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27–030 PDF 2007

S. Hrg. 109–731

HURRICANE KATRINA: WASTE, FRAUD, AND

ABUSE WORSEN THE DISASTER

HEARING

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

FEBRUARY 13, 2006

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

DAVID T. FLANAGAN, General Counsel 

AMY L. HALL, Professional Staff Member 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

ROBERT F. MUSE, Minority General Counsel 

KEVIN J. LANDY, Minority Senior Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1

Senator Lieberman ........................................................................................... 3

Senator Akaka .................................................................................................. 4

Senator Dayton ................................................................................................. 22

Senator Levin .................................................................................................... 27

WITNESSES 

MONDAY, FEBRUARY 13, 2006

Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office, accompanied by John J. 

Ryan, Special Agent, Forensic Audits and Special Investigations, U.S. Government Accountability Office. ............................................................................ 7

Richard L. Skinner, Inspector General, U.S. Department of Homeland Security ......................................................................................................................... 9

Alice S. Fisher, Assistant Attorney General, Criminal Division, and Chairman, Hurricane Katrina Fraud Task Force, U.S. Department of Justice ....... 13

ALPHABETICAL LIST OF WITNESSES

Fisher, Alice A.: 

Testimony .......................................................................................................... 13

Prepared statement .......................................................................................... 85

Kutz, Gregory D.: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 41

Skinner, Richard L.: 

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 67

APPENDIX 

Post-hearing questions and responses for the Record from: 

Mr. Kutz ............................................................................................................ 96

Mr. Skinner ....................................................................................................... 98

Ms. Fisher ......................................................................................................... 103

Memo and letter submitted by Senator Dayton .................................................... 108

GAO visuals submitted by Mr. Kutz ...................................................................... 110

GAO letter on MREs submitted by Mr. Kutz ........................................................ 115

DHS–IG visuals submitted by Mr. Skinner .......................................................... 122

DOJ ‘‘Hurricane Katrina Fraud Task Force,’’ A progress Report to the Attorney General, February 2006 ................................................................................ 128

(1)

HURRICANE KATRINA: WASTE, FRAUD, AND 

ABUSE WORSEN THE DISASTER 

MONDAY, FEBRUARY 13, 2006

U.S. SENATE, COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m., in room SD–

342, Dirksen Senate Office Building, Hon. Susan M. Collins, Chairman of the Committee, presiding. 

Present: Senators Collins, Lieberman, Levin, Akaka, and Dayton. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

Good morning. Federal assistance programs are vital to those 

who are the true victims of natural disasters. The critical nature 

of this assistance makes reports of waste, mismanagement, and 

outright fraud particularly disturbing. We cannot sweep such allegations under the rug. We must face them head on to preserve public support for these programs. 

Although our focus today is on Hurricane Katrina, the ramifications of this issue are relevant to future disaster relief efforts in 

all regions of our country. If those words sound familiar it is because I spoke them, with one obvious change, at a hearing that the 

Committee held last May in which the Committee examined serious problems with the integrity of FEMA’s disaster relief programs 

following the hurricanes that struck Florida in 2004. 

We are here today because although the names of the hurricanes 

have changed, the waste, fraud, and abuse remain all too much the 

same. 

This hearing will examine the mounting evidence of fraudulent 

claims, wasteful spending, and ineffective management in the disaster assistance programs triggered by Hurricane Katrina. Our 

witnesses will testify about criminal behavior ranging from filing 

false claims for individual assistance payments to bribing public officials. They will point to the lack of controls that allow precious 

resources to be squandered while so many true victims remain in 

dire need. And they will describe the unprecedented efforts of the 

Hurricane Katrina Fraud Task Force to deter and prosecute criminal offenses, enforcing the Administration’s pledge to prosecute 

every case of fraud against the government and the American taxpayers. 

Following the Committee’s work on this very problem last year, 

I am sure that we all expected that another hearing on the same 

2

subject would be a progress report. Instead, it is a fresh indictment. Our witnesses will provide many examples of the ways that 

disaster relief programs have been abused and of the FEMA policies and procedures that failed once again to prevent abuse, waste, 

and outright fraud. 

After the hearing last May, Senator Lieberman and I wrote a letter to then-FEMA Director Michael Brown in which we provided a 

list of straightforward, doable, and logical reform recommendations 

that could have been implemented quickly and that would have 

clamped down on waste, fraud, and abuse without delaying assistance to those truly in need. The response we received from Mr. 

Brown was utterly non-responsive, yet another example of a failure 

to act to reform a flawed system. 

Our witnesses today will provide many more shocking examples 

of absent safeguards and wasted tax dollars. To date, FEMA has 

distributed more than $6 billion in financial and housing assistance 

to nearly 1.5 million individuals. Most of that aid is essential, and 

I want to emphasize that most of the recipients are true victims. 

However, some of the money—far too much of the money, desperately needed by victims—has gone to people who were nowhere 

near Hurricane Katrina and were in no way harmed by it. 

Multiple payments have been made to individuals, many of 

whom were not eligible for aid in the first place. GAO investigators 

found that debit cards had been used for such items as a tattoo, 

gambling, traffic fines, and a diamond ring when, in fact, they were 

intended for necessities such as food and shelter. 

Rental assistance was provided with no inspections of the recipients’ homes to verify damage and no instructions on the proper use 

of these funds—exactly the problem that we explored in May of last 

year. This ‘‘pay first, ask questions later’’ approach has been an invitation to the unscrupulous. FEMA paid for hotel rooms that were 

left unused or simply used as storage units for personal goods. 

Some of these rooms were at very expensive hotels and resorts 

costing as much as $400 a night. 

But the problem goes far deeper than a number of individuals 

getting money to which they are not entitled or spending it improperly. The real problem is that once again FEMA failed to adequately plan for the very type of disaster that occurs virtually 

every year. Now, Katrina was different in magnitude, but it was 

another hurricane. One of the most egregious examples of this failure to plan is the purchase of 25,000 manufactured homes at a cost 

of approximately $850 million. A significant number of these homes 

will likely go unused because FEMA cannot install them in a floodplain. 

In the absence of effective pre-disaster planning for essential 

services, FEMA awarded many contracts without competition, such 

as four no-bid contracts for technical assistance, including installation of FEMA trailers, each with an original ceiling of $100 million 

that later ballooned to $500 million. The government made numerous other purchases at retail prices and without government discounts for needed supplies that could have been obtained before the 

crisis struck. This lack of preparation is a recipe for wasteful 

spending. Perhaps most troubling, however, are the cases of contractor fraud and allegations of bribery. Our witnesses will describe 

3

some of these cases today. Nothing is more offensive than this abrogation of the public trust. 

I am pleased that the Inspectors General of the Federal agencies 

involved in the Katrina recovery have administratively adopted 

many of the proposals that Senator Lieberman and I included in 

legislation that we introduced last fall. I am also very interested 

in the information that will be presented today on the Hurricane 

Katrina Fraud Task Force. This multi-agency task force was established by the Attorney General just one week after Katrina hit, and 

it is committed to deterring, investigating, and prosecuting hurricane-related fraud in a more coordinated and comprehensive way 

and in adherence to a zero tolerance policy, which I think is critical. 

These measures are all highly commendable, but they are primarily reactive, and that is why it is so disturbing to me that many 

months after we first held hearings exposing the lack of safeguards 

in FEMA’s disaster assistance programs, we are sitting here today 

hearing much of the same problems. We cannot continue to clean 

up waste, fraud, and abuse after disasters. We must do more to 

prevent the mess from occurring in the first place. 

Senator Lieberman. 

OPENING STATEMENT OF SENATOR LIEBERMAN 

Senator LIEBERMAN. Thanks very much, Madam Chairman. 

Thanks for your excellent opening statement. 

I want to just say, as I have told you, that there is good news 

and bad news associated with the snowstorm that occurred here in 

Washington and throughout the Northeast over the weekend. The 

bad news is that I could not get out of Washington. The good news 

is, as a result, I am here this morning. Senator Akaka had graciously offered to sit in for me this morning, so I am going to say 

a few words and then yield to Senator Akaka for an opening statement. 

Basically I am going to say ‘‘Amen’’ to everything you have said, 

Senator Collins. I think we have discovered in our extensive hearings now on the preparation and response to Hurricane Katrina 

that the key word here is ‘‘preparation’’ and that preparation is the 

difference between an effective response and a failure in response 

to a disaster. And lack of preparation is the cause of the failures 

that we have seen in the case of Hurricane Katrina at almost every 

level of government and almost everywhere, unfortunately, in the 

Federal Government. 

We have been focused mostly on preparation for and response to 

the immediate disaster. Today we are focused on relief, and I suppose in some sense it shocks us that people would try to take advantage of relief programs for those hit by a disaster. But they do. 

That is the world we are in. And, therefore, FEMA and DHS have 

to be prepared when disaster strikes to expedite assistance to people in need and prevent fraud. It is as simple as that. 

Senator Collins was right on target that this is not the first time 

this has happened. This is another case where the problems that 

FEMA confronted were not only predictable, they were predicted 

because they had happened. They happened in the Florida hurriVerDate 0ct 09 2002 08:13 Mar 30, 2007 Jkt 027030 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\27030.TXT SAFFAIRS PsN: PAT
4

canes. And I was proud to join with Senator Collins in the letter 

that we sent. And yet here we go again. 

They are under pressure at FEMA, no question about it. They 

are probably under double pressure because they were embarrassed by the immediate failures in response to the hurricane to 

get assistance out to those hurt. But it is no excuse. They should 

have been ready. And I am a great believer in government so I always hesitate to make the private-public sector comparisons. But 

when you think about what the witness from Wal-Mart told us 

when he was here, what we know companies like Home Depot did, 

getting ready for any disaster that might strike and the ability to 

deliver when needed, we simply have to do better. 

The four people before us are the waste, fraud, and abuse busters 

in the Federal Government, and we appreciate what you have 

done. My hope is that FEMA and DHS get the message because 

their behavior thus far, that you will describe, is unacceptable and 

ultimately infuriating. It rips off not only the true beneficiaries, 

those who really need the relief assistance after a disaster; it obviously also rips off American taxpayers. And I just feel that we have 

to do everything we can to insist that FEMA and DHS prepare for 

the next disaster, not during but before it, so that they are ready 

to respond and offer relief and prevent the kind of waste, fraud, 

and abuse that we are going to hear about today. 

With that, Senator Akaka, I am proud to yield to you for your 

opening statement, with thanks to the Chairman. She is very nonpartisan, but today, to allow two Democratic opening statements 

really is a first. [Laughter.] 

Senator DAYTON. She would be hard pressed to find another Republican. [Laughter.] 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Senator Lieberman, for 

yielding to me, and thank you, Madam Chairman. 

I want to commend you, Madam Chairman, and our Ranking 

Member for your diligence and your desire to understand why tens 

of thousands of people were left to fend for themselves in the aftermath of Hurricane Katrina and for the bipartisan manner in which 

you have conducted these many hearings. I really want to commend you for that and to tell you it is so good working with you. 

I do have a longer statement that I ask be made part of the 

record. 

Chairman COLLINS. Without objection. 

Senator AKAKA. I would like to say, however, that GAO’s ongoing 

audit of illegally claimed and received benefits highlights the need 

for adequate safeguards to deter fraudulent applications for benefits. And I wish to associate myself with the remarks of the Chairman and of our Ranking Member on this and other areas of these 

Katrina hearings. 

But there is a larger, more systemic problem of major management challenges at the Department of Homeland Security. These 

led DHS Inspector General Skinner to include contract management and disaster response and recovery in his end-of-the-year 

report. For any agency that obligates tens of billions of dollars for 

relief and reconstruction, it is critical that there are sound procureVerDate 0ct 09 2002 08:13 Mar 30, 2007 Jkt 027030 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\27030.TXT SAFFAIRS PsN: PAT
5

ment practices, that there will be a trained acquisition workforce, 

that contractors are held accountable, and that discovery of fraudulent claims be handled quickly. DHS is the government’s third largest agency, and it is wrong that there are no department-wide policies and procedures for procurement operations. We should examine if components within DHS, such as FEMA, should come under 

the authority of the Department’s procurement office. I cannot help 

but wonder whether decentralization of procurement activities may 

have added to the array of contract abuses related to Hurricane 

Katrina. 

Over 10 years ago, I introduced legislation to impose criminal 

penalties on those who conned Federal disaster victims as well as 

disaster victims who accepted Federal relief funds illegally in the 

aftermath of Hurricane Iniki, which devastated the island of Kauai 

in 1992. I think it may be a good time to revisit this idea. 

What we do need is a more effective way to ensure that when 

the Federal Government is forced to expend millions and eventually billions of dollars in large relief and reconstruction projects, either at home or abroad, these funds are not wasted. 

Thank you very much, Madam Chairman. 

[The prepared statement of Senator Akaka follows:]

PREPARED STATEMENT OF SENATOR AKAKA 

Thank you, Madam Chairman. Let me commend you and Senator Lieberman for 

your diligence and desire to understand why tens of thousands of people were left 

to fend for themselves in the aftermath of Katrina and for the bipartisan manner 

in which you have conducted these many hearings. 

Hurricane Katrina is our Nation’s worst natural disaster to date. Unfortunately, 

the damage inflicted by this single storm has been compounded by the actions of 

those who have benefited at the expense of the Federal Government and the victims. 

As with any massive mobilization of government assets and funds, Hurricane 

Katrina offered substantial opportunities for contractor abuse and individual misuse 

of relief funds. The Government Accountability Office’s (GAO) ongoing audit of illegally claimed and received benefits highlights the need for adequate safeguards to 

deter fraudulent applications for benefits. 

There is, however, the larger, the more systemic problem of major management 

challenges at the Department of Homeland Security (DHS) that led DHS Inspector 

General Skinner to include: (1) contract management and (2) disaster response and 

recovery in his end-of-year report. For any agency that obligates tens of billions of 

dollars for relief and reconstruction, it is critical that there are sound procurement 

practices, that there be a trained acquisition workforce, that contractors are held 

accountable, and that discovery of fraudulent claims be handled quickly. 

DHS is the government’s third largest agency, and it is wrong that there are no 

department-wide policies and procedures for procurement operations. We should examine if components within DHS, such as the Federal Emergency Management 

Agency (FEMA), should come under the authority of the Department’s procurement 

office. 

DHS is working on these management shortfalls, but the longer that these deficiencies exist, the greater the opportunities for waste, fraud, and abuse. I cannot 

help but wonder whether decentralization of procurement activities may have added 

to the array of contract abuses related to Hurricane Katrina. 

GAO’s on-going audit confirms that the weaker the internal controls, the greater 

the probability of waste, fraud, and abuse in distributing Federal disaster relief. 

But, the inability of FEMA to validate the identity of claimants and confirm damaged addresses is an old problem. 

In testimony before this Committee last May, Inspector General Skinner discussed his recommendations to strengthen FEMA’s internal controls over the Individuals and Household Program, known as IHP. As we now know, FEMA did not 

take those actions because, just as with Hurricane Frances in 2004, FEMA failed 

to perform required damage assessments and verify identities. Addressing these deVerDate 0ct 09 2002 08:13 Mar 30, 2007 Jkt 027030 PO 00000 Frm 00009 Fmt 6633 Sfmt 6621 C:\DOCS\27030.TXT SAFFAIRS PsN: PAT
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ficiencies is the responsibility of FEMA and, ultimately, the Department of Homeland Security’s senior management. 

Over 10 years ago, I introduced legislation to impose criminal penalties on those 

who conned Federal disaster victims, as well as disaster victims who accepted Federal relief funds illegally in the aftermath of Hurricane Iniki, which devastated the 

island of Kauai in 1992. I think it may be a good time to revisit this idea. 

I also believe it is important that this Committee continue to investigate waste, 

fraud, and abuse wherever it occurs. 

I appreciate the Chairman’s intention to maintain a keen focus on the Katrinarelated expenses. I should also mention that at the request of the Chairman, Senator Lieberman, and I, GAO is conducting a series of reviews of acquisition challenges within DHS. 

I also have the pleasure of working with Senator Collins and Senator Lieberman 

on the Armed Services Committee, whose Readiness Subcommittee, on which I serve 

as Ranking Member, held a hearing last week on Iraqi reconstruction and contracting problems. In that hearing, the DOD Inspector General testified that more 

than half of the contracts paid for out of Iraqi funds and more than 20 percent of 

the contracts paid for out of U.S. funds failed to contain evidence that the goods 

or services paid for had ever been received. 

The American taxpayer is spending billions of dollars both at home in the Gulf 

Coast and abroad, in Iraq and in Afghanistan, in relief and reconstruction. In both 

regions we are seeing evidence of substantial fraud and abuse. 

In the case of Hurricane Katrina relief, the Department of Justice established a 

special task force because of concern that large sums of money were being dispensed 

quickly and there was a need to ensure that it got to the people who needed it the 

most. 

Unfortunately, we have a similar problem in Iraq, although there we do not have 

a zero tolerance policy such as we have in the U.S. Gulf States, where the Justice 

Department is prosecuting fraud cases for as little as $2,000. Perhaps we need a 

similar approach in Iraq. 

What we do need is a more effective way to ensure that when the Federal Government is forced to expend millions and eventually billions of dollars in large relief 

and reconstruction projects, either at home or abroad, those funds are not wasted. 

Today’s hearing demonstrates that we do not yet have such a system. 

There is no excuse for that failure. And I hope that the Committee will focus its 

attention following the conclusion of the Katrina investigation into similar problems 

elsewhere so that this Congress can assist the Executive Branch in doing a better 

job of preventing taxpayer funds from being wasted. 

Thank you, Madam Chairman.

Chairman COLLINS. Thank you, Senator. 

I would now like to welcome today’s distinguished panel of witnesses. Greg Kutz is the Managing Director of Forensic Audits and 

Special Investigations Unit of the Government Accountability Office. Mr. Kutz has been with the GAO since 1991 and assumed his 

position as Managing Director in 2005. He is accompanied by Special Agent John Ryan, an Assistant Director of the Forensic Audits 

and Special Investigations Unit. I would note that this team is no 

stranger to this Committee. We have worked with both Mr. Kutz 

and Mr. Ryan on many different investigations, and once again, I 

am very impressed with the high quality of their work. 

Richard Skinner is the Inspector General of the Department of 

Homeland Security and was confirmed by this Committee last year. 

He has been with the DHS IG’s office since it was established in 

2003. It is notable that he served in the IG’s office at FEMA from 

1991 to 2003, so he has a great familiarity with many of the programs that we are discussing today. He also testified as a key witness at our hearing last May. 

Alice Fisher is the Assistant Attorney General for the Criminal 

Division of the U.S. Department of Justice and the Chair of the 

Hurricane Katrina Fraud Task Force. I am very impressed with 

the Justice Department stepping up to the plate this time since one 

of the findings of our previous hearings is that often fraud in the 

7

1The prepared statement of Mr. Kutz appears in the Appendix on page 41. 

2The posters referenced by Mr. Kutz appear in the Appendix on page 110. 

assistance programs goes completely unpunished. And I hope we 

are seeing a change now. 

Because this is part of our Katrina investigation, we are swearing in all witnesses, so I would ask that you stand and raise your 

right hand. Do you swear that the testimony you are about to give 

will be the truth, the whole truth, and nothing but the truth, so 

help you, God? 

Mr. KUTZ. I do. 

Mr. RYAN. I do. 

Mr. SKINNER. I do. 

Ms. FISHER. I do. 

Chairman COLLINS. Thank you. 

We are going to violate protocol a little bit this morning, Ms. 

Fisher, which I hope you will bear with us just in the interest of 

telling the story, and we are going to begin with Mr. Kutz. 

TESTIMONY OF GREGORY D. KUTZ,1 MANAGING DIRECTOR, 

FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, ACCOMPANIED BY 

JOHN J. RYAN, SPECIAL AGENT, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE 

Mr. KUTZ. Chairman Collins and Members of the Committee, 

thank you for the opportunity to discuss fraud and abuse related 

to Hurricanes Katrina and Rita. Our testimony relates to our work 

on the Individuals and Households Program. Our focus to date has 

been on expedited assistance payments. These $2,000 fast track 

payments are made prior to individuals providing any proof of loss. 

Through December, over $5 billion had been disbursed for this program. The bottom line of my testimony is that weak or nonexistent 

controls leave the government vulnerable to substantial fraud and 

abuse for this program. 

My testimony has three parts: (1) fraud prevention controls, (2) 

indications of fraud and abuse, and (3) controls over the issuance 

of debit cards. 

First, we found that FEMA did not validate any identity or damaged property address information for most disaster applications. 

Limited procedures were in place to validate identities for Internet 

applications. However, no validation was done for damaged property addresses. 

We tested the Internet application process using bogus identities 

and were unable to successfully register. Those who failed the 

Internet verification process were instructed to apply by telephone. 

We then tested the telephone application process using falsified 

identities, bogus addresses, and fabricated disaster stories. However, this time we were successful and received several $2,000 expedited assistance payments. 

The poster board shows one of the Treasury checks that we received from FEMA for our bogus applications.2 As it turned out, 

FEMA did not validate any identity or damaged property address 

information for any telephone applications. As of December, 1.5 

8

million, or about 60 percent of applications, were made by telephone. 

The next poster board shows a picture of one of our bogus addresses in Louisiana. For this case, our registration was for an 

apartment on the 13th floor of this building. However, as you can 

clearly see from the picture, this is a two-story building. 

Given the weak or nonexistent controls, it is not surprising that 

our data mining and investigations show the potential for substantial fraud and abuse. For example, 165 of the 250 registrations that 

we are investigating have potential misuse of Social Security numbers. This includes Social Security numbers that were never issued, 

that belonged to deceased individuals, or that belonged to someone 

else. 

Further, our site visits confirmed that at least 80 of the damaged 

property addresses that we are investigating are bogus. Some of 

the criminal activity that we have identified includes fraudulent 

statements to the government, bank fraud, and Social Security 

fraud. These fraud case registrations were from New Orleans, Lake 

Charles, Beaumont, and Port Arthur. Let me discuss three of these 

case studies to give you a flavor for what we are finding. 

The first case involves eight individuals who used 61 different Social Security numbers to receive $122,000. At least 25 of the 

damaged property addresses for this case are bogus. The poster 

board shows one of these addresses, which is a vacant lot in Louisiana. 

In another case, 17 individuals used 36 different Social Security numbers to receive $103,000. Only two of the 36 Social Security 

numbers belonged to these individuals. At least 12 of the damaged 

addresses are bogus, including six in one apartment complex in 

New Orleans that I visited in January. 

In another case, eight individuals used 30 different Social Secu- rity numbers to receive $92,000. Twenty-two of the properties for 

this case were in Texas. I visited Texas in January, and guess 

what? All 22 of these addresses are bogus. 

The poster board shows where two of the properties were supposed to be. However, as you can see, there is nothing there but 

another vacant lot. 

Our data mining shows that these fraud case studies are representative of a much broader problem. For example, we believe 

that thousands of individuals misused Social Security numbers. 

FEMA also clearly made payments to many individuals using 

bogus property addresses. It also appears that FEMA made tens of 

millions of dollars of duplicate $2,000 payments to identical registration numbers. 

Chairman Collins, we don’t know the extent of fraud and abuse 

in this program. However, as we progress with our work, we will 

attempt to project the extent of invalid claims for this program. 

Further, our case studies show that the fraud extends beyond the 

$2,000 expedited assistance payments. Note that for every fraudulent registration in FEMA’s system, the individuals can receive up 

to $26,200. 

Moving on to my third point, nearly 11,000 debit cards were 

handed out for disaster assistance at three relief centers in Texas. 

I have an example of one of these debit cards in my hand, which 

9

1The prepared statement of Mr. Skinner appears in the Appendix on page 67. 

the Chase Bank was kind enough to provide for today’s hearing. 

This card could generally be used wherever MasterCard was accepted. 

We found similar problems for debit cards that we found for 

other disaster assistance. Further, FEMA made duplicate expedited 

assistance payments to about 5,000 of the nearly 11,000 recipients 

of debit cards. In other words, these individuals received $2,000 

debit cards and then subsequently received $2,000 checks or 

electonic funds transfer payments. 

With respect to the use of debit cards, 63 percent of the money 

was withdrawn at ATM machines, and thus we cannot tell you how 

it was spent. The remainder was used primarily for food, clothing, 

and personal necessities. However, some cards were used for purposes that are inconsistent with the intent of disaster relief programs. For example, debit cards were used for adult entertainment, 

tattoos, bail bond services, and to pay for prior traffic violations. 

In conclusion, we understand that FEMA was under great pressure to get money as quickly as possible to disaster victims. However, for every fraudulent disbursement made, there is a new, larger group of victims—American taxpayers. More needs to be done 

for future disasters to protect taxpayers from fraud and abuse for 

this program. Also, individuals who have committed fraud should 

pay the price for their crimes. Last week, we began referring our 

fraud cases to the Katrina Fraud Task Force. We believe that aggressive prosecution of these individuals will send a strong message that stealing disaster money from the Federal Government 

will not be tolerated. 

Chairman Collins, this ends my statement. I look forward to your 

questions, and Special Agent Ryan is here also. 

Chairman COLLINS. Thank you. Mr. Skinner. 

TESTIMONY OF RICHARD L. SKINNER,1 INSPECTOR GENERAL, 

U.S. DEPARTMENT OF HOMELAND SECURITY 

Mr. SKINNER. Good morning. Chairman Collins, Ranking Member Lieberman, and Members of the Committee, thank you for having me here today. 

Before I begin, I would like to recognize a few people, and that 

is, the talented and hard-working people, the men and women of 

FEMA, who have been assigned to the Gulf Coast. They have been 

working day and night for months on end, away from their homes 

and families, unselfishly assisting those communities devastated by 

Hurricanes Katrina, Rita, and Wilma to get those people back on 

their feet again. They need to be recognized and commended, not 

criticized and chastised as they have been, as I see each time I 

read the papers from the New Orleans area. Asking them to do better or to do more, well, it is like asking Hank Aaron to hit 755 

home runs with a whiffle ball bat. Without the right tools, it is an 

impossible task. The dedicated FEMA employees who are assigned 

to the Gulf Coast are doing the best they can with the tools they 

have been given. 

Now, let me begin my remarks with a brief overview of what we 

are working on in our future oversight efforts, and then I would 

10

like to talk briefly about some of the issues that are giving us some 

concern. 

Given the extent of damages caused by Hurricanes Katrina, Rita, 

and Wilma and the cost to the Federal taxpayer to assist the affected States to recover from those damages, the necessity for oversight is obvious. Recognizing the need to protect taxpayer dollars, 

the Inspector General community, as you know, initiated what is 

the most aggressive, coordinated oversight effort in its history. I 

have been coordinating this initiative through the Homeland Security Roundtable of the President’s Council on Integrity and Efficiency. I am pleased to report that Inspector General representatives from all the Federal agencies with hurricane relief responsibilities have been working tirelessly to ensure that agency internal controls are in place; agency stewardship plans for hurricane 

relief activities are in place and operating as intended; we are also 

exercising or executing our hurricane relief oversight efforts in a 

coordinated fashion so that our resources are utilized as efficiently 

and effectively as possible; and, finally, we are also working very 

closely with the Department of Justice Hurricane Katrina Task 

Force. 

Incidentally, I would like to say that without the commitment 

and support of the Department of Justice Hurricane Katrina Task 

Force, which is led by Attorney General Alice Fisher, who is sitting 

next to me today, we would not be enjoying the level of success that 

we are now having to detect, prevent, and prosecute Hurricane 

Katrina fraud. All in all, the efforts of the Inspector General community are commendable, and I am proud and honored to be part 

of that outstanding group of professionals. 

I have also created, as you know, a separate oversight office just 

for Gulf Coast hurricane recovery, which is headed by a Special Inspector General who reports directly to me. The Special IG’s office 

allows us to stay current on all disaster relief operations, provide 

on-the-spot advice on internal controls and precedent-setting decisions, and plan for and implement a series of audits, inspections, 

and special reviews of FEMA’s programs and operations relating to 

the Gulf Coast hurricanes. 

For example, that office currently has reviews underway addressing sheltering and transitional housing issues, contract management, property management, the Individuals and Households Program, and management of mission assignments. In addition, that 

office plans to initiate soon a review of FEMA’s Mitigation Program, the National Flood Insurance Program, the Public Assistance 

Program, and the Volunteer Recruitment Program. We are also 

wrapping up a special study that addressed FEMA’s performance 

in response to Hurricane Katrina. We expect to have that report 

to you very soon. 

Today, I will focus my remarks on two of the reviews that we 

now have underway: Housing and contract management. I would 

like to emphasize, however, that our reviews in these areas are still 

in process. Much work remains to be done, and many questions remain unanswered. 

First, regarding housing, we are learning that the difficulties experienced by FEMA, finding adequate housing for those left homeless as a result of Hurricane Katrina, can be linked directly to 

11

1The map referenced by Mr. Skinner appears in the Appendix on page 122. 

2The photos referenced by Mr. Skinner appear in the Appendix on pages 123–124. 

weaknesses in preparedness, planning, communication, and coordination. To compound matters, the breadth of States to which victims were evacuated is unprecedented. As you can see from this 

map, literally every State is being impacted by this disaster as 

evacuees are being housed across the country.1 To date, more than 

5 months after Hurricane Katrina made landfall, more than 60,000 

evacuees have yet to be placed into FEMA’s Temporary Housing 

Program. 

FEMA introduced a relatively new concept to address housing 

needs called the Housing Area Command. The Housing Area Command, which had never been tested to any large extent, was 

charged with the task of coordinating and overseeing housing solutions throughout the affected area where several Joint Field Offices 

had been established. It was not intended to be an operational element. The housing functions were to remain within the JFO, that 

is, the Joint Field Offices. FEMA’s housing strategy involved using 

shelters, hotels, cruise ships, and tents to address immediate housing needs of disaster victims. It then would transition those victims 

to travel trailers and mobile homes and finally to apartments to address longer-term housing needs. 

Unfortunately, this traditional approach of providing housing 

was not suitable for an event as large as Hurricane Katrina. Some 

components of FEMA’s housing strategy were not well planned or 

coordinated, while other components were not as effective or as efficient as FEMA had anticipated. Most noteworthy is the confusion 

that existed between the Housing Area Command, FEMA headquarters, and the JFOs. Some FEMA officials viewed the Housing 

Area Command as becoming an operational element working parallel to JFO operations, while others viewed it as working in disregard of housing resource needs requested by the JFOs. 

Essentially, the authority and responsibilities of the Housing 

Area Command in the chain of command relationship with FEMA 

headquarters, JFOs, and housing contractors were foggy, at best. 

Consequently, housing decisions made by the Housing Area Command were often made in a vacuum, without appropriate coordination and input from the JFOs, causing confusion and most likely 

wasteful spending. 

For example, it appears that FEMA may have purchased 

unneeded or unusable mobile homes and manufactured homes. It 

is still unclear as to how this decision was made. However, we determined that FEMA purchased nearly 25,000 manufactured 

homes at a cost of $857 million and around 1,300 modular homes 

at a cost of $40 million. 

As seen in this aerial photo,2 almost 11,000 of those manufactured homes are sitting on runways in the open fields in Hope, Arkansas. Since they were not properly stored, as you can see from 

this second picture, the homes are sinking in the mud, and their 

frames are bending from sitting on trailers with no support. Insofar 

as many of these homes failed to meet FEMA specification requirements or FEMA has no qualified, prearranged site location to place 

them, they may have to be disposed of. 

12

1The photo referenced by Mr. Skinner appears in the Appendix on page 126. 

2The chart referenced by Mr. Skinner appears in the Appendix on page 127. 

With regard to contract management, as government agencies 

rushed to meet requirements in the immediate aftermath of 

Katrina, they used expedited contracting methods as authorized in 

the Federal Acquisition Regulations. While we have found many instances where contractors performed their work efficiently and in 

good faith, we have also found instances where there are problems. 

For example, we are finding contract taskings without the knowledge of the contracting officers’ technical rep; contracts with firms 

with no experience; poor invoice acceptance procedures, that is, 

paying contractors the full contract price before the period of performance was complete; firm fixed-price contracts with cost reimbursement-type invoicing, and the subsequent payment of invoices 

with both firm fixed-price and cost reimbursement-type charges. 

And we found cases where FEMA accepted and paid for flawed 

goods and property. For example, FEMA accepted and paid for at 

least 21 damaged travel trailers that cannot be used for housing 

and should have been returned to the contractor. To make matters 

worse, as you can see from this photo, they are using the parts 

from the damaged trailers to equip other trailers that were delivered, accepted, and paid for without all the required parts.1 These, 

too, should have been returned to the vendor. 

We are finding contracts with poor statements of work, poor 

specifications, and unknown terms, conditions, and deliverables. 

Because FEMA did not always articulate its specifications for mobile homes, for example, many expensive, luxury-style mobile 

homes were delivered, accepted, and paid for by FEMA. Then to ensure consistency among the mobile homes being delivered to evacuees, FEMA would cannibalize the luxury mobile homes of such 

amenities as TVs, microwaves, and dishwashers. To date, we have 

been unable to locate the cannibalized parts or how they were disposed of. 

Finally, we are finding contracts with no incentives for contractors to control costs. For example, as you can see from this chart,2

the FEMA contractor responsible for finding hotel rooms for evacuees paid a hotel in New York City its published rate of $438 per 

night. Another facility in Panama City, Florida, charged between 

$330 and $375 per night for beachfront condominiums. A hotel in 

downtown Chicago charged up to $399 per night. 

We also found cases of apparent price gauging. For example, a 

hotel in Chicago was charging $391 per night per room for evacuees, yet its published or advertised rate was only $249 per night 

per room. In another case in Ontario, California, the hotel charged 

evacuees $199 per night per room, yet its published rate was only 

$72 per night per room. These are just two of the many examples 

that we have found to date. Unfortunately, due to the terms of 

FEMA’s contract with the firm responsible for hotel rooms, the government may not have or may have little recourse to recoup these 

excessive charges. 

I can see my time is starting to run out, so I would just like to 

leave you with a few words. 

13

1The prepared statement of Ms. Fisher appears in the Appendix on page 85. 

First, we can all agree that Hurricane Katrina has been a catastrophic event beyond anything in recent experience, and we will 

debate its lessons and calculate its total monetary and economic 

impact for many years to come. The bottom line, however, notwithstanding the overwhelming effects of Hurricane Katrina, it does not 

mitigate our fiduciary obligations as stewards of public dollars. 

That is why our oversight efforts are focused on the prevention of 

fraud, waste, and abuse, but we also hope to provide lessons for future disasters. I believe that collectively the Inspector Generals are 

uniquely qualified and positioned to provide the most timely and 

effective oversight of hurricane relief activities in the Gulf Coast, 

and you can be sure that we will do so. 

Chairman Collins, Members of the Committee, that concludes my 

remarks. I will be happy to answer any questions. 

Chairman COLLINS. Thank you very much for your excellent testimony. Assistant Attorney General Fisher. 

TESTIMONY OF ALICE S. FISHER,1 ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, AND CHAIRMAN, HURRICANE 

KATRINA FRAUD TASK FORCE, U.S. DEPARTMENT OF JUSTICE 

Ms. FISHER. Thank you, Chairman Collins, Senator Lieberman, 

and other distinguished Members of the Committee. Thank you for 

inviting me to testify today and also thank you for having this 

hearing. It’s my belief that having this hearing will act as a further 

deterrent on those who would intend to commit fraud, and it helps 

us to get our message out that we won’t tolerate it. So I thank you 

for doing that and thank you for having me here. 

When Hurricane Katrina hit, it brought an outpouring of donations from across America and across the globe to the victims of the 

hurricane. We knew that the government would have to send 

money quickly and in record amounts, and we wanted to protect 

the integrity of that money. So the Attorney General established 

the Hurricane Katrina Fraud Task Force on September 8, with one 

goal in mind: To make sure that relief money makes it into the 

hands of the victims and not to the pockets of fraudsters. 

We must try to deter fraud by anticipating problems, coordinating, learning from patterns, and we must prosecute the wrongdoers. Every dollar lost to fraud is a dollar that does not make it 

into the hands of the people that deserve it—the victims of the hurricane and those that are struggling to rebuild their communities 

and their lives. 

I immediately reached out to my counterparts inside the Department of Justice and throughout the Federal Government, pulled us 

in a room together to discuss our goals and to discuss our mission. 

I was overwhelmed by the commitment, the dedication and support 

I received from across the government—the Federal law enforcement community, including the FBI, Secret Service, IRS, the U.S. 

Attorneys; the Federal Inspector General community, too many, too 

numerous to mention all here today, but including Mr. Skinner 

from DHS, Department of Defense, Department of Housing, HHS, 

Social Security, and a host of others; Federal regulators such as the 

14

FTC and the SEC; State and local partners through the National 

Association of Attorneys General and the National District Attorneys Association; and partners such as the American Red Cross. 

We got together into that room and talked about the mission, 

and every agency was energized and standing behind it. We have 

been working hand in hand from that day forward. 

The task force has made it clear from the start we will have zero 

tolerance for fraud in a time of disaster, whether it is benefit fraud, 

charity fraud, insurance fraud, identity theft, or public corruption. 

We are determined to prosecute criminal activity to the fullest extent of the law. 

In no time at all did we see people trying to rip money out of 

the hands of the victims. For example, in Miami, a man set up a 

website. He called it AirKatrina.com, and on this website it said, 

‘‘Donate money here. I am going to fly a plane into the Gulf region 

with humanitarian relief, and I will fly out sick children.’’

That was not true. That was a fraud. I am pleased to report that 

this man is now convicted. 

We went on the offensive with the websites. The FBI and the Secret Service scoured the Internet for false charity websites and 

shut down 44 of them. The Secret Service shut down six so-called 

phishing websites that were only there to harvest information 

about the donors and steal their identity. 

In another example, we saw temporary contract employees out in 

California who were working at a Red Cross call center engage in 

a conspiracy where they would accept fraudulent FEMA assistance 

applications and send their co-conspirators out to the nearby Western Union to pick up the cash. So far, 53 individuals have been 

prosecuted for that fraud in California. 

We brought our first prosecution within weeks after the Hurricane Katrina Fraud Task Force was set up, and since that date, we 

have prosecuted 212 individuals in over 23 judicial districts across 

the Nation. We have convicted 40 of them, but our work continues 

and will continue for the long haul. 

It is also particularly disturbing, as you mentioned, Chairman 

Collins, when public officials try to use their position of trust to 

make money off the disaster through corrupt means. We have 

brought criminal charges in three separate cases of public corruption—two involving FEMA officials and one involving a councilman 

in Louisiana. 

As an example of this, about 10 days ago, two FEMA employees 

were indicted in the Eastern District of Louisiana for soliciting 

bribes from a contractor. The public officials asked the contractor 

to inflate his charges for meals pursuant to a government contract 

and provided a road map to the contractor on how to do it. Those 

public officials asked for a $10,000 up-front cut and a $2,500-aweek payment after that. The contractor turned them in. That contractor chose not to engage in the fraud. We want to make that decision easy for everyone. We want to hear those tips. We want people to come in and tell us because we will prosecute those cases, 

we will investigate them, and we will fine them. The people displaced by the Gulf Coast hurricanes have lost enough. They do not 

need to lose even more to criminals and fraudsters. 

15

By going on the offensive and attacking this problem so forcefully, our plan was to deter people from committing frauds in the 

first place, and I am optimistic that our prosecutions are having 

some effect. FEMA and Red Cross have reported to me that over 

$8 million in assistance has been returned. 

I don’t know how much of that is because of our prosecutions and 

deterrents, but there are signs that some of it is. We have received 

returned assistance checks anonymously. Some people return only 

partial funds and ask for a payment plan to repay the rest. Others 

have simply acknowledged in returning the funds that they took it 

wrongfully. 

We have engaged in other efforts at deterrence, setting up tip 

lines, websites, advertising of warning about fraud schemes, distributing pamphlets on how to protect yourself from identity theft. 

We publicized the criminal prosecutions in furtherance of deterrence. Senate hearings, as I said, such as this help get that message out. 

I cannot underscore enough that none of this could have been 

possible without the support of all of the task force members. One 

of the most visible examples of this cooperation is at the Joint 

Command Center that we have set up in Baton Rouge, Louisiana. 

At this Command Center, we have IG agents, FBI, Secret Service, 

and others working hand in hand every day, sharing information 

from their databases, sharing information about investigations, 

talking about patterns that they are seeing, talking about analysis 

of things to prevent future fraud. 

LSU gave us the space, and their assistance has been unwavering. Men and women from the Department of Justice went down 

there with supplies in hand, from computers to staplers, to set this 

up. The FBI has been so supportive. The U.S. Attorney from New 

Orleans, Jim Letten, provided leadership in the early days of the 

Command Center, did this while battling the loss of his city and 

looking for his unaccounted-for staff and dealing with a colossal 

law enforcement crisis. Rick Skinner and all his fellow IGs have 

added analysts and resources down to the Command Center to 

work on investigations. 

It is working. Every day it is making new strides and improving 

information sharing, and it is moving under new heights under our 

Executive Director, U.S. Attorney Dave Dugas, from the Middle 

District of Louisiana. This Command Center will be critical to our 

long-term efforts to protect the money going out to the Gulf Coast 

region. 

Benefit fraud cheats the victims. Fraud in the rebuilding process 

cheats the taxpayers of hard-earned money. It also delays and 

cheats the rebuilding effort itself. The task force is committed to 

its mission to combat fraud for as long as it takes. I am so honored 

to work with everybody on the task force, and I look forward to any 

questions that you may have. 

Chairman COLLINS. Thank you very much for your testimony. 

Inspector General Skinner, I am going to start my questions with 

you. You stated that FEMA purchased mobile homes valued in 

total at more than $850 million that, by FEMA’s own regulations, 

could not be installed in most of the affected area. Some of the moVerDate 0ct 09 2002 08:13 Mar 30, 2007 Jkt 027030 PO 00000 Frm 00019 Fmt 6633 Sfmt 6601 C:\DOCS\27030.TXT SAFFAIRS PsN: PAT
16

bile homes did not even meet FEMA’s specifications. Others were 

unsuitable for installation in a floodplain. 

This is an enormous amount of money, but it also is a source of 

enormous frustration, as we heard when we visited the Gulf region 

where you have residents who are desperate for housing. And yet 

here we have all of these mobile homes sitting unused and unable 

to be used. 

My question for you is a basic one: How did this happen? 

Mr. SKINNER. Essentially, it is because FEMA did not have a 

plan in place to react to the massive requirements that they had 

for housing. That coupled with the fact that they were experimenting with or used for the very first time a Housing Area Command that has never been used for anything as great as this before. There was lack of communication. There was lack of coordination with the Housing Area Command and the individual housing 

components within the individual Joint Field Offices, not only in 

Louisiana but also in Mississippi and Alabama. 

FEMA reacted. They knew they needed housing. But they did not 

coordinate their efforts in a strategic manner, that is, defining how 

they were going to provide that housing, how much housing was 

needed, and where it was needed. They had not coordinated with 

the locals to find out where they could place the trailers, manufactured homes, or modular homes. They bought first, then tried to fit 

their inventory into their decisionmaking processes. As a result, 

they may have certain types of housing, like manufactured homes 

and modular homes, that they will not be able to use. Instead, they 

may need to buy more trailers, which leaves them with a large inventory of modular housing that is very costly and that may not 

be used. And, as we speak, FEMA is developing some type of strategy, which we have not seen, as to how they want to dispose of 

these units. They may use them for future disasters or dispose of 

them by donating them to GSA for use by other Federal agencies 

that may have housing requirements, or they may just sell them. 

Chairman COLLINS. If they are sold as surplus property, what 

kind of return can you expect on that? 

Mr. SKINNER. I can only speculate, but it is certainly not going 

to be very high, and the reason for that is they have been sitting 

exposed to the elements for months. Some of the trailers that we 

inspected are actually warping and have lost wheels. And some 

have been cannibalized, parts taken out, and we don’t even know 

where the parts are right now. So their value is going to decrease 

tremendously. 

Chairman COLLINS. So they have been allowed to deteriorate, but 

also, from my experience with the government selling surplus property, it seems that oftentimes the government only gets pennies on 

the dollar. Is that a fair assessment? 

Mr. SKINNER. Absolutely, and FEMA has experience in reselling 

used trailers. It is my understanding they will refurbish a trailer 

once, but the second time that it is used, they will put it up for 

sale, and they literally only get pennies on the dollar. 

Chairman COLLINS. Mr. Kutz, I was struck by your testimony 

that it appeared if someone applied for help via the Internet, that 

FEMA officials had instituted procedures for verifying identities 

and Social Security numbers. But if that individual applied over 

17

the telephone, there were no such verification steps taken. Is that 

accurate? 

Mr. KUTZ. That’s correct. 

Chairman COLLINS. And did you actually find cases where people 

were turned down when they applied via the Internet because the 

Social Security number may have been bogus or the identity 

couldn’t be verified and then they were able to get the assistance 

by using the toll-free number? 

Mr. KUTZ. Yes. The cases that we did, the bogus cases GAO did 

in our covert operation, in fact, that is what happened. We don’t 

know how many other cases that happened because no one kept 

track of the rejected Social Security numbers and identities from 

the Internet application, or at least we haven’t been given any support for that. We asked for that several months ago, and we 

haven’t gotten it. So we believe that no one kept track of that. 

So, really, the Internet, although it was a control, it was not an 

effective control because if you just were told to call on the telephone and they didn’t keep track of who was rejected on the Internet, it was really not an effective process. 

Chairman COLLINS. It just is amazing to me that FEMA would 

have pretty good controls on the Internet, nonexistent controls on 

the telephone system, and then refer people who had been rejected 

by the Internet to apply on a system that had no such controls. 

Did FEMA have any explanation for why there weren’t controls 

for the telephone registrations? 

Mr. KUTZ. They claimed that they had a system change request 

in place back in August 2005. We have been provided no support 

for that. They also claimed at one point that they didn’t have funding to do it, and, again, we have been provided no support for that. 

So we really don’t know the reason, but this has been something 

that should have been done years ago. I would call this ‘‘Fraud Prevention 101,’’ and I don’t think they have gotten into the 101 

course at this point. 

So, validating identities and damaged property address information before someone gets in the system is the building of what we 

call the foundation of information upon which you have got this 

whole program to build on. 

Chairman COLLINS. It does not seem like rocket science to verify 

an individual’s identity, Social Security number, and address before 

cutting a check. 

Mr. KUTZ. Correct. Agreed. 

Chairman COLLINS. Mr. Ryan, I want to talk with you further 

about the Social Security numbers that you found because I was 

struck on your charts by the number of individuals who used multiple Social Security numbers. 

GAO’s testimony has indicated that 165 of the 248 fraudulent 

registrations that you are investigating did involve the misuse of 

Social Security numbers. Can you give us some examples of the 

ways in which Social Security numbers were misused? 

Mr. RYAN. Yes, Senator. A Social Security number is a unique 

number. It is provided by the Social Security Administration. It is 

identified to a particular individual. 

What happens in this particular case is that someone will take 

a chance, make up a series of numbers, and claim it is their Social 

18

Security number. If you do not validate that number against the 

authenticator, then you have a possibility of a misuse of a Social 

Security number. 

In the cases that we are investigating, that is one of the main 

themes that we have seen, is the misuse of the Social Security 

number. 

Chairman COLLINS. Were there Social Security numbers used 

that belonged to people who are no longer living? 

Mr. RYAN. Yes. We were able to take the database of Social Security numbers and work very closely with the Social Security IG, 

who was very helpful to us. In that particular case, we were able 

to run the Social Security numbers against their system, and we 

were able to determine that there was a series of numbers that 

were linked to individuals and dates of birth that were already recorded in the Social Security Administration’s death files. 

Mr. KUTZ. There were about a thousand of those, Senator, that 

were deceased. 

Chairman COLLINS. A thousand. 

Mr. KUTZ. About a thousand, yes. 

Chairman COLLINS. That actually is a good lead-in to my next 

question. You used data-mining techniques to identify some of 

these cases. Do you think that the data mining you did indicates 

the scope of the problem? Or do you think it is likely much beyond 

the cases that you have identified? 

Mr. KUTZ. It is certainly beyond the cases we have identified. We 

cannot quantify it. We want to be able to do that down the road, 

and we would hope to be able to report back to the Congress in aggregate. But certainly in addition to the thousand or so deceased 

individuals’ Social Security numbers, there were about a thousand 

other Social Security numbers that had never been issued by the 

Social Security Administration. So those are pretty much slamdunk cases. 

There is also tens of thousands of other mismatches where the 

name, date of birth, and Social Security number do not match, and 

within our fraud cases, we did see instances where those, in fact, 

were specific frauds of misuse of Social Security numbers. So the 

potential is certainly thousands and thousands of—and that is just 

Social Security misuse. That doesn’t include bogus property addresses or identity theft or all the other types of fraud that you 

likely have in this program. 

Chairman COLLINS. The lack of these basic controls seems to be 

an invitation to massive fraud, and I just am at a loss to understand why these basic safeguards were not built into the system. 

Mr. KUTZ. Mr. Skinner could probably comment, too, because he 

has a longer history with this, but I don’t really believe FEMA believes it is their purpose to have fraud prevention. That is why 

they haven’t got to Fraud Prevention 101 yet because they haven’t 

looked on that as a purpose. 

I would say that they have been very open to our discussions 

with them on doing some of the things we have talked about. It is 

just a matter of actually going out and getting it done. And even 

with respect to using the Social Security Administration to help 

them with this, as Special Agent Ryan said, those are the people 

who issue the Social Security numbers. It is surprising to us that 

19

they had not been in contact with and working directly with the 

Social Security Administration years ago to figure out a way to use 

government information to identify individuals. 

Chairman COLLINS. Thank you. Senator Lieberman. 

Senator LIEBERMAN. Thanks to all of you. I don’t know about my 

fellow Committee Members or people watching on television, but I 

think we need some of that medication that reduces blood pressure. 

[Laughter.] 

As we listen to what you have said because it really is infuriating. 

I must say, in response to your last statement, Mr. Kutz, which 

is that FEMA has not viewed its role as fraud prevention but as 

support extension, there is just no excuse for that because as Senator Collins said, just last year FEMA should have been embarrassed greatly by the stories of waste, fraud, and abuse that were 

coming out of Florida after the hurricanes there. We conducted an 

investigation. We held a hearing. We sent those 19 recommendations for fraud prevention, so they were really on notice. This is 

double notice. It is long past time for FEMA to understand that if 

we are going to sustain public support for the relief that we all 

want to give our fellow Americans when they are hit by a disaster, 

they have to consider fraud prevention part of their emergency 

management charge. 

I am going to direct this question to you, Mr. Kutz—I understand 

that you do not have a precise estimate, but is it possible to estimate the upper range of dollars of total fraud under the expedited 

assistance program? 

Mr. KUTZ. No, not really. I mean, it certainly is millions of dollars, could be tens or hundreds of millions. It is difficult to tell. 

Again, we would hope to be able to report back to you later this 

year some sort of a range based on a statistical sample of what 

that might be. But certainly tens to hundreds of millions is possible 

given what we have seen. 

Senator LIEBERMAN. OK. Give us, to the best of your ability, 

some sense of what the profile is here of those engaging in Katrinarelated fraud. Are these professional criminals and con artists? Or 

are they people who may have been entitled to benefits under the 

relief program because of Katrina and when they saw how easy it 

was, they just decided to cash in? Or is it something else? Who are 

these people? 

Mr. KUTZ. For the fraud cases we looked at, some of the individuals had actually lived in the disaster area at some point in time. 

Most of them had not lived there when the hurricane hit. 

Senator LIEBERMAN. So they were just people out across America 

who decided that they would try to figure out how to rip off the 

system. 

Mr. KUTZ. I wouldn’t say across America. I would say primarily 

in places like Texas, Georgia, Alabama, so on the outskirts of the 

disaster area. That is where we believe many of the crimes are taking place. But some of the indictments that they have had that we 

have read that Ms. Fisher talked about are all over the country, 

actually. 

20

Senator LIEBERMAN. But since most of this is over the phone, at 

least for the assistance, you could be anywhere and make the calls, 

so long as your number was blocked. 

Mr. KUTZ. We did it from Washington, DC. 

Senator LIEBERMAN. Yes, exactly. 

Let me next ask you about this Internet-phone question that is 

so interesting, and maybe you have answered it already, but it is 

puzzling to me as to why FEMA could not train the people on the 

other end of the phone to impose the same requirements that the 

Internet was imposing. Do you know what I mean? 

Mr. KUTZ. Yes. They could have. The technology is there. Actually, it is probably easier to do on the phone because based on our 

covert operations, the phone applications took anywhere from 15 to 

40 minutes to do, so you would have had plenty of time to type in 

a Social Security number, send it to the contractor, and get a yes 

or no as to whether it was a valid Social Security number. So there 

really is no excuse why they didn’t do it. 

Senator LIEBERMAN. Let me ask this question: I had been under 

the impression—my staff had, too—that there may not be a formal 

information-sharing agreement between FEMA and the Social Security Administration. Is that correct? 

Mr. KUTZ. That’s correct. 

Senator LIEBERMAN. So in the cases where they checked the Social Security numbers, how did they do that? 

Mr. KUTZ. They used a company called ChoicePoint. 

Senator LIEBERMAN. Ah, got you. 

Mr. KUTZ. They had a contract in place I believe before the hurricanes hit with ChoicePoint that was implemented immediately. 

Senator LIEBERMAN. Is there any reason from your point of view 

at GAO why that would be preferable to having a direct information-sharing program? Or is there no difference really? 

Mr. KUTZ. Well, I think that the Social Security information may 

be more up-to-date and current. We did see that there were 60 Social Security numbers that were registered by Internet that were 

not valid Social Security numbers. So the Internet process is not 

foolproof either. And what happened, Senator, is I believe people 

before the disaster probably created fictitious identities using bogus 

Social Security numbers by opening up a credit card or something. 

And so in the credit information that ChoicePoint was probably 

using to validate, these people appeared to be real individuals. 

Senator LIEBERMAN. So they had set up a kind of fraudulent 

foundation to use that fake Social Security number somewhere, 

since they did it before Katrina struck. Is that what you are saying? 

Mr. KUTZ. Yes. That’s correct. And, again, I think ChoicePoint 

periodically validates their information against Social Security 

records. 

Senator LIEBERMAN. Right. 

Mr. KUTZ. But they were validating, we believe, against credit 

headers or credit histories from credit reports. 

Senator LIEBERMAN. Mr. Kutz, am I correct to say that you are 

not arguing—or are you—that the expedited assistance program 

should be ended or dramatically altered? You are saying that there 

21

ought to be more fraud prevention in the carrying out of that program. 

Mr. KUTZ. That’s correct. We are not arguing that the program 

should be ended or that the debit card was necessarily bad either. 

It is really a management issue, Senator. 

Senator LIEBERMAN. Correct. 

Mr. Skinner, thank you for what you said. Like Senator Collins, 

I am shocked by the story of these thousands of manufactured 

homes purchased with no apparent purpose or utility, which are 

now allowed to begin to deteriorate in that open area, the floodplain in Hope, Arkansas. These trailers are going to take the place 

of those very expensive toilet seats that we remember from Pentagon days. It is really absolutely unbelievable and unacceptable. 

Did I hear you correctly that if we ask you how this happened, 

you would put the blame more on poor management within the 

Federal Government and FEMA, rather than in this case on poor 

performance by the government contractors who were hired to do 

this? 

Mr. SKINNER. Yes, that’s correct. The contractors were only reacting to what FEMA asked for. 

Senator LIEBERMAN. Yes. What about the decision to leave the 

manufactured homes in an area where they now are rapidly beginning to deteriorate? Who was responsible for that? 

Mr. SKINNER. Those are the questions we are still trying to find 

answers to. We do know that we are talking about 25,000 modular 

homes. About 11,000 are in Hope, Arkansas. Others are scattered 

throughout the Southeast and Southwest. For those in Hope, Arkansas, they were put there because, I think, it was a former military base and, therefore, they could enter into some type of an 

agreement with the military, or whoever was the custodian of the 

property. 

Senator LIEBERMAN. So let me get this clear: The 25,000 manufactured homes that were bought, how many are actually being 

used? 

Mr. SKINNER. We think about 200 have been deployed to 

house——

Senator LIEBERMAN. Two hundred out of the 25,000? 

Mr. SKINNER. About 2,200. I am sorry, about 1,200. Two hundred 

had been deployed to help those that were affected by the recent 

fires in Oklahoma and Texas. 

Senator LIEBERMAN. Yes. Not Katrina. 

Mr. SKINNER. Not Katrina. 

Senator LIEBERMAN. Right. 

Mr. SKINNER. And about 1,000 had been deployed in Alabama, 

Mississippi, and Louisiana in the non-floodplain areas. 

Senator LIEBERMAN. Right. 

Mr. SKINNER. So I am going to say about 1,200 to date. 

Senator LIEBERMAN. And just state again for the record why 

these 25,000 homes, purchased at a cost of $850 million, roughly, 

have not been able to be used to satisfy the continuing need for 

housing by Katrina victims. 

Mr. SKINNER. There are several reasons that we have been given. 

One is that they cannot be placed in floodplains because that is a 

violation of the floodplain regulations. 

22

Senator LIEBERMAN. In other words, if you were going to move 

them into New Orleans or large parts of Mississippi, which was 

going to be one of the purposes, to let people move back close to 

where they had previously lived, you couldn’t do it because they are 

floodplains. 

Mr. SKINNER. That’s correct. Second, they were purchased before 

they had coordinated with the State and local officials as to where 

they could be placed. Many of the officials, for example, in Alabama—and as you have read in the paper, many places in New Orleans as well—do not want to have trailer parks. 

Senator LIEBERMAN. Yes. 

Mr. SKINNER. So they don’t have a place to put them, even if it 

was outside the flood zone. 

Senator LIEBERMAN. This is just such basic stuff. It goes back to 

preparation. It goes back to just plain common sense to have been 

ready—incidentally, as we found over and over and as you know, 

the predictions of a hurricane like this go back decades and the effect it would have on New Orleans. A year before, there was a 

mock exercise saying that about 100,000 people would not be able 

to evacuate in time. Of course, many that were able to evacuate 

would need emergency housing to come back. And it looks like 

there was effectively no sensible planning ahead of time to meet 

those housing needs. And the result is a disastrous and infuriating 

waste of public money. 

Mr. SKINNER. Yes, it is very disturbing, and everyone keeps referring to exercise Pam, which goes back one year. 

Senator LIEBERMAN. Right. 

Mr. SKINNER. But I would suggest that FEMA and the Federal 

Government and the State of Louisiana and the City of New Orleans knew about this 20 years ago. 

Senator LIEBERMAN. You are right. 

Mr. SKINNER. These analyses are not new. These exercises and 

the results, the information that we garnered from these exercises 

is not new. It is not something we just learned a year ago. We have 

known about this for 20 or 30 years, if not longer. 

Senator LIEBERMAN. Absolutely right. Thank you. My time is up. 

Chairman COLLINS. Thank you. Senator Akaka, Senator Dayton 

has indicated that he would like you to go next. And it sounds like 

you are going to defer back to him. 

OPENING STATEMENT OF SENATOR DAYTON 

Senator DAYTON. All right. Thank you, Madam Chairman. Sorry 

for the confusion. 

Mr. Skinner, I cannot accept your Hank Aaron analogy because 

this is what FEMA does. It is like saying that the last place team 

in the league, using your baseball analogy, with a horrendous 

record deserves credit because its players showed up for the 162 

games of the season. That is what they get paid to do. The National Transportation Safety Board gets—they sign up, they build 

their careers to show up, so I appreciate what they do, but I don’t 

think they deserve special recognition for showing up at the site of 

airplane disasters. This is what FEMA does. 

I think the disaster—we have a continuing disaster, and that is 

FEMA. I think I have reached a point where I almost say we ought 

23

1The memo and letter submitted by Senator Dayton appear in the Appendix on page 108. 

to just dispense with FEMA, just start all over again, because it 

would be one thing if these kinds of failures occurred in the immediate aftermath of what we all agree is an overwhelming disaster, 

unprecedented disaster. But this is continuing today. 

Last week’s Washington Post says—just reading some of it, the 

story is about Limbo Land. ‘‘Vast sections of the city are still without utilities. Without electricity, businesses cannot open their 

doors. Without open businesses, electric bills cannot be paid. Of an 

estimated 50 million cubic yards of hurricane and flood debris, 

about 6 million has been picked up, the city’s website reported.’’

‘‘And everyone is waiting for the FEMA maps like they were oracles at Delphi. The maps will tell residents and businesses where 

and how they can rebuild.’’

‘‘Preliminary FEMA maps are scheduled to come out in the 

spring, but final Federal guidelines for rebuilding may not be released until August, when New Orleans will already be several 

weeks into the hurricane season. ‘People are afraid to do the wrong 

thing, to put money into a home that may or may not be insurable 

in the long run, and this is causing a tremendous amount of paralysis,’ ’’ the local official said. 

Madam Chairman, I would like to submit into the record a memo 

I received over the weekend from my staff.1 The City of Roseau, 

which was flooded in June 2002—on February 3, 2006, an appeal 

to Region V of FEMA for—this is about a $500,000 project for an 

alternate project request. It took 3 years to get that request processed for $500,000 as an alternate project in a recovery from a 

flood that devastated that city, and they were turned down. Now 

they have to go through an appeals process. 

This is a scale that is not New Orleans, but it is devastating to 

Roseau. But this is just part and parcel to me of how it operates, 

and there are no consequences. Mr. Brown has left. But I am glad 

you are prosecuting those who are guilty of criminal acts. But the 

kind of incompetence that buys these mobile homes and yet, Mr. 

Skinner, you say it is unclear how the decision was made. So nobody is responsible then. It is unclear why the contractor can overcharge, can’t function. Presumably that is what the contractor is 

hired to do, to parcel a contract for room rates around the area. 

And I think we should get—I would request, Madam Chairman, a 

list of the hotels, the names of the hotels who gouged the American 

people because I consider that to be an unpatriotic act, especially 

in the context of what is going on. And let’s put those names up 

on that bulletin board there. I think people should be held accountable. I would like the name of the contractor who can’t buy room 

rates at less than $496, or whatever it is, in New York or $396 in 

Chicago. 

But this stuff goes on, and then we have another report, we have 

another GAO audit. I am glad we are prosecuting those. But nothing fundamentally changes because this organization, which is set 

up to respond to emergencies, isn’t responding. Let’s put the National Guard in charge. Dispense with FEMA for a year or so and 

just start from the ground up and see if you can put together an 

agency. And I agree with you, there are some good people. I saw 

24

that in Roseau, Minnesota. I saw that in East Grand Forks in 

1997. But they are so snarled in their bureaucratic entanglements 

that the good people cannot act, they cannot make decisions, they 

cannot give approvals for things. I guess when they do give approvals for things, then often those are fraudulent. 

So I just throw up my hands and say somebody who can—but 

there is never any consequence in the Federal Government for anything that just goes fundamentally wrong. And given your efforts, 

Madam Chairman—and I commend you for them, in the aftermath 

of previous hurricanes, to get this agency responsible and ready to 

respond to, yes, a catastrophe, but it is in the business of responding to catastrophes. And if it cannot do it, if what we heard the 

other day down in Mississippi and in New Orleans about the views 

of the public down there who are in critical situations to FEMA, 

then it doesn’t have the public trust, in my view, to be able to continue to function. 

Mr. Kutz, I would like to ask you, What is your estimated loss 

rate for these fraudulent claims? Not the ones where they took the 

$2,000 and you cannot determine what they spent it on, but what 

is the loss rate for those that are—of all the emergency claims 

processed? Can you approximate that? 

Mr. KUTZ. Not yet. We are trying to look at that. 

Senator DAYTON. Are we talking 5 percent? Fifty percent? What 

is the ballpark? 

Mr. KUTZ. I don’t know. We are going to hope to report that back 

to you later this year. We are going to try to project that. 

Senator DAYTON. Well, if you sampled enough—you have these 

examples of horrendous situations. Is that the norm or is that the 

exception? 

Mr. KUTZ. Presumably most of the people that applied for disasters were, in fact, entitled, so hopefully it is the exception. And, 

again, I would anticipate tens or hundreds of millions of dollars we 

are talking about, but we don’t know for sure. 

Senator DAYTON. But a State auditor—I am not a professional 

auditor—but you can go back and based on a sampling make a projection——

Mr. KUTZ. That is what we plan to do, yes. 

Senator DAYTON. By the end of the year? This is February, right? 

Mr. KUTZ. Before the end of the year. 

Senator DAYTON. Before next December? It is going to take you 

that long to do a sample? 

Mr. KUTZ. No, we will have it done probably this summer. 

Senator DAYTON. Probably. So is that probably, what, 6 months 

from now? How long does it take to do a sample? 

Mr. KUTZ. Well, it depends. It is difficult because we are going 

to have to try to validate everything, including whether people had 

insurance—this goes beyond just the expedited assistance payments and the addresses. We would look into whether people had 

insurance and whether the properties existed, whether they were 

reimbursed for property they ever actually owned. 

Senator DAYTON. Thank you, Madam Chairman. I yield back the 

rest of my time. And I yield back the agency. 

Senator LIEBERMAN. We do not accept it. [Laughter.] 

25

Chairman COLLINS. We will put the memo that you mentioned, 

Senator Dayton, and any additional materials into the record. 

Senator Akaka. 

Senator AKAKA. Thank you very much, Madam Chairman. 

The witnesses have a good sense of how the Committee feels 

about finding the problems, the mistakes, and correcting them so 

that we can help when the next disaster happens. 

Mr. Skinner, if a disaster occurred today that would require 

FEMA to use temporary housing, like the manufactured or mobile 

homes that you described, do you think that FEMA is prepared to 

deal with that problem today? 

Mr. SKINNER. No. I know they are in the process of preparing 

themselves. They recognize that they have made many mistakes 

after Hurricanes Katrina, Rita, and Wilma. But they are not where 

they should be. They still have many contract problems. I think 

that they need pre-disaster type contracts, defining what requirements they are going to need. Additional training is necessary and 

additional staff is going to be necessary. Their IT systems and internal controls still need to be tweaked. If a disaster occurred 

today, I think we would be no better prepared than we were after 

Katrina. As a matter of fact, maybe even less prepared because we 

have so many people already deployed. 

Senator AKAKA. Mr. Skinner, that is for me a shocking admission 

that our government, and in particular, FEMA, whose mission is 

to deal with disasters, to help people, is not ready or cannot do it 

today. This is something I feel that this Committee and the Senate 

need to really get after and locate those who have that responsibility and see what we can do about it so that they can be prepared 

today for any other disaster. 

Mr. Kutz, do you know whether debit card recipients were given 

information as to the products or services that could be purchased 

with the debit cards? Were any limitations or restrictions relayed 

to the recipients by FEMA? 

Mr. KUTZ. The best we can tell, they were instructed on how to 

actually use the debit cards. They got their PIN numbers. But they 

were not advised on how they actually should spend the money, 

which was different than the checks or the EFT payments that 

they received. For checks and EFT payments, they received a detailed booklet in the mail that I thought was very well done by 

FEMA that laid out very clearly what the purpose of the program 

is, what all the rules and regulations are, the appeals process, etc. 

So it does not appear for the debit cards or we have seen no evidence for debit cards that they were given any instructions on what 

they were to be used for. 

Senator AKAKA. You also indicated that there were groups, organized groups, prior to Katrina who set out to commit fraud. Is 

there any way that we can identify these groups before a disaster? 

Mr. KUTZ. Not necessarily because they did not register with the 

Social Security numbers until actually the disaster had taken 

place, but they were individuals that used Social Security numbers 

that, again, were never issued, and they had real credit histories, 

it appears. So they had established these bogus credit histories before the disaster, and they were individuals—I don’t think they 

26

were working together, necessarily, but it would be difficult, until 

they registered for disaster assistance, to determine who they are. 

Senator AKAKA. Mr. Skinner, your testimony indicates that DHS 

has taken a number of initiatives to address the concerns raised by 

your audit and management reports. What are the top three recommendations that have not been addressed by DHS? And what 

further actions will you take to ensure their implementation? 

Mr. SKINNER. Those that have not been addressed? 

Senator AKAKA. Yes. 

Mr. SKINNER. Generally speaking, they have been responsive to 

about all of our suggestions, and when I say ‘‘initiatives,’’ these are 

just initiatives. They have not been completed. These are actions 

that they are just now getting underway, and examples are the 

need for increased contracting officers, the need for increased contracting officer technical reps, the need for increased controls within their NEMIS, the National Emergency Management Information 

System for disaster operations. Also, one of the things that we have 

suggested, as a matter of fact, just last week, I think they need to 

enter into MOUs with the Social Security Administration and other 

government agencies that can be used to help prevent fraud claims. 

But are they there? No, they are not. They are nowhere near 

there. But they are working toward that. Many of the issues that 

we have identified they agree with, and they have identified other 

issues that we have not even touched upon yet that they are going 

to be addressing. But it will take months, if not years, to get a lot 

of these things done. 

Senator AKAKA. So what you are saying is that many of these are 

not completed. They are working on it. I understand from other 

hearings that one of the huge problems that we have had has been 

contracting officers, there is a major shortage for that. Do you find 

that to be true? 

Mr. SKINNER. Yes. When Katrina hit, they were woefully understaffed in contracting officers. There is a plan now to hire, I believe, an additional 120 just within FEMA, half of which will be 

housed in Baton Rouge at an acquisitions center and the other half 

that will be assigned to headquarters to look at the big contracts. 

But they are not there yet. 

I don’t even want to suggest that 120 may be enough. If we have 

another Katrina-like event, 120 additional people in their contracting office may not be sufficient. 

Senator AKAKA. Ms. Fisher, you mentioned zero tolerance. I 

would like to ask you about the origins of the zero tolerance program. Is this the first time the Department of Justice has used this 

standard? And if so, who came up with that idea? 

Ms. FISHER. I can’t speak historically over the many years of the 

Justice Department to say that this was the first time zero tolerance was instituted with a program like this. But after the hurricane hit and realizing how much money was going to go out the 

door from people across America that were going to open up their 

hearts and wallets and from the Federal Government, we thought 

it was the right thing to do, to make sure that we set that zero 

tolerance policy to protect the money that was going to the victims 

and to send a very loud and clear message of deterrence in this regard. 

27

Senator AKAKA. How long can your Department afford to devote 

resources to prosecuting this level of fraud without affecting your 

ability to take and deal with other cases? 

Ms. FISHER. Well, I can tell you we have so much help across 

America. We have 93 U.S. Attorney’s offices that are contributing 

to this effort and that are looking at all of the investigations, and 

we have the Command Center, of course, that is set up for the long 

haul. We are here for the long haul. So while I cannot predict forever in the future, the zero tolerance policy, I believe, is working 

as the numbers that I described for the deterrence and the money 

that we are seeing returned show, and we have no intention of 

changing that right now. But I can’t predict forever into the future. 

Senator AKAKA. Ms. Fisher, I appreciate the efforts by DOJ to 

move quickly on fraud cases, as you have reported, relating to relief 

and reconstruction in the Gulf. I know there was concern over large 

amounts of funds being distributed quickly and everyone wants to 

ensure that the victims of this terrible tragedy receive the necessary assistance. 

There were numerous articles in the press last fall about lobbyists facilitating large contracts going to favored corporations with 

little or no competition. 

Are you looking into any of these cases to see if there was any 

abuse of Federal contracting procedures? 

Ms. FISHER. Absolutely, procurement fraud is part of what the 

task force is going to look at, and we have done a lot of things to 

prepare for that. We have been training the auditors down in the 

Gulf Coast region on what red flags to look for. Our task force 

members, as you know, include the entire Federal Inspector General community, who are tied back to the agencies that they are 

working for and the contracts that are going out. 

So any evidence of fraud, procurement fraud, is being fed into the 

Command Center to make sure that we dedicate the appropriate 

resources to investigate that fraud. 

Senator AKAKA. Do you have any cases now? 

Ms. FISHER. We have three cases that I mentioned earlier with 

regard to public corruption, and those involved contracting. Two of 

them involve debris removal contracts, and one of them involved a 

FEMA contract for meals provided to a tent environment down in 

FEMA. So while they are public corruption because they involve 

public officials, they are really also contracting cases. 

Senator AKAKA. Thank you very much. Thank you, Madam 

Chairman. 

Chairman COLLINS. Thank you. Senator Levin. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Thank you very much, Madam Chairman, and 

thanks to all of our witnesses. 

I was also very much interested in the number of contracts that 

have been awarded on a no-bid basis. Senator Akaka is addressing 

that question in part with his question, and I would like just to 

pursue that. 

How many of the contracts that were awarded by, say, DHS have 

been awarded on a no-bid basis, without competition? 

Mr. SKINNER. With regard to the disaster or——

28

Senator LEVIN. Yes. 

Mr. SKINNER. I have the numbers here. 

We are talking about—DHS awarded about 2,500 contracts immediately following Hurricane Katrina. Of those, 706 were awarded on a no-bid basis or with limited competition. 

Senator LEVIN. Now, of the contracts over $500,000——

Mr. SKINNER. Just those over $500,000. 

Senator LEVIN. Right, so that over half of the contracts was over 

$500,000. Is that right? My figures that I assume you provided to 

us are that over half of the contracts awarded by DHS——

Mr. SKINNER. Yes, 405 of the 712. Then again, if you look, there 

are also some with very limited competition. So it is well over half. 

And I think that is the trend throughout the entire Katrina operations, just not within DHS. 

Senator LEVIN. Is that unusual? 

Mr. SKINNER. Yes, it’s unusual in this sense: FEMA has never 

experienced anything this big before, and generally they have the 

ability to go out and get contractors on a competitive or at least 

a limited competitive basis. They have also had contracts in place 

prior to a disaster that were let competitively, and they just needed 

to be activated after a disaster. This was so large that it required 

them to react in a very quick manner and obtain services through 

a no-bid mechanism. 

Senator LEVIN. When Mr. Paulison, who is the Acting Director 

of FEMA, came before this Committee in October, he said, ‘‘We are 

going to re-bid all of those no-bid contracts.’’ Do you know what he 

was talking about? 

Mr. SKINNER. Yes, and that’s a recommendation we had made to 

him. Right now, in conjunction with our office, they are reviewing 

each and every one of these no-bid contracts. The determination is 

being made. Do we still need the contract? Are the services or 

goods still required? If not, let’s terminate. If the services and 

goods are required, is it for a short-term or long-term nature? If it 

is short term, we will let them run their course, then terminate. 

If it is long term, for example, contracts for the maintenance of 

housing, those are going to be re-bid. 

FEMA is now working with DHS procurement, in fact, to put 

bids out or are in the process of submitting requests for proposals 

on all long-term type contracts. 

Senator LEVIN. How do you re-bid a contract that has been 

issued? 

Mr. SKINNER. You terminate for the convenience of the government. 

Senator LEVIN. So have any contracts been terminated? 

Mr. SKINNER. Yes, I believe some have. 

Senator LEVIN. Do you know about how many of those? 

Mr. SKINNER. No, I don’t have that at my fingertips. 

Senator LEVIN. Would it be more than a few of the 60 percent 

of the DHS contracts that were awarded? 

Mr. SKINNER. It could be because many of those were for shortterm services, for goods and services that we needed immediately. 

For example, we needed water, we needed——

29

Senator LEVIN. No, I am just talking about were they terminated, not were they expired. I am not talking about a short-term 

contract. 

Mr. SKINNER. OK. 

Senator LEVIN. I am talking about where a contract is a longer 

term, but where they have been terminated. You say some have 

been terminated, actually. 

Mr. SKINNER. Yes, some have been and some will be. Some of 

these contracts were so broadly defined that the specifications or 

the taskings under the contracts were like mini contracts within a 

contract, so to speak. For example, the big four housing contracts, 

one tasking required the contractor to ‘‘haul and install’’ trailers, 

while another tasking required them to maintain the trailers. What 

they will be doing is terminating the tasking for the maintenance 

and recompeting that to other vendors. The same thing with inspections of damaged homes contracts. 

Senator LEVIN. Can you give us for the record how many contracts have been terminated? 

Mr. SKINNER. Yes, we can obtain that. 

Senator LEVIN. Now, is it fair to say from earlier answers that 

have been given here that there was a lot of sloppy administration 

inside FEMA of these contracts? I am not saying all contracts, but 

there was a lot of failure, a lot of——

Mr. SKINNER. Yes, there was. There are many contracts that 

worked very well. And, on the other hand, there are many that are 

not working very well. 

Senator LEVIN. And has anybody inside FEMA been held accountable, other than the Director, for sloppy administration? 

Mr. SKINNER. To my knowledge, no one has yet been held accountable other than the top leadership. I know FEMA recognizes 

that contract management is a serious problem, not only DHSwide, but particularly with regards to the FEMA operations after 

Katrina. I do know that their focus—as a matter of fact, they have 

a Procurement Oversight Board in which I participate at weekly 

meetings to address corrective actions that need to be taken. 

Senator LEVIN. We have reason to think that none of the contracts have been re-bid, but you are going to give us that for the 

record. Apparently, there were some conversations with FEMA 

staff and, I think, Senator Lieberman’s staff that indicated that 

none of the contracts have been re-bid. 

Mr. SKINNER. I don’t want to say for the record that some have 

been re-bid. I do know some will be re-bid. 

Senator LEVIN. All right. 

Mr. SKINNER. And the ones we are focusing on right now are the 

four big contracts, the multi-million, the $500 million contracts. 

Senator LEVIN. Right. I think Senator Lieberman, in his opening 

comments, made reference to the fact that the IG’s recommendations to FEMA from May 2005, which followed the 2004 Florida 

hurricanes, have not been implemented, or most of them have not 

been implemented. And I am just wondering, are you familiar with 

that issue? 

Mr. SKINNER. Yes, I am. Some have, in fact, been implemented. 

Senator LEVIN. Have some key ones not been implemented? 

Mr. SKINNER. Yes. 

30

Senator LEVIN. And why is that? 

Mr. SKINNER. We are monitoring the recommendations we made 

with regard to our review of Miami-Dade as well as the recommendations that this Committee has made. We were told that 

many of these recommendations had not been implemented, first, 

because of lack of funds, which I question, and, second, because of 

Hurricanes Katrina, Rita, and Wilma. In the process of building up 

to implement those recommendations, everything was put on hold 

to react to Katrina events. 

Senator LEVIN. Would you give the Committee the list of the recommendations, if they are not already in the Committee’s possession, that have been made by the IG’s office? 

Mr. SKINNER. Yes. 

Senator LEVIN. And the ones that have not been implemented 

and why? 

Mr. SKINNER. Yes, we can do that. Many of our recommendations 

are similar to or the same as the Committee’s recommendations. 

Senator LEVIN. You have indicated, and I believe Ms. Fisher has 

indicated, that there is going to be some review of fraud among 

contractors. It seems to me following Senator Akaka’s line of questions that this is critical. We want to go after the individual people 

who have defrauded the government, but we also want to go after 

the big fish who may have defrauded the government as well. 

How many of these contracts—or how many contractors, not individual violations by individuals of Social Security fraud and that 

kind of thing, but how many contractors have been referred to the 

Department of Justice by the IG’s office? 

Mr. SKINNER. Most of those cases right now are ongoing. 

Senator LEVIN. Have there been any references to the Department of Justice yet? 

Mr. SKINNER. Actual referrals? 

Senator LEVIN. Of contractors, yes, referrals. 

Mr. SKINNER. Let me get back to you on that. We have cases—

when you say ‘‘referrals,’’ wherein we have consulted with the Department of Justice to ensure that it is a worthwhile case that we 

want to pursue. We work very closely, hand in hand, with the 

Katrina Fraud Task Force. When we open a case, oftentimes even 

before we open it, we will consult with the attorneys, the U.S. Attorneys at that task force. 

Senator LEVIN. Have any been referred yet to the Department of 

Justice; do you know? I mean a specific reference. I think that is 

a term of art. At least I am using it in a technical way. Have you 

referred any cases to the Department of Justice with recommendations that there be criminal prosecution? 

Mr. SKINNER. We are drawing a fine line, Senator. 

Senator LEVIN. All right. Then I will not draw any more fine 

lines. 

Ms. Fisher, last question. It is on this subject, if the Chairman 

would just let me conclude just this one subject, and I know I am 

over my time. 

How many indictments of contractors have there been following 

Katrina? 

Ms. FISHER. Well, to date, we have not had any public prosecutions of contractors, but we do expect to see them in the future, unVerDate 0ct 09 2002 08:13 Mar 30, 2007 Jkt 027030 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 C:\DOCS\27030.TXT SAFFAIRS PsN: PAT
31

fortunately, and we are working hand in hand down at the Command Center to make sure that we are getting information directly 

from the IGs as they see these contracts. We have also sent down 

prosecutors to train the audit staff from across the IG community 

on what to look for. I have sat down personally with the HUD individuals that are about to send out the large amount of contract assistance to talk about their fraud programs, and we certainly have 

more training scheduled. 

So I believe certainly, Senator, I share your concern, and we are 

trying to get ahead of the problem. 

Senator LEVIN. OK. But in terms of past misdeeds alleged, no indictments yet? 

Ms. FISHER. No public prosecutions yet, sir. 

Senator LEVIN. What is the difference between a public and private prosecution? 

Ms. FISHER. Well, we have ongoing investigations, and then they 

become public when we make a complaint or an indictment. 

Senator LEVIN. There has been no criminal complaint filed yet? 

Ms. FISHER. That is correct, sir. 

Senator LEVIN. Thank you, Madam Chairman. Sorry I went over. 

Chairman COLLINS. Thank you. 

Mr. Skinner, I want to follow up on the contracting issue. As you 

could tell from my opening statement and the questions of many 

of us, the no-bid contracts are of tremendous concern to this Committee. But I also understand that your investigation has also 

found very questionable practices in how the government has been 

charged under some contracts. 

It is my understanding that you have found at least two large 

contracts that were originally awarded as fixed-price contracts, but 

they are actually being billed as time and materials or cost-plus 

contracts. 

Now, it is my understanding that if they are being billed that 

way, that totally takes away the protection afforded by a fixedprice contract. Could you comment on that? 

Mr. SKINNER. Yes, that’s correct, and we have found—and I think 

maybe even more than just two, this is because the contract in 

itself was very poorly written and the instructions that went to the 

contractor from FEMA were very confusing. 

What we are finding is, under these firm fixed-price contracts, 

the contractor is billing FEMA—let’s say it is a 1-month contract, 

they would be billing FEMA every 7 days. They would just divide 

the total value of the contract by four. And at the same time, they 

would be billing the government for its time and materials. So 

FEMA was paying for time and materials plus the fixed price value 

of the contract. 

Now, we are still in the middle of looking at how and why this 

is happening and the impact it is going to have on the contract. 

This is a 6-month contract, and under this billing mechanism, the 

contractor will be paid in full in 3 months. Therefore, FEMA has 

to go back and renegotiate the contract, and that is where we are 

at right now. And hopefully what we will see, based on our recommendations, is that FEMA will not increase the value of the contract; FEMA need to amend the way it is being billed. 

32

The bottom line is the contractor will end up being paid 100 percent, but will have only delivered half of the goods or services. 

Chairman COLLINS. That is very troubling, and I would ask that 

you keep us informed of your investigation in that area. 

Mr. SKINNER. Yes. We are looking at all of those now. We already 

found two instances of this, and now we are looking at all the contracts for that particular problem. 

Chairman COLLINS. Because even if there had been competition 

originally, if it is being billed as time and materials or cost-plus 

rather than the firm fixed price, the taxpayers are going to end up 

paying an awful lot more, and the incentives for holding costs down 

evaporate. 

Mr. SKINNER. Yes, that is a problem with all these contracts. We 

have found very few incentives to keep costs down, and that is another area of contract management that needs to be addressed now, 

before the next hurricane season, because if we wait until June or 

July, we are going to find ourselves in the same situation that we 

found ourselves in after Katrina. 

Chairman COLLINS. Ms. Fisher, I want to get back to the smalldollar fraud cases. I obviously want you to go after all kinds of 

fraud cases, whether they are big or small. But what was disturbing to me in the wake of the Florida hurricanes last year is too 

often if the fraud did not exceed $10,000, nothing happened. There 

was no punishment at all. And, of course, there are at least two 

problems with that. One is it sends a signal to the fraudsters that 

as long as you keep the dollar number under $10,000, you can rip 

off the government and the taxpayers with impunity. Second, it ignores the fact that small-dollar fraud cases in the aggregate 

amount to significant sums. And I think GAO’s study is a perfect 

example of that. 

GAO found, when looking at individuals who received debit cards 

and also got a deposit into their checking accounts—in other words, 

they got duplicate expedited assistance payments. And just with 

your sample, assuming my math is right, which showed that 5,000 

of the 11,000 people received those duplicates, that amounts to a 

$10 million mistake or fraud, depending on how one looks at it. 

So I guess my message to you today is I want to encourage you 

to go after those small-dollar cases as well. They amount to big 

money in the aggregate, but also, I think it will have a tremendous 

deterrent effect. And, indeed, the fact that you are going after them 

has prompted the kinds of recoveries that you are seeing where 

people are voluntarily turning in money that they might not otherwise. 

Would you like to comment on that? 

Ms. FISHER. Well, I agree with you 100 percent, which is why we 

are doing that. I think it is important, and we have seen that they 

have been aggregated in individual cases where each one may be 

$2,000, but one defendant is getting 25 friends to do the same 

thing, and those aggregate cases add up. And that is why we hope 

that it is having a deterrent effect. 

And so thank you for that support, and I do agree with you, Senator. 

Chairman COLLINS. Thank you. 

33

Mr. Kutz, I want to go back to those debit cards again, and I just 

want to build on an answer that you had earlier. Is it the debit 

cards themselves that were the problem? Are they just a poor way 

to deliver assistance? Or was it the way that they were administered and managed that is the problem? 

Mr. KUTZ. I would say it was the way that they were administered and managed. It is the same as the purchase card hearings 

we have had before you. There was never anything wrong with the 

purchase card. It was the way they were being managed by government agencies. 

So, no, I think that there is great potential that this is a way 

to get money to people quickly, and it provides flexibility as to how 

they can either go to ATM machines or grocery stores or wherever 

the case may be. 

Chairman COLLINS. And, Mr. Ryan, did you find that people received instructions on how to use these debit cards and what were 

appropriate uses versus inappropriate uses, such as the tattoo expenditures that you found? 

Mr. RYAN. I believe in the cases that we as the group looked at, 

there was more concern on how to get the cards out than there was 

instructions on really what to use it for. I think we reported 63 to 

65 percent of the people used it for ATM transactions. There is no 

real way to determine, but you have to assume that the people 

used the money for what they needed at that time. 

In the case of the debit cards, the cases of the guns and using 

the debit card to pay off tickets and buy jewelry, I guess you are 

always going to find a certain number of people that will take an 

opportunity and use it and turn it to the best of their advantage 

at that particular time. But we did not find that they were handed 

instructions on how to use the card. 

Chairman COLLINS. One final question, Mr. Kutz. You stated 

that FEMA was well aware that there could be duplicate payments 

to people who received debit cards. Did FEMA institute any safeguards to try to prevent those kinds of duplicate payments? 

Mr. KUTZ. I would say they were aware that there might have 

been a few. I think they were shocked that almost half of them 

were duplicate payments. I really don’t think that they understood 

that until several weeks ago. And, obviously, they did not have any 

controls in place to prevent that, and I think they have had a hard 

time explaining to us why they made duplicate payments to almost 

half the people that received debit cards. 

Chairman COLLINS. It is an enormous number, and as I said, 

that appears to be a $10 million mistake. 

Mr. KUTZ. Yes. 

Chairman COLLINS. Senator Lieberman. 

Senator LIEBERMAN. Thanks, Madam Chairman. 

Mr. Skinner, I cannot get those manufactured homes out of my 

head. I want to just see if I have it clear because there were two 

categories, or maybe three, approximately 25,000 manufactured 

homes and then, if I heard you correctly at the beginning, another 

1,100 of what you called modular homes? 

Mr. SKINNER. Yes. 

Senator LIEBERMAN. And are the modular homes similarly not in 

use, or are they used? 

34

Mr. SKINNER. That’s correct. I don’t believe any of those have 

been put to use. 

Senator LIEBERMAN. Right. And so the total, if I have it right, 

cost of those is now about $900 million. 

Mr. SKINNER. That’s correct. 

Senator LIEBERMAN. And those categories are different from 

what I have heard described as travel trailers. How many of those 

has FEMA either purchased or leased, do you know? 

Mr. SKINNER. I believe it is around 125,000. 

Senator LIEBERMAN. It is a much greater number. 

Mr. SKINNER. Yes. 

Senator LIEBERMAN. And most of those are in use, if I have it 

right. 

Mr. SKINNER. Yes, most of those are in use. I know they just ordered about 4,000 again last week. 

Senator LIEBERMAN. There are complaints about them, but at 

least they are in use. 

Mr. SKINNER. That’s correct. 

Senator LIEBERMAN. OK. So what we are focused on here is approximately 26,000 manufactured or modular homes costing approximately $900 million, all but about 1,200 of which are not in 

use. Is that right? 

Mr. SKINNER. That’s correct. 

Senator LIEBERMAN. Who was responsible at FEMA for the decision to acquire those homes? 

Mr. SKINNER. We are in the middle of our review as we speak, 

and those are the answers that we are trying to get. 

Senator LIEBERMAN. All right. And we will look forward to answers. 

Mr. SKINNER. We will have that. We will be issuing a report on 

this subject once we have nailed everything down. 

Senator LIEBERMAN. Is there a single contract provider of the 

manufactured or modular homes, or are there many? 

Mr. SKINNER. There are many. 

Senator LIEBERMAN. OK. Ms. Fisher, let me now go to you with 

a few questions. I believe you said that there was somewhere over 

220 prosecutions that have come out of the work of your task force 

that were Katrina-related. 

Ms. FISHER. Two hundred and twelve, yes, sir. 

Senator LIEBERMAN. Two hundred and twelve. Give us a sense, 

generally, of what the range of crimes that people are being 

charged with is. 

Ms. FISHER. Absolutely. It ranges from fraudulently applying for 

$2,000 FEMA assistance to conspiracy on a larger level in working 

at the call centers and setting up lines of people to come in and 

get individual assistance that is fraudulent, to the corruption cases 

that I mentioned, to the websites that I mentioned that were fraudulent and asking for donations. 

We had one case in Houston that comes to mind where there was 

an individual that applied for labor assistance, the unemployment 

labor assistance, and received that benefit and then went over to 

a hotel and convinced many other people at that hotel to apply for 

that and got them to do that in exchange for drugs and for cash. 

35

And it was a large amount of money at the end of the day, again, 

going back to the aggregation point. 

So it really runs the gamut, but what we really want to do is prepare for all types of crime, and in this operation, where we are 

working together hand in hand to try to make these referrals 

proactive and to add the resources necessary to combat crime, we 

are preparing ourselves for the entire range. 

Senator LIEBERMAN. OK. This morning, I believe, Mr. Kutz, you 

were the one who talked about the hotel price gouging. 

Mr. KUTZ. No. That was Mr. Skinner. 

Senator LIEBERMAN. I am sorry. Mr. Skinner. 

Mr. KUTZ. Yes. 

Senator LIEBERMAN. I know there are State price-gouging statutes. Do you have any intention to prosecute those cases? Maybe 

this is the first you have heard about it. Or do you ever forward 

cases to State prosecutors for action? 

Ms. FISHER. Well, as I mentioned earlier, we are working with 

the National Association of Attorneys General and the National 

District Attorneys Association, and many of them as members of 

the task force are reporting on numerous price-gouging cases that 

they have in their States. It is more of a State problem with regard 

to there is no Federal legislation that goes to it. But to the extent 

our State partners need our assistance or need our cooperation, the 

task force is cooperating. 

Senator LIEBERMAN. OK. I share Senator Dayton’s outrage, and 

so does everyone, and I hope you will take a look at those hotel 

price-gouging cases. Those are outrageous amounts of money to 

charge the Federal Government in this emergency. 

Because this Committee has been active in Katrina-related investigations, we have gotten a few of what you might call private sector whistleblower calls along these lines. Give me your reaction to 

them and see if you have heard of them. These are from smaller—

well, not big companies, but subcontractors who say that the contractors who received jobs from FEMA for Katrina-related work are 

grossly overbilling, and, in fact, they are giving the subcontractors 

so little money that some of the subcontractors say, ‘‘We have had 

to let our legal workers go because we cannot afford to pay them, 

and we are hiring undocumented aliens to do this work because the 

contractors are not paying us enough and they are inflating the 

price.’’

Have you heard any of that? If so, what do you think about it? 

Mr. SKINNER. Yes, I know we have received allegations in that 

regard, and we are, in fact, reviewing many of the contracts and 

their billing practices to see exactly how much they are being paid, 

the contractor, and what they are paying their subcontractors to 

make a determination whether there is inequity there or excess 

profit being made by the contractor. I don’t know what the extent 

of the problem is. 

Senator LIEBERMAN. I do not either. 

Mr. SKINNER. But there are cases out there, this may exist. 

Senator LIEBERMAN. I am glad you are looking at it. What would 

be a charge in that case, Ms. Fisher? 

36

Ms. FISHER. Well, with regard to overbilling, you could have false 

statements, false claims, major fraud, wire fraud, and mail fraud. 

There is a whole host of Federal criminal statutes. 

Senator LIEBERMAN. Mr. Kutz, do you want to add anything? 

Mr. KUTZ. No, not to that. 

Senator LIEBERMAN. A final question, Mr. Skinner. I know that 

last September 19, you announced that—is it Matthew Judacki——

Mr. SKINNER. That’s correct. 

Senator LIEBERMAN [continuing]. Would join your office to establish a Special Office for Hurricane Katrina Oversight, which would, 

and I quote from an announcement, ‘‘focus on preventing problems 

through a proactive program of internal control reviews and contract audits and would maintain a visible presence primarily in the 

States of Alabama, Mississippi, and Louisiana.’’ That was quick action. I don’t know how many people you have working in that office. 

Mr. SKINNER. Approximately 100 right now. 

Senator LIEBERMAN. That is a good size. So far, after 5 months, 

what kind of IG report would you give to your special office? How 

is it doing? 

Mr. SKINNER. I think it is doing very well. As a matter of fact, 

we have expanded the responsibilities for that office to include 

Texas, as well, in response to Rita and Florida in response to 

Wilma. We will be issuing several reports over the next 90 days or 

so, which will reflect the work that we have been doing over the 

last 5 or 6 months. Our biggest problem is staffing up. In order to 

get the people immediately on the ground, I had to borrow from our 

existing staff here in Washington as well as out in the field, and 

that has worked a hardship on my office. But those people have 

been performing at a very good pace, and we are now starting to 

hire people to replace them so they can go back to their normal 

jobs. 

But we intend to keep at least anywhere from 100 to 125 people 

fully employed over the next 5 years just on this operation. 

Senator LIEBERMAN. Five years? 

Mr. SKINNER. At least. It could be longer. 

Senator LIEBERMAN. Yes, I agree. That is good to hear. Thank 

you. 

We have heard—for your own follow-up, not for a response now—

that the Chief Procurement Officer at FEMA has over the last 6 

years at different times been asked to also serve as Acting Chief 

Financial Officer or Deputy Financial Officer of FEMA. So she has 

been asked to do two jobs at once, and you wonder whether that 

diminished the focus on the procurement part of it. 

Mr. SKINNER. Yes. Well, that is no longer the case. FEMA now 

does have a full-time Chief Financial Officer, and I believe they 

have hired a Deputy as well. 

Senator LIEBERMAN. OK. Thank you all. Keep up the good work. 

We need you. 

Mr. SKINNER. You are welcome. Thank you. 

Chairman COLLINS. Thank you. Senator Levin. 

Senator LEVIN. Thank you, Madam Chairman, and thanks to 

both you and Senator Lieberman for this really extensive and detailed effort at oversight, and it is, I think, a really great example 

37

of what Congress should be doing in the area of oversight. I commend you for it. It has taken a lot of digging on your part and the 

part of your staff, and it is just really what Congress should be 

doing more of. And as always, I think you two are the role models 

for the oversight that is so essential if we are going to keep the Administration’s—any administration, not just this one, but any Executive Branch—feet to the fire. 

Ms. Fisher, you have talked about zero tolerance for individuals 

committing Katrina fraud, and when I look at the Attorney General’s outline of priorities for your task force that was dated September 8, it all seems to be aimed at individuals rather than contractors. I know you have this morning indicated that you are, in 

fact, going after contractors, but I just want to emphasize the importance of that and I think the absence of that in the mandate 

that was given to you by the Attorney General. He talked about 

identity theft; he talked about insurance fraud where insurance 

claims are inflated, government benefit fraud. So you have 212 indictments so far, all individuals. And I know you are looking at 

some of the—you have two FEMA employees, I believe, who have 

been indicted. 

But the contract area is an area which involves a huge amount 

of money, and I happen to agree with our Chairman that individual 

fraud cases are important and they add up, and they are a deterrent and they send a signal. And what I say does not in any way—

it is not intended to diminish the importance of those cases. 

But I just want to make sure that there is a very significant 

focus on contracting fraud here because there are allegations, 

which are mighty serious. None have led yet to indictments. And 

I do not want to prejudge any case, but I just do not think that 

there has been adequate attention that has been paid to it, at least 

from the results so far, and from the mandate itself. So you may 

want to look at that mandate and see if you agree with me. I do 

not know if you are referring to that or not. 

Ms. FISHER. Well, Senator, I couldn’t agree with you more. Procurement fraud is going to be the big dollars, and while these cases 

may come a little later than the immediate assistance cases that 

went out so quickly, we are working very hard—I am working with 

Mr. Skinner and others in the IG community to not wait for the 

investigators to turn them over to criminal prosecutors, but actually to get ahead of the game and to work with them hand in hand 

to try to push the investigations through aggressively. 

We did a report to the Attorney General, and it does very much 

set out in our mission as part of the Hurricane Katrina Fraud Task 

Force that procurement fraud is an absolute part of the mission. 

We are very committed to it. So while, again, these FEMA fraud 

cases that may have been the lower dollar amounts were the first 

ones that were being made, we never took our eye off the ball, and 

we tried to train and get ready for what we expect to be a long 

haul with regard to the procurement contracts. And I am working 

with the investigators very proactively to try to identify them. So 

I thank you for your support in that regard. 

Senator LEVIN. I take it that the zero tolerance policy applies to 

contractors, not just individuals. 

Ms. FISHER. Absolutely, sir. 

38

Senator LEVIN. OK. One of the no-bid contracts that has been, 

I think, in the media has related to the price paid for classrooms 

in Mississippi, 450 portable classrooms to 70 schools in Mississippi. 

Is that under investigation, that whole issue? 

Mr. SKINNER. Yes, that is something that was referred to our office. We’re working, I believe, with the Department of Defense IG’s 

office. It was the DOD Corps of Engineers, I believe, who may have 

let that contract. And that is currently under review by that office. 

Senator LEVIN. The allegation here—and I emphasize ‘‘allegation’’—is that a local contractor with a track record of providing 

portable classrooms had a proposal to provide them for about half 

the cost of a no-bid contract. Is that your understanding? 

Mr. SKINNER. That’s correct. 

Senator LEVIN. All right. Is debris removal cost subject to an investigation as well? 

Mr. SKINNER. Yes. In fact, we have several ongoing audits of debris removal operations, not only those that were contracted out 

through the Corps of Engineers, but also those that were contracted out through the State and local governments. All of those 

are also receiving a lot of attention and review by our investigators 

as well. 

Senator LEVIN. Is that an example of no-bid contracts in that 

case, do you know? 

Mr. SKINNER. Most of those that were let by the States we are 

finding, in fact, were let through open and competitive means. 

Some of those let by the Corps were through prearranged contracts. 

But we also learned that many of the Corps contracts, because the 

needs were overwhelming, were done through a no-bid process. 

Senator LEVIN. The information we have or the allegation is that 

the Federal Government is paying far more than what the States 

are paying for debris removal. Is that the allegation? 

Mr. SKINNER. Yes, that’s correct. 

Senator LEVIN. OK. Now, the GAO stated in its report that there 

has not been great cooperation by DHS. Mr. Kutz, I believe the report says that a great deal of documentation, page 3 of your report, 

has not been forthcoming. Some of the databases have been, but 

the majority of what we requested has not been provided, according 

to the bottom of page 3 and top of page 4. Is that still the case? 

Mr. KUTZ. That is the case, yes. 

Senator LEVIN. And do you know why, what the excuse is? 

Mr. KUTZ. I would say it’s mostly with the DHS Office of General 

Counsel. That is where all the FEMA data goes through before we 

get it. That may have been how your Committee operated in getting information. And so there seems to have been a bottleneck 

there of requests going back to October. 

Senator LEVIN. What is the excuse given? Because it is totally 

unacceptable, obviously. What is the reason given? 

Mr. KUTZ. No valid reason. We may need your assistance going 

forward on this. 

Senator LEVIN. I have no doubt our Chairman and Ranking 

Member will provide that kind of support, as they do on everything 

else that comes to their attention. I cannot speak for them, but 

they have been great supporters. 

Chairman COLLINS. You can in this case. [Laughter.] 

39

This once. 

Senator LEVIN. I am proud to announce that I have been delegated to—— [Laughter.] 

If I can have 10 more seconds, on the question of missing children and fractured families, there are still 1,500 cases of children 

who have been reported missing that are still unresolved; 275 

adults still remain unresolved. The Department of Justice has, I 

guess, designated two private organizations—the National Center 

for Missing and Exploited Children and the National Center for 

Missing Adults, who do great work—to help to identify those. And 

yet apparently, we have been told, when FEMA is asked by those 

two organizations to take the lists which those organizations have 

and to check those lists against the FEMA list where individuals 

have applied for help, financial assistance, FEMA will not take 

that list handed to them by these two organizations and make 

those comparisons to see if they can identify a location for those 

kids and those adults. 

Do you know anything about that, Ms. Fisher? And if not, can 

you weigh in on that to try to—I guess the Department of Justice 

is not the problem. It would have to be somewhere inside of the Department of Homeland Security. So between the two of you, if you 

have not consulted about this, since you are in front of us and since 

I have been given such leeway by our Chairman, could I ask you 

to get together and see if you cannot resolve that bottleneck? Because that is unconscionable. We have missing kids. It is not a privacy issue because the lists are going to be handed to FEMA. They 

are not asked by FEMA, Where are these people? They are just 

asking FEMA, see if you cannot find requests for assistance from 

those people so that then you can go out and identify where these 

people are. Could you try between your two agencies to see if you 

cannot resolve this? 

Mr. SKINNER. Most certainly. I’m well aware of the issue here, 

and our office is, in fact, trying—or we are reviewing what are the 

hang-ups and how they can be resolved, and we will be issuing a 

report in the very near future, not necessarily dealing with this 

particular issue, but dealing with like issues so that, in the future, 

this doesn’t happen again. 

Senator LEVIN. Thank you. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. 

I want to thank our witnesses today. Each of you has contributed 

greatly to the Committee’s understanding, and I appreciate your 

ongoing commitment to eliminate or at least reduce waste, fraud, 

and abuse in disaster assistance programs. 

The American people are very generous, and everyone wants the 

Federal Government in the event of a disaster to deliver swift and 

compassionate aid to the victims. But when scarce resources are 

wasted, when fraudulent claims are paid without questions being 

asked, when safeguards are ignored or are absent altogether, there 

are new victims, and that is the taxpayers. And I have always felt 

that it was a false choice to say that we can either deliver the aid 

quickly and compassionately or we can protect the taxpayer. 

I firmly believe that we can do both, and with your help that is 

our goal and our expectation. So we look forward to continuing to 

work with you. 

40

Senator Lieberman. 

Senator LIEBERMAN. Thanks, Madam Chairman. You said it just 

right. That is exactly the purpose of this Committee. 

I thank the witnesses. In some ways, you have brought us a lot 

of bad news today. But it is the kind of bad news that if we don’t 

get and people out there doing bad things don’t know we are going 

to get, then it will just get worse. And hopefully, from this bad 

news we can work with FEMA and the Department of Homeland 

Security so that the next time disaster strikes, most important of 

all, they are ready so that they do not run around like Keystone 

Kops in the middle of a crisis and inevitably make the kinds of 

wasteful mistakes that have been made here. 

So I thank you for your public service, and through it I think 

public service generally will get better, certainly at protecting the 

money that the American taxpayers give us to carry out our public 

purposes. Thanks very much. 

Chairman COLLINS. Thank you. 

The hearing record will remain open for 15 days for additional 

questions and materials. Thank you so much for your testimony 

today, and this hearing is now adjourned. 

[Whereupon, at 12:14 p.m., the Committee was adjourned.] 

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