Postal Inspector General sent out brochures to people
in the Gulf region on how to protect their identity, so we
don't have to only wait for the fraud to happen at the back
end.
And finally and, I think, very importantly, is consistently
we have sent the message that we have zero tolerance for fraud.
As you know, Federal prosecution generally doesn't happen at
the low-level, $2,500, $5,000-10,000 level, because of
resources. But in this case, we thought it very important, and
the AG believed it was very important, to get out early and to
send a message that we will just not tolerate people stealing
from these victims. And we sent that message, and I think it's
had a very good impact. In fact, since the task force was sent
up, we've been told by FEMA and the Red Cross that they've
received over $8 million in checks returned to them.
Now, we can't say it's all because of our deterrent message
and because of our prosecutions, but we've gotten evidence from
both entities that some of the checks that have been received
have indications that they were things that necessarily were
evidence of fraud. So we're very happy to see that deterrent
message coming through.
I think in closing I would just say we are committed to
this, to the long haul. It has been a massive effort with the
Inspector General community and the FBI and Secret Service and
others to come forward on this and to come together. There are
many, many individuals that have been working hard on this. As
for going forward, this isn't something that I see stopping. We
are committed to this. And in fact, the Attorney General said
to me recently that the Department of Justice is going to
remain aggressive and committed to prosecuting fraudsters who
take these relief funds from the people that need it to rebuild
their homes and their lives and their cities and their
families.
So thank you again for having this hearing and inviting me
here.
[The prepared statement of Ms. Fisher follows:]
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Mr. Platts. Thank you, Ms. Fisher. And again, my great
thanks for your leadership. As I did tour the region, the work
of you and your task force was something that was heralded in a
number of different instances, and that coordination that has
happened at all levels. I think that is so important here
within the Federal Government and then between the various
levels of Government and with the private sector.
Your message that you and the Attorney General set forth
from the beginning and which U.S. Attorney Dugas has clearly
reinforced at the local level is that zero tolerance. I
analogize it to Mayor Giuliani and his approach in New York
City years ago where you don't look the other way on anything.
And even if you start chipping away at the small violations, it
kind of is a wave that builds till you have more and more
success across the board because of that message of enforcement
being out there. So I just very much commend you and all
involved in the efforts.
One of the issues you mentioned, an important one, is being
in this for the long haul and that this won't be something that
is forgotten. We are already 8 months-plus and, having been
there after 8 months, the amount of devastation and the
rebuilding and the cleanup and the debris removal that is still
months and years in the making, is just overwhelming.
In anticipating that long process from a staffing
standpoint, if you could address that because I am sure there
has been a need to realign a lot of staff. And for the short
term, that is one thing, but looking at years, how that is
going to impact your needs and ability to maintain that
staffing level. And then maybe specifically with the command
center at LSU, how you are preparing for that in the long term
as well.
Ms. Fisher. Well, I think that the command center, whether
it stays at LSU or whether it goes somewhere else, is very
important. It's going to be important to this effort for the
long haul because the money is going to continue to go out over
the next few years. It's not going to stop. So a lot of the
fraud may happen later, and if we let our guard down, it will
happen. So we're going to be very vigilant going forward.
As far as staffing, I've been overwhelmed by the number of
agents that the Inspector Generals and that the FBI and other
law enforcement agencies have assigned to the command center
and have assigned up here. In fact, they are continuing to
assign people and relocate people down into the region to
continue on these task forces.
And we can also call on the other field offices to help
investigate when it's happening in Mississippi or Louisiana or
Texas and other places. So we have that investigative effort as
well.
From a prosecution standpoint and staffing, you know, we
have been, obviously, besieged in that region with the amount
of cases, and the courts. And we are reinforcing that. And I
think we do have, actually, some requests in with regard to
that. But as you can see, a lot of people were displaced as
well, and so that's why we've been able to call upon all our
U.S. Attorneys to bring these cases and to have zero tolerance.
And they have been fabulously stepping up to the plate. In
fact, we had a case out in Bakersfield, CA, of all places,
where 70 defendants were charged in a false debit card scheme.
So I think we will continue to do that and the AG has
continued to make that a priority. So I am hoping that we have
the staffing and resources in place and, if that changes, we'll
have to readjust. But right now, I think we're in good shape to
continue to investigate and prosecute these cases.
Mr. Platts. Is there a plan--and maybe because we are only
8 months down the road, with your agents as far as rotating
them in from a--there is a tremendous demand on them that are
down in that region, and the demands daily and the length of
the day and the week. Is that something that you are looking at
just from, again, from a manpower standpoint of how to manage
them?
Ms. Fisher. Well, I think from an investigation standpoint,
again, each agency, each Inspector General may have different
views on whether they're going to rotate people in or whether
they're going to permanently relocate them. I know the FBI has,
again, just sent down four new analysts. I'm not sure whether
they're going to be there for 1 year or 2 years or 3 years, or
how long that will be.
Mr. Platts. Maybe a work in progress on how that plays out.
Ms. Fisher. Yes.
Mr. Platts. I do want to reference we have been joined by
our ranking member, the gentleman from New York, Mr. Towns.
Thanks for being with us.
What I'll do is complete the round of questions, and if you
want to do a statement or go right into questions, whichever
you like.
Mr. Towns. OK.
Mr. Platts. Without objection, so done.
Ms. Fisher. Good afternoon, sir.
Mr. Platts. The challenge of the coordination seems to be,
is everyone is working on the same page but the ability under
the existing laws and regulations to share some of the data and
the Privacy Act. Can you share with us how you think that has
hindered in any way or what changes we should be considering
legislatively that would ensure that not just from manpower and
personnel coordinating, but the law allows the data to be
shared to make sure everyone has the information they need.
Ms. Fisher. Well, I think from--because of the command
center, we've got the data bases keyed in to the command
center. So for example, we have a DHS person there that has
access to their NEMIS data base. And that information can be
shared with the other operational investigators in the command
center when necessary. And that's similar for the other
agencies, that they can go back and take the information on an
investigation or a contractor and go back and check their data
bases to see whether there's an investigation, whether that
person that's been convicted of or charged with defrauding the
unemployment system is also over here trying to defraud the
housing system or the FEMA system. So we're able to do that
through this joint sharing operation at the command center. And
I think that's working very well.
The issue that I think is a more difficult one that might
be better addressed by the Inspector General community is the
Computer Matching Act and whether they can just take the NEMIS
data base and take the HUD assistance data base and put them
together and see what spits out from that. And that's a
trickier issue because of the way that statute works with
regard to having an agreement and publishing it in the Federal
Register and notifying Congress that they are going to do that.
And while we've been facilitating that conversation and
wanting to be very helpful, it's really more of an issue for
the investigators there because at the command center we have
not seen it as a problem.
Mr. Platts. At the command center, a lot of what you've
done is very proactive in helping to deter fraud from occurring
rather than just uncovering it after the fact, which is
something we want to do as well. But is there a proactive
sharing--if in the data base, you know, HUD identifies somebody
who has committed fraud, or FEMA does, do they automatically
then share that with the other departments and agencies that
are involved so that they would say, hey, we have this
individual for this type of fraud, do you want to check if they
are getting benefits or have gotten some kind of benefit from
your agency as well?
Ms. Fisher. Yes. And that's exactly why the command center
was set up, so that if we are charging people over here with
illegal conduct with regard to one agency, that at the command
center or at the next meeting the person from DOD-IG can stand
up and say we've got this person that we're ready to charge,
does anybody else have an investigation on them and can
everybody else check their data bases to make sure that you
don't have them engaging in suspicious conduct as well.
Mr. Platts. Great. That came through in my visit, that type
of coordination. It is something that is so critical with the
number of agencies and departments in here and the scope, how
broad of a scope the challenge is of this recovery.
I am going to come to Mr. Towns and then come back for
another round.
Mr. Towns. Thank you very much, Mr. Chairman.
Can you offer us--first, thank you for coming. I really
appreciate that.
Ms. Fisher. Oh, thank you so much for having me. I really
appreciate that as well. I appreciate this hearing.
Mr. Towns. Can you offer us criteria to justify what cases
to pursue for those families receiving assistance? You know,
have criminal complaints been brought against those who might
have been provided more than the legal limit by FEMA? Do you
have any kind of standards in terms of----
Ms. Fisher. Yes. Yes, Congressman, we do. And that has been
made very clear by the Attorney General in setting up this task
force, that in the Katrina fraud cases there will be zero
tolerance. So we don't have a monetary level for these cases
right now. So anybody that's engaged in applying for benefits
that they're not entitled to and conspiring with kickbacks for
larger amounts of money and getting other types of billings for
hotels or otherwise that they're not entitled to, when they're
falsifying it, we will go after and prosecute those cases. And
we've charged to date 263 defendants in 222 cases in 24
districts across the Nation because of that message.
Mr. Towns. Thank you. Have your investigations led to
recommending that agencies impose financial penalties or
debarment from certain future contracts due to vendor conduct?
Ms. Fisher. That might be a question better posed to the
Inspector Generals because they deal with debarment. But they
are members of the task force and part of the command center,
so whenever we prosecute a case, all task force members are
aware of who the defendants are and are able to take whatever
action they choose to do so with regard to that entity or
individual.
Mr. Towns. Right. You know, GAO indicated that there were
an insufficient number of investigative personnel for adequate
oversight. What is your opinion about that?
Ms. Fisher. Well, from our perspective with regard to
criminal prosecutions--and this doesn't deal with the auditors,
but just on the criminal prosecution side, which is what we're
doing with regard to the task force--we've had a tremendous
amount of support from the Inspector Generals with their
investigators and from the FBI with their investigators and
Postal and Secret Service. So we have not seen that there has
been a need for additional investigators to root out the fraud
at this point. Whether that changes in the future, I don't
know. And as to oversight, that's a different issue.
But to investigate criminal referrals of fraud and to make
sure that those get prosecuted, we have not seen that we need
more resources in that area right now.
Mr. Towns. Right. One more question, Mr. Chairman.
Since the majority of the money for rebuilding is ahead of
us, have you been participating in the establishment of
internal controls and regulations for future contracts? Have
you been involved in that at all?
Ms. Fisher. Not from the contracting perspective because
that's something, again, more targeted toward the people that
actually give out the contracts. But what we have done is we've
met with, for example, HUD, because of the money that they're
going to send out with regard to anti-fraud programs that they
might have and to talk to them about what can prevent fraud
from happening in the future. And we've been training auditors
and investigators on what red flags to look for in contracts.
So they know, when they see fraud or something like that in the
contracts, that they refer it immediately to the task force so
we can look at it from a criminal prosecution perspective.
Mr. Towns. Right. You know, I feel better with that,
because I was thinking that they would talk to you, I mean,
before moving forward. I mean, it seemed to me that--you know,
I envision this as a very serious problem.
Ms. Fisher. I agree.
Mr. Towns. I mean, this is something that I think one
cannot imagine in terms of how big this actually is, and that
in order to put together a program to make certain that we're
sort of on top of it, I think everybody has to talk to
everybody. And so that's the reason why I was hoping that, you
know, there would be this kind of contact, the fact that they
would even call you before even thinking about a contract even
going out, to get your input in it as well and because--you
know, maybe some of the stuff we are hearing is not true, but
if there is enough of it out there that is true and that we
need to try to do whatever we can to prevent it.
So, Mr. Chairman, I yield back.
Mr. Platts. Thank you, Mr. Towns.
The challenge here is different in the size and the scope
of the area and the number of individuals impacted, but
certainly is similar in the impact to those who were suffering
losses from the hurricane, as with September 11th. Were there
lessons learned that you took from September 11th that you
found did work in this, a natural disaster versus a terrorist
attack? Or ones that did not work well, good or bad?
Ms. Fisher. Well, I think that the agencies certainly
learned a lot of lessons about contracting and things like
that. But from a Department perspective, I think what we
learned and why we did the task force in this manner is that a
coordinated effort with the mission to root out fraud would be
the way to go, where everybody's talking to each other and
coordinating, and really being aggressive on the fraud. So we
stop the schemes, hopefully, before they happen and where we
don't, people are going to be prosecuted for it.
Mr. Platts. One of the issues we are going to talk with the
IGs in the second panel, a specific area, I believe it is
Mississippi, and their approach of guarding against fraud is
that once the check is issued, that they cede oversight--you
know, the money has been paid lawfully and what happens then. I
think the approach of the Federal Government through our IGs
and HUD is that we want to make sure that the actual outcome
that is being paid for is achieved.
Is there a role that you play in trying to get, in this
case a State that has, I think, been very proactive,
Mississippi, and with the Governor's leadership, but to
encourage them to look to maybe take a different approach? Or
is that more on the IG side?
Ms. Fisher. Well, it is, but we have talked with Mr.
Donohue, that I think you're going to hear from, about whether
our expertise from a prosecution standpoint could be helpful in
training some of the State officials that are going to be
overseeing this amount of money that's coming from the Federal
Government through the State. So we've certainly offered our
expertise in that regard.
Mr. Platts. But not as much in the kind of, say,
negotiation or interaction with the State to get them to take a
different approach of when they will stop their oversight? That
is not, probably, within your office?
Ms. Fisher. No, unfortunately, I don't think that--it's
probably a little bit outside of my lane. But I'm willing to
help in whatever it is I can help with. Because, you know,
again, the Attorney General has been so committed to this
program from the very beginning and has really directed me to
do whatever I can to stop this fraud from happening.
Mr. Platts. That, I think, is--your story and the story of
the IGs is one of those--the good and the bad, the unfortunate
or the bad, is that in this terrible natural disaster, there
are people trying to take advantage of, really, their fellow
citizens, because money that could be going to help those in
need being fraudulently given to others. But the good is the
efforts of--you know, the number of calls that have come in and
people reporting the fraud to the hotlines, to the command
center, and then the coordination of your Department and the
other agencies and departments to uncover it and hold those
accountable who have engaged in fraud and, by sending a very
clear message, prevent others from maybe doing what they would
otherwise do. But I guess it's human nature, that even in
difficult times people are looking to take advantage of others.
Ms. Fisher. Yeah. It's heartbreaking, but it's true.
Mr. Platts. Mm-hm.
On the data base, one of the other things I wanted to
followup is besides the current or possible needs for changing
with the various acts that are already in the books is the
National Directory of New Hires. Is that something that from
your law enforcement/prosecution standpoint, having better
access to that--or across-the-board, all the agencies--would be
helpful? Is that an example of something we should be looking
at?
Ms. Fisher. You know, I'd have to talk to the investigators
and get back to you on that question. I'm not sure.
Mr. Platts. OK.
Kind of maybe a broad wrap-up is just the most important
lessons that you've found we've learned from this. And we
certainly don't want to have the need to repeat this type of
operation, especially of this magnitude. But what are the most
important lessons we should take from the first 8 months of
this oversight and recovery effort, both good and bad? Again,
what we should make sure we don't repeat or, you know, Congress
should be very cognizant of, whether it is in the way we funded
the oversight or anything that you have seen?
Ms. Fisher. Well, I think that from a perspective of how
the money goes out, again, that probably is best to the
Inspector General community as far as the oversight and the
contracting and the benefits. Because I think there was a real
need get money to people quickly, and that was the primary
importance, to save people and to get them the money that they
needed to survive, for their families. And with that,
unfortunately, we saw a lot of people that were trying to scam
off the top of that.
But I would say this, from a perspective of what's happened
over the last 8 months. A good lesson is that law enforcement
and the IG community can really come together for one mission
together and be successful when we work together. And when you
multiply your force in this way and share data and resources in
this way, the results really can be incredible.
Mr. Platts. I think that is coming clear from the
prosecutions that you are pursuing and the success you are
having in deterring and prosecuting the fraud that has
occurred.
Actually, I do have one final question, to ask if you are
able just to expand on an issue that--are you OK?
Ms. Fisher. Yes.
Mr. Platts. We don't want to lose you here at the witness
table. We need you. [Laughter.]
Ms. Fisher. Back in September, in response to legislation
introduced in the Senate, S. 1738, Assistant Attorney General
Moschella regarding transferring kind of this special IG for
Iraq to a special ID, and there was an issue raised about the
constitutionality of that. Are you able to expand on that
opinion?
Ms. Fisher. No, not at this time. I can look for that
opinion and I can certainly get back to you. It wasn't coming
from the Criminal Division, I don't think. It was a
constitutional issue that probably came from our Office of
Legal Counsel.
I will tell you that we also work for the Special IG for
Iraq, SIGIR, and we've done some cases in that regard with
regard to bribery relating to the contracts in Iraq, and
they've been doing a great job there.
But as to the Inspector General community here, they really
have banded together. I mean, their PCIE meetings, which I
attend or somebody from my staff attends, just amazing as far
as their proactive ideas on how to go forward. So I think that
process seems to be working from my perspective.
Mr. Platts. I share that. With Iraq, there is a very
different scenario and the funds being funneled through,
really, one channel, whereas here, as will be represented by
our second panel, the amount of funds that are going through so
many different departments and agencies, and the expertise we
have on all those are ready. To try to recreate that in a
single IG, I think, would be very, very challenging to do and
not the most productive in the--not in the best interests of
the American taxpayer.
And I think what is important and I think is a great
message that you shared today and we have seen the benefit of
in the last 8 months is the Attorney General in creating the
task force, and your leadership of the task force in bringing
all the entities together, is really having great success on
behalf of the American people and especially those who are in
need. Because, you know, as generous as the American public is,
there still is a--there is not an unlimited sum of money out
there. So ensuring that it is truly expended for those in need
and not in a wrongful manner is really important. And as we go
forward, as you have referenced, those dollars are going to
increase as we get into the rebuilding and some of the large-
ticket items, infrastructure and the efforts that are really
going to be critical to the Gulf Coast recovering fully in the
years to come. So we can appreciate your efforts.
Mr. Towns, did you have anything else?
Mr. Towns. I just have one other question.
You know, I am concerned about the coordination between the
different agencies and law enforcement in terms of the local
level, of course the State, whoever might be involved in it.
Because we hear all kinds of stories, you know, about
duplication. I have even heard some stories where the
investigators have tried to lock each other up. You know, I
mean--so is this exaggerated or is there a need for additional
coordination? I am really thinking the fact of the possibility
of just wasting money sometimes in that process if there is not
the kind of coordination and communication that is necessary.
Ms. Fisher. Well, and that's exactly why we have this
coordination down at the command center in Baton Rouge, so we
de-conflict investigations and we do not waste resources, that
we group ourselves together in the most efficient way to
prosecute this fraud.
I've not heard stories about duplication in the Katrina
fraud effort at all, or wasted resources, and I am very hopeful
that we do not have that because of the coordination that we
put in place.
Mr. Towns. So that is even with the State and local folks
that might be involved once they----
Ms. Fisher. Well, we certainly coordinate with the State
and locals because they are members of the task force. So we're
constantly discussing that with them back and forth. I can't
say that we're perfect on the State and local level, and I
don't know how the State and locals interact with each other
with regard to these investigations or other investigations.
But with regard to the fraud investigations, I am aware of no
problems or wasted resources or duplications of efforts that
have come to my attention.
Mr. Towns. The last question on that issue: Do you have
adequate resources?
Ms. Fisher. Well, I think that we have asked for some
additional resources with regard to the Hurricane Katrina Fraud
Task Force, with regard to prosecutors and with regard to some
of the investigators. But right now we've been blessed with the
commitment of the Inspector General community and the FBI,
Secret Service, Postal, and other law enforcement because
they've assigned agents to the command center, they've assigned
people at headquarters to follow this anti-fraud effort. So we
are having a great deal of people that we have resources to
investigate and look after this fraud.
From a prosecution standpoint, we've got 94 U.S. Attorney's
Offices that have been directed by the Attorney General to
watch out for this fraud and that, when they see it, they're to
have zero tolerance. And they've been fabulous in stepping up
to the plate, and that's why we've had prosecutions from
Florida all the way to California.
Mr. Towns. Thank you very, very much.
Ms. Fisher. Thank you, sir.
Mr. Towns. Mr. Chairman, I yield back.
Mr. Platts. Thank you, Mr. Towns.
And one question on the additional resource request, I
think that is in the supplemental along with the IG? Is that
correct?
Ms. Fisher. Yes.
Mr. Platts. And an example of that coordination is, during
our visit, the Gulf Port Mississippi Center, the convention
center there, is visiting with Federal officials and then
getting over with a private contractor doing the audit, you
know, the fraud prevention for the State of Mississippi----
Ms. Fisher. Right.
Mr. Platts. And it was a very impressive operation and it
was clear the coordination between the Federal and State was
very evident as well. It kind of goes to that, not just within
the Federal Government, but Federal and State working hand in
hand. And that was, as I say, very good to see that the
coordination in a sense was occurring.
But Assistant Attorney General Fisher, we, again,
appreciate your testimony, appreciate your work, and look
forward to continuing to coordinate with you and your staff as
we go forward.
Ms. Fisher. Thank you so much.
Mr. Platts. Thank you.
We will take a brief recess as we get the second panel set
up.
[Recess.]
Mr. Platts. We reconvene the hearing. And again, I
appreciate our second panel of witnesses being with us. We have
Matt Jadacki, Special Inspector General for Gulf Coast
Hurricane Recovery with the Department of Homeland Security;
Hon. Ken Donohue, Inspector General for the Department of
Housing and Urban Development; Mr. Thomas Gimble, Principal
Deputy Inspector General at the Department of Defense; and the
Hon. Eric Thorson, Inspector General of the Small Business
Administration.
We echo the words of thanks for your being part of this
hearing as well as for the efforts of you and your staffs day
in and day out in helping to both safeguard the American
public's hard-earned tax dollars that they send to Washington
and also your efforts in helping to promote effective,
efficient programs within the Federal Government, not just
about guarding the dollars but trying to make sure they are
efficiently and wisely used in that in the end the intended
purpose of the various Federal Government programs achieve the
best outcomes as possible for the American public.
Now that I have you all seated, I have to ask you to stand
to be sworn in.
[Witnesses sworn.]
Mr. Platts. Thank you. You may be seated. The clerk will
acknowledge that all witnesses answered the oath in the
affirmative.
We are appreciative of your written testimonies that you
have submitted and look forward to your opening statements
here. We are going to have, I think, 6 minutes on the clock.
Because we have four of you and want to try to get to questions
with all four of you, try to stay close to that, but if you
need to go over some, we understand. Again, appreciate your
being here.
Mr. Jadacki, if you would like to start.
STATEMENTS OF MATT JADACKI, SPECIAL INSPECTOR GENERAL FOR GULF
COAST HURRICANE RECOVERY, DEPARTMENT OF HOMELAND SECURITY; KEN
DONOHUE, INSPECTOR GENERAL, DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT; ERIC THORSON, INSPECTOR GENERAL, SMALL BUSINESS
ADMINISTRATION; AND THOMAS GIMBLE, PRINCIPAL DEPUTY INSPECTOR
GENERAL, DEPARTMENT OF DEFENSE
STATEMENT OF MATT JADACKI
Mr. Jadacki. Thank you, Mr. Chairman, Ranking Member Towns.
My role here is twofold. One, I work for the Inspector
General's Office at the Department of Homeland Security. I'm
responsible for reviewing, overseeing the Katrina and other
disaster activities within the Department. But I'm also in the
role of facilitating and coordinating the efforts of the other
Federal Inspector Generals throughout the Federal Government.
So I'll talk briefly about some of the coordination efforts
that you mentioned in your opening remarks and some of the
things that Alice Fisher talked about. And I'll get specific
briefly and talk about some of the things I'm working on within
the Department of Homeland Security.
On August 29th last year, Hurricane Katrina hit. I worked
for FEMA for a number of years, and by far it was the most
catastrophic event I've ever witnessed. The number of people
displaced, hundreds of thousands of people, were literally
going to every single State in the Union and in some
territories. The area of devastation is about the size of the
United Kingdom, and the amount of debris, about 63 million
cubic yards of debris, is just enormous.
Congress did act quickly, providing through three
supplementals so far $85 billion. The bulk of that early on
went to FEMA and, subsequent to that, to a number of other
Federal agencies represented by the Inspector Generals we have
sitting here.
FEMA initially, as a coordination agency, tasks other
Federal agencies to do a lot of the response work. For
instance, they will task the Corps of Engineers to do debris
removal, provide water, ice, some of the immediate needs for
citizens, as well as other Federal agencies, too. About $8
billion of the money FEMA initially received was tasked to
other Federal agencies for various types of jobs.
Early on, Inspector General Skinner realized that this
would simply overwhelm the DHS Inspector General's Office, so
he coordinated through the PCIE, and the Homeland Security
Roundtable became the Hurricane Katrina Roundtable, where a
number of IGs participated. And they agreed at that roundtable
that they would take hold of this thing, they would provide the
oversight that was necessary. Money that was provided from FEMA
DHS to other Federal agencies, other Inspector Generals have
agreed to cover those, whether it's a mission assignment, for
contract, things like that, in many cases without additional
resources. So they really stepped up to the plate. A lot of
coordination going on with the Department of Justice, as Alice
Fisher's testimony just went through.
We have been diligently providing information to the Hill
because we want to be full and open about the types of things
that we're providing and overseeing. For a while, we were
providing monthly statistical reports on the number of audits,
reviews, arrests, investigative audit activity. We did produce
a 90-day report, which many of you have read, that provided a
lot of information. And just about 2 weeks ago, we produced a
more comprehensive semi-annual report that we will continue
doing as long as there is a need and interest by Congress and
the American public and that information is available.
Through the PCIE we realized that we wanted to be sort of
consistent across the board with a lot of the work that we're
doing. So we established a number of subgroups to handle a lot
of common activities that are common to many of the Inspector
Generals. We established a group dealing with contract issues
because we wanted to make sure, as we're reviewing contracts,
other agencies that receive it and other Inspector Generals
reviewing it will be reviewing on a consistent basis doing risk
assessments.
We established a subgroup that dealt with individual
assistance issues, because as you know, not only FEMA has
programs deal with individual assistance but there's a number
of Federal agencies that provide, for instance, housing and
things like that and, you know, at several of the meetings we
started sharing information. One of the goals is to try to find
duplication, replication, and, you know, where FEMA is
providing assistance, and somebody else doing that. Social
Security was a big player. Labor is a big player with their
unemployment assistance. So we're trying to coordinate that,
and it's been pretty successful.
Again, I talked about mission assignments. We're working
with other Federal agencies that receive money to audit the
mission assignments, what we're looking for in that particular
area. And again, we have a separate group dealing with the
Privacy Act issues, data sharing type things like that.
So that's sort of a snapshot of what we do on general
terms, and my colleagues here will talk more in detail about
what they're doing in their particular agency.
What I want to do for a couple of minutes is really talk
about, within DHS, what's going on with our oversights, some of
the types of things we're finding there. Some of the numbers
are staggering.
FEMA has obligated so far, through the beginning of this
month, $34 billion for disaster assistance. About $13 billion
is for human services alone. That's providing individual
assistance, providing housing, providing rental assistance to
folks, providing other needs and those types of things. That
also includes some money for some contractors to stage mobile
homes, travel trailers, and those types of things. So there's
quite a bit of money early out.
What's going to happen at this point is that as the
individual assistance program fades out, we're going to get
some of the bigger dollar amounts with the public assistance
programs that are traditionally a larger part--rebuilding the
schools, the bridges, the roads, and those types of things. So
we're gearing up for the money going in through that.
I mentioned earlier about $8 billion went to other Federal
agencies. We're in the process of having the other IGs take a
look at that and accounting back for that.
FEMA awarded so far over 3,500 contracts worth over $5
billion. We've issued a number of reports on contracts, and
we're finding some issues with that. Early on, there was a
number of contracts that were basically a verbal handshake, a
lot of sole-source contracts worth hundreds of millions of
dollars. What we're trying to do is be very proactive and not
wait till the end, when the contracts are finally completed, to
go back in. So we're issuing a series, and we've done a series,
of what we call Management Advisory Reports, where we actually
provide recommendations early on so management can take
immediate corrective action to correct those.
Our staff is currently about 100, including audits
investigators, administrative staff, looking at a lot of
different issues. I've mentioned we've completed 40 audit
reports. We have a number of reports in progress already, some
of the longer-term performance reviews. Our goal, again, is to
be very proactive, but we're also trying to make some
meaningful recommendations before next hurricane season, which
is right on our doorstep.
We've had over 4,500 hotline complaints. There are over 400
open cases. We've 117 arrests, 140 indictments, and 40
convictions. We've questioned, to this point, over $100
million, and we've had over $4 million of funds put to better
use.
We're working closely with the Government Accountability
Office. I can tell you, at our regular PCIE meetings on Katrina
are widely attended. GAO attends almost every single meeting,
as well as the Department of Justice. And we still have
standing room only from all the other Inspector Generals
Offices, from both the PCIE and ECIE community.
So 8 months after the disaster, the interest is still there
and it's still very intense.
We will be reviewing in the future transitional housing.
Many folks have heard some of the horror stories about the
manufactured homes in Hope, AR. We uncovered that and put out
an immediate report on that. There are issues on travel
trailers, hotels--people staying in hotels. Alice Fisher
mentioned some of the fraudulent activity in some of the hotels
that we're looking at. We're looking at property management.
FEMA bought tons of property, as well as other Federal
agencies.
Erroneous payments is a big issue. We will be taking a
close look at that, because we did find that a lot of controls
were dropped or overridden early on in the disaster and that
did result in a significant number of erroneous payments and
we're still trying to get a handle on that.
A lot of funding came through international donations.
FEMA's administering about $66 million in that program. We're
taking a close look at that. And we are working closely with
the purchase cards with GAO.
We plan to continue. We know this is a long-term ongoing
effort. We're expecting at least 3 to 5 years, probably longer,
based on some of the work that we've done in other disasters.
And we will continue our diligent and aggressive oversight.
This concludes my opening statement, Mr. Chairman, and I
welcome any questions. Thank you.
[The prepared statement of Mr. Jadacki follows:]
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Mr. Platts. Thank you, Mr. Jadacki. We appreciate your
statement.
Mr. Donohue.
STATEMENT OF KENNETH M. DONOHUE
Mr. Donohue. Good afternoon, Chairman Platts, Ranking
Member Towns.
Once again, an area of our Nation has been hit by an
unexpected disaster that has taxed the emergency services and
redirected Federal Inspectors General toward assisting local
government and overseeing the expenditure of a large amount of
Federal money. Congress estimates that damage to residential
structures in the affected Gulf Coast region will range from
$17 to $33 billion.
To put the magnitude of that devastation in perspective
from a HUD programmatic standpoint, in the Presidentially
declared disaster areas, HUD's Federal Housing Administration
Single-Family Insurance Fund insured more than 328,000
mortgages having an unpaid principal balance of $23 billion.
FHA's multifamily program in the disaster area insured 859
properties comprised of 116,000 units with an unpaid principal
balance of $3 billion. The hurricanes affected 79 Ginnie Mae
issuers, causing Ginnie Mae to assess a $50 million risk of
loss to its investment portfolio.
Moreover, assets of HUD's public housing authorities
program suffered tremendous damage, affecting housing of almost
120,000 families. The photographs exhibited are like many shown
in the media following the hurricanes; however, in this
instance, they document damage to HUD-funded housing programs.
The one to the left, the St. Bernard Housing Development
HANO program, that water was about 5 feet water line on the
building. Numerous vehicles are flooded and destroyed, and yet
there was no management or tenants onsite. The other units you
see on the top right-hand side, approximately 3 to 5 foot water
line on buildings. Extensive looting went on. Apparent total
loss of all buildings. Again, no management or tenants onsite.
I bring your attention to the Abundance Square housing
development. What you are looking at is a trailer in the middle
of those houses. That was a rather recently built HUD program,
and that trailer, if you look at it closely, you can see that
there are markings on the second story of that building. In
effect, that trailer floated about a mile inland, hitting both
sides of that building, and it sat right in between those
houses, to give you some idea about the water surge that
occurred down in New Orleans.
In addition to these pre-existing HUD programs, the
supplemental appropriations passed late last year allocated
$11.5 billion to HUD's Community Development Fund for
reconstruction efforts and $390 million to the Tenant-Based
Rental Assistance Fund. The latest supplemental, currently
under consideration, contains billions more to be appropriated
to HUD for disaster assistance efforts. In addition, FEMA
initially provided $79 million in funding to HUD for the
Katrina Disaster Housing Assistance Program to help in
relocating evacuee families. All told, HUD is now and will be
receiving billions of dollars in new funding that will need
strong monitoring and oversight.
The HUD Office of Inspector General's response to the Gulf
States affected by Hurricanes Katrina, Rita, and Wilma was
immediate and institutionalized based on lessons learned from
our in-depth experience with the aftermath of September 11,
2001, in lower Manhattan.
We learned from our efforts that to be effective, your
teams on the ground and at headquarters must be proactive
rather than reactive. Although a basic concept, it is one that
is key to the ability to make a real impact. This proactive
posture extends to collaboration with State agencies.
To be truly effective, you must act in real time to have a
deterrent impact, and we hope to have additional resources so
that we can have that effect.
While we are engaged in overseeing these new disaster
relief funds, we still have work on matters that are pending.
Prior to Katrina, the Housing Authority of New Orleans [HANO],
was in receivership and under HUD's control after a long stint
on HUD's ``troubled'' housing authority list, contract list.
Contracts and expenditures that occurred pre-Katrina must still
be audited and analyzed. As to post-Katrina, we know from our
past experiences that rehabilitation and reconstruction
contracts set up with loose requirements are at a greater risk
for fraud and that the sheer volume of transactions here will
provide a rich environment.
We believe our oversight will show that the most effective
way to proceed is that monitoring be constant, continuous, and
at all the different levels of activity. At this point, States
have drawn up action plans on how to administer and monitor
Federal grant moneys.
The first State to submit their plan was the State of
Mississippi, who met on several occasions with us to discuss
their plan. From this meeting, we developed educational
material. Homeowners applying for grant money will receive a
HUD OIG fraud awareness bulletin in their grant application
package.
As to the Mississippi plan, from an audit standpoint,
oversight and monitoring of grant funds ceases after the State
has issued ``compensation'' funds to the homeowner ``to be used
at the discretion of the homeowner.''
We do not think that monitoring oversight should end at
this phase, and we have remaining concerns about how a
compensation plan that basically reimburses will spur the
rebuilding of now blighted communities.
There are also continuing problems with the execution of
data matching among Federal agencies. Our counsel is finalizing
a protocol with FEMA in order to use this data for matching
purposes, but we have encountered roadblocks nevertheless.
HUD OIG has undertaken a variety of activities and new
initiatives relating to HUD disaster relief programs. My Office
of Audit established an office for Hurricane Katrina oversight
immediately after the disaster to prepare for the long process
of recovery. Concurrently, an audit plan was developed and
reviews in the disaster areas begun.
Initially, the office reviewed all HUD waivers to assure
that statutory requirements were not waived. Currently the
office is auditing management and marketing contracts.
My office investigation established the Hurricane Katrina
Fraud Task Force to deal with HUD law enforcement issues.
The Office of Investigation has created a far-reaching
fraud prevention program. Also, HUD OIG has created, as you see
to the right, a Suspicious Activity Report [SAR], to be given
to grantees and sub-grantees and other associations delivering
disaster funds. As you can see from the exhibit, the SAR is a
method of informing HUD OIG of suspected irregularities in the
delivery of HUD program money.
In closing, I would like to thank the subcommittee for the
opportunity to talk about this tremendous work we have
accomplished since the onset of this tragic and trying event.
Thank you.
[The prepared statement of Mr. Donohue follows:]
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Mr. Platts. Thank you, Mr. Donohue.
Mr. Gimble.
STATEMENT OF THOMAS GIMBLE
Mr. Gimble. Chairman Platts, Ranking Member Towns, thank
you for the opportunity to appear before the subcommittee today
to address the oversight work regarding Katrina.
To date, over $85 billion has been committed for Hurricane
Katrina relief and recovery efforts. The amount of money and
the urgency to make funds available as quickly as possible
increase the opportunity for fraud, waste, and mismanagement.
Effective oversight by the Inspector General community is
essential to minimize the risk to the taxpayers' dollars.
The Inspector General community has responded promptly to
establish effective mechanisms to mobilize and coordinate both
audit and investigative resources in response to Hurricane
Katrina. I am working in close coordination with the other
Federal Inspectors General through the President's Council on
Integrity and Efficiency Homeland Security Roundtable to ensure
the proper use of DOD resources in relief and recovery efforts.
Within DOD, we have leveraged resources by coordinating
amongst the DOD Inspector General, the Service audit and
investigative agencies, and other Federal agencies to avoid
possible duplication of efforts and to ensure broad coverage.
On total, my office and the Service audit agencies, Defense
Contract Audit Agency, and the Defense Criminal Investigative
organizations have employed on average a cadre of about 150
auditors, investigators, and inspectors to provide oversight of
the contracts and operations. Currently, my office has 11
ongoing audits related to Hurricane Katrina. Three of the
audits were congressionally requested. One was requested by
DOD. The remaining seven we initiated. The OIG deferred other
audit work to ensure resources were available for this
important effort. We gave Hurricane Katrina audit efforts
priority, and those efforts took precedence over some of our
planned audit work that had not been requested or mandated.
Further, the Service audit agencies have 14 ongoing audit
projects. In addition, the Defense Contract Audit Agency is
supporting both FEMA and the Army Corps of Engineers in their
Hurricane Katrina recovery efforts.
The audits I just discussed are listed in the appendix to
my prepared statement. An example of what my staff is reviewing
is the award and administration of the Corps of Engineers
contract on ice delivery, emergency water, and the Blue Roof
Program. Some of the areas being reviewed include the pre-award
process for compliance with Federal regulations and
requirements; whether the contracts were awarded competitively
or sole source; whether the contracts were properly awarded to
small, minority, or locally owned firms; and also payment
information. We also plan to assess additional audit effort
based on need and risk. In the June timeframe, the DOD audit
community plans to initiate additional audits in the areas of
contractor pricing and the number of layers of subcontractors
used, demolition contracts, contracts to enhance the flood
protection system, and reconstitution efforts at Keesler Air
Force Base.
In addition to the audit coverage, the Defense Criminal
Investigative Service is working jointly with other
investigative organizations, including the Hurricane Katrina
Fraud Task Force. DCIS also supports the joint law enforcement
and U.S. Attorney's Offices working group headquartered in
Covington, LA, and the Joint Criminal Investigative Task Force
in Mississippi. These efforts have already resulted in the
successful conviction of two defendants.
The DCIS has received 17 criminal allegations related to
Hurricane Katrina and has opened 7 cases dealing with bribery,
kickback, and possible product substitution. The DCIS agents in
Louisiana have also examined an additional five allegations
concerning MREs, which were referred by the Government
Accountability Office during its Katrina review. These
allegations were later determined not to be related to Katrina.
Additionally, the DCIS has conducted 34 mission and fraud
awareness briefings for the Army Corps of Engineers and
contractor personnel.
The Inspector General community recognized early on the
high risk posed by the Hurricane Katrina relief efforts and we
have stepped up to meet the challenge. Much of our work is
ongoing, and there is still much left to be done. However, by
devoting significant audit and investigative resources to this
area, the Inspectors General are now a major force in detecting
and deterring fraud and mismanagement in the use of Federal
funds allocated to hurricane relief and recovery. By focusing
attention on the internal controls that govern the
administration of our contracts, our efforts will help ensure
that Federal relief funds are used more efficiently.
This concludes my statement. I would be happy to answer any
questions.
[The prepared statement of Mr. Gimble follows:]
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Mr. Platts. Thank you, Mr. Gimble.
Mr. Thorson.
STATEMENT OF ERIC THORSON
Mr. Thorson. I appreciate very much your invitation to be
here today to speak about our oversight of the Small Business
Administration's disaster relief efforts. Like several of you
have mentioned, I, too, visited the Gulf Coast area and can
tell you I could not comprehend the forces that could cause
that level of devastation. It is very clear that a massive
recovery effort will be needed for some time to come, and it is
also clear that the Inspector General community must play a
vital role if we are to deter fraud and control wasteful
expenditures.
Certainly one of my highest priorities is to conduct
effective, aggressive, and proactive oversight of the SBA
disaster relief programs. In this effort, we are establishing
an office in New Orleans so that we are on the ground near the
devastated areas where the rebuilding effort will occur. We are
now in the final steps of hiring the additional investigators
and auditors that will be needed to staff that office.
I think it would be helpful to very quickly summarize the
SBA's disaster assistance program. SBA makes two types of low-
interest disaster assistance loans: first, SBA makes loans to
businesses, homeowners, renters, and organizations to rebuild
and replace uninsured property; second, SBA makes economic
injury disaster loans, which provide working capital to small
businesses until operations can be resumed. SBA has already
approved $9 billion in disaster loans, with many applications
still to be reviewed. SBA disaster loans are especially
vulnerable to fraud and unnecessary losses because of SBA's
desire to provide quick relief to disaster victims. Many SBA
disaster loans have not yet been disbursed because borrowers
have not obtained necessary building permits or lined up
contractors. Also, borrowers are not required to begin repaying
the loans until a year after the initial disbursement. Since
many borrowers are still in the process of putting their lives
together, it may not be to their benefit to start receiving the
loan proceeds until they are in a position to begin actual
construction. Once that first dollar is drawn, the clock starts
ticking on when they have to begin paying back that loan.
Because loan repayment is deferred 1 year, fraud and agency
inefficiencies will not come to light for quite some time.
Although we have already initiated a number of audits and
investigations, we have also developed a long-term plan for our
oversight of SBA's disaster relief effort. We are participating
in the PCIE and ECIE Homeland Security Roundtable, and commend
Rick Skinner at DHS for organizing the reporting on Inspector
General efforts and establishing highly effective lines of
communications. We have been working closely with the DHS IG to
review problems with the interface between the SBA computer
system and the FEMA system, which have delayed disaster
assistance reaching victims.
The SBA OIG has issued a series of reports to SBA
addressing these findings, thereby helping to expedite disaster
assistance to those in need.
One of our most important roles is to ensure that small
business set-aside contracts are not actually performed by
large firms. We have developed a review guide on small business
procurement requirements so that all OIGs can determine whether
their agencies have complied with small business contracting
requirements. We are actively promoting the use of this guide
among the IG community now.
We are closely reviewing SBA's planned upgrade of the
disaster computer system to see whether the system will
function correctly for its contemplated 7,000 users and that it
will meet Federal requirements. This was a serious problem for
SBA and initially hindered the processing of loan applications.
We are also working with the DHS and HUD OIGs to identify
individuals who may receive duplicative benefits. By sharing
information within applicable legal requirements, we will be
able to identify whether borrowers have accurately disclosed to
SBA that they received a HUD or FEMA grant and whether the
amount of SBA's loan has been appropriately reduced.
We are participating in the Department of Justice Fraud
Task Force. The task force has developed a highly effective
model to investigate fraud by establishing a centralized case
management system to track all hurricane-related
investigations, reduce duplicative efforts, and identify fraud
trends. Their contribution has been outstanding.
We are also reviewing the agency's disaster loan approval
and disbursement process to see if disaster loans are being
disbursed in a timely and sound manner. We have planned a
number of audits to thoroughly review SBA's loan operations
from processing, through servicing, and finally to liquidation
for any defaulted loans.
Our office has opened investigations of multiple
allegations of fraud relating to disaster loans. Allegations
have included claims for property damage that never occurred,
false statements about prior criminal records, attempted
bribery of SBA officials, and misuse of SBA loan funds for
gambling or other unauthorized purposes. We have referred
several of these cases to the Department of Justice for
prosecution and have other investigations underway.
We have also begun several proactive projects to identify
fraudulent conduct. One project will identify borrowers who
make false statements about prior criminal conduct on their SBA
loan applications. A second project is a joint effort with the
DHS and other IGs to identify applicants for disaster
assistance who falsely claim that they resided in the affected
areas during the Gulf hurricanes. Your questions earlier this
afternoon show the importance that you put on Congress ensuring
that the OIGs receive adequate resources to allow them to
undertake effective oversight of this massive recovery and
rebuilding effort.
Some have called for the appointment of a Special Inspector
General to oversee the recovery, and I guess I would ask that
you consider that for over 27 years, the Inspectors General
have exhibited an extremely high level of professionalism and
accountability. You have heard this afternoon how the IG
community has assumed this task, and I assure you we will
continue to perform to the highest standards.
I very much appreciate the opportunity to have been present
on this panel, and I look forward to whatever questions you
might have.
[The prepared statement of Mr. Thorson follows:]
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Mr. Platts. Thank you, Mr. Thorson, and I share your
opinion of the response of the IG community to this disaster in
very quickly coming together and moving forward in a very
coordinated fashion to, again, safeguard the American taxpayer
funds while we provide the relief that is so much needed
throughout the Gulf Coast region. And your description is what
I saw as well on my visit. It is pretty staggering to see the
devastation and appreciate what has happened there.
Where you wrapped up is where I would like to start with a
question. The challenge here is going to be a long-term
challenge, and you have all stood up your offices in great
fashion, and quickly, to provide whatever your manpower needs
were to properly receive these billions of dollars. But given
that it is going to be many years in the making, this recovery
effort, what do you envision your needs--or how your needs are
being met today or will be met long term when it comes to
personnel and offices, I mean just general infrastructure for
your operations? I know there are funds in the supplemental
that will certainly help in the short term, but, you know, are
you looking at realignment or need for more permanent increases
because of how many years you will be involved in this recovery
effort? And I open that up to any of our four panelists.
Mr. Jadacki. I can respond to that from the DHS standpoint.
When FEMA was subsumed by the Department of Homeland Security,
the entire Inspector General's Office at FEMA became sort of
the nucleus of the Inspector General's Office at Homeland
Security. As other organizations came in, there were some other
Inspector General staff that came along with that. So there was
really the expertise within FEMA because most of the work had
been done auditing disaster grants and disaster activities. So
the expertise resided there.
For the first couple years at Homeland Security, there was
a shift in focus on more of the organization and the
consolidation of homeland security and some of the other
activities. So a lot of the work traditionally done by the
Inspector General within FEMA and then DHS in the disaster area
went by the wayside. Rick Skinner, the Inspector General after
Hurricane Katrina hit, decided to refocus his efforts on that
by taking some of the resources that formerly worked on
disasters that were shifted elsewhere and putting them back on
that disaster office. And effective October 1st, he will be
creating a disaster oversight office that not only handles
Katrina work, but any other disasters ongoing.
In the President's budget in fiscal year 2007, there is $11
million in the budget for that sort of core function to
continue on.
Mr. Platts. And that will be a permanent office he is----
Mr. Jadacki. Correct. That will be a permanent office to
handle that. Again, it is fashioned very similar to what was
being done during the FEMA days.
Mr. Platts. Mr. Donohue.
Mr. Donohue. Mr. Chairman, in my experience in the
September 11th disaster up in New York, my colleagues here as
well, we took a proactive approach to addressing those matters
and went in with Lower Manhattan Development Corp. with both
auditors and investigators. That takes people, and what
happened was it was worth its weight in gold, as far as I was
concerned. It was easier in the fact we had a New York office.
We had it fully constituted.
The whole matter is different in the Gulf States. Other
than the fact all the people are displaced, it is a much larger
area to go. Fundamentally, to get people to move down there and
the relocation that requires it and so on and so forth does
have unique issues that have to be impacted. And we again are
looking forward to some support on the supplemental side to
augment that.
What we did do is we sent our managers down right away and
tried to provide the services, but, again, I think as I
indicated in my testimony, the sheer volume of dollars, we are
going to have a long-term commitment for some time with HUD.
Mr. Gimble. Mr. Chairman, we actually pulled our resources
around and realigned, reprioritized. That is the short term, as
has been pointed out.
Interestingly enough, and it is not just the disaster
recovery, but we had just completed a workload assessment of
DOD IG, and we completed it in December. At the same time we
were doing the realigning, so it has some impact, and this is
not totally the Katrina issue, but it is just another part of
it.
And what we believe is over the long term, we are about 70
people short of what we need to do primary mission, and we have
made that case throughout the various committees and throughout
the Department. We are hoping to get some relief on that. We do
not envision having a group just solely dedicated to disaster
recovery. We have a lot of priorities, one being the--
obviously, we have a war going on in the Southwest Asia
theater, and we have to react to that, too. That is a very high
priority for us.
So we have a number of competing priorities, but if you
look at this over the long term--and we believe it is going to
be a long term. What kind of goes unsaid, DOD does not appear
to have that big an issue in Katrina recovery. The fact is that
about half of the money runs through DOD to the Corps of
Engineers, so we have a huge responsibility. It will be a long-
term commitment. And the supplementals are great. They are
helpful in the short term. But if you are looking out over a 5
or 10-year period, we probably need more relief on a more
permanent basis.
Mr. Thorson. We were fortunate to receive $5 million in
supplemental funding for this disaster area oversight, and we
decided to use this primarily to establish, as I mentioned in
my opening statement, a regional office headquartered in New
Orleans. We have to find the balance between hiring the people
that we need to do the job versus making this money last as
long as we can. We have been very careful in analyzing that,
and we believe that we will probably extend the use of those
funds for about 4 years.
Due to the fact that we are not a first responder,
primarily, and that our investments are primarily a lot longer
term, we anticipate a presence for anywhere from 5 to 10 years,
and the best way to extend past our 4 years is to produce
results to the Congress that demonstrate that supplemental was
a very good investment. And that is how we intend to come
forward again if the need is there to have further funding.
Mr. Platts. One of the important aspects of the approach
that has been taken is this coordination with the departments
and agencies and even within agencies themselves between IGs
and managers and being proactive. And so we want you to be
proactive, but as IGs, you have a responsibility of maintaining
an independence as well. I would be interested if one or any of
you would like to comment on how you are balancing those two
responsibilities to work with your department senior
management, and your financial leaders in your departments and
agencies to be proactive preventing fraud, but at the same
time, you know, not compromising your independence from the
department itself.
Mr. Jadacki. One of the things that early on OMB required
some of the agencies receiving significant amounts of money was
to put together what they call a ``stewardship plan.'' The
Department of Homeland Security did put together a stewardship
plan in two particular areas--one on internal controls, how are
they going to establish internal controls to ensure
accountability over the funds; and the other one over
procurement.
There is a weekly meeting with the Under Secretary for
Management and her staff and procurement staff and CFO staff
from both the department level and at the FEMA level. Rick
Skinner and myself participate every week in that meeting. We
advise. Things come to our attention, and I will give you an
example. We found some potential duplication in some of the
work we did on some of the oversight efforts by some of the
States that were receiving management grants from FEMA to
provide auditing services and those types of things. We brought
it up at that meeting. They took immediate steps to review the
management grants going out there, and they did find, in fact,
replication and duplication, and they significantly scaled
those things back.
So we are providing advice, guidance. We are bringing
things to management's attention that may not warrant a report,
but, you know, we are bringing it to their attention and we are
taking--you know, they are taking it seriously and they are
taking immediate corrective action. And we continue to provide
that on a weekly basis.
Mr. Donohue. I think HUD may be a little different in the
sense that the money will leave, past the Federal Government
down to these development authorities in those respective
States. So what I am tasked to do is not only just work with
the Department as far as the question of waivers, but also to
work with those authorities, because they will make those
determinations, those tough decisions.
What we did is we have taken a very proactive approach in
dealing with those authorities. We sent people down. We are
interfacing training. We are doing instruction with regard to
educating, appraise--look for the red flags, I mean to educate
these authorities to understand as to what they need to do to
make sure this money is disbursed.
We called for--and my colleagues here, we participated with
the State auditors, simply getting them all together, sitting
down, and talking about common issues.
Another thing that came out of September 11th which I found
interesting is that as a result of us getting engaged, the
Lower Manhattan Development Corp. hired up through their
administrative costs monitors, the idea of having people there
that have an expertise in those areas to watch closely as far
as how that money is distributed on a local level. And I am
optimistic, the fact that they will go back and do that. They
look like they're moving in that direction, certainly in the
one that has been approved, and that is the case at this point
with Mississippi.
Mr. Gimble. I think we normally in the IG community, since
our mission is to detect and prevent fraud, waste, and
mismanagement, our audits are typically aimed at some steps to
identify fraud indicators. Also, you have lessons learned and
there is a lot of audit work done in the contract world before
the award of the contract.
In other words, if you see a contract being in an RFI State
and you look at it and you determine that there are some things
that are not built into that should be built into, in many
cases we will make recommendations to management to incorporate
that before they go out. If you have contracts that are not
being properly competed, you also can make some recommendations
on that. So I think as a normal course of business, we do a lot
of proactive work and fraud and deterrence.
The other thing is that we have a fraud awareness briefing
that we do. As I said earlier, we gave 34 presentations on that
in the Gulf Coast area to the Army Corps of Engineers contract
folks and some of the contract administrators, just to make
them aware of potential fraud issues as they do their normal
duty.
So we think we are fairly proactive in that, and I think
that is probably typical of most of the IG community.
Mr. Thorson. For SBA, we really believe the proactive
approach does not, in any way, hinder the OIG independence.
Being proactive can prevent fraud and waste from occurring by
working with the agency to identify trends and to change any
program deficiencies that could allow waste and fraud to occur.
For example, fraud awareness briefings, developing training
materials, quickly bringing to the agency's attention those
kind of things that they can react to expeditiously that could
prevent, as opposed to catch the fraud afterwards. We would
much rather come before the Congress at later times and tell
you what we think that we prevented. Even though that's very
subjective, we would much rather do that than tell you we
prosecuted 27 cases of fraud.
Our mission is to prevent. But in no way do we believe that
hinders our independence, either.
Mr. Platts. Great. Thank you.
I want to yield to the ranking member, but one question
before I do, just Mr. Donohue specifically because of that
proactive approach that was mentioned across the board of the
panelists with that last question.
Specifically to the Mississippi Development Authorities
and, in your testimony, the issue that they see their
responsibilities and their proactive approach differently than
you do and I think maybe all of us here do, of how far that
oversight should go. And they're seeing kind the checks handed
over as they're done.
Can you give us an update on that? And what's your ability
to encourage them to take a different approach? We want to see
the actual outcome achieved, that money is being given for.
Mr. Donohue. I think we're speaking about compensation, is
my term was, Mr. Chairman. I think it's right on the money. It
really comes down to the question of our ability to oversee.
The way it's designed is a substantial amount of that money is
designed to be compensated to the homeowner. And I have--at the
end of the day, when those folks receive that kind of money, in
reality they have full discretion to do whatever they want.
And my concern is simply this: I've been down myself to
Biloxi and Gulfport in the affected areas. Some elderly woman
that receives this kind of proceeds after the mortgage is taken
care of and whatever is left and for whatever reason decides to
go back and use that money for unintended purposes and finds no
home left and finds no shelter left. And therefore is left with
having to apply to the State for additional funds to maintain
oneself.
And also to the chance that area can remain in blight
because there has been no corrective action taken on the part
of the homeowner. So I am concerned.
We have talked to the States. We have talked to the
Attorney General, the State Attorney General, in regard to that
very question. He would envision that as being a consumer fraud
violation at that point when they receive that funds. But it,
at this point, does not appear to have a Federal nexus with
regard to that moment.
It's really buyer beware. It's receiving that money for
whatever they feel the proceeds should involve.
Mr. Platts. Thank you. I yield to the ranking member for
questions.
Mr. Towns. Thank you very much, Mr. Chairman. Let me begin
with you, Mr. Thorson. How do you keep the big guys from eating
up the small businesses? The big guys from eating up the little
guys? How do you prevent that from happening?
Mr. Thorson. Actually, as I mentioned, that's one of our
prime concerns and we have published this review guide to do
that. There is a number of different things, one of which is to
make sure that when these large contracts begin to really
develop, and I don't think they have as yet, is to make sure
that all of the IGs for the various agencies, not just SBA, are
armed with the tools to be able to determine whether they have
followed the right procedures. And some of them can be very
involved.
But to answer your question very generally, I'd say that
the first thing we would do is follow the review guide that we
have published in order to accomplish just that.
Mr. Towns. What about penalties? Are there penalties,
offenses, if all of a sudden you find that you call yourself
awarding a small business a contract and then you find that a
big business is really doing the work? Is there any penalties
involved?
Mr. Thorson. There are, especially for misrepresentation.
There are actually criminal penalties in the statute, yes. For
a large business that intentionally and clearly represents
themselves as a small business in order to achieve a certain
contract, yes.
Mr. Towns. Let me just sort of go down the line asking you
all. Do you really feel that the coordination now that's in
place is sort of making certain that we are on top of the
situation? Let me start with you, Mr. Jadacki, and come right
down on the line. Do you really think we're on top of this now?
Mr. Jadacki. Are you talking about the oversight
coordination?
Mr. Towns. Oversight coordination, yes.
Mr. Jadacki. Yes, I believe it is.
If you look at the money, and I talked about it earlier on,
about the money that FEMA provided other Federal agencies,
there's at least at last count about 54 Federal agencies that
got money in some shape or form just from FEMA. And this was
before the supplemental appropriations came along.
We really have to rely on the expertise of the Inspector
General's in each of those agencies because you just can't have
one person or one entity coming in and expecting to understand
each and every program.
So I believe that working with--and if you look at some of
the data we've compiled and some of the reviews that are coming
out, I think the Inspector Generals are doing a good job at
sort of getting a handle on and overseeing some of the
activities here.
Again, you're looking at $100 billion. You're looking at
hundreds of thousands of victims. You're looking at a plethora
of programs out there. Catching everything out there, I think,
is just going to be impossible. But we're looking for some of
the high risk things.
For example, we're working closely with the other IGs to
try to identify some of the high risk contracts. We're looking
at some of the high risk type activities that we traditionally
see. Debris removal we know, based on past history, is a very
high risk program. It's ripe for fraud, waste and abuse. And
we're already finding, as Alice Fisher pointed out, we're
finding cases like that.
But just given the sheer size of the disaster, it's going
to be difficult to cover everything.
But I think, in general terms overall, I think the IG
community is doing a very good job.
Mr. Towns. Thank you very much.
But let me just ask this. I've heard, and I don't know
whether it's accurate or not, but I would ask staff to just
sort of further look into it, that there's 18,000 trailers that
are not being used?
Mr. Jadacki. That's correct. They're manufactured homes.
FEMA purchased 24,000 manufactured homes. And those are
different from travel trailers which have wheels and are
actually very mobile. The manufactured homes are sort of
permanent structures you would bring in.
Yes, they were purchased. And the concern we identified in
our review is that they're sitting at an airfield in Hope, AR,
just waiting to be used.
Now the problem we have is there was a lack of
communication and, I think, a control breakdown at the
programmatic level where FEMA bought all of these things with
the good intent early on that they're going to house disaster
victims. What they didn't realize and where the breakdown was,
was that FEMA regulations preclude using these manufactured
homes in flood plains. In most of the affected area where these
were intended to go, they can't be used because of FEMA's own
regulations.
So we're looking at a major control breakdown there because
people weren't talking, people weren't communicating. Yes,
you're right, they are sitting there. We spent hundreds of
millions of dollars for these things that we hope we'll be
using for future disasters because they certainly can't be used
for this particular disaster.
Mr. Towns. Let me just say this, that's a real concern. I
just feel that somewhere along the line the communication is
just not strong enough for us to be able to be efficient and be
able to make certain that there's no fraud, waste and abuse.
And I hear you have the Task Force and that you meet and I keep
hearing that. But it seems to me that something is missing
there and that, as a result, there's a lot of waste.
I hope I'm wrong, I hope I am. But I think about the fact
that most of the money is yet to be spent. And I think really
you need to be tightening it up to make certain that we don't
waste--and this goes down another line. I'm sorry. But I have
that concern. And that when you hear things like that, you
wonder are you in a position to catch the crooks?
Mr. Donohue. Mr. Towns, I would just comment that I applaud
the commitment of my colleagues here. I've been in this
business about 4\1/2\ years and before that law enforcement.
These people stay busy. And my folks in my organization are
quite busy with what they do in handling fraud oversight.
But I can tell you what I've seen here, in my personal
opinion, between the Department of Justice and what Ms. Fisher
said, and my working closely with my colleagues in the FBI,
that I've seen collective effort and work to address these
cases. I think we're doing is we're preventing duplication of
sorts. I think we're addressing our audit concerts
collectively.
I tell you, I saw the success of it in the disbursement of
funds in September 11th, the disaster in Lower Manhattan. I saw
it work. And I think that's what we're trying to mimic here, is
the success.
We pushed out, HUD pushed out about $2 billion or $3
billion. And that was a charged situation down there. But I
really believe that we did that successfully. We met, we talked
about it, became a plan of action.
I must tell you, the local and State organization involved
were so successful in doing that. I think that's what we'll try
and hopefully bring to this, is the State participation. They
have such a stake here in our role that we can work
collectively. I think we're off to a great start.
Mr. Towns. Thank you.
Mr. Gimble. Mr. Towns, I think--I would like to add another
dimension to this. I think we, in the IG community, are a very
important and integral part of the oversight. I also think
there's a bigger piece of it out there that is actually the
management. In other words, you've got your contact
administrators that detect the double billings and so forth.
You have the community at large that has the allegations
that they make to hotlines where we have leads.
We are obviously not staffed to have 100 percent coverage
to stop all waste, fraud and abuse. I think that would be
impossible.
But I think where our concentration is and what we do is
there is a system of internal controls that are made up of a
number of things.
The challenge is to make sure that those are being properly
followed. You can make tweaks on them. You can probably improve
the actual systems themselves. But more importantly, we need to
be cognizant, and this is where we do our risk assessment.
Where are the potential breakdowns in the execution of the
existing control systems? So I think that's where we get a lot
of our work.
But we're only a part of the solution. A big part of that
is on the management side. So I think when you look at the
overall oversight of this, you probably should also consider
that there's more than just the IG community and the law
enforcement community.
Mr. Towns. Thank you, very much.
Mr. Thorson. Mr. Donohue mentioned he had been there 4\1/2\
years and I have been at SBA 4\1/2\ weeks.
But in that short period of time I will tell you I have
seen the effects of the coordination in all of these offices.
For instance, I mentioned the interface between the SBA
computers and the FEMA computers. That sounds rather technical
and doesn't really tell you much. But the truth is when you can
work out problems like that, you assist many, many people who
get dropped out of the system for one reason or the other
because of the lack of a proper interchange.
We work with HUD on individual benefits to make sure that
the agencies don't duplicate payments. There's a whole list of
things like that. But the truth is the coordination does work
and it's very effective.
Mr. Towns. Is there anything that we need to do on this
side?
Mr. Donohue. I would just comment, sir, that I think your
oversight and bringing us up to ask these questions is
important. I think also one thing I would ask is that whatever
funding is multiple year funding, money, so that we can do that
as far as effectively plan our strategy. I think one of the
greatest concerns is trying to hire up and then come down, and
so on. Keep that balanced and maintain that kind of work force
to do that.
So I do appreciate and applaud your interest in seeing as
to whether we have the resources that we require to do what we
have to do.
Mr. Towns. Thank you very much, Mr. Chairman. I yield.
Mr. Platts. Thank you, Mr. Towns.
Mr. Donohue, I wanted to ask on the timing issue about
those who have claims and the $9 billion that has been approved
and the $1 billion that's been dispersed. Actually, I guess
that number is Mr. Thorson with SBA.
I guess for both SBA and HUD, as far as funds that are
going to be given out, what's the timeframe to make a claim?
And once a claim is submitted and approved, how quickly do you
have to draw down? What's the outside limit?
Mr. Thorson. You don't. As far as the drawing down, that's
up to the borrower to do. That's part of what we've made an
effort to try and clarify, because the agency has taken a few
hits about the level of disbursement versus the level of loan
approval.
Now there are certainly effective controls in place which
do make it--there is more to do after you have loan approval.
You have to show that you have the proper insurance. Like any
secured loan, you're going to have to have a legal review
before the disbursements.
But the main thing that we're seeing and that I personally
saw when I was down there was people aren't sure what they want
to do. They're not sure whether they want to rebuild on this
particular site or whether they need to wait to find out
whether there is insurance available? Are there going to be
power companies? Are they going to move back and reconnect?
So they're waiting. And you can't blame them for that.
That's probably a very good commonsensical move.
Mr. Platts. Is there an outside limit? Once they are
approved, 3 years or 5 years? Or can they come back 7 years
from now? Is there an end date, as far as trying to predict
what your oversight is going to be?
Mr. Thorson. I was just advised it used to be 6 months and
now it's open-ended. So they can sit with that loan approval
for as long as they want.
Mr. Platts. And with HUD?
Mr. Donohue. As to HUD, they will come in, homeowners will
come into a location center, verify in fact who they are, that
they're authentic, and provide certain identification to
support that. And what they will do is the application process
will begin shortly in Mississippi, at which time the checks
will be issued, I've been told around September. And to answer
your question, it is open-ended.
Mr. Platts. What type of procedures maybe again, especially
HUD and SBA, are in place to ensure the identity and to really
avoid the fraudulent interactions or transactions? What do you
go through? How do you do the best possible guard against the
fraudulent conduct?
Mr. Donohue. Well, I'll tell you, we've sat down with--and
of course, in this manner it's Mississippi as far as their
approval process is concerned. The other ones are yet to be
approved.
What we're asking of them, when they come in to me for
verification, they have to come up with the true data
information that supports that they're the rightful owner, that
they own this property clear. Of course, in my case--I should
say, in many of these mortgages, there will be mortgage
pending. There will still be loans outstanding. And they will
have to address the issue of whether there's still a pending
mortgage they have to resolve with regard to that mortgage
company. There's a matter of insurance claims that has to be
coordinated with regard to that matter, as well.
And a decision, ultimately a decision as to whether they're
going to stay and rebuild or relocate.
So I think the idea is to set up centers for these people
to come back and apply for this stuff and require the kind of
information.
I suspect that just by the homeownership itself that these
centers should have more than enough adequate information.
That's what we're working with, talking to them to make sure
they do that information to authenticate the claims that has
been applied.
Mr. Thorson. The same is really true for us. Being that
these are loans, you not only have title searches, you have a
loss verification procedure. And of course, you have a credit
check, as well. The people that are getting these loans, it is
expected that they will repay these. So there is a substantial
amount of checking that is done before the actual approval is
done.
And then, as I mentioned, there's a final legal review
before any funds are dispersed.
Mr. Platts. With SBA and HUD, and maybe more so already
with DHS and FEMA, is there evidence that the controls in place
for those who have already gone through the process are working
to keep people from trying to come in and fraudulently work
their way through the process?
And I guess maybe a specific question would be do you know
what percentage of applicants for any of the forms of aid have
been rejected once their review was conducted?
Mr. Jadacki. In DHS, FEMA had some pretty what I call
strong controls in place. What happened, they were overridden
and circumvented in some cases. So it allowed folks to defraud
the system.
In some cases, a simple control like a Social Security
number was not validated to make sure that it was an existing
Social Security number. We found cases where applicants
received funding or individual assistance funds with a Social
Security number of a deceased person. In one case, we found all
zeros as the Social Security number. And we found one
individual that received 12 forms of assistance by just adding
sequential numbers onto a Social Security number.
In other cases, we found controls were in place depending
on how you applied for assistance. If you applied over the
Internet, it did check the Social Security numbers. If you
called on the phone, those controls were dropped and it would
automatically generate check. So in some cases the controls are
there. They're just overwritten and circumvented because of the
expediency of getting the assistance out.
We're following up. There's been about several thousand
repayments already. Again, it's hard to identify because FEMA
collects the money back. They've collected about $8 million.
Whether it's because when there's arrests the media still has a
big interest down there. You still see, when people arrested,
they are on the front page of the news. The media has been real
good about putting them on TV and publicizing. And
traditionally people see that and they will turn in checks
voluntarily.
We've got a number of public service announcements saying
that we're going to pursue any type of fraud. We're trying to
get a gauge on that.
Right now FEMA is in the process of actually matching up to
look for duplicates. If you see a check for two people, two
different Social Security numbers or different addresses, they
are sending bills for collection to pursue those. So we are
working closely with DOJ on that.
As far as a percentage, I don't know yet. We still need to
complete our work on that. But given the fact there's over a
million applicants for individual assistance alone, the numbers
are staggering.
Mr. Platts. Is there anything with HUD or SBA, just a rough
number that have been rejected that have thus far come in?
Mr. Donohue. We do not have any, sir, at this point.
Mr. Thorson. No, sir.
Mr. Platts. The initial month or I guess 2 to 3 months
there was this kind of waiving of controls because of the
urgency and the conditions of those in need and just trying to
get the money out.
That recovery effort that's going on, those letters that
are being sent out, is there evidence so far of how successful
they're being? The $8 million, I understand, was really not
money that was pursued but that came back voluntarily; right?
Mr. Jadacki. Correct. It came back voluntarily. That's
typical--and this is typical in any disaster. There's going to
be a number of applicants that you're going to have to send
bills for collection, either through a clerical error or things
like that.
I don't know what the exact amount is. I know it's going to
probably get into tens of thousands of letters that go out
asking for that money back for whatever reason.
Mr. Platts. That you've identified?
Mr. Jadacki. Right. But FEMA is actually going through and
identifying those duplicate payments on their own. They're not
the result of IG work. And that's a good control that should be
in place. They should be going back, now that the crisis period
is over, and re-examining and doing the checks on that.
One of the important things I mentioned early on is the
fact that the Federal Government has a lot of data, they're the
repositories of a lot of data. Social Security has the Social
Security numbers of folks. There's checks that should be done
there.
We found checks going to addresses that never existed. But
the Postal Service has those checks. So we are making the
aggressive effort right now to try to find ways that not only
the IG but the programs within the HUD programs, the FEMA
programs, can actually share data and kind of facilitate that.
So again, in the future, we can sort of prevent these
things and get some basically rudimentary controls in place to
prevent a lot of these things from occurring.
Mr. Platts. That was going to be my followup. has there
been recommendations that you've made or the various IG offices
for that initial stage, to allow the aid to be given in a fast
manner but to have some basic controls? Have we been able to
assimilate what happened and make recommendations? We're going
into hurricane season in 2 weeks, hurricane season starts
again, in case it's needed there.
Mr. Jadacki. As soon as we identified the problem with the
registration we sent out a management advisory letter
immediately, saying stop, get the controls back in place. This
has to stop. So those controls are there. Again, it's trying to
get information.
Validating addresses is a pretty simple thing, there's an
address there or not. And there's private sector companies that
can probably do that, too. So FEMA needs to explore and
probably some of the other programs in the Federal Government
need to explore ways to sort of validate those things.
And a lot of the things can be transparent. It doesn't take
weeks to do that. We understand the need to get money out
quick, but it has to be balanced with the need for internal
controls and accountability. And we are trying to think of ways
or work with the other agencies and FEMA to find ways to
prevent these things up front, while not delaying the
assistance that the citizens need.
So more to come. We expect to have some reports out this
summer on how we can effectively do that. Our goal is to get
something in place. But we can have agreements in place before
the hurricane season. When it hits, this is the type of
information we need to validate or run against it. There are
ways, working closely with Justice, to do these types of
agreements that are in compliance with the Privacy Act and the
Computer Matching Act.
Mr. Platts. Those discussions about having those
agreements, they're ongoing but the agreements are not yet in
place?
Mr. Jadacki. That's correct. I know there's at least one
agreement that HUD is working with FEMA to collect data and
that's progressing. Alice Fisher mentioned before about the
access to FEMA's data base, the NEMIS data base. That has
progressed. Now we're looking at how we can expand that to
other agencies.
Because every disaster you're going to have similar
situations. People are going to get individual assistance.
There are going to be checks going out. So it should be some
sort of standard thing that's negotiated prior to the hurricane
season or should be ongoing whenever there is a disaster. And
were trying to sort of--we're trying to facilitate that process
right now.
Mr. Donohue. Just data matching is very important to HUD.
I'm so glad that Matt spoke about it. I'm glad to mention that
as of recently as today, FEMA and the HUD OIG and DHS have sat
down and tried to address these very issues.
As you all know, we're not first responders, HUD. So it's
absolutely important for us to have access to that information
and find out who may be the wrong doers were, to prevent the
ineligible people or the people who are not a resident or
received payments of some sort, to get that, capture that.
It's a little different than what I think Ms. Fisher was
referring to, as having criminal records and so on. This is
more information to know as to whether these people have
already done it to you first and now they're coming back the
second time. And that to me is so valuable and we look forward,
we really look forward, to receiving that information from
FEMA.
Mr. Platts. I've got a couple more I'd like to touch on.
Mr. Jadacki, one of our visits was the debris removal and
what's already occurred, as well as the huge volume of debris
yet to be removed. And some of Ms. Fisher's testimony and in
the written testimony is about the evidence of corruption that
was uncovered and is being prosecuted.
Are there things we need to do differently? Or is it just
in this case there's controls in place but human greed is
what's trying to circumvent those controls? Or is there other
controls we need to put in place because it's a huge sum that's
still going to be paid out with the debris that still remains?
Mr. Jadacki. I mentioned earlier on that the area--the
affected area is about the size of Great Britain, which is a
significant area. So debris removal has always been a major
issue, something we try to keep a close eye on. Again, given
probably the thousands and thousands of debris trucks that are
out there, the type of debris and those types of things, having
debris monitors almost everywhere from the onset was very
difficult.
In the early phases, the first 72 hours is what they
typically refer to as the response phase, the focus is really
on opening roads, emergency access roads and those types of
things to allow vehicles through. In a lot of cases, there's
not enough time for the national contract through the Corps of
Engineers so we have to rely a lot on locals to provide that
and we'll reimburse. So we're sort of at the mercy of what the
locals are doing. We have to rely on them.
Again, there's a State oversight responsibility, too,
because the FEMA money goes through the State down to the
locals.
What we found early on was that a lot of the monitoring,
the typical things you would see, were just not there. You
would normally want to see towers there. You would like to
measure the trucks. You would like to see whether the loads are
full, the type of debris that comes in, and those types of
things. I think in a lot of cases that wasn't there.
I know as things have calmed down and again the crisis
phase is over, we're seeing more and more of the oversight. And
I know the Corps admitted that they're providing more and more
staff on there. But I think in this case they were just simply
overwhelmed.
There's other ways you can actually check, besides looking
in a truck. I mean, you can take the number of load tickets,
for example, go to the debris site and say OK, well they
brought 10 loads of debris in, we should have a bigger pile or
a smaller pile than this. There's ways to go back and double
check that. And when we do our audits, we actually do some of
the alternative or innovative ways to do those types of things
just to double check.
But I think the most critical thing is having monitors
onsite checking those trucks as they come in. The problem with
inflated load tickets or false load tickets, the temptation is
there. And it's real difficult if you just don't have those
folks onsite. I think now there should be no excuse. Early on
it may be difficult to keep an eye on those things.
And we did find some cases in debris removal. For instance,
one of the towns in Mississippi, a company came along and said
we're a nonprofit organization. We'll remove your debris for
free. And not knowing any better, they did it. And then several
months later, a bill comes in for $750,000 for their free
debris removal. So there's a lot of people in the wings, a lot
of unscrupulous folks out there waiting because people panic,
there's a lot going on. They want to be reactive to their
communities. And they're being taken advantage of. And
unfortunately, in these cases, we may or may not be able to
reimburse some of those folks.
Mr. Towns. I guess you were reimbursing them for the gas.
Mr. Jadacki. That would be expensive, these days.
Mr. Platts. We want that price to come down, right?
Mr. Jadacki. Right.
Mr. Platts. I want to ask, with the Army Corps, I know
you're very involved with that debris removal, as well.
Mr. Gimble. I think, just to add on to what Matt just told
you, actually when this started, the contracts or the contract
administration weren't in place so we didn't have advisers or
overseers. That lasted just for a few days. And some of these
issues came up because we didn't have monitoring folks in
place, we didn't have the watchtowers in place.
So they've made recommendations to get that fixed. The
Corps of Engineers has taken that to heart and they're doing
that. We think that's going to be a better news story, maybe
not a good news story but a better news story.
And also I would just add that the Army Audit Agency is
doing an extensive audit of the whole process to go back in,
probably looking at some of the trip tickets and such as that.
So I think that was the--the bottom line of that is it was
a problem early on, just by the nature of it. It will probably
be a problem throughout. But it's in much better control now.
Mr. Jadacki. I just want to add one thing real quick. We
have had some discussions with the Corps and we think they have
it under control.
But debris removal process is done two ways. A State or
locality can either select the Corps of Engineers to do it, or
they can do it themselves and get reimbursed under a public
assistance grant. So the ones that the Corps are doing we have
pretty good confidence. The ones where we're relying on the
States and the locals to do, we're not having that element of
Federal oversight. We're sort of relying--and a lot of
communities are doing a really good job on that. But still, we
have to rely on their oversight and check on them periodically.
So I just want to make clear that there's two different
ways that we can remove debris.
Mr. Platts. Is there a final comment you want to share with
the committee, that you make sure we give special attention to?
Whether it be some of the legislative issues we've talked
about, the Privacy Act or the data sharing, that you want to
make sure is on our radar as we go forward to assist you?
Mr. Thorson. I would second the comments made about the
data matching. The agreements that have to be approved by each
individual agency and by OMB, they're quite time consuming and
burdensome. If there is some way that it could be considered
that the OIGs be subject to some different approach to that, it
would be extremely helpful.
Mr. Donohue. I just have something dear to my heart. I'm in
the process, on behalf of the BCA and trying to move forward
the IG Training Institute. It's something that began about 2
years ago and I've worked very closely with members of this
committee.
The reason I bring this up is fundamentally what concept is
to bring together the disciplines and we'll have new people,
audit investigations, management training and also inspection
evaluation folks.
And I think by bringing that collectively together and
housing that, I think we have the best and the brightest
training, which is what we need. We have to have that.
And I think certainly a situation of this type demonstrated
that in disasters that we need that kind of support. And I'll
tell you, I just want to say thank you to the members of this
committee, the fact that they supported that effort and we go
forward trying to do the best we can.
Mr. Platts. I think the challenge that was put before you
and your fellow IG members and how you responded speaks volumes
of the professionalism of the IG community throughout the
Federal Government. And the idea of the IG Institute is
maintaining that and furthering it in the years to come, is I
think a very important idea that we need to be looking at how
to promote. And we will continue to have the level that you
have exhibited in this natural disaster in the oversight of the
recovery.
Mr. Towns, do you have anything?
Mr. Towns. No, I would just like to associate myself with
the remarks you just made. Thank you very much.
Mr. Platts. We again appreciate all four of you and your
staffs for your preparation for the hearing and your testimony.
And again just day in and day out, the jobs that you and your
staffs are doing. If you can convey our committee's thanks to
all of your staff, many of whom have relocated with probably
little notice to be in the Gulf Coast region and performing in
admirable fashion and are really out there looking out for the
best interest of all Americans, and especially those in need in
that region.
So we appreciate you conveying those words of thanks to
them.
We'll keep the record open for 2 weeks for any additional
information you would like to submit.
And with that, this hearing stands adjourned.
[Whereupon, at 4:12 p.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Edolphus E. Towns and
additional information submitted for the hearing record
follow:]
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