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AFTER KATRINA: THE ROLE OF THE DEPARTMENT

OF JUSTICE KATRINA FRAUD TASK FORCE AND

AGENCY INSPECTORS GENERAL IN PREVENTING

WASTE, FRAUD AND ABUSE

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MAY 10, 2006

Serial No. 109–178

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

ERIN PHILLIPS, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on May 10, 2006 ............................................................................... 1

Statement of:

Fisher, Alice S., Assistant Attorney General, Criminal Division, U.S.

Department of Justice, and Chair, Hurricane Katrina Fraud Task

Force ............................................................................................................... 6

Jadacki, Matt, Special Inspector General for Gulf Coast Hurricane Recovery, Department of Homeland Security; Ken Donohue, Inspector General, Department of Housing and Urban Development; Eric Thorson,

Inspector General, Small Business Administration; and Thomas

Gimble, Principal Deputy Inspector General, Department of Defense ..... 31

Donohue, Ken ............................................................................................ 45

Gimble, Thomas ......................................................................................... 59

Jadacki, Matt ............................................................................................. 31

Thorson, Eric ............................................................................................. 74

Letters, statements, etc., submitted for the record by:

Donohue, Ken, Inspector General, Department of Housing and Urban

Development, prepared statement of .......................................................... 48

Fisher, Alice S., Assistant Attorney General, Criminal Division, U.S.

Department of Justice, and Chair, Hurricane Katrina Fraud Task

Force, prepared statement of ....................................................................... 10

Gimble, Thomas, Principal Deputy Inspector General, Department of Defense, prepared statement of ........................................................................ 61

Jadacki, Matt, Special Inspector General for Gulf Coast Hurricane Recovery, Department of Homeland Security, prepared statement of ............... 35

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 4

Thorson, Eric, Inspector General, Small Business Administration, prepared statement of ........................................................................................ 77

Towns, Hon. Edolphus E., a Representative in Congress from the State

of New York, prepared statement of ........................................................... 101

(1)

AFTER KATRINA: THE ROLE OF THE DEPARTMENT OF JUSTICE KATRINA FRAUD TASK

FORCE AND AGENCY INSPECTORS GENERAL IN PREVENTING WASTE, FRAUD AND

ABUSE

WEDNESDAY, MAY 10, 2006

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2:10 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts,

(chairman of the subcommittee) presiding.

Present: Representatives Platts and Towns.

Staff present: Mike Hettinger, staff director; Dan Daly, counsel;

Tabetha Mueller, professional staff member; Erin Phillips, clerk;

Adam Bordes, minority professional staff member; and Jean Gosa,

minority assistant clerk.

Mr. PLATTS. This hearing of the Government Reform Subcommittee on Government Management, Finance, and Accountability will

come to order.

When Hurricane Katrina struck, our Nation’s first priority was

to provide immediate help to our fellow citizens. In the first 2

weeks after the storm, Congress appropriated more than $60 billion, nearly twice the annual budget for the entire Department of

Homeland Security. Once the full scope of the disaster became apparent, Federal, State and local governments started the monumental task of helping Gulf Coast residents to recover and rebuild.

Having recently completed a tour of the area, I must reiterate what

I tell my constituents back home and my colleagues that have not

visited the area, that the devastation is so massive and extensive

that pictures cannot begin to tell the story. The road to recovery

will be long and challenging.

After the initial push to provide emergency assistance, a new and

critically important priority arose, the need to ensure that the financial resources provided for the recovery and rebuilding efforts,

which already amount to approximately $85 billion, are spent wisely.

In the immediate aftermath of Hurricane Katrina, by far the

worst natural disaster in U.S. history, the controls that are normally in place to ensure accountability of disaster relief benefits

were suspended. This was an eminently reasonable approach, given

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the urgency and magnitude of the situation. At the same time,

however, every dollar that is wasted through fraud or mismanagement is a dollar that does not go to someone who truly needs it.

It is thus important to reestablish controls as quickly as possible

and to keep a close watch as taxpayer dollars continue to be expended over the long term. Now that we are in the more extensive

recovery and rebuilding phase, those controls are more important

than ever.

Recovering from this disaster of unprecedented magnitude involves nearly every agency in the Federal Government, and it will

continue for years to come. While FEMA is the most visible of

these agencies, providing immediate assistance. The bulk of money

for effective individuals will actually come from the Small Business

Administration in the form of low interest disaster loans and

grants from the Department of Housing and Urban Development.

The Department of Defense, with its formidable resources and expertise, has also dedicated significant personnel and dollars to the

recovery effort.

Fortunately, each of these departments and agencies has a builtin watchdog, an Office of Inspector General. As soon as Katrina hit,

the President’s Council on Integrity and Efficiency turned to its

Homeland Security Working Group, headed by the Department of

Homeland Security, to coordinate the efforts of all affected IGs.

This working group continues to operate and effectively leverage

the collective knowledge and resource that can be targeted to ensure accountability.

In the spirit of cooperation, the Department of Justice established a Hurricane Katrina Fraud Task Force soon after Katrina

hit, drawing on the expertise of Inspectors General, the FBI, and

State and local law enforcement personnel. The subcommittee is

pleased today to hear from the Hon. Alice Fisher, Assistant Attorney General of the Criminal Division at the Department of Justice,

and Chair of the Katrina Task Force. We certainly look to our work

today and our conversations, and continue to work with the Task

Force and its coordinated law enforcement efforts.

We will also be pleased to hear from several of the Inspectors

General involved with the Hurricane Katrina recovery. These IGs

work not only to uncover and prevent fraud, but also to ensure the

integrity of the programs they oversee. We will be hearing from

Mr. Matt Jadacki, Special Inspector General for Gulf Coast Hurricane Recovery, with the Department of Homeland Security; the

Hon. Ken Donohue, Inspector General for the Department of Housing and Urban Development; Mr. Thomas Gimble, Principal Deputy Inspector General at the Department of Defense; and the Hon.

Eric Thorson, Inspector General of the Small Business Administration.

I traveled to the Gulf Coast with Mr. Jadacki and DOD-OIG staff

to learn firsthand exactly what controls are in place, and what is

being done to monitor the expenditure of Federal funds. I was impressed by the level of coordination, not only among Federal agencies, but also between Federal, State and local governments, as

well as private partners.

I certainly thank all of our witnesses who are participating here

today, for not just your testimony, but your great leadership in this

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important oversight responsibility regarding the recovery from this

terrible natural disaster.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. Our ranking member, Mr. Towns, is en route to the

hearing, and when he joins us, we will offer him an opportunity for

an opening statement. In the meantime, I think what we will do

is move to our first witness.

It is the practice of the committee, if I could ask, Ms. Fisher, if

you could stand to be sworn in.

[Witness sworn.]

Mr. PLATTS. Thank you. You may be seated. The clerk will acknowledge that the witness answered in the affirmative.

We have a general timeframe, I think, probably set at 7 minutes,

it looks like, but, please, your leadership has been tremendous from

the first weeks of this disaster, and the importance of safeguarding

the taxpayer funds as we provide that very important and necessary relief to the citizens of the Gulf Coast. So if you need more

than that time, we want you to take it. We are delighted to have

you here and to have your expertise shared with the committee and

the public.

STATEMENT OF ALICE S. FISHER, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE,

AND CHAIR, HURRICANE KATRINA FRAUD TASK FORCE

Ms. FISHER. Thank you, Mr. Chairman, for your kind comments.

I am so pleased to be here today to share some of the work of the

Hurricane Katrina Fraud Task Force with you and the rest of the

committee.

It has been my honor and my pleasure to serve as chairman of

the Hurricane Katrina Fraud Task Force since its inception on September 8th of last year when the Attorney General set it up.

The task force has had one very clear mission, and that is to

have a coordinated law enforcement effort to make sure that the

dollars that Congress and the private sector intend to go to the victims actually reaches the victims and not the predators, who would

seek to illegally divert it for their own pockets. It has been a tremendous opportunity for me to work with my colleagues from the

FBI, Secret Service, Postal Inspector, and the Inspector General

community at large, some of whom are here today, and see the

dedication and commitment and resolve that they have brought to

this mission from the very beginning.

It was an outpouring, as of September 8th, and has been since

that time, of a coordinated effort, not only among Federal law enforcement agencies, but also with our State and local law enforcement partners, to combat this fraud and continue to combat this

fraud.

I think that we have been very successful in this effort. Since

that time we have brought charges against over 263 defendants in

200 cases, and 24 judicial districts from Florida all the way to California, in all types of cases. We’ve been focusing on charity fraud,

benefits fraud, procurement fraud, public corruption, insurance

fraud, identity theft, and all of the fraud schemes that come out of

Katrina.

But we’ve been moving beyond not only the benefits frauds that

were kind of the initial ones with the $2,500 FEMA benefits, where

people were applying for benefits that they weren’t entitled to, and

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into some of the more complex contracting and public corruption

cases as of late.

Let me give you a couple of examples of that. Just last week, in

the Middle District of Louisiana, we had a case where a contractor

from the Louisiana Department of Labor, allegedly used his position in the Louisiana Department of Labor to have Disaster Unemployment Assistance debit cards fraudulently issued, and then he

would go out and sell them for $100 or $150 to others that were

not entitled to it. At the time of his arrest last week, the defendant

was accepting payment from another man for a fraudulent benefit

card that he issued at the request of the other man.

In southern Mississippi last month, we obtained two guilty pleas,

one from a subcontractor and one from an official at the Army

Corps of Engineers Quality Assurance, relating to a conspiracy to

commit bribery in relation to debris removal contracts in Mississippi. In this case, the Federal agents recorded conversations between the contractor and the Corps employee, in which the contractor paid the Corps employee $100 for false load tickets. When they

pled guilty, they admitted to at least 14 of these instances where

the contractor would say, ‘‘I hauled out this much loads of debris.’’

It was completely false, but the Army Corps of Engineer, for a kickback, would agree that it was adequate. So we charged them and

they have now pled guilty.

Similarly, in April, in eastern Louisiana, we secured guilty pleas

from two former FEMA managers with regard to a conspiracy and

bribery scheme. In that scheme there were these two FEMA managers who worked on a contract with an individual who operated

the base camp in Algiers, LA, and had a $1 million meal service

contract at the base camp. The FEMA managers asked him to inflate the billing on that contract in return for a kickback for

$10,000 for the scheme, again, illegal bribes. They have now pled

guilty.

So we have been very aggressive in these cases. We’ve also

moved to fraudulent billing schemes by hotels. Last week in east

Texas we indicted a general manager of a hotel in Texarkana on

wire fraud charges. This defendant allegedly billed the Red Cross

for hotel rooms where evacuees were not staying.

On March 2nd, similarly in Houston, we indicted the principal

owner of a Galveston hotel for a similar scheme of false claims

charges to FEMA, billing FEMA for hotel rooms that were allegedly

used for evacuees, but actually being used for friends and family

and others.

Even in the emergency assistance realm we’re seeing more complex schemes, where some people will go out and recruit others to

let them use their false names and then go apply for benefits in

these systems.

So we’ve seen a lot of patterns. We’ve seen a myriad of different

fraud schemes, and we’re going after all of them very aggressively

and very pro-actively, again, because our mission is to make sure

that the money gets to the victims who need them.

Now, I said that this has been a very well-coordinated law enforcement effort, and I think that the reason that this task force

has been so successful is that from the beginning we have been

lucky enough to have the commitment and buy-in from so many of

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the Federal and local law enforcement agencies in supporting the

task force and the mission. Everyone shares the resolve to make

sure that the money gets into the hands of the victims, but that

joint effort is critical to the success of the task force.

A second thing that’s been very critical is that we made the decision to have a command center down in Baton Rouge, LA, which

I know you have been down in that area and have had the pleasure

of meeting Mr. Dugas, who is the executive director of the command center, and also the U.S. Attorney for the Middle District of

Louisiana.

This command center is a place where our law enforcement agencies can be co-located. And it’s worked fantastically. They go, they

share data, they share information about investigations, they coordinate their investigations, share resources. They have weekly or

biweekly meetings to talk about patterns and trends and analysis

that they’re seeing. And it’s really been a boon.

So not only does the Inspector General community and the task

force have meetings up here in Washington, where we talk about

strategy and policy and what we’re seeing and what we should be

doing to protect the money, but down on the ground we have law

enforcement meeting at the command center and sharing information about investigations on a regular basis. They’re screening

thousands of fraud complaints at the command center.

Third, I think we’ve been very committed in the task force to get

the training that is needed for the people to conduct this mission.

In October of last year we had a large meeting down in New Orleans, where we brought people from headquarters and people from

on the ground—Mississippi, Alabama, Louisiana, Texas—to come

together, again talk about the statutes we were going to prosecute

and how to look for fraud trends, talk about the mission, talk about

the strategy, talk about the command center and the importance

of sharing information.

Then later, after that conference, we have sent experts down to

the Gulf region to train particularly on things like bid-rigging and

procurement fraud, so the auditors and the investigators know

what to look for from a perspective of when they need to be referred for criminal prosecution. Now, this is obviously something

that investigators are trained for and the Inspector General community is well trained for. But we sent criminal prosecutors down

there to work with them so they would know exactly what we need

and what to look for.

We have also been very aggressively proactive in that we’re not

sitting back at the command center or here in Washington at the

task force and necessarily just waiting for a criminal referral to be

made to us before we prosecute. We’ve been taking tips from the

hotlines, we’ve been meeting with the Inspector General community. For example—the Inspector General of HUD is here—I’ve had

meetings with him to talk about the money that’s going to go out

in a proactive manner and how we best can help to protect that

and what we can do in that effort. We’ve been proactive with

things like identity theft, where the Postal Inspector General sent

out brochures to people in the Gulf region on how to protect their

identity, so we don’t have to only wait for the fraud to happen at

the back end.

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And finally and, I think, very importantly, is consistently we

have sent the message that we have zero tolerance for fraud. As

you know, Federal prosecution generally doesn’t happen at the lowlevel, $2,500, $5,000–10,000 level, because of resources. But in this

case, we thought it very important, and the AG believed it was

very important, to get out early and to send a message that we will

just not tolerate people stealing from these victims. And we sent

that message, and I think it’s had a very good impact. In fact, since

the task force was sent up, we’ve been told by FEMA and the Red

Cross that they’ve received over $8 million in checks returned to

them.

Now, we can’t say it’s all because of our deterrent message and

because of our prosecutions, but we’ve gotten evidence from both

entities that some of the checks that have been received have indications that they were things that necessarily were evidence of

fraud. So we’re very happy to see that deterrent message coming

through.

I think in closing I would just say we are committed to this, to

the long haul. It has been a massive effort with the Inspector General community and the FBI and Secret Service and others to come

forward on this and to come together. There are many, many individuals that have been working hard on this. As for going forward,

this isn’t something that I see stopping. We are committed to this.

And in fact, the Attorney General said to me recently that the Department of Justice is going to remain aggressive and committed

to prosecuting fraudsters who take these relief funds from the people that need it to rebuild their homes and their lives and their cities and their families.

So thank you again for having this hearing and inviting me here.

[The prepared statement of Ms. Fisher follows:]

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Mr. PLATTS. Thank you, Ms. Fisher. And again, my great thanks

for your leadership. As I did tour the region, the work of you and

your task force was something that was heralded in a number of

different instances, and that coordination that has happened at all

levels. I think that is so important here within the Federal Government and then between the various levels of Government and with

the private sector.

Your message that you and the Attorney General set forth from

the beginning and which U.S. Attorney Dugas has clearly reinforced at the local level is that zero tolerance. I analogize it to

Mayor Giuliani and his approach in New York City years ago

where you don’t look the other way on anything. And even if you

start chipping away at the small violations, it kind of is a wave

that builds till you have more and more success across the board

because of that message of enforcement being out there. So I just

very much commend you and all involved in the efforts.

One of the issues you mentioned, an important one, is being in

this for the long haul and that this won’t be something that is forgotten. We are already 8 months-plus and, having been there after

8 months, the amount of devastation and the rebuilding and the

cleanup and the debris removal that is still months and years in

the making, is just overwhelming.

In anticipating that long process from a staffing standpoint, if

you could address that because I am sure there has been a need

to realign a lot of staff. And for the short term, that is one thing,

but looking at years, how that is going to impact your needs and

ability to maintain that staffing level. And then maybe specifically

with the command center at LSU, how you are preparing for that

in the long term as well.

Ms. FISHER. Well, I think that the command center, whether it

stays at LSU or whether it goes somewhere else, is very important.

It’s going to be important to this effort for the long haul because

the money is going to continue to go out over the next few years.

It’s not going to stop. So a lot of the fraud may happen later, and

if we let our guard down, it will happen. So we’re going to be very

vigilant going forward.

As far as staffing, I’ve been overwhelmed by the number of

agents that the Inspector Generals and that the FBI and other law

enforcement agencies have assigned to the command center and

have assigned up here. In fact, they are continuing to assign people

and relocate people down into the region to continue on these task

forces.

And we can also call on the other field offices to help investigate

when it’s happening in Mississippi or Louisiana or Texas and other

places. So we have that investigative effort as well.

From a prosecution standpoint and staffing, you know, we have

been, obviously, besieged in that region with the amount of cases,

and the courts. And we are reinforcing that. And I think we do

have, actually, some requests in with regard to that. But as you

can see, a lot of people were displaced as well, and so that’s why

we’ve been able to call upon all our U.S. Attorneys to bring these

cases and to have zero tolerance. And they have been fabulously

stepping up to the plate. In fact, we had a case out in Bakersfield,

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CA, of all places, where 70 defendants were charged in a false debit

card scheme.

So I think we will continue to do that and the AG has continued

to make that a priority. So I am hoping that we have the staffing

and resources in place and, if that changes, we’ll have to readjust.

But right now, I think we’re in good shape to continue to investigate and prosecute these cases.

Mr. PLATTS. Is there a plan—and maybe because we are only 8

months down the road, with your agents as far as rotating them

in from a—there is a tremendous demand on them that are down

in that region, and the demands daily and the length of the day

and the week. Is that something that you are looking at just from,

again, from a manpower standpoint of how to manage them?

Ms. FISHER. Well, I think from an investigation standpoint,

again, each agency, each Inspector General may have different

views on whether they’re going to rotate people in or whether

they’re going to permanently relocate them. I know the FBI has,

again, just sent down four new analysts. I’m not sure whether

they’re going to be there for 1 year or 2 years or 3 years, or how

long that will be.

Mr. PLATTS. Maybe a work in progress on how that plays out.

Ms. FISHER. Yes.

Mr. PLATTS. I do want to reference we have been joined by our

ranking member, the gentleman from New York, Mr. Towns.

Thanks for being with us.

What I’ll do is complete the round of questions, and if you want

to do a statement or go right into questions, whichever you like.

Mr. TOWNS. OK.

Mr. PLATTS. Without objection, so done.

Ms. FISHER. Good afternoon, sir.

Mr. PLATTS. The challenge of the coordination seems to be, is everyone is working on the same page but the ability under the existing laws and regulations to share some of the data and the Privacy

Act. Can you share with us how you think that has hindered in any

way or what changes we should be considering legislatively that

would ensure that not just from manpower and personnel coordinating, but the law allows the data to be shared to make sure everyone has the information they need.

Ms. FISHER. Well, I think from—because of the command center,

we’ve got the data bases keyed in to the command center. So for

example, we have a DHS person there that has access to their

NEMIS data base. And that information can be shared with the

other operational investigators in the command center when necessary. And that’s similar for the other agencies, that they can go

back and take the information on an investigation or a contractor

and go back and check their data bases to see whether there’s an

investigation, whether that person that’s been convicted of or

charged with defrauding the unemployment system is also over

here trying to defraud the housing system or the FEMA system. So

we’re able to do that through this joint sharing operation at the

command center. And I think that’s working very well.

The issue that I think is a more difficult one that might be better

addressed by the Inspector General community is the Computer

Matching Act and whether they can just take the NEMIS data base

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and take the HUD assistance data base and put them together and

see what spits out from that. And that’s a trickier issue because

of the way that statute works with regard to having an agreement

and publishing it in the Federal Register and notifying Congress

that they are going to do that.

And while we’ve been facilitating that conversation and wanting

to be very helpful, it’s really more of an issue for the investigators

there because at the command center we have not seen it as a

problem.

Mr. PLATTS. At the command center, a lot of what you’ve done

is very proactive in helping to deter fraud from occurring rather

than just uncovering it after the fact, which is something we want

to do as well. But is there a proactive sharing—if in the data base,

you know, HUD identifies somebody who has committed fraud, or

FEMA does, do they automatically then share that with the other

departments and agencies that are involved so that they would say,

hey, we have this individual for this type of fraud, do you want to

check if they are getting benefits or have gotten some kind of benefit from your agency as well?

Ms. FISHER. Yes. And that’s exactly why the command center

was set up, so that if we are charging people over here with illegal

conduct with regard to one agency, that at the command center or

at the next meeting the person from DOD-IG can stand up and say

we’ve got this person that we’re ready to charge, does anybody else

have an investigation on them and can everybody else check their

data bases to make sure that you don’t have them engaging in suspicious conduct as well.

Mr. PLATTS. Great. That came through in my visit, that type of

coordination. It is something that is so critical with the number of

agencies and departments in here and the scope, how broad of a

scope the challenge is of this recovery.

I am going to come to Mr. Towns and then come back for another

round.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Can you offer us—first, thank you for coming. I really appreciate

that.

Ms. FISHER. Oh, thank you so much for having me. I really appreciate that as well. I appreciate this hearing.

Mr. TOWNS. Can you offer us criteria to justify what cases to pursue for those families receiving assistance? You know, have criminal complaints been brought against those who might have been

provided more than the legal limit by FEMA? Do you have any

kind of standards in terms of——

Ms. FISHER. Yes. Yes, Congressman, we do. And that has been

made very clear by the Attorney General in setting up this task

force, that in the Katrina fraud cases there will be zero tolerance.

So we don’t have a monetary level for these cases right now. So

anybody that’s engaged in applying for benefits that they’re not entitled to and conspiring with kickbacks for larger amounts of

money and getting other types of billings for hotels or otherwise

that they’re not entitled to, when they’re falsifying it, we will go

after and prosecute those cases. And we’ve charged to date 263 defendants in 222 cases in 24 districts across the Nation because of

that message.

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Mr. TOWNS. Thank you. Have your investigations led to recommending that agencies impose financial penalties or debarment

from certain future contracts due to vendor conduct?

Ms. FISHER. That might be a question better posed to the Inspector Generals because they deal with debarment. But they are members of the task force and part of the command center, so whenever

we prosecute a case, all task force members are aware of who the

defendants are and are able to take whatever action they choose

to do so with regard to that entity or individual.

Mr. TOWNS. Right. You know, GAO indicated that there were an

insufficient number of investigative personnel for adequate oversight. What is your opinion about that?

Ms. FISHER. Well, from our perspective with regard to criminal

prosecutions—and this doesn’t deal with the auditors, but just on

the criminal prosecution side, which is what we’re doing with regard to the task force—we’ve had a tremendous amount of support

from the Inspector Generals with their investigators and from the

FBI with their investigators and Postal and Secret Service. So we

have not seen that there has been a need for additional investigators to root out the fraud at this point. Whether that changes in

the future, I don’t know. And as to oversight, that’s a different

issue.

But to investigate criminal referrals of fraud and to make sure

that those get prosecuted, we have not seen that we need more resources in that area right now.

Mr. TOWNS. Right. One more question, Mr. Chairman.

Since the majority of the money for rebuilding is ahead of us,

have you been participating in the establishment of internal controls and regulations for future contracts? Have you been involved

in that at all?

Ms. FISHER. Not from the contracting perspective because that’s

something, again, more targeted toward the people that actually

give out the contracts. But what we have done is we’ve met with,

for example, HUD, because of the money that they’re going to send

out with regard to anti-fraud programs that they might have and

to talk to them about what can prevent fraud from happening in

the future. And we’ve been training auditors and investigators on

what red flags to look for in contracts. So they know, when they

see fraud or something like that in the contracts, that they refer

it immediately to the task force so we can look at it from a criminal

prosecution perspective.

Mr. TOWNS. Right. You know, I feel better with that, because I

was thinking that they would talk to you, I mean, before moving

forward. I mean, it seemed to me that—you know, I envision this

as a very serious problem.

Ms. FISHER. I agree.

Mr. TOWNS. I mean, this is something that I think one cannot

imagine in terms of how big this actually is, and that in order to

put together a program to make certain that we’re sort of on top

of it, I think everybody has to talk to everybody. And so that’s the

reason why I was hoping that, you know, there would be this kind

of contact, the fact that they would even call you before even thinking about a contract even going out, to get your input in it as well

and because—you know, maybe some of the stuff we are hearing

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is not true, but if there is enough of it out there that is true and

that we need to try to do whatever we can to prevent it.

So, Mr. Chairman, I yield back.

Mr. PLATTS. Thank you, Mr. Towns.

The challenge here is different in the size and the scope of the

area and the number of individuals impacted, but certainly is similar in the impact to those who were suffering losses from the hurricane, as with September 11th. Were there lessons learned that you

took from September 11th that you found did work in this, a natural disaster versus a terrorist attack? Or ones that did not work

well, good or bad?

Ms. FISHER. Well, I think that the agencies certainly learned a

lot of lessons about contracting and things like that. But from a

Department perspective, I think what we learned and why we did

the task force in this manner is that a coordinated effort with the

mission to root out fraud would be the way to go, where

everybody’s talking to each other and coordinating, and really

being aggressive on the fraud. So we stop the schemes, hopefully,

before they happen and where we don’t, people are going to be

prosecuted for it.

Mr. PLATTS. One of the issues we are going to talk with the IGs

in the second panel, a specific area, I believe it is Mississippi, and

their approach of guarding against fraud is that once the check is

issued, that they cede oversight—you know, the money has been

paid lawfully and what happens then. I think the approach of the

Federal Government through our IGs and HUD is that we want to

make sure that the actual outcome that is being paid for is

achieved.

Is there a role that you play in trying to get, in this case a State

that has, I think, been very proactive, Mississippi, and with the

Governor’s leadership, but to encourage them to look to maybe take

a different approach? Or is that more on the IG side?

Ms. FISHER. Well, it is, but we have talked with Mr. Donohue,

that I think you’re going to hear from, about whether our expertise

from a prosecution standpoint could be helpful in training some of

the State officials that are going to be overseeing this amount of

money that’s coming from the Federal Government through the

State. So we’ve certainly offered our expertise in that regard.

Mr. PLATTS. But not as much in the kind of, say, negotiation or

interaction with the State to get them to take a different approach

of when they will stop their oversight? That is not, probably, within

your office?

Ms. FISHER. No, unfortunately, I don’t think that—it’s probably

a little bit outside of my lane. But I’m willing to help in whatever

it is I can help with. Because, you know, again, the Attorney General has been so committed to this program from the very beginning and has really directed me to do whatever I can to stop this

fraud from happening.

Mr. PLATTS. That, I think, is—your story and the story of the IGs

is one of those—the good and the bad, the unfortunate or the bad,

is that in this terrible natural disaster, there are people trying to

take advantage of, really, their fellow citizens, because money that

could be going to help those in need being fraudulently given to

others. But the good is the efforts of—you know, the number of

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calls that have come in and people reporting the fraud to the hotlines, to the command center, and then the coordination of your Department and the other agencies and departments to uncover it

and hold those accountable who have engaged in fraud and, by

sending a very clear message, prevent others from maybe doing

what they would otherwise do. But I guess it’s human nature, that

even in difficult times people are looking to take advantage of others.

Ms. FISHER. Yeah. It’s heartbreaking, but it’s true.

Mr. PLATTS. Mm-hm.

On the data base, one of the other things I wanted to followup

is besides the current or possible needs for changing with the various acts that are already in the books is the National Directory

of New Hires. Is that something that from your law enforcement/

prosecution standpoint, having better access to that—or across-theboard, all the agencies—would be helpful? Is that an example of

something we should be looking at?

Ms. FISHER. You know, I’d have to talk to the investigators and

get back to you on that question. I’m not sure.

Mr. PLATTS. OK.

Kind of maybe a broad wrap-up is just the most important lessons that you’ve found we’ve learned from this. And we certainly

don’t want to have the need to repeat this type of operation, especially of this magnitude. But what are the most important lessons

we should take from the first 8 months of this oversight and recovery effort, both good and bad? Again, what we should make sure

we don’t repeat or, you know, Congress should be very cognizant

of, whether it is in the way we funded the oversight or anything

that you have seen?

Ms. FISHER. Well, I think that from a perspective of how the

money goes out, again, that probably is best to the Inspector General community as far as the oversight and the contracting and the

benefits. Because I think there was a real need get money to people

quickly, and that was the primary importance, to save people and

to get them the money that they needed to survive, for their families. And with that, unfortunately, we saw a lot of people that were

trying to scam off the top of that.

But I would say this, from a perspective of what’s happened over

the last 8 months. A good lesson is that law enforcement and the

IG community can really come together for one mission together

and be successful when we work together. And when you multiply

your force in this way and share data and resources in this way,

the results really can be incredible.

Mr. PLATTS. I think that is coming clear from the prosecutions

that you are pursuing and the success you are having in deterring

and prosecuting the fraud that has occurred.

Actually, I do have one final question, to ask if you are able just

to expand on an issue that—are you OK?

Ms. FISHER. Yes.

Mr. PLATTS. We don’t want to lose you here at the witness table.

We need you. [Laughter.]

Ms. FISHER. Back in September, in response to legislation introduced in the Senate, S. 1738, Assistant Attorney General Moschella

regarding transferring kind of this special IG for Iraq to a special

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ID, and there was an issue raised about the constitutionality of

that. Are you able to expand on that opinion?

Ms. FISHER. No, not at this time. I can look for that opinion and

I can certainly get back to you. It wasn’t coming from the Criminal

Division, I don’t think. It was a constitutional issue that probably

came from our Office of Legal Counsel.

I will tell you that we also work for the Special IG for Iraq,

SIGIR, and we’ve done some cases in that regard with regard to

bribery relating to the contracts in Iraq, and they’ve been doing a

great job there.

But as to the Inspector General community here, they really

have banded together. I mean, their PCIE meetings, which I attend

or somebody from my staff attends, just amazing as far as their

proactive ideas on how to go forward. So I think that process seems

to be working from my perspective.

Mr. PLATTS. I share that. With Iraq, there is a very different scenario and the funds being funneled through, really, one channel,

whereas here, as will be represented by our second panel, the

amount of funds that are going through so many different departments and agencies, and the expertise we have on all those are

ready. To try to recreate that in a single IG, I think, would be very,

very challenging to do and not the most productive in the—not in

the best interests of the American taxpayer.

And I think what is important and I think is a great message

that you shared today and we have seen the benefit of in the last

8 months is the Attorney General in creating the task force, and

your leadership of the task force in bringing all the entities together, is really having great success on behalf of the American

people and especially those who are in need. Because, you know,

as generous as the American public is, there still is a—there is not

an unlimited sum of money out there. So ensuring that it is truly

expended for those in need and not in a wrongful manner is really

important. And as we go forward, as you have referenced, those

dollars are going to increase as we get into the rebuilding and some

of the large-ticket items, infrastructure and the efforts that are

really going to be critical to the Gulf Coast recovering fully in the

years to come. So we can appreciate your efforts.

Mr. Towns, did you have anything else?

Mr. TOWNS. I just have one other question.

You know, I am concerned about the coordination between the

different agencies and law enforcement in terms of the local level,

of course the State, whoever might be involved in it. Because we

hear all kinds of stories, you know, about duplication. I have even

heard some stories where the investigators have tried to lock each

other up. You know, I mean—so is this exaggerated or is there a

need for additional coordination? I am really thinking the fact of

the possibility of just wasting money sometimes in that process if

there is not the kind of coordination and communication that is

necessary.

Ms. FISHER. Well, and that’s exactly why we have this coordination down at the command center in Baton Rouge, so we de-conflict

investigations and we do not waste resources, that we group ourselves together in the most efficient way to prosecute this fraud.

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I’ve not heard stories about duplication in the Katrina fraud effort at all, or wasted resources, and I am very hopeful that we do

not have that because of the coordination that we put in place.

Mr. TOWNS. So that is even with the State and local folks that

might be involved once they——

Ms. FISHER. Well, we certainly coordinate with the State and

locals because they are members of the task force. So we’re constantly discussing that with them back and forth. I can’t say that

we’re perfect on the State and local level, and I don’t know how the

State and locals interact with each other with regard to these investigations or other investigations. But with regard to the fraud

investigations, I am aware of no problems or wasted resources or

duplications of efforts that have come to my attention.

Mr. TOWNS. The last question on that issue: Do you have adequate resources?

Ms. FISHER. Well, I think that we have asked for some additional

resources with regard to the Hurricane Katrina Fraud Task Force,

with regard to prosecutors and with regard to some of the investigators. But right now we’ve been blessed with the commitment of

the Inspector General community and the FBI, Secret Service,

Postal, and other law enforcement because they’ve assigned agents

to the command center, they’ve assigned people at headquarters to

follow this anti-fraud effort. So we are having a great deal of people

that we have resources to investigate and look after this fraud.

From a prosecution standpoint, we’ve got 94 U.S. Attorney’s Offices that have been directed by the Attorney General to watch out

for this fraud and that, when they see it, they’re to have zero tolerance. And they’ve been fabulous in stepping up to the plate, and

that’s why we’ve had prosecutions from Florida all the way to California.

Mr. TOWNS. Thank you very, very much.

Ms. FISHER. Thank you, sir.

Mr. TOWNS. Mr. Chairman, I yield back.

Mr. PLATTS. Thank you, Mr. Towns.

And one question on the additional resource request, I think that

is in the supplemental along with the IG? Is that correct?

Ms. FISHER. Yes.

Mr. PLATTS. And an example of that coordination is, during our

visit, the Gulf Port Mississippi Center, the convention center there,

is visiting with Federal officials and then getting over with a private contractor doing the audit, you know, the fraud prevention for

the State of Mississippi——

Ms. FISHER. Right.

Mr. PLATTS. And it was a very impressive operation and it was

clear the coordination between the Federal and State was very evident as well. It kind of goes to that, not just within the Federal

Government, but Federal and State working hand in hand. And

that was, as I say, very good to see that the coordination in a sense

was occurring.

But Assistant Attorney General Fisher, we, again, appreciate

your testimony, appreciate your work, and look forward to continuing to coordinate with you and your staff as we go forward.

Ms. FISHER. Thank you so much.

Mr. PLATTS. Thank you.

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We will take a brief recess as we get the second panel set up.

[Recess.]

Mr. PLATTS. We reconvene the hearing. And again, I appreciate

our second panel of witnesses being with us. We have Matt

Jadacki, Special Inspector General for Gulf Coast Hurricane Recovery with the Department of Homeland Security; Hon. Ken

Donohue, Inspector General for the Department of Housing and

Urban Development; Mr. Thomas Gimble, Principal Deputy Inspector General at the Department of Defense; and the Hon. Eric

Thorson, Inspector General of the Small Business Administration.

We echo the words of thanks for your being part of this hearing

as well as for the efforts of you and your staffs day in and day out

in helping to both safeguard the American public’s hard-earned tax

dollars that they send to Washington and also your efforts in helping to promote effective, efficient programs within the Federal Government, not just about guarding the dollars but trying to make

sure they are efficiently and wisely used in that in the end the intended purpose of the various Federal Government programs

achieve the best outcomes as possible for the American public.

Now that I have you all seated, I have to ask you to stand to be

sworn in.

[Witnesses sworn.]

Mr. PLATTS. Thank you. You may be seated. The clerk will acknowledge that all witnesses answered the oath in the affirmative.

We are appreciative of your written testimonies that you have

submitted and look forward to your opening statements here. We

are going to have, I think, 6 minutes on the clock. Because we have

four of you and want to try to get to questions with all four of you,

try to stay close to that, but if you need to go over some, we understand. Again, appreciate your being here.

Mr. Jadacki, if you would like to start.

STATEMENTS OF MATT JADACKI, SPECIAL INSPECTOR GENERAL FOR GULF COAST HURRICANE RECOVERY, DEPARTMENT OF HOMELAND SECURITY; KEN DONOHUE, INSPECTOR GENERAL, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; ERIC THORSON, INSPECTOR GENERAL, SMALL

BUSINESS ADMINISTRATION; AND THOMAS GIMBLE, PRINCIPAL DEPUTY INSPECTOR GENERAL, DEPARTMENT OF DEFENSE

STATEMENT OF MATT JADACKI

Mr. JADACKI. Thank you, Mr. Chairman, Ranking Member

Towns. My role here is twofold. One, I work for the Inspector General’s Office at the Department of Homeland Security. I’m responsible for reviewing, overseeing the Katrina and other disaster activities within the Department. But I’m also in the role of facilitating and coordinating the efforts of the other Federal Inspector Generals throughout the Federal Government. So I’ll talk briefly about

some of the coordination efforts that you mentioned in your opening remarks and some of the things that Alice Fisher talked about.

And I’ll get specific briefly and talk about some of the things I’m

working on within the Department of Homeland Security.

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On August 29th last year, Hurricane Katrina hit. I worked for

FEMA for a number of years, and by far it was the most catastrophic event I’ve ever witnessed. The number of people displaced,

hundreds of thousands of people, were literally going to every single State in the Union and in some territories. The area of devastation is about the size of the United Kingdom, and the amount of

debris, about 63 million cubic yards of debris, is just enormous.

Congress did act quickly, providing through three supplementals so far $85 billion. The bulk of that early on went to FEMA and,

subsequent to that, to a number of other Federal agencies represented by the Inspector Generals we have sitting here.

FEMA initially, as a coordination agency, tasks other Federal

agencies to do a lot of the response work. For instance, they will

task the Corps of Engineers to do debris removal, provide water,

ice, some of the immediate needs for citizens, as well as other Federal agencies, too. About $8 billion of the money FEMA initially received was tasked to other Federal agencies for various types of

jobs.

Early on, Inspector General Skinner realized that this would

simply overwhelm the DHS Inspector General’s Office, so he coordinated through the PCIE, and the Homeland Security Roundtable

became the Hurricane Katrina Roundtable, where a number of IGs

participated. And they agreed at that roundtable that they would

take hold of this thing, they would provide the oversight that was

necessary. Money that was provided from FEMA DHS to other

Federal agencies, other Inspector Generals have agreed to cover

those, whether it’s a mission assignment, for contract, things like

that, in many cases without additional resources. So they really

stepped up to the plate. A lot of coordination going on with the Department of Justice, as Alice Fisher’s testimony just went through.

We have been diligently providing information to the Hill because we want to be full and open about the types of things that

we’re providing and overseeing. For a while, we were providing

monthly statistical reports on the number of audits, reviews, arrests, investigative audit activity. We did produce a 90-day report,

which many of you have read, that provided a lot of information.

And just about 2 weeks ago, we produced a more comprehensive

semi-annual report that we will continue doing as long as there is

a need and interest by Congress and the American public and that

information is available.

Through the PCIE we realized that we wanted to be sort of consistent across the board with a lot of the work that we’re doing. So

we established a number of subgroups to handle a lot of common

activities that are common to many of the Inspector Generals. We

established a group dealing with contract issues because we wanted to make sure, as we’re reviewing contracts, other agencies that

receive it and other Inspector Generals reviewing it will be reviewing on a consistent basis doing risk assessments.

We established a subgroup that dealt with individual assistance

issues, because as you know, not only FEMA has programs deal

with individual assistance but there’s a number of Federal agencies

that provide, for instance, housing and things like that and, you

know, at several of the meetings we started sharing information.

One of the goals is to try to find duplication, replication, and, you

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know, where FEMA is providing assistance, and somebody else

doing that. Social Security was a big player. Labor is a big player

with their unemployment assistance. So we’re trying to coordinate

that, and it’s been pretty successful.

Again, I talked about mission assignments. We’re working with

other Federal agencies that receive money to audit the mission assignments, what we’re looking for in that particular area. And

again, we have a separate group dealing with the Privacy Act

issues, data sharing type things like that.

So that’s sort of a snapshot of what we do on general terms, and

my colleagues here will talk more in detail about what they’re

doing in their particular agency.

What I want to do for a couple of minutes is really talk about,

within DHS, what’s going on with our oversights, some of the types

of things we’re finding there. Some of the numbers are staggering.

FEMA has obligated so far, through the beginning of this month, $34 billion for disaster assistance. About $13 billion is for human

services alone. That’s providing individual assistance, providing

housing, providing rental assistance to folks, providing other needs

and those types of things. That also includes some money for some

contractors to stage mobile homes, travel trailers, and those types

of things. So there’s quite a bit of money early out.

What’s going to happen at this point is that as the individual assistance program fades out, we’re going to get some of the bigger

dollar amounts with the public assistance programs that are traditionally a larger part—rebuilding the schools, the bridges, the

roads, and those types of things. So we’re gearing up for the money

going in through that. I mentioned earlier about $8 billion went to other Federal agencies. We’re in the process of having the other IGs take a look at

that and accounting back for that. FEMA awarded so far over 3,500 contracts worth over $5 billion.

We’ve issued a number of reports on contracts, and we’re finding

some issues with that. Early on, there was a number of contracts

that were basically a verbal handshake, a lot of sole-source contracts worth hundreds of millions of dollars. What we’re trying to

do is be very proactive and not wait till the end, when the contracts

are finally completed, to go back in. So we’re issuing a series, and

we’ve done a series, of what we call Management Advisory Reports,

where we actually provide recommendations early on so management can take immediate corrective action to correct those.

Our staff is currently about 100, including audits investigators,

administrative staff, looking at a lot of different issues. I’ve mentioned we’ve completed 40 audit reports. We have a number of reports in progress already, some of the longer-term performance reviews. Our goal, again, is to be very proactive, but we’re also trying

to make some meaningful recommendations before next hurricane

season, which is right on our doorstep.

We’ve had over 4,500 hotline complaints. There are over 400

open cases. We’ve 117 arrests, 140 indictments, and 40 convictions.

We’ve questioned, to this point, over $100 million, and we’ve had

over $4 million of funds put to better use.

We’re working closely with the Government Accountability Office. I can tell you, at our regular PCIE meetings on Katrina are

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widely attended. GAO attends almost every single meeting, as well

as the Department of Justice. And we still have standing room only

from all the other Inspector Generals Offices, from both the PCIE

and ECIE community.

So 8 months after the disaster, the interest is still there and it’s

still very intense.

We will be reviewing in the future transitional housing. Many

folks have heard some of the horror stories about the manufactured

homes in Hope, AR. We uncovered that and put out an immediate

report on that. There are issues on travel trailers, hotels—people

staying in hotels. Alice Fisher mentioned some of the fraudulent

activity in some of the hotels that we’re looking at. We’re looking

at property management. FEMA bought tons of property, as well

as other Federal agencies.

Erroneous payments is a big issue. We will be taking a close look

at that, because we did find that a lot of controls were dropped or

overridden early on in the disaster and that did result in a significant number of erroneous payments and we’re still trying to get a

handle on that.

A lot of funding came through international donations. FEMA’s administering about $66 million in that program. We’re taking a

close look at that. And we are working closely with the purchase

cards with GAO.

We plan to continue. We know this is a long-term ongoing effort.

We’re expecting at least 3 to 5 years, probably longer, based on

some of the work that we’ve done in other disasters. And we will

continue our diligent and aggressive oversight.

This concludes my opening statement, Mr. Chairman, and I welcome any questions. Thank you.

[The prepared statement of Mr. Jadacki follows:]

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Mr. PLATTS. Thank you, Mr. Jadacki. We appreciate your statement.

Mr. Donohue.

STATEMENT OF KENNETH M. DONOHUE

Mr. DONOHUE. Good afternoon, Chairman Platts, Ranking Member Towns.

Once again, an area of our Nation has been hit by an unexpected

disaster that has taxed the emergency services and redirected Federal Inspectors General toward assisting local government and

overseeing the expenditure of a large amount of Federal money.

Congress estimates that damage to residential structures in the affected Gulf Coast region will range from $17 to $33 billion.

To put the magnitude of that devastation in perspective from a

HUD programmatic standpoint, in the Presidentially declared disaster areas, HUD’s Federal Housing Administration Single-Family

Insurance Fund insured more than 328,000 mortgages having an

unpaid principal balance of $23 billion. FHA’s multifamily program

in the disaster area insured 859 properties comprised of 116,000

units with an unpaid principal balance of $3 billion. The hurricanes

affected 79 Ginnie Mae issuers, causing Ginnie Mae to assess a $50

million risk of loss to its investment portfolio.

Moreover, assets of HUD’s public housing authorities program

suffered tremendous damage, affecting housing of almost 120,000

families. The photographs exhibited are like many shown in the

media following the hurricanes; however, in this instance, they document damage to HUD-funded housing programs.

The one to the left, the St. Bernard Housing Development HANO

program, that water was about 5 feet water line on the building.

Numerous vehicles are flooded and destroyed, and yet there was no

management or tenants onsite. The other units you see on the top

right-hand side, approximately 3 to 5 foot water line on buildings.

Extensive looting went on. Apparent total loss of all buildings.

Again, no management or tenants onsite.

I bring your attention to the Abundance Square housing development. What you are looking at is a trailer in the middle of those

houses. That was a rather recently built HUD program, and that

trailer, if you look at it closely, you can see that there are markings

on the second story of that building. In effect, that trailer floated

about a mile inland, hitting both sides of that building, and it sat

right in between those houses, to give you some idea about the

water surge that occurred down in New Orleans.

In addition to these pre-existing HUD programs, the supplemental appropriations passed late last year allocated $11.5 billion

to HUD’s Community Development Fund for reconstruction efforts

and $390 million to the Tenant-Based Rental Assistance Fund. The

latest supplemental, currently under consideration, contains billions more to be appropriated to HUD for disaster assistance efforts. In addition, FEMA initially provided $79 million in funding

to HUD for the Katrina Disaster Housing Assistance Program to

help in relocating evacuee families. All told, HUD is now and will

be receiving billions of dollars in new funding that will need strong

monitoring and oversight.

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The HUD Office of Inspector General’s response to the Gulf

States affected by Hurricanes Katrina, Rita, and Wilma was immediate and institutionalized based on lessons learned from our indepth experience with the aftermath of September 11, 2001, in

lower Manhattan.

We learned from our efforts that to be effective, your teams on

the ground and at headquarters must be proactive rather than reactive. Although a basic concept, it is one that is key to the ability

to make a real impact. This proactive posture extends to collaboration with State agencies.

To be truly effective, you must act in real time to have a deterrent impact, and we hope to have additional resources so that we

can have that effect.

While we are engaged in overseeing these new disaster relief

funds, we still have work on matters that are pending. Prior to

Katrina, the Housing Authority of New Orleans [HANO], was in receivership and under HUD’s control after a long stint on HUD’s

‘‘troubled’’ housing authority list, contract list. Contracts and expenditures that occurred pre-Katrina must still be audited and

analyzed. As to post-Katrina, we know from our past experiences

that rehabilitation and reconstruction contracts set up with loose

requirements are at a greater risk for fraud and that the sheer volume of transactions here will provide a rich environment.

We believe our oversight will show that the most effective way

to proceed is that monitoring be constant, continuous, and at all

the different levels of activity. At this point, States have drawn up

action plans on how to administer and monitor Federal grant moneys.

The first State to submit their plan was the State of Mississippi,

who met on several occasions with us to discuss their plan. From

this meeting, we developed educational material. Homeowners applying for grant money will receive a HUD OIG fraud awareness

bulletin in their grant application package.

As to the Mississippi plan, from an audit standpoint, oversight

and monitoring of grant funds ceases after the State has issued

‘‘compensation’’ funds to the homeowner ‘‘to be used at the discretion of the homeowner.’’

We do not think that monitoring oversight should end at this

phase, and we have remaining concerns about how a compensation

plan that basically reimburses will spur the rebuilding of now

blighted communities.

There are also continuing problems with the execution of data

matching among Federal agencies. Our counsel is finalizing a protocol with FEMA in order to use this data for matching purposes,

but we have encountered roadblocks nevertheless.

HUD OIG has undertaken a variety of activities and new initiatives relating to HUD disaster relief programs. My Office of Audit

established an office for Hurricane Katrina oversight immediately

after the disaster to prepare for the long process of recovery. Concurrently, an audit plan was developed and reviews in the disaster

areas begun.

Initially, the office reviewed all HUD waivers to assure that statutory requirements were not waived. Currently the office is auditing management and marketing contracts.

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My office investigation established the Hurricane Katrina Fraud

Task Force to deal with HUD law enforcement issues.

The Office of Investigation has created a far-reaching fraud prevention program. Also, HUD OIG has created, as you see to the

right, a Suspicious Activity Report [SAR], to be given to grantees

and sub-grantees and other associations delivering disaster funds.

As you can see from the exhibit, the SAR is a method of informing

HUD OIG of suspected irregularities in the delivery of HUD program money.

In closing, I would like to thank the subcommittee for the opportunity to talk about this tremendous work we have accomplished

since the onset of this tragic and trying event. Thank you.

[The prepared statement of Mr. Donohue follows:]

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Mr. PLATTS. Thank you, Mr. Donohue.

Mr. Gimble.

STATEMENT OF THOMAS GIMBLE

Mr. GIMBLE. Chairman Platts, Ranking Member Towns, thank

you for the opportunity to appear before the subcommittee today to

address the oversight work regarding Katrina.

To date, over $85 billion has been committed for Hurricane

Katrina relief and recovery efforts. The amount of money and the

urgency to make funds available as quickly as possible increase the

opportunity for fraud, waste, and mismanagement. Effective oversight by the Inspector General community is essential to minimize

the risk to the taxpayers’ dollars.

The Inspector General community has responded promptly to establish effective mechanisms to mobilize and coordinate both audit

and investigative resources in response to Hurricane Katrina. I am

working in close coordination with the other Federal Inspectors

General through the President’s Council on Integrity and Efficiency

Homeland Security Roundtable to ensure the proper use of DOD

resources in relief and recovery efforts.

Within DOD, we have leveraged resources by coordinating

amongst the DOD Inspector General, the Service audit and investigative agencies, and other Federal agencies to avoid possible duplication of efforts and to ensure broad coverage.

On total, my office and the Service audit agencies, Defense Contract Audit Agency, and the Defense Criminal Investigative organizations have employed on average a cadre of about 150 auditors,

investigators, and inspectors to provide oversight of the contracts

and operations. Currently, my office has 11 ongoing audits related

to Hurricane Katrina. Three of the audits were congressionally requested. One was requested by DOD. The remaining seven we initiated. The OIG deferred other audit work to ensure resources were

available for this important effort. We gave Hurricane Katrina

audit efforts priority, and those efforts took precedence over some

of our planned audit work that had not been requested or mandated.

Further, the Service audit agencies have 14 ongoing audit

projects. In addition, the Defense Contract Audit Agency is supporting both FEMA and the Army Corps of Engineers in their Hurricane Katrina recovery efforts.

The audits I just discussed are listed in the appendix to my prepared statement. An example of what my staff is reviewing is the

award and administration of the Corps of Engineers contract on ice

delivery, emergency water, and the Blue Roof Program. Some of

the areas being reviewed include the pre-award process for compliance with Federal regulations and requirements; whether the contracts were awarded competitively or sole source; whether the contracts were properly awarded to small, minority, or locally owned

firms; and also payment information. We also plan to assess additional audit effort based on need and risk. In the June timeframe,

the DOD audit community plans to initiate additional audits in the

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tection system, and reconstitution efforts at Keesler Air Force

Base.

In addition to the audit coverage, the Defense Criminal Investigative Service is working jointly with other investigative organizations, including the Hurricane Katrina Fraud Task Force. DCIS

also supports the joint law enforcement and U.S. Attorney’s Offices

working group headquartered in Covington, LA, and the Joint

Criminal Investigative Task Force in Mississippi. These efforts

have already resulted in the successful conviction of two defendants.

The DCIS has received 17 criminal allegations related to Hurricane Katrina and has opened 7 cases dealing with bribery, kickback, and possible product substitution. The DCIS agents in Louisiana have also examined an additional five allegations concerning

MREs, which were referred by the Government Accountability Office during its Katrina review. These allegations were later determined not to be related to Katrina.

Additionally, the DCIS has conducted 34 mission and fraud

awareness briefings for the Army Corps of Engineers and contractor personnel.

The Inspector General community recognized early on the high

risk posed by the Hurricane Katrina relief efforts and we have

stepped up to meet the challenge. Much of our work is ongoing, and

there is still much left to be done. However, by devoting significant

audit and investigative resources to this area, the Inspectors General are now a major force in detecting and deterring fraud and

mismanagement in the use of Federal funds allocated to hurricane

relief and recovery. By focusing attention on the internal controls

that govern the administration of our contracts, our efforts will

help ensure that Federal relief funds are used more efficiently.

This concludes my statement. I would be happy to answer any

questions.

[The prepared statement of Mr. Gimble follows:]

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Mr. PLATTS. Thank you, Mr. Gimble.

Mr. Thorson.

STATEMENT OF ERIC THORSON

Mr. THORSON. I appreciate very much your invitation to be here

today to speak about our oversight of the Small Business Administration’s disaster relief efforts. Like several of you have mentioned,

I, too, visited the Gulf Coast area and can tell you I could not comprehend the forces that could cause that level of devastation. It is

very clear that a massive recovery effort will be needed for some

time to come, and it is also clear that the Inspector General community must play a vital role if we are to deter fraud and control

wasteful expenditures.

Certainly one of my highest priorities is to conduct effective, aggressive, and proactive oversight of the SBA disaster relief programs. In this effort, we are establishing an office in New Orleans

so that we are on the ground near the devastated areas where the

rebuilding effort will occur. We are now in the final steps of hiring

the additional investigators and auditors that will be needed to

staff that office.

I think it would be helpful to very quickly summarize the SBA’s

disaster assistance program. SBA makes two types of low-interest

disaster assistance loans: first, SBA makes loans to businesses,

homeowners, renters, and organizations to rebuild and replace uninsured property; second, SBA makes economic injury disaster

loans, which provide working capital to small businesses until operations can be resumed. SBA has already approved $9 billion in disaster loans, with many applications still to be reviewed. SBA disaster loans are especially vulnerable to fraud and unnecessary losses

because of SBA’s desire to provide quick relief to disaster victims.

Many SBA disaster loans have not yet been disbursed because borrowers have not obtained necessary building permits or lined up

contractors. Also, borrowers are not required to begin repaying the

loans until a year after the initial disbursement. Since many borrowers are still in the process of putting their lives together, it may

not be to their benefit to start receiving the loan proceeds until

they are in a position to begin actual construction. Once that first

dollar is drawn, the clock starts ticking on when they have to begin

paying back that loan.

Because loan repayment is deferred 1 year, fraud and agency inefficiencies will not come to light for quite some time. Although we

have already initiated a number of audits and investigations, we

have also developed a long-term plan for our oversight of SBA’s disaster relief effort. We are participating in the PCIE and ECIE

Homeland Security Roundtable, and commend Rick Skinner at

DHS for organizing the reporting on Inspector General efforts and

establishing highly effective lines of communications. We have been

working closely with the DHS IG to review problems with the

interface between the SBA computer system and the FEMA system, which have delayed disaster assistance reaching victims.

The SBA OIG has issued a series of reports to SBA addressing

these findings, thereby helping to expedite disaster assistance to

those in need.

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One of our most important roles is to ensure that small business

set-aside contracts are not actually performed by large firms. We

have developed a review guide on small business procurement requirements so that all OIGs can determine whether their agencies

have complied with small business contracting requirements. We

are actively promoting the use of this guide among the IG community now.

We are closely reviewing SBA’s planned upgrade of the disaster

computer system to see whether the system will function correctly

for its contemplated 7,000 users and that it will meet Federal requirements. This was a serious problem for SBA and initially hindered the processing of loan applications.

We are also working with the DHS and HUD OIGs to identify

individuals who may receive duplicative benefits. By sharing information within applicable legal requirements, we will be able to

identify whether borrowers have accurately disclosed to SBA that

they received a HUD or FEMA grant and whether the amount of

SBA’s loan has been appropriately reduced.

We are participating in the Department of Justice Fraud Task

Force. The task force has developed a highly effective model to investigate fraud by establishing a centralized case management system to track all hurricane-related investigations, reduce duplicative

efforts, and identify fraud trends. Their contribution has been outstanding.

We are also reviewing the agency’s disaster loan approval and

disbursement process to see if disaster loans are being disbursed

in a timely and sound manner. We have planned a number of audits to thoroughly review SBA’s loan operations from processing,

through servicing, and finally to liquidation for any defaulted

loans.

Our office has opened investigations of multiple allegations of

fraud relating to disaster loans. Allegations have included claims

for property damage that never occurred, false statements about

prior criminal records, attempted bribery of SBA officials, and misuse of SBA loan funds for gambling or other unauthorized purposes. We have referred several of these cases to the Department

of Justice for prosecution and have other investigations underway.

We have also begun several proactive projects to identify fraudulent conduct. One project will identify borrowers who make false

statements about prior criminal conduct on their SBA loan applications. A second project is a joint effort with the DHS and other IGs

to identify applicants for disaster assistance who falsely claim that

they resided in the affected areas during the Gulf hurricanes. Your

questions earlier this afternoon show the importance that you put

on Congress ensuring that the OIGs receive adequate resources to

allow them to undertake effective oversight of this massive recovery and rebuilding effort.

Some have called for the appointment of a Special Inspector General to oversee the recovery, and I guess I would ask that you consider that for over 27 years, the Inspectors General have exhibited

an extremely high level of professionalism and accountability. You

have heard this afternoon how the IG community has assumed this

task, and I assure you we will continue to perform to the highest

standards.

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I very much appreciate the opportunity to have been present on

this panel, and I look forward to whatever questions you might

have.

[The prepared statement of Mr. Thorson follows:]

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Mr. PLATTS. Thank you, Mr. Thorson, and I share your opinion

of the response of the IG community to this disaster in very quickly

coming together and moving forward in a very coordinated fashion

to, again, safeguard the American taxpayer funds while we provide

the relief that is so much needed throughout the Gulf Coast region.

And your description is what I saw as well on my visit. It is pretty

staggering to see the devastation and appreciate what has happened there.

Where you wrapped up is where I would like to start with a

question. The challenge here is going to be a long-term challenge,

and you have all stood up your offices in great fashion, and quickly,

to provide whatever your manpower needs were to properly receive

these billions of dollars. But given that it is going to be many years

in the making, this recovery effort, what do you envision your

needs—or how your needs are being met today or will be met long

term when it comes to personnel and offices, I mean just general

infrastructure for your operations? I know there are funds in the

supplemental that will certainly help in the short term, but, you

know, are you looking at realignment or need for more permanent

increases because of how many years you will be involved in this

recovery effort? And I open that up to any of our four panelists.

Mr. JADACKI. I can respond to that from the DHS standpoint.

When FEMA was subsumed by the Department of Homeland Security, the entire Inspector General’s Office at FEMA became sort of

the nucleus of the Inspector General’s Office at Homeland Security.

As other organizations came in, there were some other Inspector

General staff that came along with that. So there was really the

expertise within FEMA because most of the work had been done

auditing disaster grants and disaster activities. So the expertise resided there.

For the first couple years at Homeland Security, there was a

shift in focus on more of the organization and the consolidation of

homeland security and some of the other activities. So a lot of the

work traditionally done by the Inspector General within FEMA and

then DHS in the disaster area went by the wayside. Rick Skinner,

the Inspector General after Hurricane Katrina hit, decided to

refocus his efforts on that by taking some of the resources that formerly worked on disasters that were shifted elsewhere and putting

them back on that disaster office. And effective October 1st, he will

be creating a disaster oversight office that not only handles

Katrina work, but any other disasters ongoing.

In the President’s budget in fiscal year 2007, there is $11 million

in the budget for that sort of core function to continue on.

Mr. PLATTS. And that will be a permanent office he is——

Mr. JADACKI. Correct. That will be a permanent office to handle

that. Again, it is fashioned very similar to what was being done

during the FEMA days.

Mr. PLATTS. Mr. Donohue.

Mr. DONOHUE. Mr. Chairman, in my experience in the September 11th disaster up in New York, my colleagues here as well, we

took a proactive approach to addressing those matters and went in

with Lower Manhattan Development Corp. with both auditors and

investigators. That takes people, and what happened was it was

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worth its weight in gold, as far as I was concerned. It was easier

in the fact we had a New York office. We had it fully constituted.

The whole matter is different in the Gulf States. Other than the

fact all the people are displaced, it is a much larger area to go.

Fundamentally, to get people to move down there and the relocation that requires it and so on and so forth does have unique issues

that have to be impacted. And we again are looking forward to

some support on the supplemental side to augment that.

What we did do is we sent our managers down right away and

tried to provide the services, but, again, I think as I indicated in

my testimony, the sheer volume of dollars, we are going to have a

long-term commitment for some time with HUD.

Mr. GIMBLE. Mr. Chairman, we actually pulled our resources

around and realigned, reprioritized. That is the short term, as has

been pointed out.

Interestingly enough, and it is not just the disaster recovery, but

we had just completed a workload assessment of DOD IG, and we

completed it in December. At the same time we were doing the realigning, so it has some impact, and this is not totally the Katrina

issue, but it is just another part of it.

And what we believe is over the long term, we are about 70 people short of what we need to do primary mission, and we have

made that case throughout the various committees and throughout

the Department. We are hoping to get some relief on that. We do

not envision having a group just solely dedicated to disaster recovery. We have a lot of priorities, one being the—obviously, we have

a war going on in the Southwest Asia theater, and we have to react

to that, too. That is a very high priority for us.

So we have a number of competing priorities, but if you look at

this over the long term—and we believe it is going to be a long

term. What kind of goes unsaid, DOD does not appear to have that

big an issue in Katrina recovery. The fact is that about half of the

money runs through DOD to the Corps of Engineers, so we have

a huge responsibility. It will be a long-term commitment. And the

supplementals are great. They are helpful in the short term. But

if you are looking out over a 5 or 10-year period, we probably need

more relief on a more permanent basis.

Mr. THORSON. We were fortunate to receive $5 million in supplemental funding for this disaster area oversight, and we decided to

use this primarily to establish, as I mentioned in my opening statement, a regional office headquartered in New Orleans. We have to

find the balance between hiring the people that we need to do the

job versus making this money last as long as we can. We have been

very careful in analyzing that, and we believe that we will probably

extend the use of those funds for about 4 years.

Due to the fact that we are not a first responder, primarily, and

that our investments are primarily a lot longer term, we anticipate

a presence for anywhere from 5 to 10 years, and the best way to

extend past our 4 years is to produce results to the Congress that

demonstrate that supplemental was a very good investment. And

that is how we intend to come forward again if the need is there

to have further funding.

Mr. PLATTS. One of the important aspects of the approach that

has been taken is this coordination with the departments and

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agencies and even within agencies themselves between IGs and

managers and being proactive. And so we want you to be proactive,

but as IGs, you have a responsibility of maintaining an independence as well. I would be interested if one or any of you would like

to comment on how you are balancing those two responsibilities to

work with your department senior management, and your financial

leaders in your departments and agencies to be proactive preventing fraud, but at the same time, you know, not compromising your

independence from the department itself.

Mr. JADACKI. One of the things that early on OMB required some

of the agencies receiving significant amounts of money was to put

together what they call a ‘‘stewardship plan.’’ The Department of

Homeland Security did put together a stewardship plan in two particular areas—one on internal controls, how are they going to establish internal controls to ensure accountability over the funds;

and the other one over procurement.

There is a weekly meeting with the Under Secretary for Management and her staff and procurement staff and CFO staff from both

the department level and at the FEMA level. Rick Skinner and myself participate every week in that meeting. We advise. Things

come to our attention, and I will give you an example. We found

some potential duplication in some of the work we did on some of

the oversight efforts by some of the States that were receiving

management grants from FEMA to provide auditing services and

those types of things. We brought it up at that meeting. They took

immediate steps to review the management grants going out there,

and they did find, in fact, replication and duplication, and they significantly scaled those things back.

So we are providing advice, guidance. We are bringing things to

management’s attention that may not warrant a report, but, you

know, we are bringing it to their attention and we are taking—you

know, they are taking it seriously and they are taking immediate

corrective action. And we continue to provide that on a weekly

basis.

Mr. DONOHUE. I think HUD may be a little different in the sense

that the money will leave, past the Federal Government down to

these development authorities in those respective States. So what

I am tasked to do is not only just work with the Department as

far as the question of waivers, but also to work with those authorities, because they will make those determinations, those tough decisions.

What we did is we have taken a very proactive approach in dealing with those authorities. We sent people down. We are interfacing training. We are doing instruction with regard to educating, appraise—look for the red flags, I mean to educate these authorities

to understand as to what they need to do to make sure this money

is disbursed.

We called for—and my colleagues here, we participated with the

State auditors, simply getting them all together, sitting down, and

talking about common issues.

Another thing that came out of September 11th which I found interesting is that as a result of us getting engaged, the Lower Manhattan Development Corp. hired up through their administrative

costs monitors, the idea of having people there that have an experVerDate 11-MAY-2000 12:56 Oct 30, 2006 Jkt 000000 PO 00000 Frm 00092 Fmt 6633 Sfmt 6633 D:\DOCS\29931.TXT HGOVREF1 PsN: HGOVREF1
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tise in those areas to watch closely as far as how that money is distributed on a local level. And I am optimistic, the fact that they

will go back and do that. They look like they’re moving in that direction, certainly in the one that has been approved, and that is

the case at this point with Mississippi.

Mr. GIMBLE. I think we normally in the IG community, since our

mission is to detect and prevent fraud, waste, and mismanagement,

our audits are typically aimed at some steps to identify fraud indicators. Also, you have lessons learned and there is a lot of audit

work done in the contract world before the award of the contract.

In other words, if you see a contract being in an RFI State and

you look at it and you determine that there are some things that

are not built into that should be built into, in many cases we will

make recommendations to management to incorporate that before

they go out. If you have contracts that are not being properly competed, you also can make some recommendations on that. So I

think as a normal course of business, we do a lot of proactive work

and fraud and deterrence.

The other thing is that we have a fraud awareness briefing that

we do. As I said earlier, we gave 34 presentations on that in the

Gulf Coast area to the Army Corps of Engineers contract folks and

some of the contract administrators, just to make them aware of

potential fraud issues as they do their normal duty.

So we think we are fairly proactive in that, and I think that is

probably typical of most of the IG community.

Mr. THORSON. For SBA, we really believe the proactive approach

does not, in any way, hinder the OIG independence. Being

proactive can prevent fraud and waste from occurring by working

with the agency to identify trends and to change any program deficiencies that could allow waste and fraud to occur.

For example, fraud awareness briefings, developing training materials, quickly bringing to the agency’s attention those kind of

things that they can react to expeditiously that could prevent, as

opposed to catch the fraud afterwards. We would much rather come

before the Congress at later times and tell you what we think that

we prevented. Even though that’s very subjective, we would much

rather do that than tell you we prosecuted 27 cases of fraud.

Our mission is to prevent. But in no way do we believe that

hinders our independence, either.

Mr. PLATTS. Great. Thank you.

I want to yield to the ranking member, but one question before

I do, just Mr. Donohue specifically because of that proactive approach that was mentioned across the board of the panelists with

that last question.

Specifically to the Mississippi Development Authorities and, in

your testimony, the issue that they see their responsibilities and

their proactive approach differently than you do and I think maybe

all of us here do, of how far that oversight should go. And they’re

seeing kind the checks handed over as they’re done.

Can you give us an update on that? And what’s your ability to

encourage them to take a different approach? We want to see the

actual outcome achieved, that money is being given for.

Mr. DONOHUE. I think we’re speaking about compensation, is my

term was, Mr. Chairman. I think it’s right on the money. It really

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comes down to the question of our ability to oversee. The way it’s

designed is a substantial amount of that money is designed to be

compensated to the homeowner. And I have—at the end of the day,

when those folks receive that kind of money, in reality they have

full discretion to do whatever they want.

And my concern is simply this: I’ve been down myself to Biloxi

and Gulfport in the affected areas. Some elderly woman that receives this kind of proceeds after the mortgage is taken care of and

whatever is left and for whatever reason decides to go back and use

that money for unintended purposes and finds no home left and

finds no shelter left. And therefore is left with having to apply to

the State for additional funds to maintain oneself.

And also to the chance that area can remain in blight because

there has been no corrective action taken on the part of the homeowner. So I am concerned.

We have talked to the States. We have talked to the Attorney

General, the State Attorney General, in regard to that very question. He would envision that as being a consumer fraud violation

at that point when they receive that funds. But it, at this point,

does not appear to have a Federal nexus with regard to that moment.

It’s really buyer beware. It’s receiving that money for whatever

they feel the proceeds should involve.

Mr. PLATTS. Thank you. I yield to the ranking member for questions.

Mr. TOWNS. Thank you very much, Mr. Chairman. Let me begin

with you, Mr. Thorson. How do you keep the big guys from eating

up the small businesses? The big guys from eating up the little

guys? How do you prevent that from happening?

Mr. THORSON. Actually, as I mentioned, that’s one of our prime

concerns and we have published this review guide to do that. There

is a number of different things, one of which is to make sure that

when these large contracts begin to really develop, and I don’t

think they have as yet, is to make sure that all of the IGs for the

various agencies, not just SBA, are armed with the tools to be able

to determine whether they have followed the right procedures. And

some of them can be very involved.

But to answer your question very generally, I’d say that the first

thing we would do is follow the review guide that we have published in order to accomplish just that.

Mr. TOWNS. What about penalties? Are there penalties, offenses,

if all of a sudden you find that you call yourself awarding a small

business a contract and then you find that a big business is really

doing the work? Is there any penalties involved?

Mr. THORSON. There are, especially for misrepresentation. There

are actually criminal penalties in the statute, yes. For a large business that intentionally and clearly represents themselves as a

small business in order to achieve a certain contract, yes.

Mr. TOWNS. Let me just sort of go down the line asking you all.

Do you really feel that the coordination now that’s in place is sort

of making certain that we are on top of the situation? Let me start

with you, Mr. Jadacki, and come right down on the line. Do you

really think we’re on top of this now?

Mr. JADACKI. Are you talking about the oversight coordination?

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Mr. TOWNS. Oversight coordination, yes.

Mr. JADACKI. Yes, I believe it is.

If you look at the money, and I talked about it earlier on, about

the money that FEMA provided other Federal agencies, there’s at

least at last count about 54 Federal agencies that got money in

some shape or form just from FEMA. And this was before the supplemental appropriations came along.

We really have to rely on the expertise of the Inspector General’s

in each of those agencies because you just can’t have one person

or one entity coming in and expecting to understand each and

every program.

So I believe that working with—and if you look at some of the

data we’ve compiled and some of the reviews that are coming out,

I think the Inspector Generals are doing a good job at sort of getting a handle on and overseeing some of the activities here.

Again, you’re looking at $100 billion. You’re looking at hundreds

of thousands of victims. You’re looking at a plethora of programs

out there. Catching everything out there, I think, is just going to

be impossible. But we’re looking for some of the high risk things.

For example, we’re working closely with the other IGs to try to

identify some of the high risk contracts. We’re looking at some of

the high risk type activities that we traditionally see. Debris removal we know, based on past history, is a very high risk program.

It’s ripe for fraud, waste and abuse. And we’re already finding, as

Alice Fisher pointed out, we’re finding cases like that.

But just given the sheer size of the disaster, it’s going to be difficult to cover everything.

But I think, in general terms overall, I think the IG community

is doing a very good job.

Mr. TOWNS. Thank you very much.

But let me just ask this. I’ve heard, and I don’t know whether

it’s accurate or not, but I would ask staff to just sort of further look

into it, that there’s 18,000 trailers that are not being used?

Mr. JADACKI. That’s correct. They’re manufactured homes. FEMA

purchased 24,000 manufactured homes. And those are different

from travel trailers which have wheels and are actually very mobile. The manufactured homes are sort of permanent structures you

would bring in.

Yes, they were purchased. And the concern we identified in our

review is that they’re sitting at an airfield in Hope, AR, just waiting to be used.

Now the problem we have is there was a lack of communication

and, I think, a control breakdown at the programmatic level where

FEMA bought all of these things with the good intent early on that

they’re going to house disaster victims. What they didn’t realize

and where the breakdown was, was that FEMA regulations preclude using these manufactured homes in flood plains. In most of

the affected area where these were intended to go, they can’t be

used because of FEMA’s own regulations.

So we’re looking at a major control breakdown there because people weren’t talking, people weren’t communicating. Yes, you’re

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ters because they certainly can’t be used for this particular disaster.

Mr. TOWNS. Let me just say this, that’s a real concern. I just feel

that somewhere along the line the communication is just not strong

enough for us to be able to be efficient and be able to make certain

that there’s no fraud, waste and abuse. And I hear you have the

Task Force and that you meet and I keep hearing that. But it

seems to me that something is missing there and that, as a result,

there’s a lot of waste.

I hope I’m wrong, I hope I am. But I think about the fact that

most of the money is yet to be spent. And I think really you need

to be tightening it up to make certain that we don’t waste—and

this goes down another line. I’m sorry. But I have that concern.

And that when you hear things like that, you wonder are you in

a position to catch the crooks?

Mr. DONOHUE. Mr. Towns, I would just comment that I applaud

the commitment of my colleagues here. I’ve been in this business

about 41⁄2 years and before that law enforcement. These people

stay busy. And my folks in my organization are quite busy with

what they do in handling fraud oversight.

But I can tell you what I’ve seen here, in my personal opinion,

between the Department of Justice and what Ms. Fisher said, and

my working closely with my colleagues in the FBI, that I’ve seen

collective effort and work to address these cases. I think we’re

doing is we’re preventing duplication of sorts. I think we’re addressing our audit concerts collectively.

I tell you, I saw the success of it in the disbursement of funds

in September 11th, the disaster in Lower Manhattan. I saw it

work. And I think that’s what we’re trying to mimic here, is the

success.

We pushed out, HUD pushed out about $2 billion or $3 billion.

And that was a charged situation down there. But I really believe

that we did that successfully. We met, we talked about it, became

a plan of action.

I must tell you, the local and State organization involved were

so successful in doing that. I think that’s what we’ll try and hopefully bring to this, is the State participation. They have such a

stake here in our role that we can work collectively. I think we’re

off to a great start.

Mr. TOWNS. Thank you.

Mr. GIMBLE. Mr. Towns, I think—I would like to add another dimension to this. I think we, in the IG community, are a very important and integral part of the oversight. I also think there’s a

bigger piece of it out there that is actually the management. In

other words, you’ve got your contact administrators that detect the

double billings and so forth.

You have the community at large that has the allegations that

they make to hotlines where we have leads.

We are obviously not staffed to have 100 percent coverage to stop

all waste, fraud and abuse. I think that would be impossible.

But I think where our concentration is and what we do is there

is a system of internal controls that are made up of a number of

things.

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The challenge is to make sure that those are being properly followed. You can make tweaks on them. You can probably improve

the actual systems themselves. But more importantly, we need to

be cognizant, and this is where we do our risk assessment. Where

are the potential breakdowns in the execution of the existing control systems? So I think that’s where we get a lot of our work.

But we’re only a part of the solution. A big part of that is on the

management side. So I think when you look at the overall oversight of this, you probably should also consider that there’s more

than just the IG community and the law enforcement community.

Mr. TOWNS. Thank you, very much.

Mr. THORSON. Mr. Donohue mentioned he had been there 41⁄2

years and I have been at SBA 41⁄2 weeks.

But in that short period of time I will tell you I have seen the

effects of the coordination in all of these offices. For instance, I

mentioned the interface between the SBA computers and the

FEMA computers. That sounds rather technical and doesn’t really

tell you much. But the truth is when you can work out problems

like that, you assist many, many people who get dropped out of the

system for one reason or the other because of the lack of a proper

interchange.

We work with HUD on individual benefits to make sure that the

agencies don’t duplicate payments. There’s a whole list of things

like that. But the truth is the coordination does work and it’s very

effective.

Mr. TOWNS. Is there anything that we need to do on this side?

Mr. DONOHUE. I would just comment, sir, that I think your oversight and bringing us up to ask these questions is important. I

think also one thing I would ask is that whatever funding is multiple year funding, money, so that we can do that as far as effectively plan our strategy. I think one of the greatest concerns is trying to hire up and then come down, and so on. Keep that balanced

and maintain that kind of work force to do that.

So I do appreciate and applaud your interest in seeing as to

whether we have the resources that we require to do what we have

to do.

Mr. TOWNS. Thank you very much, Mr. Chairman. I yield.

Mr. PLATTS. Thank you, Mr. Towns.

Mr. Donohue, I wanted to ask on the timing issue about those

who have claims and the $9 billion that has been approved and the

$1 billion that’s been dispersed. Actually, I guess that number is

Mr. Thorson with SBA.

I guess for both SBA and HUD, as far as funds that are going

to be given out, what’s the timeframe to make a claim? And once

a claim is submitted and approved, how quickly do you have to

draw down? What’s the outside limit?

Mr. THORSON. You don’t. As far as the drawing down, that’s up

to the borrower to do. That’s part of what we’ve made an effort to

try and clarify, because the agency has taken a few hits about the

level of disbursement versus the level of loan approval.

Now there are certainly effective controls in place which do make

it—there is more to do after you have loan approval. You have to

show that you have the proper insurance. Like any secured loan,

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you’re going to have to have a legal review before the disbursements.

But the main thing that we’re seeing and that I personally saw

when I was down there was people aren’t sure what they want to

do. They’re not sure whether they want to rebuild on this particular site or whether they need to wait to find out whether there is

insurance available? Are there going to be power companies? Are

they going to move back and reconnect?

So they’re waiting. And you can’t blame them for that. That’s

probably a very good commonsensical move.

Mr. PLATTS. Is there an outside limit? Once they are approved,

3 years or 5 years? Or can they come back 7 years from now? Is

there an end date, as far as trying to predict what your oversight

is going to be?

Mr. THORSON. I was just advised it used to be 6 months and now

it’s open-ended. So they can sit with that loan approval for as long

as they want.

Mr. PLATTS. And with HUD?

Mr. DONOHUE. As to HUD, they will come in, homeowners will

come into a location center, verify in fact who they are, that they’re

authentic, and provide certain identification to support that. And

what they will do is the application process will begin shortly in

Mississippi, at which time the checks will be issued, I’ve been told

around September. And to answer your question, it is open-ended.

Mr. PLATTS. What type of procedures maybe again, especially

HUD and SBA, are in place to ensure the identity and to really

avoid the fraudulent interactions or transactions? What do you go

through? How do you do the best possible guard against the fraudulent conduct?

Mr. DONOHUE. Well, I’ll tell you, we’ve sat down with—and of

course, in this manner it’s Mississippi as far as their approval process is concerned. The other ones are yet to be approved.

What we’re asking of them, when they come in to me for verification, they have to come up with the true data information that supports that they’re the rightful owner, that they own this property

clear. Of course, in my case—I should say, in many of these mortgages, there will be mortgage pending. There will still be loans outstanding. And they will have to address the issue of whether

there’s still a pending mortgage they have to resolve with regard

to that mortgage company. There’s a matter of insurance claims

that has to be coordinated with regard to that matter, as well.

And a decision, ultimately a decision as to whether they’re going

to stay and rebuild or relocate.

So I think the idea is to set up centers for these people to come

back and apply for this stuff and require the kind of information.

I suspect that just by the homeownership itself that these centers should have more than enough adequate information. That’s

what we’re working with, talking to them to make sure they do

that information to authenticate the claims that has been applied.

Mr. THORSON. The same is really true for us. Being that these

are loans, you not only have title searches, you have a loss verification procedure. And of course, you have a credit check, as well. The

people that are getting these loans, it is expected that they will

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repay these. So there is a substantial amount of checking that is

done before the actual approval is done.

And then, as I mentioned, there’s a final legal review before any

funds are dispersed.

Mr. PLATTS. With SBA and HUD, and maybe more so already

with DHS and FEMA, is there evidence that the controls in place

for those who have already gone through the process are working

to keep people from trying to come in and fraudulently work their

way through the process?

And I guess maybe a specific question would be do you know

what percentage of applicants for any of the forms of aid have been

rejected once their review was conducted?

Mr. JADACKI. In DHS, FEMA had some pretty what I call strong

controls in place. What happened, they were overridden and circumvented in some cases. So it allowed folks to defraud the system.

In some cases, a simple control like a Social Security number

was not validated to make sure that it was an existing Social Security number. We found cases where applicants received funding or

individual assistance funds with a Social Security number of a deceased person. In one case, we found all zeros as the Social Security number. And we found one individual that received 12 forms

of assistance by just adding sequential numbers onto a Social Security number.

In other cases, we found controls were in place depending on how

you applied for assistance. If you applied over the Internet, it did

check the Social Security numbers. If you called on the phone,

those controls were dropped and it would automatically generate

check. So in some cases the controls are there. They’re just overwritten and circumvented because of the expediency of getting the

assistance out.

We’re following up. There’s been about several thousand repayments already. Again, it’s hard to identify because FEMA collects

the money back. They’ve collected about $8 million. Whether it’s

because when there’s arrests the media still has a big interest

down there. You still see, when people arrested, they are on the

front page of the news. The media has been real good about putting

them on TV and publicizing. And traditionally people see that and

they will turn in checks voluntarily.

We’ve got a number of public service announcements saying that

we’re going to pursue any type of fraud. We’re trying to get a gauge

on that.

Right now FEMA is in the process of actually matching up to

look for duplicates. If you see a check for two people, two different

Social Security numbers or different addresses, they are sending

bills for collection to pursue those. So we are working closely with

DOJ on that.

As far as a percentage, I don’t know yet. We still need to complete our work on that. But given the fact there’s over a million applicants for individual assistance alone, the numbers are staggering.

Mr. PLATTS. Is there anything with HUD or SBA, just a rough

number that have been rejected that have thus far come in?

Mr. DONOHUE. We do not have any, sir, at this point.

Mr. THORSON. No, sir.

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Mr. PLATTS. The initial month or I guess 2 to 3 months there

was this kind of waiving of controls because of the urgency and the

conditions of those in need and just trying to get the money out.

That recovery effort that’s going on, those letters that are being

sent out, is there evidence so far of how successful they’re being?

The $8 million, I understand, was really not money that was pursued but that came back voluntarily; right?

Mr. JADACKI. Correct. It came back voluntarily. That’s typical—

and this is typical in any disaster. There’s going to be a number

of applicants that you’re going to have to send bills for collection,

either through a clerical error or things like that.

I don’t know what the exact amount is. I know it’s going to probably get into tens of thousands of letters that go out asking for that

money back for whatever reason.

Mr. PLATTS. That you’ve identified?

Mr. JADACKI. Right. But FEMA is actually going through and

identifying those duplicate payments on their own. They’re not the

result of IG work. And that’s a good control that should be in place.

They should be going back, now that the crisis period is over, and

re-examining and doing the checks on that.

One of the important things I mentioned early on is the fact that

the Federal Government has a lot of data, they’re the repositories

of a lot of data. Social Security has the Social Security numbers of

folks. There’s checks that should be done there.

We found checks going to addresses that never existed. But the

Postal Service has those checks. So we are making the aggressive

effort right now to try to find ways that not only the IG but the

programs within the HUD programs, the FEMA programs, can actually share data and kind of facilitate that.

So again, in the future, we can sort of prevent these things and

get some basically rudimentary controls in place to prevent a lot

of these things from occurring.

Mr. PLATTS. That was going to be my followup. has there been

recommendations that you’ve made or the various IG offices for

that initial stage, to allow the aid to be given in a fast manner but

to have some basic controls? Have we been able to assimilate what

happened and make recommendations? We’re going into hurricane

season in 2 weeks, hurricane season starts again, in case it’s needed there.

Mr. JADACKI. As soon as we identified the problem with the registration we sent out a management advisory letter immediately,

saying stop, get the controls back in place. This has to stop. So

those controls are there. Again, it’s trying to get information.

Validating addresses is a pretty simple thing, there’s an address

there or not. And there’s private sector companies that can probably do that, too. So FEMA needs to explore and probably some of

the other programs in the Federal Government need to explore

ways to sort of validate those things.

And a lot of the things can be transparent. It doesn’t take weeks

to do that. We understand the need to get money out quick, but

it has to be balanced with the need for internal controls and accountability. And we are trying to think of ways or work with the

other agencies and FEMA to find ways to prevent these things up

front, while not delaying the assistance that the citizens need.

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So more to come. We expect to have some reports out this summer on how we can effectively do that. Our goal is to get something

in place. But we can have agreements in place before the hurricane

season. When it hits, this is the type of information we need to

validate or run against it. There are ways, working closely with

Justice, to do these types of agreements that are in compliance

with the Privacy Act and the Computer Matching Act.

Mr. PLATTS. Those discussions about having those agreements,

they’re ongoing but the agreements are not yet in place?

Mr. JADACKI. That’s correct. I know there’s at least one agreement that HUD is working with FEMA to collect data and that’s

progressing. Alice Fisher mentioned before about the access to

FEMA’s data base, the NEMIS data base. That has progressed.

Now we’re looking at how we can expand that to other agencies.

Because every disaster you’re going to have similar situations.

People are going to get individual assistance. There are going to be

checks going out. So it should be some sort of standard thing that’s

negotiated prior to the hurricane season or should be ongoing

whenever there is a disaster. And were trying to sort of—we’re trying to facilitate that process right now.

Mr. DONOHUE. Just data matching is very important to HUD.

I’m so glad that Matt spoke about it. I’m glad to mention that as

of recently as today, FEMA and the HUD OIG and DHS have sat

down and tried to address these very issues.

As you all know, we’re not first responders, HUD. So it’s absolutely important for us to have access to that information and find

out who may be the wrong doers were, to prevent the ineligible

people or the people who are not a resident or received payments

of some sort, to get that, capture that.

It’s a little different than what I think Ms. Fisher was referring

to, as having criminal records and so on. This is more information

to know as to whether these people have already done it to you

first and now they’re coming back the second time. And that to me

is so valuable and we look forward, we really look forward, to receiving that information from FEMA.

Mr. PLATTS. I’ve got a couple more I’d like to touch on.

Mr. Jadacki, one of our visits was the debris removal and what’s

already occurred, as well as the huge volume of debris yet to be removed. And some of Ms. Fisher’s testimony and in the written testimony is about the evidence of corruption that was uncovered and

is being prosecuted.

Are there things we need to do differently? Or is it just in this

case there’s controls in place but human greed is what’s trying to

circumvent those controls? Or is there other controls we need to

put in place because it’s a huge sum that’s still going to be paid

out with the debris that still remains?

Mr. JADACKI. I mentioned earlier on that the area—the affected

area is about the size of Great Britain, which is a significant area.

So debris removal has always been a major issue, something we try

to keep a close eye on. Again, given probably the thousands and

thousands of debris trucks that are out there, the type of debris

and those types of things, having debris monitors almost everywhere from the onset was very difficult.

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In the early phases, the first 72 hours is what they typically

refer to as the response phase, the focus is really on opening roads,

emergency access roads and those types of things to allow vehicles

through. In a lot of cases, there’s not enough time for the national

contract through the Corps of Engineers so we have to rely a lot

on locals to provide that and we’ll reimburse. So we’re sort of at

the mercy of what the locals are doing. We have to rely on them.

Again, there’s a State oversight responsibility, too, because the

FEMA money goes through the State down to the locals.

What we found early on was that a lot of the monitoring, the typical things you would see, were just not there. You would normally

want to see towers there. You would like to measure the trucks.

You would like to see whether the loads are full, the type of debris

that comes in, and those types of things. I think in a lot of cases

that wasn’t there.

I know as things have calmed down and again the crisis phase

is over, we’re seeing more and more of the oversight. And I know

the Corps admitted that they’re providing more and more staff on

there. But I think in this case they were just simply overwhelmed.

There’s other ways you can actually check, besides looking in a

truck. I mean, you can take the number of load tickets, for example, go to the debris site and say OK, well they brought 10 loads

of debris in, we should have a bigger pile or a smaller pile than

this. There’s ways to go back and double check that. And when we

do our audits, we actually do some of the alternative or innovative

ways to do those types of things just to double check.

But I think the most critical thing is having monitors onsite

checking those trucks as they come in. The problem with inflated

load tickets or false load tickets, the temptation is there. And it’s

real difficult if you just don’t have those folks onsite. I think now

there should be no excuse. Early on it may be difficult to keep an

eye on those things.

And we did find some cases in debris removal. For instance, one

of the towns in Mississippi, a company came along and said we’re

a nonprofit organization. We’ll remove your debris for free. And not

knowing any better, they did it. And then several months later, a

bill comes in for $750,000 for their free debris removal. So there’s

a lot of people in the wings, a lot of unscrupulous folks out there

waiting because people panic, there’s a lot going on. They want to

be reactive to their communities. And they’re being taken advantage of. And unfortunately, in these cases, we may or may not be

able to reimburse some of those folks.

Mr. TOWNS. I guess you were reimbursing them for the gas.

Mr. JADACKI. That would be expensive, these days.

Mr. PLATTS. We want that price to come down, right?

Mr. JADACKI. Right.

Mr. PLATTS. I want to ask, with the Army Corps, I know you’re

very involved with that debris removal, as well.

Mr. GIMBLE. I think, just to add on to what Matt just told you,

actually when this started, the contracts or the contract administration weren’t in place so we didn’t have advisers or overseers.

That lasted just for a few days. And some of these issues came up

because we didn’t have monitoring folks in place, we didn’t have

the watchtowers in place.

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So they’ve made recommendations to get that fixed. The Corps

of Engineers has taken that to heart and they’re doing that. We

think that’s going to be a better news story, maybe not a good news

story but a better news story.

And also I would just add that the Army Audit Agency is doing

an extensive audit of the whole process to go back in, probably

looking at some of the trip tickets and such as that.

So I think that was the—the bottom line of that is it was a problem early on, just by the nature of it. It will probably be a problem

throughout. But it’s in much better control now.

Mr. JADACKI. I just want to add one thing real quick. We have

had some discussions with the Corps and we think they have it

under control.

But debris removal process is done two ways. A State or locality

can either select the Corps of Engineers to do it, or they can do it

themselves and get reimbursed under a public assistance grant. So

the ones that the Corps are doing we have pretty good confidence.

The ones where we’re relying on the States and the locals to do,

we’re not having that element of Federal oversight. We’re sort of

relying—and a lot of communities are doing a really good job on

that. But still, we have to rely on their oversight and check on

them periodically.

So I just want to make clear that there’s two different ways that

we can remove debris.

Mr. PLATTS. Is there a final comment you want to share with the

committee, that you make sure we give special attention to?

Whether it be some of the legislative issues we’ve talked about, the

Privacy Act or the data sharing, that you want to make sure is on

our radar as we go forward to assist you?

Mr. THORSON. I would second the comments made about the data

matching. The agreements that have to be approved by each individual agency and by OMB, they’re quite time consuming and burdensome. If there is some way that it could be considered that the

OIGs be subject to some different approach to that, it would be extremely helpful.

Mr. DONOHUE. I just have something dear to my heart. I’m in the

process, on behalf of the BCA and trying to move forward the IG

Training Institute. It’s something that began about 2 years ago and

I’ve worked very closely with members of this committee.

The reason I bring this up is fundamentally what concept is to

bring together the disciplines and we’ll have new people, audit investigations, management training and also inspection evaluation

folks.

And I think by bringing that collectively together and housing

that, I think we have the best and the brightest training, which is

what we need. We have to have that.

And I think certainly a situation of this type demonstrated that

in disasters that we need that kind of support. And I’ll tell you, I

just want to say thank you to the members of this committee, the

fact that they supported that effort and we go forward trying to do

the best we can.

Mr. PLATTS. I think the challenge that was put before you and

your fellow IG members and how you responded speaks volumes of

the professionalism of the IG community throughout the Federal

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Government. And the idea of the IG Institute is maintaining that

and furthering it in the years to come, is I think a very important

idea that we need to be looking at how to promote. And we will

continue to have the level that you have exhibited in this natural

disaster in the oversight of the recovery.

Mr. Towns, do you have anything?

Mr. TOWNS. No, I would just like to associate myself with the remarks you just made. Thank you very much.

Mr. PLATTS. We again appreciate all four of you and your staffs

for your preparation for the hearing and your testimony. And again

just day in and day out, the jobs that you and your staffs are doing.

If you can convey our committee’s thanks to all of your staff, many

of whom have relocated with probably little notice to be in the Gulf

Coast region and performing in admirable fashion and are really

out there looking out for the best interest of all Americans, and especially those in need in that region.

So we appreciate you conveying those words of thanks to them.

We’ll keep the record open for 2 weeks for any additional information you would like to submit.

And with that, this hearing stands adjourned.

[Whereupon, at 4:12 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Edolphus E. Towns and additional information submitted for the hearing record follow:]

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