S. Hrg. 111–978 

STIMULUS OVERSIGHT—2009 

HEARINGS 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 5, 2009 

FOLLOW THE MONEY: TRANSPARENCY AND ACCOUNTABILITY FOR 

RECOVERY AND REINVESTMENT SPENDING 

APRIL 2, 2009 

RECOVERY AND REINVESTMENT SPENDING: IMPLEMENTING A 

BOLD OVERSIGHT STRATEGY 

APRIL 7, 2009 

THE AMERICAN RECOVERY AND REINVESTMENT ACT: MAKING THE 

ECONOMIC STIMULUS WORK FOR CONNECTICUT 

FIELD HEARING IN HARTFORD, CONNECTICUT 

APRIL 23, 2009 

FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS 

FUNDING 

SEPTEMBER 10, 2009 

FOLLOW THE MONEY: AN UPDATE ON STIMULUS SPENDING, 

TRANSPARENCY, AND FRAUD PREVENTION 

Available via the World Wide Web: http://www.fdsys.gov/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

STIMULUS OVERSIGHT—2009 

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49–638 PDF 2011

S. Hrg. 111–978 

STIMULUS OVERSIGHT—2009 

HEARINGS 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 5, 2009 

FOLLOW THE MONEY: TRANSPARENCY AND ACCOUNTABILITY FOR 

RECOVERY AND REINVESTMENT SPENDING 

APRIL 2, 2009 

RECOVERY AND REINVESTMENT SPENDING: IMPLEMENTING A 

BOLD OVERSIGHT STRATEGY 

APRIL 7, 2009 

THE AMERICAN RECOVERY AND REINVESTMENT ACT: MAKING THE 

ECONOMIC STIMULUS WORK FOR CONNECTICUT 

FIELD HEARING IN HARTFORD, CONNECTICUT 

APRIL 23, 2009 

FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS 

FUNDING 

SEPTEMBER 10, 2009 

FOLLOW THE MONEY: AN UPDATE ON STIMULUS SPENDING, 

TRANSPARENCY, AND FRAUD PREVENTION 

Available via the World Wide Web: http://www.fdsys.gov/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

MICHAEL F. BENNET, Colorado 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

ROBERT F. BENNETT, Utah 

MICHAEL L. ALEXANDER, Staff Director 

TROY H. CRIBB, Counsel 

HOLLY A. IDELSON, Counsel 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

AMANDA WOOD, Minority Director of Governmental Affairs 

LISA M. NIEMAN, Minority Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

PATRICIA R. HOGAN, Publications Clerk and GPO Detailee 

LAURA W. KILBRIDE, Hearing Clerk 

(III) 

C O N T E N T S 

Opening statements: Page 

Senator Lieberman....................................................................... 1, 39, 67, 95, 131 

Senator Collins ................................................................................... 4, 41, 97, 133 

Senator Burris ................................................................................ 18, 52, 114, 154 

Senator Voinovich ............................................................................................. 20 

Senator Tester....................................................................................... 23, 123, 151 

Senator McCaskill .......................................................................... 26, 54, 121, 161 

Senator Coburn ............................................................................................. 64, 156 

Senator McCain........................................................................................... 111, 159 

Senator Carper............................................................................................ 118, 164 

Prepared statements: 

Senator Lieberman............................................................. 175, 224, 243, 277, 657 

Senator Collins ........................................................................... 178, 227, 280, 659 

Senator Voinovich ............................................................................................. 180 

Senator Coburn ................................................................................................. 229 

Senator Bennet ................................................................................................. 281 

WITNESSES 

Thursday, March 5, 2009 

Hon. Robert L. Nabors II, Deputy Director, Office of Management and Budget ............................................................................................................................ 5 

Gene L. Dodaro, Acting Comptroller General, U.S. Government Accountability 

Office ..................................................................................................................... 8 

Hon. Phyllis K. Fong, Inspector General, U.S. Department of Agriculture; 

Chair, Council of Inspectors General on Integrity and Efficiency ................... 11 

APPENDIX 

Dr. Allan V. Burman, President, Jefferson Solutions, Division of Jefferson 

Consulting Group, LLC, prepared statement .................................................... 217 

Responses to questions for the Record from: 

Mr. Nabors ........................................................................................................ 222 

Thursday, April 2, 2009 

Hon. Robert L. Nabors II, Deputy Director, Office of Management and Budget ............................................................................................................................ 42 

Hon. Earl E. Devaney, Chairman, Recovery Accountability and Transparency 

Board ..................................................................................................................... 45 

APPENDIX 

Responses to questions for the Record from: 

Mr. Nabors ........................................................................................................ 239 

Tuesday, April 7, 2009 

Hon. Robert L. Genuario, Secretary, Office of Policy and Management, State 

of Connecticut ....................................................................................................... 71 

John P. Yrchik, Ph.D., Executive Director, Connecticut Education Association 75 

Stephen A. Frayne, Senior Vice President, Health Policy, Connecticut Hospital Association ................................................................................................... 79 

Sharon D. Langer, Senior Policy Fellow, Connecticut Voices for Children ........ 84 

Page

IV 

APPENDIX 

Documents submitted for the Record by Senator Lieberman .............................. 246 

Elliot C. Nelson, Chairman, Bristol Democratic Town Committee, prepared 

statement .............................................................................................................. 276 

Thursday, April 23, 2009 

Gene L. Dodaro, Acting Comptroller General, U.S. Government Accountability 

Office ..................................................................................................................... 98 

Raymond C. Scheppach, Ph.D., Executive Director, National Governors Association .................................................................................................................... 101

Carolyn M. Coleman, Director, Federal Relations, National League of Cities ... 104 

APPENDIX 

Letter from Vice President Biden to Senators Lieberman and Collins, dated 

April 23, 2009 ....................................................................................................... 283 

Charts submitted for the Record by Mr. Dodaro .................................................. 326 

GAO Report to Congressional Committees, ‘‘Recovery Act, As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential,’’ GAO–09–580), April 2009 ........................... 350 

Responses to questions for the Record from: 

Mr. Dodaro ........................................................................................................ 652 

Thursday, September 10, 2009 

Hon. Robert L. Nabors II, Deputy Director, Office of Management and Budget ............................................................................................................................ 135 

Hon. Jon D. Leibowitz, Chairman, Federal Trade Commission .......................... 138 

Hon. Earl E. Devaney, Chairman, Rocovery Accountability and Transparency 

Board ..................................................................................................................... 141 

J. Christopher Mihm, Managing Director, Strategic Issues, U.S. Government 

Accountability Office ............................................................................................ 144 

APPENDIX 

Documents submitted for the Record by Senator Collins ..................................... 661 

Scott D. Hammond, Deputy Assistant Attorney General, Antitrust Division, 

U.S. Department of Justice, prepared statement .............................................. 742 

Responses to questions for the Record from: 

Mr. Nabors ........................................................................................................ 754 

Mr. Devancy ...................................................................................................... 763 

ALPHABETICAL LIST OF WITNESSES

Coleman, Carolyn M.: 

Testimony .......................................................................................................... 104 

Prepared statement with attachments ........................................................... 337 

Devaney, Hon. Earl E.: 

Testimony ...................................................................................................... 45, 141 

Prepared statements................................................................................... 235, 686 

Dodaro, Gene L.: 

Testimony .......................................................................................................... 8, 98 

Prepared statements................................................................................... 185, 286 

Fong, Hon. Phyllis K.: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 200 

Frayne, Stephen A.: 

Testimony .......................................................................................................... 79 

Prepared statement .......................................................................................... 267 

Genuario, Hon. Robert L.: 

Testimony .......................................................................................................... 71 

Prepared statement .......................................................................................... 252 

Langer, Sharon D.: 

Testimony .......................................................................................................... 84 

Prepared statement .......................................................................................... 273 

Leibowitz, Hon. Jon D.: 

Testimony .......................................................................................................... 138 

Page

V 

Leibowitz, Hon. Jon D.—Continued 

Prepared statement with attachments ........................................................... 669 

Mihm, J. Christopher: 

Testimony .......................................................................................................... 144 

Prepared statement .......................................................................................... 691 

Nabors, Hon. Robert L. II: 

Testimony .................................................................................................. 5, 42, 135 

Prepared statements........................................................................... 181, 230, 663 

Scheppach, Raymond C., Ph.D.: 

Testimony .......................................................................................................... 101 

Prepared statement .......................................................................................... 328 

Yrchik, John P., Ph.D.: 

Testimony .......................................................................................................... 75 

Prepared statement .......................................................................................... 256 

(1) 

FOLLOW THE MONEY: TRANSPARENCY AND 

ACCOUNTABILITY FOR RECOVERY 

AND REINVESTMENT SPENDING 

THURSDAY, MARCH 5, 2009 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

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

342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, 

Chairman of the Committee, presiding. 

Present: Senators Lieberman, Pryor, McCaskill, Tester, Burris, 

Collins, McCain, and Voinovich. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. Good morning, and welcome to today’s 

hearing, which we have titled ‘‘Follow the Money’’—not just ‘‘Show 

me the money,’’ but ‘‘Follow the Money: Transparency and Accountability for Recovery and Reinvestment Spending.’’ In other words, 

what are we going to do to make sure that the $787 billion—or at 

least the $501 billion that we judge will go to spending as opposed 

to tax reduction, is spent wisely? And how will the Federal Government account for all the money that will be spent over the next 2 

years as part of the American Recovery and Reinvestment Act of 

2009 (ARRA or Recovery Act)? 

It is our Committee’s responsibility under our traditional Governmental Affairs role to study ‘‘the efficiency, economy, and effectiveness of all agencies and departments of the Government.’’ We take 

this responsibility seriously, and we intend to ensure that measures are put in place to prevent cost overruns, provide strict oversight of contractor performance, and ensure that grant conditions 

are met and that fraud is promptly prosecuted in all aspects of the 

stimulus spending, which is truly unprecedented in the amount of 

money that Congress has appropriated and in the speed with which 

we have asked our government to spend it. 

I want to thank our witnesses for being here: Robert Nabors, the 

Deputy Director at the Office of Management and Budget (OMB), 

whose boss Peter Orszag has told us, will be the man whose hands 

will be on the stimulus program; Gene Dodaro, the Acting Comptroller General at the Government Accountability Office (GAO); 

and Phyllis K. Fong, Inspector General at the Department of Agriculture (USDA), but here particularly in her role as Chairman of 

2 

the Council of the Inspectors General on Integrity and Efficiency. 

That is a great title, and you have earned it. 

I thank you all for being here today. Each of you have a critical 

role to play in ensuring that these stimulus funds are spent not 

just quickly to help our economy, but effectively to protect our taxpayers. 

History can be our guide in this. It was actually 76 years ago 

yesterday that President Franklin Delano Roosevelt began his 

famed first 100 days with his first inaugural address to a Nation 

then mired in the Great Depression. Unemployment was around 25 

percent, so as bad as things are and as worried as the American 

people are about their futures, as we all are, it was a lot worse 

then. 

In his address, President Roosevelt told an anxious Nation, ‘‘Our 

greatest primary task is to put people to work. This is no 

unsolvable problem if we face it wisely and courageously. It can be 

accomplished in part by direct recruiting by the government itself, 

treating the task as we would treat the emergency of a war, but 

at the same time, through this employment, accomplishing greatly 

needed projects to stimulate and reorganize the use of our natural 

resources.’’ And that, of course, fits quite perfectly the aim that I 

think most Members of Congress who voted for the stimulus bill 

had in our minds. 

Ultimately, the New Deal put 8 million Americans back to work 

and accomplished a lot. Six hundred and fifty thousand miles of 

road were built. That was an enormous boost to commerce in our 

country. The Bonneville and Grand Coulee Dams were built that 

brought electricity into rural homes. Airports, like LaGuardia in 

New York City, were built, and they became the hubs of a new 

modern transportation infrastructure. And, of course, thousands of 

other public buildings and parks were constructed, many of which 

we still use today. 

By the end of President Roosevelt’s first term, the unemployment 

rate had been cut by more than half, and may we be blessed to see 

a similar cut at the end of President Obama’s first term. 

The American Recovery and Reinvestment Act is similarly ambitious, seeking to save or create 4 million jobs by putting Americans 

to work in traditional infrastructure projects like roads, bridges, 

and buildings, but also by laying the groundwork for a 21st Century economy with investments in clean and renewable energy, 

high-speed rail, computerized health care records, and expanded 

broadband access—an information highway across the Nation. 

History also shows that the New Deal gives us reason for some 

caution as we embark on this massive public spending stimulus 

program, because the fact is that not all the New Deal projects left 

the grand legacies like those I mentioned a moment ago. For instance, in the Nation’s capital, 100 people were hired as part of 

that stimulus program to scare pigeons. Well, I do not think we 

need that today, but others may disagree. In New York, people 

were put to work as fire hydrant decorators. The Federal Government funded a study of the production and efficiency of safety pins. 

As I say this, I miss Senator Coburn. I feel that he should be 

here. [Laughter.] 

3 

So frequent were these dubious projects that the word ‘‘boondoggle’’ was born to describe any job or program that wasted money 

and produced trivial results. In fact, so common was the use of this 

word that President Roosevelt felt obliged to rebut it. He said in 

one speech, ‘‘If we can boondoggle ourselves out of this Depression, 

that word is going to be enshrined in the hearts of the American 

people for years to come.’’ 

But that is not the way it has worked out, really, although we 

look back at the New Deal programs that got us out of the Depression with great appreciation. Today, there are still boondoggles, 

and we all know and disdain them. While we understand that our 

economy needs a real jolt urgently, we want to make sure that 

every dollar of the $500 billion that the Recovery Act targets for 

spending on projects and programs will be used to restart the economy with hopefully not a penny lost, wasted, or stolen. 

Again, we understand that speed is important, but we simply 

cannot repeat the kind of mistakes we have made in other hasty 

spending projects, such as in Iraq reconstruction or in the aftermath of Hurricane Katrina. 

I will say this, and I suppose I am patting Congress and also the 

Administration on the back: In the American Recovery Act, otherwise known as the stimulus bill, there is some very good language 

and good provisions to put us in a position to protect the taxpayers 

in the spending of this money. 

First, the legislation includes about $250 million in new funding 

for our inspectors general (IGs), who, incidentally, report to our 

Committee, to hire experienced auditors and investigators and to 

oversee stimulus spending. I would like to hear this morning about 

whatever proactive measures are being put together by the IGs to 

ensure with these new personnel that the stimulus money is spent 

properly. 

Second, the legislation, of course, creates the Recovery Accountability and Transparency Board. President Obama recently chose 

Earl Devaney, the Inspector General of the Interior Department, to 

head this board. It will also contain at least 10 other inspectors 

general from departments and agencies that have jurisdiction over 

the recovery projects. The board is meant to ensure coordinated 

and comprehensive oversight of stimulus spending and provide regular reports to Congress and the public. Mr. Devaney is just finding his way through this new responsibility, and we thought it 

would be premature to have him here this morning. But we look 

forward to having him testify before the Committee at a hearing 

quite soon. 

Third, the Recovery Act adds protection for whistleblowers who 

work for State and local governments or for private contractors 

who generally have no Federal protection against retaliation if they 

disclose waste or fraud in the spending of these stimulus funds. Of 

course, some of the most significant information we get about 

waste and fraud comes from people right in the middle of the system, and they deserve whistleblower protection at all levels. 

Fourth, a special Web site called ‘‘Recovery.gov’’ will provide 

transparency for posting information about spending on these 

projects. 

4 

We want to work closely with the Obama Administration to 

make sure we have the manpower and systems in place to do the 

job right and safeguard the public investments. Waste or fraud in 

the spending of the $500 billion of stimulus funds will only further 

erode the American people’s confidence in their government just 

when they and we need them to have that confidence most. That 

is why our Committee is giving notice with this hearing this morning that we intend to very closely and aggressively monitor spending of stimulus money ourselves and also, if I can put it this way, 

to oversee those who are given the responsibility by the law to also 

oversee the stimulus spending, including the three distinguished 

witnesses we have before us this morning. 

Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. 

Over the past year and a half, we have witnessed the collapse 

of the housing market, the unraveling of our Nation’s financial institutions, and the evaporation of trillions of dollars in the stock 

market and in people’s retirement accounts. The financial crisis 

that started on Wall Street has become a crisis on Main Street in 

every community in America. Nearly 600,000 Americans lost their 

jobs in the month of January alone, bringing the total number lost 

since the end of last summer to 2.5 million. The Nation’s unemployment rate is the highest it has been in more than 16 years. 

That is why the stimulus bill that we passed a few weeks ago 

is so critical. The economic stimulus package contains robust infrastructure spending, significant funding for State aid, tax relief for 

low- and middle-income families, and tax incentives for small businesses. It is projected to save or create an estimated 3.5 million 

jobs. 

The investments in this bill should help to turn our economy 

around, but to be successful, these stimulus funds have to be spent 

effectively and with transparency and accountability. They simply 

cannot be lost to waste, fraud, and mismanagement. As the Chairman has pointed out, if they are, not only will it retard the economic recovery, but it will further depress people’s confidence at a 

time when confidence is needed. 

If these funds are not awarded in a timely, transparent, and appropriate manner, the impact of the economic stimulus package 

will be blunted, and the results, whether for new jobs, better roads 

and schools, or other critical investments, will fall far short of our 

expectations. When there is a lack of accountability in Federal 

funds aimed at stabilizing the economy, goals are not accomplished, 

and public support evaporates. And, of course, we have only to look 

at the spending of the Targeted Asset Relief Program (TARP) 

money to see a cautionary tale. 

To avoid the tremendous oversight flaws of the TARP and help 

to prevent similar abuse in the allocation of stimulus funds, Congress included strong safeguards in the bill. These protections will 

help to ensure aggressive oversight, enhance transparency, and accountability for taxpayer dollars. The law includes millions of dollars in additional funding for the agency inspectors general and the 

5 

1The prepared statement of Mr. Nabors appears in the Appendix on page 181. 

GAO, and creates a new Recovery Act Accountability and Transparency Board to coordinate these activities. 

I believe one of the most important safeguards is the creation of 

a new Web site, Recovery.gov, which will allow the public to access 

information on how the stimulus money is being spent. From my 

perspective, the more eyes looking at this spending, the better. 

Ensuring that the funds are spent properly also requires an efficient and effective acquisition workforce to develop and monitor the 

stimulus contracts. Federal contract purchases now exceed $532 

billion a year, yet the Federal Government entered the 21st Century with 22 percent fewer Federal civilian acquisition personnel 

than it had at the start of the 1990s. So what we are going to have 

is the challenge of a downsized, shrinking acquisition workforce, 

which is already overwhelmed, coping with an influx of billions of 

additional dollars. That is an issue I am going to be raising with 

our witnesses today. 

As one of the witnesses who submitted testimony for the record— 

Allan Burman, a former head of the Office of Federal Procurement 

Policy—has pointed out, this problem also extends to State and 

local levels. There is a real question of whether State and local governments are prepared to effectively handle this influx of money 

and to ensure that competitive processes are followed. 

We have learned painful lessons from the Iraq reconstruction 

and Hurricane Katrina-related contracts that a lack of planning 

can produce egregious examples of waste and open the door to outright fraud. 

Today’s hearing will allow us to examine the Administration’s 

plans to safeguard the taxpayers’ interests in the economic stimulus plan’s effectiveness and efficiency. Our government has an obligation to make sure that these funds are spent wisely to get people back to work, to relieve hardship, and to turn our economy 

around. America’s families, struggling with the economic downturn, 

deserve no less. Right now I believe that they are hopeful, but they 

are also skeptical, of whether we can spend this much needed 

money wisely. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks, Senator Collins. I agree with you 

on both counts, that the American people, including my constituents that I’ve talked to at home, really were pleased that we passed 

the stimulus program. They know they need it. But they are worried about whether we are going to spend it effectively. And that 

is why I am so glad the three of you are here. 

Robert L. Nabors, Deputy Director, Office of Management and 

Budget, welcome, and we look forward to your testimony now. 

TESTIMONY OF HON. ROBERT L. NABORS II,1 DEPUTY 

DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

Mr. NABORS. Thank you, sir. Chairman Lieberman, Ranking 

Member Collins, distinguished Members of the Committee, thank 

you very much for inviting me to testify. 

We are in a deep recession, which threatens to be more severe 

than any depression since the Great Depression. More than 3.5 

6 

million jobs have been lost over the past 13 months, more than at 

any time since World War II. And the gross domestic product 

(GDP) declined at an annual rate of 6.2 percent in the fourth quarter of last year—the highest rate in over 25 years. Each community 

and sector of our economy has been affected, and that is why the 

President signed the Recovery Act, which is intended to provide relief to millions of struggling families, jump-start our economy, create or save more than 3.5 million jobs over the next 2 years, and 

steer our Nation out of this economic circumstance that we find 

ourselves in. 

Passing the Act was an important step towards immediate recovery and the restoration of long-term fiscal stability. But for the Recovery Act to be effective, funds need to be spent both wisely and 

quickly. Allow me to say a few words about the work we are doing 

to accomplish both of these objectives. 

First, for the Recovery Act to have the desired effect, funds must 

reach recipients quickly. Since the Act was signed, the Administration has been working quickly to channel funding into our struggling economy. Already, more than $15 billion of Medicaid grant 

awards have been allocated, covering the first two quarters of fiscal 

year 2009. In addition, $10 billion has been allocated to create 

green jobs, revive housing markets with high rates of foreclosure, 

and curb homelessness. New funds for unemployment insurance 

and food stamps, grants to hire more police officers and for workforce development, block grants to States and localities, dam and 

levee funding, and formula funding for highways and other transit 

construction have been allocated or will be this month. We are 

doing our part to expedite this process by working to make our application processes and guidance as clear as possible so that funds 

reach the hands of those who need them, as quickly as possible. 

But we need the help of our State and local partners to ensure that 

Recovery Act funding makes its way into the economy. States cannot let Recovery Act funds sit in ‘‘rainy day’’ accounts, and Recovery Act funds should not be used to reimburse programs for previous expenses. 

Second, it is essential that funds be spent wisely at all levels of 

government and in a way that maintains the confidence of the public. The President understands the magnitude of the government’s 

responsibility in managing the taxpayers’ dollars. This is precisely 

why the Recovery Act was designed to ensure unprecedented levels 

of transparency and accountability, and why the Administration 

has moved swiftly to implement both the leadership and internal 

processes necessary to oversee this massive effort. 

In terms of leadership, the President designated Vice President 

Joseph Biden as the Administration’s point person to coordinate 

the Federal response on the Recovery Act. He has also named Earl 

Devaney, the Inspector General of the Department of the Interior, 

as the head of the recovery oversight board. 

On process, the day the Recovery Act was signed, the Administration launched Recovery.gov, a Web site that will empower citizens to hold the government accountable by reporting where recovery dollars are going and how the money is going to be spent. The 

response has been dramatic. Recovery.gov received 3,000 hits per 

second the moment it was launched, and it has received over 150 

7 

million hits since February 17, 2009. As funds make their way to 

projects, we anticipate that the Web site will be a valuable resource 

for tracking their use. 

In this very early phase of Recovery Act implementation, we are 

focusing on ensuring that Federal agencies tasked with managing 

recovery money are executing their mandates well. OMB has transmitted detailed guidance to all of the agencies on how to manage 

Recovery Act dollars in a way that will promote transparency and 

efficiency. The guidance calls on agencies to go beyond standard operating procedures and to recognize the unusual nature of recovery 

funds. Agencies are required to ensure that recovery money is distinguished from other funding in their financial systems, grant and 

contract writing systems, and reporting systems. For example, 

within their financial systems, agencies are generally required to 

set up unique treasury appropriation fund symbols for all Recovery 

Act funding. 

We have emphasized the extraordinary responsibility that falls 

on all government workers to prove to the American people that we 

are spending their dollars well. To inform citizens how, when, and 

where recovery dollars are being spent, the guidance presents new, 

tight reporting deadlines. This week, agencies began submitting 

weekly reports that provide a breakdown of funding, noteworthy 

actions to date, and major planned activities. By no later than May 

1, 2009, we have asked that they submit both an ‘‘Agency Recovery 

Plan’’ and a separate ‘‘Recovery Program Plan’’ for each program 

named in the Act. 

Within OMB, we closely monitor milestones, obstacles, and other 

significant issues pertaining to the implementation of agency recovery plans on a daily basis, as well as the use of specific funds. We 

are working to ensure that matters of significance are appropriately brought to the attention of senior Administration officials 

in a timely fashion so that they can be resolved before problems 

arise. 

However, the Administration cannot achieve the goals of unprecedented transparency and accountability without help from Congress, State, and local governments. All levels of government share 

responsibly for rooting out error and waste and ensuring that only 

the most worthy projects receive precious recovery dollars. These 

projects should meet high standards of economic value and equally 

high standards when judged by the public for fairness and impartiality. 

No one should doubt the importance of the Recovery Act in creating jobs, restoring public confidence in our economy, and putting 

our Nation back on track. Nor should anyone doubt the importance 

of implementing this Act as efficiently, transparently, and effectively as possible. 

Our success going forward with implementation of the Recovery 

Act is in large part going to be determined by the tens of thousands 

of Federal, State, and local officials who will be monitoring this 

funding on a daily basis. In my work at OMB, I have been very 

fortunate to have a team of very competent career employees who 

have been meeting with me on an almost daily basis, and I would 

like to take this opportunity just to recognize their hard work so 

far. There are four of them here with me today: Danny Werfel, 

8 

1The prepared statement of Mr. Dodaro appears in the Appendix on page 185. 

David Bortnick, Leslie Field, and Dustin Brown. These four individuals, plus the other individuals back at OMB, should be a model 

across the Federal Government and across all levels of government 

in terms of the amount of dedication that they have shown in 

terms of making sure that this money is spent wisely. 

Thank you very much. 

Chairman LIEBERMAN. Thanks, Mr. Nabors, and we join you in 

thanking the people behind you who have helped to put us where 

we are. 

Before we go to Mr. Dodaro, that is a stunning number for hits 

on the Recovery.gov Web site. That was 150 million. 

Mr. NABORS. Yes, sir. 

Chairman LIEBERMAN. And that’s in basically 21⁄2 weeks—less, 

actually, since the bill was signed. 

Mr. NABORS. Yes, sir. 

Chairman LIEBERMAN. Do you have any analysis of what people 

are looking at? Do you have any sense of who they are? 

Mr. NABORS. We are in the process of doing that type of evaluation, but from what we can tell, at least initially, these are people 

across the country who just want to see how their money is being 

spent. 

Chairman LIEBERMAN. Yes. That is actually thrilling. Or maybe 

it is intimidating for those who are going to oversee the spending. 

[Laughter.] 

Anyway, that is great to hear. 

Gene Dodaro is the Acting Comptroller General, U.S. Government Accountability Office. Thanks for being back here. 

TESTIMONY OF GENE L. DODARO,1 ACTING COMPTROLLER 

GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. DODARO. Thank you very much, Mr. Chairman, Senator Collins, Members of the Committee. I am very pleased to be here 

today to assist you in your oversight of the American Recovery and 

Reinvestment Act by explaining GAO’s plans to meet our responsibilities under the legislation, and also to discuss how we are coordinating with the rest of the oversight entities that are charged 

with various responsibilities. 

The Act gives GAO a range of responsibilities and tasks. They 

include recurring responsibilities to report and do reviews on a bimonthly basis on the use of the funds by selected States and localities across the country. We also are charged with reviewing recipient reports, which are required to be filed on a quarterly basis, 

with particular attention to their reporting of the number of jobs 

preserved or created. 

We also are asked to look at a number of targeted areas: Education incentive grants in particular; the expansion of trade adjustment assistance that is provided; and also efforts by the Small 

Business Administration to increase lending to small businesses 

and increase the liquidity in the secondary market for those loans. 

And we are also tasked with some long-range studies. One includes 

looking at the impact of downturns on States over the past few decades and trying to develop recommendations going forward for how 

9 

the Federal Government can assist States, particularly in the 

health area, in the Medicaid program, in future economic downturns. 

One of the large-scale responsibilities we have is to implement 

this bi-monthly review of selected States and localities, and we are 

moving forward in doing that. We have selected 16 States based on 

expected amounts of money flowing to the States and localities: 

Population figures, poverty figures, and unemployment rate projections. We are going to track these 16 States, the District of Columbia, and localities over the next 2 to 3 years to have a longitudinal 

study and analysis of how they have used the money and what the 

impact has been in achieving the purposes of the Act in these 

States and localities. These States are expected to receive over twothirds of the Recovery Act spending, so we believe this will be a 

really good study and present a national picture. 

Now, we are also going to be reviewing the recipient reports filed 

by all 50 States so that we have information on them, so we will 

be tracking the activity there. We also will have our Forensic and 

Special Investigations Unit, which has testified before this Committee several times, do a risk assessment of some of the programs 

and areas where we would want to do targeted reviews. So just because we will not be in the other 34 States does not mean that we 

will not do some reviews in targeted areas in those States going 

forward. 

We are in the process of selecting the localities within those jurisdictions going forward, and we will apprise the Committee of the 

localities that we are selecting within those 16 States. 

Now, because a lot of the Federal money will be flowing from the 

Federal departments and agencies that are under the purview of 

the inspectors general, who are also going to the States and localities, it is important for us to coordinate our activities with the inspectors general. Soon after the Act was passed, I contacted Ms. 

Fong, and she and I co-hosted a meeting that involved IGs or their 

representatives from 17 departments and agencies to begin coordinating our activities. In addition, GAO teams are meeting with 

each individual inspector general’s office to coordinate our activities 

as they relate to the States and localities going forward. 

I have also talked to Mr. Devaney, and I made sure that he understood that we were committed to coordinate with him as he gets 

the Recovery Board up and running. That will be an important coordination step for us as well. 

Similarly, we are doing outreach to the State audit and local 

audit communities. Through the National Association of State 

Auditors, Treasurers, and Comptrollers, we arranged a conference 

call that included representatives from 46 State offices, either the 

State auditors or their representatives, and we had a similar conference call with local auditors across the country. When we first 

enter the States and localities, we will be working with these State 

and local auditors because they understand their localities, and we 

will be coordinating with them, as well as through the governors’ 

and mayors’ offices and their designated representatives. 

We also have begun coordination efforts with OMB. Soon after 

the Act was passed, a number of State officials wrote to Director 

Peter Orszag and myself about establishing a working group to 

10 

work on some of the reporting requirements that were in the law. 

I talked to Mr. Orszag, and we have begun working with the States 

and localities on that. 

Now, there is one other issue we have brought to OMB’s attention and Treasury’s attention. As you mentioned, Mr. Chairman, 

while there is about $500 billion on the expenditure side, there are 

also a number of tax provisions that eventually people will want 

to know whether or not they achieve their objectives. For example, 

there are recovery bonds. As well as special provisions for depreciation and for creating jobs during this period of time. 

Our experience has been at GAO, unless the Internal Revenue 

Service (IRS) makes a determination up front to collect specific information about the reporting of these tax credits and tax provisions, it will be impossible to determine their effect. OMB and 

Treasury have responded well to this outreach by GAO, and we are 

going to be working with them. They are beginning to think about 

what information should be collected on the tax provisions so that 

the provisions can be properly evaluated as to whether they 

achieved their objectives. I think this is very important so that at 

the end of the period, we will be able to have a comprehensive 

analysis of the entire Recovery and Reinvestment Act and whether 

it achieved its purposes. 

Also, this early attention up front is really the governing principle and will provide lessons learned about how to prevent fraud, 

waste, abuse, and mismanagement in these programs. I have listed 

in our testimony some of the lessons learned documents that GAO 

has produced in the fraud area: Contract management and competition are essential here; having qualified people, as has been 

pointed out, is also essential, and I would be happy to talk about 

that more; and grant management going forward. There are a lot 

of best practices that are available to the Federal departments and 

agencies, and I included them in my statement so that they are 

available at the State and local level as well. We will be meeting 

with those officials when we enter the States going forward. 

So, in summary, I think it is important to have this early outreach. I am pleased to see some of the discussion in the OMB guidance so far. The inspectors general are also outreaching to State 

and local officials, I think. I am encouraged by that as well. We are 

going to be doing the same thing at the State and local levels when 

we enter the 16 States and the District of Columbia going forward. 

In closing, I would just say that GAO welcomes the opportunity 

to help the Congress ensure adequate oversight over this funding. 

We are committed to meeting our responsibilities on time and in 

a professional, thorough manner. 

Thank you for the opportunity to be here today, and I would be 

happy to answer questions at the appropriate time. Thank you. 

Chairman LIEBERMAN. Thank you, Mr. Dodaro. I find your opening statement to be impressive and encouraging. You have done a 

lot in a short period of time. You have been proactive, and I appreciate that you are coordinating with the other agencies involved 

here, both the inspectors general and OMB particularly. I will have 

questions for you afterward, but thanks for your testimony. 

11 

1The prepared statement of Ms. Fong appears in the Appendix on page 200. 

Phyllis Fong, as I said at the outset, is the IG at the Department 

of Agriculture and Chairman of the Council of IGs. Thank you so 

much for being here this morning. 

TESTIMONY OF HON. PHYLLIS K. FONG,1 INSPECTOR GENERAL, U.S. DEPARTMENT OF AGRICULTURE; CHAIR, COUNCIL OF INSPECTORS GENERAL ON INTEGRITY AND EFFICIENCY 

Ms. FONG. Thank you, Mr. Chairman, Senator Collins, and distinguished Members of this Committee. I am very pleased to be 

here today to talk about the activities of the IG community. 

I just want to start out by thanking you and the Members of 

your Committee and staff for the opportunity to work with you all 

as the Recovery Act was making its way through Congress. There 

were a number of provisions that directly affect the IGs, and you 

have been very helpful in terms of addressing our concerns at an 

early stage. I want to express our appreciation for all of that. 

Chairman LIEBERMAN. You are quite welcome. 

Ms. FONG. This morning I want to talk briefly about how the Recovery Act impacts IGs and our responsibilities under the Act and 

how we are approaching our new responsibilities in a very concrete 

way. 

First off, the Recovery Act gives IGs responsibilities in three 

areas. We have increased responsibilities for overseeing stimulus 

expenditures within our agencies. We are now participating on the 

oversight board, as has been mentioned. And we also have a new 

responsibility regarding investigations of whistleblower complaints. 

With respect to the first area, oversight of agency stimulus programs, we in the community are giving a high priority to this activity. We understand the funds need to be moved out very quickly 

to address the problems in the economy. We also understand that 

when funds move out quickly, there is a risk of internal controls 

not being as strong as they could be. And we understand the need 

to be proactive. 

I want to assure all of you that my colleagues in the community 

are very aware of the need to be proactive and that all of us are 

engaged in activities right now to do that. We are also working 

very closely with GAO and OMB, as has been mentioned by my distinguished colleagues here at the table. 

With respect to the oversight board, there were concerns that 

have been expressed as to whether or not the independence of IGs 

will be impacted by the creation of this new Recovery Board. I 

think early on in the process, those concerns were articulated very 

publicly and in a very articulate way. And we in the community 

were also concerned initially. But I will say that I appreciate the 

Committee’s help in addressing our concerns, and at this time we 

do not believe that our independence will be adversely impacted for 

a number of reasons. 

We note that the board’s members are now all IGs, and so we 

would bring to that board our unique perspective and our sensitivity to the need for independence. 

12 

We also note that the chairman is Mr. Devaney, who is a longstanding IG, well regarded in the community, and we know that 

we can work with him. 

And last, but perhaps most important of all, the Act itself provides that the IGs will have the final say as to whether or not we 

initiate audits or investigations or stop audits or investigations. 

And so I anticipate that we will be able to forge a very productive 

working relationship with the board as we move forward, and that 

we should be able to address any issues that come up. 

With respect to whistleblower complaints—you raised that as a 

new area of responsibility for us—we are very mindful of the fact 

that whistleblowers deserve protection and are certainly a wonderful source of information for all of us. The Recovery Act gives us, 

as IGs, some new responsibilities to investigate complaints of reprisal from whistleblowers who are employees of State and local 

government or non-Federal employers, recipients of stimulus 

money. This is clearly a new responsibility for us. It is a little early 

to tell what kinds of issues will arise in terms of our taking on this 

responsibility. But we are gearing up to do it. We all understand 

what we need to do, and we will keep the Committee apprised of 

our progress on this. 

Turning to activities that we as IGs have started to undertake 

to address our responsibilities now, as you mentioned, Mr. Chairman, last fall you passed legislation creating the Council of IGs. 

We are now up and running. We are an organization of 67 Federal 

IGs and other senior members of the Administration. One of our 

main missions is to ensure coordinated approaches to issues that 

have governmentwide impact. Stimulus oversight would certainly 

be one of them. 

When the Recovery Act was enacted, the Council of IGs decided 

that we needed to start taking some proactive measures to plan for 

our oversight activities. And so we put together a working group 

of the 23 IGs who are receiving dedicated stimulus oversight 

money, and we have started to share among ourselves best practices for moving forward. We have held some meetings. We have 

met with GAO. We have talked with Mr. Devaney. And we have 

started to move out. I want to just highlight for you some of the 

concrete measures that we are taking now in the community to address funding before the money moves out. 

Let me just say that we surveyed the community, and of the 22 

IGs who responded, all of them are engaged in proactive measures. 

These measures range from participating in our agency steering 

groups and work groups; to identifying unimplemented audit recommendations pertaining to programs that are getting stimulus 

money and working with our agencies to get those audit recommendations implemented now; to conducting pre-award audits of 

recipients; and also conducting real-time audits of systems with our 

agencies; to reviewing agency spending plans for internal controls; 

to conducting fraud awareness briefings of our departments’ employees to make sure that they are aware of red flags that could 

occur; and to sharing best practices information both among the 

community members as well as with our departments and agencies. 

13 

There are many best practices that we are providing our agency 

program officials with and saying, look, when you issue grants, 

these are things that you should be doing right up front. 

Probably the key theme that is coming out of the community at 

this point in terms of proactive work is that there is an essential 

need for good communication and collaboration with agency program officials. That, in many ways, is really the key to making 

sure that all of these things get implemented in an effective way. 

We also are as a community implementing a number of longerterm measures to provide oversight to stimulus spending, and as 

you might expect, those would cover a wide range of activities, including sampling of recipients who are receiving funds to make 

sure that the programs are really operating the way they should 

be; looking at databases, data analysis; verifying agency data as it 

is reported to Recovery.gov; handling investigations of fraud; and 

dealing with whistleblower complaints—all of the risk-based kinds 

of activities that IGs traditionally do. 

The main theme there, of course, is that we as IGs will be looking in our departments to determine which programs are at the 

most risk or are most vulnerable depending on the money flow and 

other internal control issues, and then directing our resources to 

those issues as a priority matter. 

Finally, all of my colleagues have indicated that they anticipate 

challenges in terms of how we meet our oversight responsibilities, 

and these challenges can range from the very basic challenge of 

hiring up and recruiting quickly—with our new stimulus oversight 

funds, we need to recruit more people; that takes some time and 

effort—to balancing our normal oversight work with other mandated work, and addressing our stimulus responsibilities in a way 

that we can handle all of the things that we need to do, and do 

them responsibly. 

We also anticipate some issues with respect to data matching. 

There may be ways to facilitate that process so that we can really 

identify fraud across agency lines. And I think that is an area for 

real exploration with the Congress as we move forward. 

So in closing I want to say that we are here to do our part. We 

recognize the need to move out quickly. We are moving out quickly. 

We look forward to working with you as you identify issues for us 

to look at. 

Thank you very much. 

Chairman LIEBERMAN. Thank you, Ms. Fong. Another encouraging report. 

We will do 7-minute rounds of questioning. Let me pick up on 

the end of your testimony because the stimulus bill does give $250 

million in additional funding for inspectors and auditors by the 

IGs. Do you have any sense of how many people that you need to 

hire or will want to hire pursuant to that appropriation? 

Ms. FONG. Well, the appropriation funds are made to each of the 

23 IGs, and they vary in amount. I will say some IGs are getting 

at the low end of the spectrum perhaps $1 million or $2 million. 

Chairman LIEBERMAN. Which is for the 2 years. 

Ms. FONG. Exactly, for a short period. 

Chairman LIEBERMAN. Right. 

14 

Ms. FONG. And then at the higher end, there are some of us who 

are getting $22 million or $42 million. 

I can speak for myself. At USDA, we are getting about $22 million. We are looking to hire between 20 and 30 auditors and 10 and 

20 investigators. We need some human resource assistance as well 

in order to staff up and to track our money. And we have already 

started our recruitment process. It does take some time and effort 

to do that. 

Chairman LIEBERMAN. Yes. So you are beginning basically with 

the personnel that you have. 

Ms. FONG. Exactly right. And so what we find that we are doing 

is reallocating our audit and investigative resources, taking them 

off of work that is of lower priority and putting them on our stimulus work. 

Chairman LIEBERMAN. Right. Mr. Dodaro, GAO received $25 million, how are you going to use that money? 

Mr. DODARO. We plan to hire up to about a hundred people. Now, 

the strategy that we have taken here is that we have a lot of 

former GAO people who have left the workforce, for example, to 

raise a family. So we have reached out to a lot of people who have 

left as well as retired GAO employees. We have already identified 

65 people who are interested in returning to GAO. Some of them 

we have actually brought back. 

The advantage of this is the money that we have is only available until September 2010, so that you do not want to hire a large 

permanent number of people. 

Chairman LIEBERMAN. Right. 

Mr. DODARO. So we plan to fill about half, if not a little bit more 

of that, with people who have left GAO—and the other advantage 

is these are people that have already been trained by GAO. They 

can hit the ground running once we bring them back. This is also 

something the acquisition community ought to be thinking about 

doing to help themselves meet this need. But we are doing that, 

and we also have advertisements out that we have posted for additional help. 

Chairman LIEBERMAN. Good. 

Mr. DODARO. In the meantime, we are reallocating experienced 

people to get this up and running. It is important when we go into 

the States to have experienced people there. 

Chairman LIEBERMAN. That is a great idea, a great way to do it. 

Mr. Nabors, let me talk a little bit about the pace of getting this 

money out there because obviously the speed of it is very important. We are trying to fill, as the President has said over and over 

again, this gap in demand that economists say may be $1 trillion 

a year for the next couple of years that is not coming from the private sector. 

What are our goals at this point? Let me start with this baseline 

question. As I recall in the debate here, in the Senate stimulus bill 

we raised the percentage of money that would be spent in the first 

2 years, understanding that in nobody’s vision of this could we 

spend it all within the 2 years. And as I recall, we were close to 

about 80 percent in the first 2 years of the full stimulus money 

that would be spent. 

15 

Mr. NABORS. As I remember it, the Congressional Budget Office 

(CBO) estimated that the House bill would spend approximately 60 

to 65 percent of the funds within the first 18 months. 

Chairman LIEBERMAN. That is right. 

Mr. NABORS. And that the Senate bill would spend somewhere 

between 75 and 80 percent of those funds within the first 18 

months. 

Chairman LIEBERMAN. Right. That was my recollection, too. So 

what are your goals from OMB about how much of this money you 

hope to have out in the economy—and we are talking about the 

spending side; I am going to get to the taxes in a minute—in the 

first year? 

Mr. NABORS. I do not know that we actually have a particular 

goal in mind for a dollar amount that would go out in the first 

year. I think that what we are focused on, especially right now, is 

making sure that we have a planning process in place so that we 

are not just throwing money out the door, that we are taking the 

money that Congress has given us, and we are putting it into those 

areas that have the highest bang for the buck. And what you will 

see, especially in the next couple of months, are pretty significant 

and expedited planning processes within each of the agencies to lay 

the groundwork so that going into the future we have a baseline 

by which we can determine how money should be spent, and so 

that we can expedite that money going into the future. 

Chairman LIEBERMAN. Am I correct that on the Recovery.gov 

Web site you are going to be regularly reporting how much money 

you have spent of this bill? 

Mr. NABORS. Yes, sir. We will be reporting not just the allocation 

of the funding, but the spending of the funding as it actually goes 

out. 

Chairman LIEBERMAN. We are going to obviously keep in touch 

on this, but I would be interested, as you go on, to know what your 

goals are for how much of the money you hope to get out in the 

first year. 

Let me ask about the tax cuts now, the ‘‘Make Work Pay’’ tax 

cuts, the reduction of the payroll tax. How soon will taxpayers see 

that so that they will have a little more money which we hope they 

will spend? 

Mr. NABORS. I would want to defer to the Treasury Department, 

but I believe that they are planning to make that available on an 

expedited basis. 

Chairman LIEBERMAN. OK. Let me go to a different part of this. 

This goes to fraud. I have two questions. 

US–CERT, which is the U.S. Computer Emergency Readiness 

Team in the Department of Homeland Security, over which we 

have oversight responsibility, recently reported that it received a 

bogus e-mail from scammers offering economic stimulus payments 

in an attempt to steal personal information from those who respond. I wonder if you had heard about that and what you think 

can be done to warn the public about fraud related to the stimulus 

package. 

Mr. NABORS. I have not heard about that. That causes me great 

concern, and I would want to go back and talk to—we have a daily 

conversation with each of the Cabinet agencies, and I think that 

16 

this is the type of thing that we bring up to make sure that we 

have a common way of addressing these types of problems. Obviously, this needs to be dealt with quickly and forcefully to ensure 

that private information is not stolen. 

Chairman LIEBERMAN. Let me ask a final question, because my 

time is running out, and I will come back on fraud. 

The President asked the Vice President to oversee this, so what 

is the organization chart? Because we have a lot of people involved. 

We have OMB, we have GAO, we have the IGs, we have the new 

Recovery Board with Mr. Devaney. Does the reporting all go up to 

the Vice President? 

Mr. NABORS. Well, the way I would view this is that I think it 

is important that the recovery oversight board and the IGs continue to be thought of as independent. I do not believe that they 

are actually reporting to the Vice President. They are reporting to 

the Congress; they are reporting to the American people; they are 

reporting to the Secretaries. And they are continuing to play the 

oversight role that Congress has identified for them. 

Within the Executive Branch, in terms of the management of the 

activities and programs, we thought it was important that, to the 

maximum extent possible, we were coordinated, that agencies were 

using best practices, that agencies were sharing information about 

things like contract practices and hiring practices. And the center 

point for that is the Vice President. The Vice President is the one 

that calls us all together. 

In terms of OMB’s role, OMB will continue to play the role that 

it has traditionally played in both the management and budgetary 

functions. 

Chairman LIEBERMAN. And you have special responsibility there 

for OMB, as I understand. 

Mr. NABORS. Well, the President has asked each agency to designate a single point of contact to ensure that there is clear 

accountability within each agency. Within OMB, I have been designated as the point of contact. 

Chairman LIEBERMAN. All right. That is very helpful. So the Vice 

President and OMB are basically overseeing the implementation of 

the stimulus, carrying out of the stimulus act, and the IGs and 

GAO with the board are doing independent oversight to make sure 

that the money is being spent efficiently and without fraud. 

Mr. NABORS. And in a perfect world, the two pieces are not 

stovepiped. 

Chairman LIEBERMAN. Right. 

Mr. NABORS. From our perspective, trying to weed out waste, 

fraud, and abuse before it actually occurs is incredibly important. 

It is great to catch the bad guys later, but ensuring that the bad 

guys do not get the money in the first place is incredibly important, 

and that is why we have had the initial conversations with GAO, 

Mr. Devaney, and the IGs ahead of time. 

Chairman LIEBERMAN. Good. Mr. Dodaro, I know you want to 

say something, but I have a lot of Committee Members here, and 

I am over my time limit. So I am going to yield to Senator Collins. 

Senator COLLINS. Thank you. 

Mr. Nabors, following up on the statement that you have just 

made, there is a tension between spending the stimulus money 

17 

quickly and ensuring that safeguards to protect against fraud and 

waste are not suspended. When the government has attempted to 

distribute funds quickly in the past, we have seen corners cut and 

protections suspended that have led to widespread fraud. The best 

example which this Committee uncovered was almost $1 billion in 

improper and in some cases fraudulent payments that were made 

to applicants for assistance in the wake of Hurricane Katrina. 

What is OMB doing to ensure that proper controls remain in 

place despite the need to disburse the stimulus money quickly? 

What we found in the wake of Hurricane Katrina is that the Federal Emergency Management Agency (FEMA), in an attempt to get 

the money out to the victims of the storm quickly, suspended all 

of the internal controls that would have caught applicants that had 

applied twice, that did not qualify for funding, and in some cases 

did not live at the addresses that they claimed. That led to literally 

$1 billion in improper payments. How are you going to prevent that 

this time? 

Mr. NABORS. Well, I think that there are three things that we 

are focused on doing. The first, OMB sent out very detailed guidance to the agencies, almost 60 pages worth of guidance, and rather than suspending the normal controls, we actually used the opportunity of sending out the guidance to remind people of the controls that are in place and to remind them of the fact that those 

controls are in place for a reason—to protect the taxpayers. So as 

we put out more and more guidance those are the types of things 

that you will see. Rather than suspending the controls, we are actually reminding people not to suspend the controls. 

The second thing is transparency. Both through Recovery.gov 

and through reporting mechanisms to Congress and to others, we 

are ensuring unprecedented transparency from the very beginning 

of the recovery efforts to make sure that we are not in the position 

3 months from now where we are asking questions about where the 

money went. 

The third thing that we are doing is we are putting in place very 

strong planning and reporting processes where the agencies are not 

just being asked to put out money, but we are asking them to stop 

for just a brief period of time and think about what are the most 

effective actions that they could take. And in some instances, those 

plans will be submitted to the Congress for consultation. In other 

areas, we will be having informal consultations with the Congress. 

But I think the more people who can be involved in the types of 

conversations that we need to have about how the money is going 

out and where the money is going out, that will help. 

And I think the final thing that I would point to is accountability. By putting this information on its web page, on Recovery.gov, by identifying a single point in each agency, we are essentially saying—and I am speaking for myself as one of those people—I am responsible for the actions that OMB take. And when 

Congress has a problem, when the American people have a problem 

with actions that have been taken, I am the one that is going to 

be accountable for that. And I think that combination of activities 

will help to get at the issues that you have raised. 

Senator COLLINS. Thank you. 

18 

Mr. Dodaro, the large omnibus appropriations bill that is now before the Senate contains substantial funding increases for many of 

the same agencies and programs that already are receiving huge 

funding increases in the stimulus bill. I think it is extremely unfortunate that the omnibus bill has not been revised to take into account the recently appropriated funds in the stimulus bill. That is 

particularly true for agencies such as the National Endowment for 

the Arts, the Census, AmeriCorps, and the Department of Agriculture computer upgrades. 

Does GAO have concerns that this additional funding, which may 

well be duplicative and may exceed the entire budget of the agency 

the year before, will increase the difficulty of ensuring that the 

funds are spent carefully and well? 

Mr. DODARO. We have not been asked to address that issue, so 

we really have not done the type of analysis to make the comparisons that you cite, Senator Collins. So I am really not in a position 

to comment on the omnibus as it relates to your questions—we 

have been focused on the Recovery Act. 

But I would say that to the extent to which there can be some 

flexibilities built into the money that would be beneficial—most of 

that money is to complete the funding for this fiscal year that we 

are currently in. The continuing resolution expires March 6, 2009, 

and I know that because GAO is one of the entities under the continuing resolution. But I would say—and this relates to the Recovery Act as well as the omnibus—that I think there ought to be 

some flexibility to maybe shift some of the time frames for when 

the money is spent to allow for the type of examination that you 

are talking about, even if we are talking about some of the balancing between spending quickly and spending wisely. And I think 

there are some provisions in the bill that if States do not spend 

money, certain money like in the transportation area, within 120 

days, that money gets reallocated to other States. 

So I think this is something that needs to be monitored carefully, 

and there ought to be some flexibility built in to make sure that 

when those two choices are there, ‘‘wisely’’ is equal weight to 

‘‘quickly.’’ 

Senator COLLINS. Thank you. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks, Senator Collins. 

We will now go to Members of the Committee. I appreciate the 

attendance. We do so, as is our custom, in order of appearance. For 

the information of the Members, the list I have is Senators Burris, 

Voinovich, Tester, McCain, and McCaskill. 

Senator Burris. 

OPENING STATEMENT OF SENATOR BURRIS 

Senator BURRIS. Thank you, Mr. Chairman, and I would like to 

thank the panel. 

Because, as you know, I am an old State auditor, State comptroller, and a member of the National Association of State Auditors, Comptrollers, and Treasurers (NASACT). I am glad to see 

that you are involving the NASACT in that, Mr. Dodaro. That is 

a great organization for dealing with what we can do on the State 

level. 

19 

But, every day I receive calls in my office from constituents 

wanting more information on the Recovery Act and how those dollars are going to be spent. And after reading your testimony last 

night, I have a better idea how it will be disbursed and also great 

confidence in the transparency, accountability, and the oversight 

provisions. OMB, GAO, and the IGs, such as Ms. Fong, you set the 

bar very high. I just hope and pray that we will be able to execute 

on that bar that we have set. 

I wonder if you, Mr. Nabors, could just give me a walk-through 

example. If you send to our Department of Transportation (DOT) 

in the State of Illinois, let us say, $2 billion for construction or for 

highway programs, I know how the money flows in the regular program. What is different now with the Recovery Act funds that are 

going to come in as opposed to the other funds that will be coming 

in for our highway construction, for example? 

Mr. NABORS. Well, I will answer that in two ways. In one way, 

there is not a lot that is different. It is coming through the same 

programs to the same people. In a separate way, though, there has 

been a higher level of scrutiny that has been placed on Recovery 

Act funds than had been placed on normally appropriated funds. 

Within the Executive Branch, we have created separate Treasury 

accounts for Recovery Act money to better allow us to track how 

that specific amount of money is being followed. And I think that 

in terms of the types of conversations that you will hear from the 

President and from other members of the Administration, I think 

that you should expect to hear a greater desire about how those 

funds are going to be spent. 

Normally, the transportation money, for example, goes to the 

States, and the States have a great deal of flexibility as to how 

they spend that money. I think that you will hear the Administration talking about not just getting the money out but recommendations and suggestions on how that money can be most effectively 

spent. 

Senator BURRIS. Now, will there be some type of extra sign-off 

on these particular funds in any way? Or would that procedure still 

be the same? 

Mr. NABORS. There are special reporting procedures and certification procedures that are set out in the Act, which we are working 

with the governors and the State and local officials to clarify. But, 

yes, there are special sign-off procedures related to making that 

money available. 

Senator BURRIS. Perhaps Ms. Fong or Mr. Dodaro can answer 

this question, but will we be able to track that once those sign-offs 

are done? Will there be any up-front assessments in the State 

agencies or the cities or the municipalities where these funds will 

end up? Let us say it is a water project that is under the Recovery 

Act. Will there be any advance looking at that project by any of our 

governmental agencies, or will that all be certified by the local, 

State, or municipality that received those funds? 

Mr. DODARO. For the States and localities that we will be visiting, Senator Burris, we will be looking at that process that they 

use to make those decisions. Now, it would be inappropriate for us 

to insert ourselves as independent auditors before the management 

makes the decisions. But once those decisions are made that will 

20 

be something that we will be reviewing. We will also be talking to 

the State auditors and the local auditors about their work with regard to those issues. But that will be our goal in tracking the uses 

of the funds going forward. 

Senator BURRIS. I am trying to get at the fraud or abuse of the 

funds, whether or not that project really was a worthy recovery 

type of project. And in hindsight, let us say we spent $15 million 

on that sewer treatment plant and it was really determined that 

this was something that was probably not needed by the municipality, will we run into something like that, or is that what you 

will give some type of report on after it is done? 

Mr. DODARO. Well, we will try to track that real-time as those 

decisions are made. I think the other really unique feature of this 

whole thing is that from my understanding, once these projects are 

awarded, they are to be posted on Web sites by the States and localities so that they would be visible to a lot of people. We can look 

at the justifications that are there. I think it is a potentially very 

good development that this level of transparency will be there, and 

I think that is a unique aspect of this. 

On some of these issues, you will be able to perhaps look at the 

justification and raise some questions. On the other hand, it may 

be a management prerogative or a decision for which discretion is 

given to the State and local officials, and we will have to take all 

those things into account. 

Senator BURRIS. Perhaps this is the most important question in 

this hearing today. How can the Committee and the Congress as 

a whole aid in your efforts to implement the Recovery Act? The 

onus is on all of us to work together and get this done right. So 

what can we do to make sure that you all were able to implement 

it? Mr. Nabors, I think that would fall in your bailiwick, right? 

Mr. NABORS. Well, I think that the most important thing that 

Congress can do is hold these types of hearings, hold us accountable, make us bring the facts to light so that you have the opportunity to do what Congress does, which is to both legislate and provide oversight of Executive Branch activities. 

I think that we will be most successful when all of the information about what we are doing is public, and only when we do that 

will the public regain confidence in its government. 

Mr. DODARO. I would just add to that, that I agree the oversight 

by the Congress is pivotal here, I would encourage the Congress to 

conduct oversight of the individual departments and agencies and 

really let the departments and agencies know that the Congress is 

very interested and concerned about what they are doing. 

Senator BURRIS. Because we cannot make any mistakes here. 

This is our last shot at the public coming down on us. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator Burris. Senator Voinovich. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. Thank you, Mr. Chairman. 

I have never seen such anxiety in this country as I do today. We 

need to restore people’s faith in the future, restore our credit markets, restore our housing values, deal with the human needs that 

21 

are there that we are experiencing and will be experiencing, and 

last but not least, create jobs. We are looking for something to happen relatively fast to kind of turn this thing around so people are 

starting to say we have a future, start spending some money, and 

we are moving in the other direction. 

We have a human capital crisis—Mr. Dodaro, in many of the 

agencies. I am really pleased to hear what you are doing. You have 

some flexibilities, I think, to hire back annuitants in your department. Ms. Fong, does the inspector general have similar authority? 

Ms. FONG. We cannot do it directly. We need to get waivers of 

the dual compensation provisions from the Office of Personnel 

Management (OPM). 

Senator VOINOVICH. Go back to OPM and get it. 

Ms. FONG. Exactly. 

Senator VOINOVICH. Mr. Nabors, you are talking about your 

great people back in your shop. How many people are you going to 

have to hire so you can do the job that you traditionally do at OMB 

and take care of all these things that you just talked to us about? 

I am concerned about that. I am also concerned about the use of 

the flexibilities. If you have looked, Mr. Nabors—and I suspect that 

you have—at what agencies are going to need additional people? 

What kinds of people are they going to need? Do we have the flexibilities to bring these people on in a timely manner? 

It is the human capital part of this, I think, that is really important. 

Second is how fast you get the money out on the street, and you 

mentioned the States are involved. I think you will find around the 

country that you have State legislators that are involved right now 

deciding who is going to get the money and how is it going to be 

put out on the street. And I think unless you, on the national level, 

through OMB, or through other agencies, basically say to folks, 

look, get it on the street—and they have 18 months. But we really 

need to move very quickly to get the job done. 

I would like all of your comments about where are we with 

human capital. Do we have the flexibilities? What are we doing to 

reach out to the States? Mr. Dodaro, you said you are going to 16 

States. What are they doing to get the money out on the street? 

How do you push the governors? How do you get a letter to the legislators saying, hey, we gave you a bunch of money and we expect 

you to start to move it. 

I would like your comments about those two areas. 

Mr. DODARO. I will go first. On the human capital crisis situation, I think you are exactly right, Senator Voinovich. My suggestion would be—and the OMB guidance talks about the flexibilities 

for the acquisition workforce—that they do have the ability to bring 

back retired annuitants and experienced people. So I would hope 

that the agencies exercise that flexibility. 

However, I do believe that in this type of emergency situation, 

OPM ought to consider some blanket authority or waiver to allow 

more flexibility to—— 

Senator VOINOVICH. Mr. Nabors, have you talked to OPM about 

that? Have you done an inventory of all the departments and what 

they are going to need? 

22 

Mr. NABORS. We have started our conversation with OPM, and 

we are looking at the authority that currently exists, things like rehiring annuitants, using direct hire authority, and veteran’s preference. What we are trying to do is to come up with the universe 

of authorities that exist right now, see how successful we can be 

using those authorities, and then go from there to what additional 

authorities might be necessary. 

Mr. DODARO. Because this is one area that I had suggested back 

in the Year 2000 (Y2K) computing crisis, and they gave a blanket 

authority because a lot of the COBOL planners had retired that 

wrote the original code and they brought them back. So I think this 

is very effective. 

If each agency has to go individually to OPM to get the authority, it is going to take too long for this period of time. So I am encouraged to hear that they are outreaching. So I would say that 

would be issue No. 1, because those people can come back right 

away. They are not concerned about the time frames here. It fits 

within the ability to be able to do that. So I would say that is very 

important. 

We will be working with the States. We expect to be in the 

States this month. We will be talking to them about their processes. 

Senator VOINOVICH. Mr. Nabors, are you aware of what is going 

on out there? 

Mr. NABORS. In the States? 

Senator VOINOVICH. Yes. 

Mr. NABORS. Yes, I get calls from mayors and governors just 

about every day. 

Senator VOINOVICH. It is just the whole issue of prioritization. In 

Ohio, we have $2.7 billion worth of highway projects that are shovel-ready, but we only have $1 billion available in stimulus funds. 

The question is which billion do you select. Or sewer and water, 

Ohio will receive $247 million, but we have a $6 billion need. By 

the time they figure it out, it could be too late. 

Mr. NABORS. While trying to be respectful of State and local processes as they make decisions about which projects need to go forward, we are emphasizing in all of our conversations that the 

money does need to be spent. In certain instances, Congress has actually written in requirements that if you do not spend the money, 

Congress will take it back and reallocate it. 

That has both a plus and a minus. One of the fears that I have 

is that incentives like that may lead to some questionable projects 

being funded simply to make sure that the money does not go back. 

But we will continue to work through the processes with the flexibilities that we have. 

Senator VOINOVICH. If it was not for the money they got there, 

a lot of them would be in terrible shape. So I think we have a little 

hammer on them. 

We have all kinds of reports. We have reports that OMB is going 

to, every 2 weeks, ask people for reports, or every week? Then you 

have the inspector general. Then you have Mr. Dodaro doing his 

thing. This group, that group, and everything else. [Laughter.] 

I am just wondering, is everybody going to be doing the reports? 

Who is going to be doing the work? 

23 

Mr. DODARO. Right. Well, I can speak at this from a couple different perspectives. First, like the TARP program, where we have 

to report every 60 days, we have these bi-monthly reviews. We will 

be able to meet our requirements. We will be doing the audit work. 

We will be out in the field. The unique perspective that we will 

bring is looking at the State and local sector across all the Federal 

programs and the flow of funds. So our reporting under this particular act will be unique in that respect, and we will have people 

out doing all the audit work. I am not concerned about that, Senator, really. 

Senator VOINOVICH. Mr. Nabors, you ought to do an inventory of 

how many reports everybody is going to have to do. 

Mr. NABORS. A lot. 

Senator VOINOVICH. And find out, does this make sense, because 

particularly in the first 6 months with people getting started, finding out how to do things, and then they are filling out all these reports. Do they want us to do this or are they more interested in 

the reports? 

Mr. NABORS. Well, I think what I would offer at this moment in 

time is that what we are doing is unprecedented, and I think we 

appreciate the amount of attention that people are paying to oversight at this moment in time. We will get better at this as we go 

through, and we will come up with streamlined procedures, best 

practices that our first weekly reports were due this week. I think 

we have 23 out of the 25 agencies that have reported, which is fantastic. As we get better at these reports, hopefully it will be less 

of a burden on the agencies. 

Ms. FONG. May I offer a comment on the reporting? Just from 

the IG perspective, we are looking to not spend a lot of time putting together our formal, traditional audit reports, but to actually 

get in there and give agencies our advice and our recommendations 

in as quick a fashion as possible. So you will see fewer traditional 

IG reports, but hopefully you will see more advice and helpful recommendations coming out. 

Senator VOINOVICH. Great. 

Chairman LIEBERMAN. Thanks, Senator Voinovich. And you are 

right. We reacted in this emergency with an unprecedented spending program and a pressure to spend it quickly. But we are all concerned, as the public is, that there is a risk it can be spent inefficiently and even fraudulently. So we create these layers of oversight, but then we have to make sure that the layers are well and 

efficiently implemented. That is part of what we want to do by regular public hearings, and I know it is what the three of you want 

to do as well. Thank you. 

Senator Tester. 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. Thank you, Mr. Chairman. I want to thank the 

folks for testifying today. 

I think each of you, maybe with the exception of Mr. Nabors, 

talked about reaching full staffing and hiring a bunch of people. 

When do you think full staffing will be achieved, Ms. Fong? 

Ms. FONG. Well, we are aiming to have most of our staff on board 

by the end of the fiscal year, and that is reality. Now, we will be 

24 

looking to try and get some waivers through OPM on the re-employed annuitant issue, and that will allow us to bring people on 

much faster. So if we can get that done, we will be able to do it 

sooner. 

Senator TESTER. Mr. Dodaro. 

Mr. DODARO. By the end of the fiscal year. 

Senator TESTER. Are you doing any oversight right now? I mean, 

the money is just starting to flow out at this point in time, which 

is commendable. I commend the President for that. Is there any 

oversight going on right now of expenditures? 

Mr. DODARO. Well, since our focus is on the State and local level, 

we will be in the States. We have not been to the States yet, or 

localities. We will be there this month. We needed to wait until 

they received the money and made some decisions on how they 

were going to use it. We did not want to show up prematurely. 

Senator TESTER. No. 

Mr. DODARO. For reasons that we talked about. 

Senator TESTER. Right. 

Mr. DODARO. But we are going to be there this month, and our 

first report is due next month. 

Senator TESTER. Ms. Fong. 

Ms. FONG. Yes, I can speak from my experience at USDA. We are 

actually issuing audit reports this month on a couple of programs 

that are receiving stimulus funding, in particular, the broadband 

program. And there will be some very specific recommendations to 

those managers. 

Senator TESTER. Along those lines, as things unfold here, how 

much are you depending on the States for their oversight functions? 

Mr. DODARO. Well, as I mentioned, I have talked to State auditors and local auditors, so what we are going to do is see what they 

are doing. 

Senator TESTER. OK. 

Mr. DODARO. And we will rely on that, first for the coordination 

issue, not just at the Federal level. It is also at the State and local 

levels. 

Senator TESTER. Absolutely. 

Mr. DODARO. And I am committed to build on what they have 

done. 

Senator TESTER. So in a time of tough budgets, as Senator 

Voinovich talked about, I can tell you that one of the things that 

States will probably be cutting out is staffing, and some of that 

staffing may be in the area of oversight. How are you going to deal 

with it? We are talking about 16 months, assuming 80 percent of 

this money goes out—which, by the way, I applaud that for good 

projects. How are you going to know if the States are doing their 

job? 

Mr. DODARO. Well, from our standpoint, we are going to get out 

in the field. I have senior GAO leadership for each State. We are 

going to have a team. We are going to be there. That is why I 

wanted to stay with the 16 States for a period of time, Senator, so 

we could figure it out. If you are popping in and out, you are not 

going to be able to do it. 

Senator TESTER. OK. 

25 

Ms. FONG. With respect to USDA, we have the Food Stamp Program, which receives massive amounts of money, and it transfers 

it right down to the States. 

Senator TESTER. That is correct. 

Ms. FONG. And then it gets put out to individuals. We have always worked very closely with the State governments to oversee 

that program to make sure that eligible people get money, ineligible people do not get it. We are ramping up our efforts to intensify our collaboration with the State and local officials, and we will 

do more with them. 

Senator TESTER. All right. There are some great measures taken 

in this whole thing, and I commend you all in the work you are 

doing, and I will get to that in a minute. But one of the things that 

I think occurs to everybody in this position as we put that bill 

through to stimulate the economy, create jobs, and build infrastructure is what happens to the people who get money and do not 

spend it correctly and you are paying for a backhoe that is idling 

in somebody’s yard instead of digging a trench to put in a water 

line? You have allocated the money. The money has been spent. 

The contractor has it. They did not do the job as planned. You guys 

know it. What do you do? 

Mr. DODARO. Well, the first thing you do is report it and make 

sure that it is visible. And depending upon the nature of the offense there are potential remedies. But I think transparency is the 

real key here, to raise it up to the proper authorities to—— 

Senator TESTER. I agree. What are the remedies? 

Mr. DODARO. Well, you have clear remedies if there is—— 

Senator TESTER. What is the range of remedy? 

Mr. DODARO. Well, there is a range—from fraud, if there is 

fraud, there is a normal process for those type of penalties. The 

other types of penalties would have to flow from whatever the 

State or local response would be in this particular case, or the Federal level recourse for getting reimbursement. It depends on the 

grant provisions and the contract provisions. That is why it is important to have those spelled out so you can take action. 

Senator TESTER. All right. You have talked about guidance; you 

have talked about making the controls evident; you have talked 

about transparency and accountability. All that is good stuff, by the 

way. It is all really good stuff. I assume each one of you have probably been with your individual department for a number of years. 

You just did not come in the first of the year. You have probably 

been there awhile? 

Mr. NABORS. I have been at OMB since January 20. 

Senator TESTER. OK. So I was wrong. [Laughter.] 

Mr. DODARO. I have been at GAO for 36 years. 

Senator TESTER. OK. Well, you make up—— 

Mr. DODARO. I am settling in. 

Mr. NABORS. We average together 18 years. 

Senator TESTER. Yes, 18 years apiece. 

Ms. FONG. And I am in the middle. I have been at USDA 6 years. 

Senator TESTER. Well, these things that you are doing, it is great 

stuff. Especially when you talk about what happened with Hurricane Katrina, and what has happened in Iraq with some of the 

spending there. Why isn’t this just standard operating procedure? 

26 

And do you anticipate it being standard operating procedure from 

this time forward? Or do you think at the end of this 24-month period that you are going to be cutting a bunch of people loose and 

you are going to go back to the way things used to be? Oversight 

of money is critically important. People are always talking about 

government waste, and there is waste in the private sector, too. 

But government waste is tax dollars. Do you anticipate your jobs 

changing going into the future because of this? 

Mr. NABORS. From OMB’s perspective, I think that before Recovery.gov was stood up, we had USAspending.gov, and I know that 

there has been some frustration as to the financial reporting that 

has been put on there. I think that we are using Recovery.gov to 

test-drive a number of different concepts that we have, and I think 

just in that one narrow area, if we are successful in terms of making money transparent, that type of thing will filter over into other 

activities. 

Senator TESTER. So you do not see it as much as manpower, 

more transparency? 

Mr. NABORS. I think manpower will be important, but transparency is going to be important as well. 

Senator TESTER. Mr. Dodaro. 

Mr. DODARO. I am hopeful that the attention being given to this 

issue right now will transform itself into more fundamental 

changes and better management. You need more people to manage 

these contracts and grants if you are going to eliminate waste. We 

face an ominous Federal budget situation going forward. It is not 

just this situation. 

Senator TESTER. I hear you. 

Mr. DODARO. We have a long road to travel together in this area, 

and better management is essential. 

Senator TESTER. Ms. Fong. 

Ms. FONG. I would say that the techniques and the work that we 

are bringing to bear on this issue are not drastically different from 

what we normally do in our oversight of agency programs. But 

what has changed is the intensity and the time critical of the issue. 

And I think that urgency is what really makes this unique. 

Senator TESTER. Well, I thank you very much for testifying 

today. Thank you very much. 

Chairman LIEBERMAN. Thanks, Senator Tester. Excellent questions. Senator McCaskill. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Thank you. I do not know where to start. 

Let me start with the Single Audits. It seems to me that we 

ought to figure out a way to wipe out A–133 Compliance Supplements for the next 2 years and require every Single Audit to be 

completely about this money, and I wanted to get your response to 

that idea. For the record, the Single Audit is a required audit that 

States must do for Federal money. 

Now, knowing the folks that do Single Audits, they get tired of 

looking at the same programs every year. I think the auditing community at the State level would be thrilled to accept this challenge, 

because—and it would be just for the 2 or 3 years that we are 

tracking this money. Frankly, most of the oversight and controls 

27 

are in place for most of the Federal programs they audit every 

year. They may find a little bit of problem with a reconciliation, or 

maybe they may find a problem in the child support program or 

some of the other Federal programs. But this is a huge enchilada 

that has been put on their plate, and it seems to me we could unleash all of those State auditors that know about how to audit Federal money to do nothing but these funds on an emergency basis 

for the next 2 or 3 years. 

Now, first of all, what do you think of the idea? And, second of 

all, what would it take for us to legally require that? 

Mr. DODARO. First of all, I think it is an excellent idea. If something does not change with the Single Audit procedures, it is too 

little too late going forward. And bringing the State audit community in earlier, the local audit community—I had mentioned in my 

opening statement I have already outreached to them, to try to engage them to help GAO coordinate with what we are going to do. 

I think you could implement what you suggested. But I do not 

know if OMB has the authority to do that administratively. They 

can change the A–133 Compliance Supplement. You are talking 

about a radical change, which I would endorse. I think it is a really 

good idea. The only amendment I would make is to require internal 

control testing now and not wait until the end of the year with the 

Single Audit. 

But I think they have the capabilities. They have already asked 

and talked to me about funding. They will need some support. But 

the normal support that they receive, I think, should be sufficient 

if you change the requirements. 

Senator MCCASKILL. Yes. I mean, you would not need any additional personnel—they have the staff in place. In fact, we are beginning the Single Audit season as we speak. 

Mr. DODARO. Right. 

Senator MCCASKILL. The teams in every State are right now 

looking at A–133, figuring out which programs they need to look 

at. They are doing their scopes. They are doing their plans. And 

why could we not just say we are going to tell you to forget about 

A–133, we want you this year in the Single Audit to look at the 

controls that are in place for this money that is coming, and next 

year in the Single Audit we want you to evaluate those controls 

and how they are working. It would be a perfect way, without 

spending any extra money, for us to look at an unprecedented 

amount of money that is flowing quickly into the States. And if we 

had to amend a law to do that, I think we could probably get that 

done. I think we could probably get both sides of the aisle to agree 

to something like this that we could quickly do. And I think that 

the State audit community would embrace it because they would 

like to be challenged in this regard. At least I know the line auditors would, because they are sick of doing the same old Single 

Audit every year that nobody pays any attention to. They would 

like to do a Single Audit that somebody reads. 

Mr. DODARO. I think it is a great idea. 

Ms. FONG. I think from our perspective it is a great idea, and I 

would love to have some time to think about it and give you some 

comments on that. 

28 

Senator MCCASKILL. Well, if you guys would, and I would particularly like, Mr. Nabors, for you and the team at OMB to think 

about that. I know if we try to change A–133, trust me, I know it 

will not get changed until 7 years from now. I mean, the notion 

that we could do this by making announcements about A–133, that 

we are going to change it, and then taking comments, and then 

somebody is going to write it awhile, and then somebody is going 

to look at it awhile, and before you know it, we will change A–133 

to audit these recovery funds, right about the time they are all 

gone. So it would take the government doing something we do not 

do very well. 

Now, we just did something pretty bold. It seems to me that we 

could be just as bold with oversight as we have been with spending 

the public’s money. And it seems to me they need to go together. 

So I would hope that the Administration would take a serious look 

at this, and if you all could maybe—Mr. Dodaro, if you would reach 

out to the State auditing community and get their response, I 

would be shocked if it was not positive. 

Mr. DODARO. I would too. But I will do that. 

Senator MCCASKILL. All right. Let us see if we cannot get that 

done. 

Mr. DODARO. OK. 

Senator MCCASKILL. The second thing is I am a little confused 

about the Web site. I do not believe the Web site belongs with the 

Recovery Board. I think that is a huge job for a temporary group 

of folks. I think it belongs at OMB. That is where the data is. I 

had an amendment to do that, and we did not get it done. But I 

think OMB needs to really stay hooked up on this Web site because 

it is unrealistic that this board is going to be able to do what we 

have advertised that this Web site is supposed to do. And, specifically, I want to talk about the detailed guidance you guys gave to 

reporting requirements. 

On page 14 and 15 of the OMB’s guidance document for the Recovery Act, dated February 18, 2009, I am a little confused because 

it seems to indicate that the only recipients that need to report is, 

in fact, the prime recipient. What it says is ‘‘prime recipients.’’ 

Now, obviously the agencies have to report, but I am talking about 

the money that is going to the State. 

What the guidance says, which is very troubling, is if the State 

A gives the money to City B, who hires a contractor to build a 

bridge, and then hired a subcontractor to supply the concrete, OMB 

is telling the State that all State A has to do is report the subgrant to City B. But City B has no requirement to report anything. 

Mr. NABORS. Right. 

Senator MCCASKILL. So how do we get to the contracts? 

Mr. NABORS. Well, I think that in putting out the guidance, one 

of our chief concerns was reporting burden with regard to small 

businesses. We have a strong desire to get to the very last contract, 

if at all possible. But one of the things in the quick timetable that 

we were looking at, both with the legislation and putting the guidance out, was that we could not have a system or a structure in 

place that would sufficiently reduce the burden on small business 

or perhaps individual contractors in such a way that it would not 

be overly burdensome. 

29 

As we are going through the guidance process, this is the type 

of thing that we will be looking at, though. This will always be a 

tension. How far can we drill down into the data? And I think our 

commitment is to drill down just as far as we can possibly get. 

Mr. DODARO. I would just add, this sub-recipient issue has been 

a nettlesome one for a long time. I think this would be a good pilot 

exercise, before the money disappears. You could set some thresholds on this so you are not reporting things below a certain level. 

Senator MCCASKILL. Well, the law has a $500,000 threshold. 

Mr. DODARO. Right. You need to have this information if you are 

going to properly track this. 

Senator MCCASKILL. I have to tell you the truth. If a city in my 

State gets $5 million to build a bridge, and that is all we know, 

I tell you, that city is going to be bothered because my staff is 

going to be calling them and wanting to know—they are not even 

required to say whether they competitively bid it. 

I just think this guidance does not match what we have advertised. And I get the reporting requirements are tough, and maybe 

there are ways that we can streamline that. But if we are actually 

saying that all the money going to the State, all the State has to 

do is say what city got it or what program got it and that is it, I 

do not think we get to competitiveness; I do not think we get to 

the issues that many of us have staked our reputation on that we 

are going to try to do this. And to start at the very beginning and 

say you do not even have to report who got the money in terms of 

the contract, I think that is problematic. 

So I would ask you guys to take a look at that. I know this is 

not final guidance. I know this all came really quickly. But I would 

ask you to take a look at that, and I will save my other stuff for 

the next round. Thank you. 

Chairman LIEBERMAN. Thanks, Senator McCaskill. I was just 

thinking that in the U.S. Marine Corps they say once you are a 

marine, there are no ex-marines. So I think in your case, once you 

are an auditor, there are no ex-auditors. [Laughter.] 

Thanks very much. You really make a contribution to the Committee. We will do a second round as long as Members want to 

have another 7-minute round. 

Incidentally, I will say with regard to one of the questions you 

asked, at a staff level there were some very preliminary discussions 

with Mr. Devaney, and I think it is fair to say that he understands 

that the law says that the board has the primary responsibility for 

the Recovery.gov Web site, and a lot of their money will be used 

to staff that up. But OMB has started it, and I think he envisions 

a cooperative relationship between the two. But I am sure you all 

will work that out as it goes on. 

Let me focus in on this question of fraud. I mentioned earlier 

that the Department of Homeland Security (DHS) Computer Emergency Readiness Team had found out about scammers offering economic stimulus payments fraudulently in an attempt to steal personal data information from those who respond. Human nature unfortunately tells us when you have this much money out there, 

quickly being spent, in one or another way people are going to try 

to take advantage of it and rip off the money. 

30 

What are the standard moves that you make as inspectors general at GAO, to try to ferret that out? Because this is going to be 

a lot of money going out to a lot of people pretty quickly. And obviously we have the whistleblower protections here, so you hope that 

will help with people involved directly in the public and private 

sector. But do you do random checks? Do you use undercover people? How are we going to work to prevent fraud in the use of this 

money? 

Ms. FONG. Let me take a first crack at that. 

Chairman LIEBERMAN. Go ahead. 

Ms. FONG. We are aware of a similar situation that occurred in 

one of the departments—I think it was the Small Business Administration (SBA), actually—where there was someone in the public 

who was attempting to hold themselves out as an SBA official, and 

they were trying to get personally identifiable information (PII). 

The IG became aware of it and worked with the administrator of 

the agency. They squashed the fraudulent bulletin. They went out 

and issued releases to the public, and also to their recipients of 

funds, saying, ‘‘If you are contacted by anybody holding themselves 

out to be a Federal official saying ‘Send in your PII information,’ 

do not do it.’’ They have also issued some public information notices, and most importantly, they have notified all the rest of the 

IG community that these scams are going on. 

And so what we are doing in our own departments is going out 

to our officials and saying, ‘‘Hey, this went on at SBA, it could happen with us, we need all of you to be aware of these potential 

scams, please let us know when you see them, and then we will 

pursue it through all of our prosecutorial means.’’ 

Chairman LIEBERMAN. Well, that is good. And, of course, we hope 

even by mentioning it here today that people will be on notice. But 

go beyond that. I just happened to mention that because I heard 

about it. 

One of the worries that I have with all the money going out so 

quickly is—and this is a subtle kind of fraud, but it is a fraud— 

that we will end up being overcharged by various contractors who 

will be getting stimulus funding. We should not allow ourselves to 

be overcharged. 

Mr. DODARO. Yes, there are at least two issues in addition to the 

awareness feature that Ms. Fong talks about, which is very important. One is to look at the design of the controls for the program 

up front or the testing of the eligibility requirements. Are they 

verifying with other data sources up front? 

But we also plan to do proactive testing whereby we would use undercover identities. We would test the system. The $1 billion 

that Senator Collins mentioned in the FEMA program and Hurricane Katrina was a result of our people doing a statistical sample 

and then projecting from that using identities to test the system to 

make sure that people who are not eligible were not receiving benefits—or even testing whether or not you can receive a provider status under the Medicaid program and not have a real entity. 

So we plan to do targeted testing up front to try to test these systems, but you also look at the design and the controls. 

Chairman LIEBERMAN. Ms. Fong, do you want to add anything? 

I know you spoke first about the kind of consumer scam, but from 

31 

the IG perspective, what else can we expect the IGs to do to try 

to ferret out fraud here? 

Ms. FONG. Well, one of the things that we are doing at USDA 

is building up our data capacity, and what I mean by that is we 

are starting to go to the agencies and looking at the data coming 

in on program monies and participants to identify anomalies in 

that data, which is sort of an early-warning system for us. 

When we identify situations like that, we can then go out—— 

Chairman LIEBERMAN. Excuse me. What kind of anomalies, for 

instance? 

Ms. FONG. Well, for example, if benefits are being passed out 

through one of our programs—and we notice in some of the data 

fields that there are a number of indicators that perhaps some people should not be getting these benefits, for whatever reason. It depends on the eligibility criteria. 

Chairman LIEBERMAN. Right. 

Ms. FONG. Then we would be able to take that data, go out and 

do some testing, do some undercover work if we need to do that, 

which is a traditional tool that we use quite a bit at USDA, and 

start working with the program managers to say, ‘‘Hey, you need 

to be looking out for these red flags, go after these red flags, and 

we will pursue individual cases as well.’’ 

Chairman LIEBERMAN. I am really glad to hear you are using undercover agents, and I want people to know that you are using undercover agents because this could be different to those who may 

be hatching plots to defraud the public of some of this money. 

Mr. Dodaro, I was very encouraged by some of the proactive 

steps you are taking with regard to the tax cuts in this program, 

and they are very important. So I gather part of the aim here is 

not only to make sure that people get the tax cuts, but to put you 

in a position to evaluate the impact of the tax cuts. Is that right? 

Mr. DODARO. Yes, that is correct. 

Chairman LIEBERMAN. Why don’t you talk a little bit about what 

you are looking for in the evaluation? 

Mr. DODARO. Oh, sure. These would be not in the amounts of 

money being reduced, withholding, or the amount of checks that 

are sent out to people. This is for the tax provisions. 

For example, there are provisions in there that allow Recovery 

Act bonds to be provided. But unless IRS identifies who is giving 

those bonds, a lot of this gets rolled up in part of the tax reporting 

of the entities, and you cannot determine at the end of the day how 

many of those bonds are issued or whether people are getting credit for creating certain jobs and taking that credit. But if it is rolled 

up with other information IRS collects and not separately identified 

by IRS, that will not happen. The same for depreciation. There are 

some depreciations that are allowed under the Act. 

Those are just three examples. There are many others that are 

in there, and our experience has been over the years that when 

Congress turns to us a year or two down the road and asks us to 

evaluate the effectiveness of some of these credits—the Enterprise 

Zone credit is one that we were asked—you cannot do it. 

So what we have been trying to do is proactively identify these 

areas so that IRS can track it. This is equivalent to Senator 

McCaskill’s question on the sub-recipient level because IRS is conVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
32 

cerned about the burden on the taxpayers, but the real issue is if 

Congress really wants to know whether or not the amount of 

money that has been foregone, if you will, or provided through tax 

relief here—which is significant, it is over $200 billion—is actually 

producing what the Congress intended, you need the data to be 

able to do it. 

In any one year, tax expenditures can be more money than total 

discretionary spending. And we have advocated for a while now 

that more transparency, visibility, and re-evaluation of those tax 

provisions be a normal part of oversight in the Federal Government. 

Chairman LIEBERMAN. That is very important. I appreciate it, 

because obviously—and, of course, we will see some of this from the 

macro economic data, but we hope that the tax cuts will encourage 

people to spend, because consumption has been falling so fast and 

not driving our economy in the way it normally does. Thank you 

very much. 

Mr. DODARO. You can also have tax fraud in some of these areas, 

and that is something else we will be taking a look at as well. 

Chairman LIEBERMAN. What are you thinking about? 

Mr. DODARO. Well, this would be in some of the administrative 

areas and whether or not some of the payments were made; people 

are claiming credits that may not actually have the justification 

for. 

Chairman LIEBERMAN. Thank you. Senator Collins. 

Senator COLLINS. Thank you. 

Mr. Nabors, I want to associate myself with the questions that 

my colleague from Missouri asked you about the guidance that is 

being given. The intent—indeed, the letter of the stimulus act—requires Federal, State, and local governments, but also private businesses, that are receiving money under the Recovery Act to adhere 

to the transparency and accountability requirements. The initial 

implementing guidance that OMB issued on February 18, seems to 

indicate that you are looking at tracking only at the macro level. 

For example, the guidance states that sub-grantees, including 

contractors and subcontractors, do not have any specific reporting 

requirements for the purposes of reporting to the Recovery.gov Web 

site. 

I just want to alert you that that concerns me, because if we are 

truly going to follow the money, which is the goal, we have to be 

able to track it down to the level of those who are the actual recipients, not just those who are passing the funding on. 

And so I hope that you will take a look at this issue as you issue 

more detailed guidance. I am not trying to burden small businesses 

with unreasonable reporting requirements, but we do have an obligation, if we are going to be tracking the money, to look at where 

the money goes. 

I think that Senator McCaskill has raised an important point, 

and it is a point that I had intended to raise as well. 

Mr. NABORS. The points that you have raised are very important, 

and we will take that back. 

Senator COLLINS. Thank you. Mr. Nabors, you may be aware 

that the 2009 Defense Authorization Act, as a result of provisions 

that Senator Lieberman and I authored, required the establishVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
33 

ment of a government-wide Contingency Contracting Corps. Our vision in authorizing such a core of experienced contracting officials 

applies exactly to this kind of situation where there is a need to 

have money allocated and under contract quickly, but we need experienced personnel to ensure that it is also done effectively and 

without shortchanging the need for competitive contracting. 

The Corps would be a very useful asset to have in place for the 

stimulus funding. Could you tell me the status, if you are aware 

of it, of establishing this Corps and where this falls on the list of 

priorities that you have? 

Mr. NABORS. Well, I am aware of the Corps. We have had some 

initial conversations, not just with regard to the Recovery Act, but 

in terms of the President’s commitment to essentially clean up the 

way Federal contracting is done. And we have evaluated, or we are 

continuing to look at this as an important tool. 

I cannot give you a specific timeline or prognosis as to when you 

would see the Administration come forward with a specific proposal 

to implement this, but I can tell you that it is very much on people’s radars right now. 

Senator COLLINS. Ms. Fong, you mentioned the number of additional auditors and investigators and human resources individuals 

that you are looking to hire, and, of course, that is being repeated 

across the Federal Government. I am not concerned about your 

ability to get the human resources people, but I am very concerned 

about whether or not GAO and the IGs, in particular, are going to 

be able to find the number of auditors that are going to be required. 

We have seen with the Special Inspector General for Afghanistan 

a terrible time in his efforts to staff up his office. Now, granted, 

it is a lot harder when you know that you might be deployed to Afghanistan than to cities around the United States to audit the 

stimulus spending. Nevertheless, I am concerned about this. 

I am also concerned that the Federal hiring process is so encumbered with regulation that it is very difficult to hire people quickly, 

even if they are superbly qualified. 

Do you have any recommendations to this Committee for helping 

you cut through the bureaucracy for hiring the people that you 

need? 

Ms. FONG. Well, you are exactly right. This is one of the major 

challenges we are facing. 

I think in our view—and I have talked to a number of my colleagues in the community—if we can bring on board people who 

have left our offices and retired, if we can re-employ them as annuitants, that would do a lot to solve our problems, because they are 

properly trained, they know the programs very well. They can just 

get on board and start running right away. 

Now, the trick on that, of course, is that under the current legal 

structure, we have to go to OPM, and we have talked today about 

the need to work with OPM very closely on that. 

Obviously, one of the issues that we could put on the table is if 

there is any legislation working its way through Congress right 

now on re-employed annuitant authority, perhaps consideration 

could be given to us. That would be a wonderful thing. 

34 

Senator COLLINS. Ms. Fong, there is a huge disincentive for annuitants to come back, as their pensions are offset by their salaries. 

And Senator Kohl and I have a bill that would solve that problem. 

I would ask you all to take a look at it, because I think if you are 

looking at re-employing annuitants, we have to take away the huge 

financial disincentive for them to come back to work. 

Mr. DODARO. Senator Collins, we at the GAO have the authority 

to waive the annuity offset provision. We have our own personnel 

authorities, and so I have no doubt we will be able to find the right 

people. But on your point about re-employed annuitants, over the 

past few years we have hired about 80 people that way, to come 

in for specific projects for specific periods of time. It is wonderful, 

and I would endorse whatever you could do to provide legislation 

to give that authority to others. 

It needs to be carefully used, just like any other authority, but 

in the meantime, there is no reason OPM could not give a blanket 

waiver for this emergency situation, in my opinion. 

Senator COLLINS. I am not sure that OPM has that authority, 

but we will take a look at that. You have correctly envisioned what 

my next question was going to be, because I knew GAO did have 

that authority, and there is a real contrast in your ability to re-employ annuitants who are already trained, looking for a short-term 

assignment. It is truly perfect for overseeing this money which is 

going to expire. So I hope, Mr. Chairman, that we can move that 

bill. 

Let me just ask quickly one final question, Mr. Dodaro. It is extraordinarily important that we track the job creation provisions of 

this bill so that we know whether or not we were successful in creating or saving 3.5 million jobs, which is the estimate for this bill. 

Are you working or do you have recommendations for OMB and 

for us in Congress on how that can be best accomplished? One of 

the reasons that I am concerned about the tracking is if you do not 

have tracking going down to the contractor level, I do not know 

how you are going to be able to estimate with any accuracy at all 

how many jobs were created. 

Mr. DODARO. Yes, we have responsibility under the legislation to 

look at the recipient reports, specifically as it relates to the portion 

of the report that they are required to file quarterly on the number 

of jobs preserved or created. 

Now, there are a lot of issues we have been thinking about on 

this. We have been trying to get up and running on the bi-monthly 

reviews at the State and local level, and the sub-recipient question 

was one we had talked about. If that is provided, you will have better data on that. There are definitional issues. What is a job? How 

do you make sure all the people who are reporting are using the 

same type of definitions? So we are going to look into that issue 

going forward. 

I think also the recipient reports need to be juxtaposed against 

macro economic analysis of the job creation. CBO has made some 

estimates about the number of issues there, and I have talked with 

the new director, Doug Elmendorf, about trying to use the reviews 

of the recipient data to test some of the broader trends in the 

macro economic analysis. 

35 

So we are going to turn our attention to the methodological aspects of this soon, and we would be happy to share our thoughts 

with you. 

Senator COLLINS. Thank you. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator Collins. Senator 

McCaskill. 

Senator MCCASKILL. OK, so here is another idea. All the State 

governments are offering early retirement to experienced auditors 

because of their budget crunches, and they have made very attractive packages for State auditors to retire. There would be a whole 

pool of auditors available for this period of time that would not 

have the annuity considerations. Let me just talk about my love affair with auditors for a second. 

These people, you people who do this work, you are not in it for 

the glory, and you are not in it for the money, because there is very 

little glory and there is not a whole lot of money. The people who 

do this kind of work are really public servants. They enjoy the fact 

that they are doing what needs to be done to look after the way 

we spend public money. And I think that there is a cadre of these 

retired people at the State level that would be honored to step up 

to the plate and help out during this 2-, 3-, 4-year period because 

of what we are trying to do here. We are trying to save our economy in a way that makes sense for most of America, and I think 

that there would be a patriotic duty that would kick in. 

I can give you five or six names of incredibly good auditors in the 

State of Missouri that have all retired within the last 2 years, and 

I think the average amount of time they audited was 25 to 30 years 

apiece. And they never made six figures. And one of them was in 

charge of the Single Audit in the State of Missouri for probably 20 

years. 

Now, here is somebody who understands Federal programs, understands how to track Federal money, and poor Ken Kuster is 

going to hear about this hearing and go, ‘‘I cannot believe Claire 

is signing me up, and nobody has talked to me.’’ 

But I really do think that if you went out to NASACT and said, 

‘‘Can you give us five to six names in your State of recently retired 

State auditors that might be willing to come to work for IGs that 

have all these resources that we hope to get in the bill?’’ I think 

you would have an incredibly positive response, especially if you 

told them they did not have to move to Washington for the rest of 

their lives, because they are not going to want to come here. They 

are going to want to stay where they are. But that is the beauty 

of this, is that you need people out in these States doing this work, 

and I think that you have a built-in contingency audit force there 

if you take advantage of it. 

This is an awkward thing for me to ask because I think everybody knows how supportive I was of the President during the political season, but I want to talk to you all about the Web site, and 

this is especially for OMB. This board now is made up of IGs. They 

are not political. They really do not serve this President. They 

served the last President and they will serve the President after 

this President. They are non-political people, for all the right reasons. They should not claim a party. They should not claim an alleVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
36 

giance. They should want to just look after public money, period, 

and we need to protect them politically. 

I would like to throw out the notion that we need to be very careful on this Web site to make sure that it is not political. I want 

to see the President’s radio addresses, or hear them every week. 

But I am not sure that is a link that belongs on Recovery.gov, because he is going to give a lot of radio addresses in the next year 

that do not have anything directly to do with how we are spending 

this money. 

I think this is a little bit different than the White House Web 

site or any other government agency Web site where I think there 

is a natural tendency to promote whatever President is in office. 

But I think on this Web site, because you have a group of IGs in 

charge, I just think everyone needs to be very careful that it does 

not appear to be promoting anything that could even have a whiff 

of political advocacy. And I would like your take on that, Mr. 

Nabors. 

Mr. NABORS. I concur with your assessment. Part of the reason 

why we originally envisioned the oversight board taking control of 

Recovery.gov is to better convey to the public that this is not data 

that has been cooked through a political process. And I think that 

OMB will continue to play a role going into the future with the Recovery Board simply because OMB, as sort of the backbone of the 

Federal Government, has processes in place to actually quickly pull 

that data in that they are looking for. And I think that we will continue to want to play that type of role. 

We are very concerned, though, about the appearance that Recovery.gov may be seen as something other than a fact-based/driven database of information for the public, and I will make sure that 

your concerns get back to the White House. But it is a sensitivity 

that has been expressed. 

Senator MCCASKILL. Great. And every single picture has our 

President in it. I think a great photograph that should be on Recovery.gov would maybe be a photograph of the Chairman and Ranking Member of this Committee as it relates to the oversight capacity they have. 

Chairman LIEBERMAN. Because we are so non-political. [Laughter.] 

Senator MCCASKILL. In this example, you are. 

Chairman LIEBERMAN. I appreciate it. 

Senator MCCASKILL. For individual reasons for both of you. But 

this is not about just the President of the United States. This is 

about having more information about IGs and who they are and 

what they do, and how they get to the jobs, and more information 

about GAO. I think people who are coming to this site want to get 

information about if we are watching their money. I would much 

prefer links through to a number of reports from GAO than links 

through to 150 pictures of the President I worked so hard to get 

into the White House. So, consider that for what it is worth. 

Mr. NABORS. I will work to ensure that those links are there in 

the future. 

Senator MCCASKILL. All right. Great. 

The last thing I wanted to just mention to you, Mr. Dodaro, was 

your testimony as it related to contracting. I would welcome any 

37 

suggestions you have. I am very excited that the Chairman has created an Ad Hoc Subcommittee on Contracting Oversight. And we 

have hired a staff director for that subcommittee. She begins on 

Monday, and we will begin work immediately. I would very much 

like input on how we can in that oversight committee begin to immediately look at contracts that are being entered into with this 

money. And I would like us to keep the running tally of competitive 

versus non-competitive and fixed price versus any other garden variety. And it may be that we can together devise a way that tally 

is kept, because if everyone knows we are keeping that tally going 

into it, I think it might have the sanitizing effect that we are looking for. And I would ask that you and also Ms. Fong, in terms of 

the IG community, to consider that as you begin to get some of 

these contracts and see them. 

I am particularly interested in personal service contracts. I am 

particularly interested how many people we hire to do services as 

opposed to building stuff or moving dirt. I think there is a real potential for abuse there. 

Mr. DODARO. I would be happy to provide help on that. I think 

it is a very important issue. It is another good idea. And we would 

be happy to help. 

Senator MCCASKILL. Thank you all very much. 

Chairman LIEBERMAN. Thank you, Senator McCaskill. I am excited, too, about the subcommittee that you are going to chair, and 

I think it would be a perfect focus at the outset to take some of 

the contracts issued pursuant to the stimulus, because, again, we 

want both the governmental people involved and others to know 

that we have the GAO, we have the IGs, and we have this Committee overseeing what they are doing. 

I want to come back to something Mr. Nabors said. The fact that 

there have been 150 million hits on the Recovery.gov Web site in 

less than 21⁄2 weeks since the law was signed by the President is 

amazing. And I presume, to reach a conclusion that it reflects both 

the anxiety and urgency with which the American people want to 

see us doing something to get the economy going again and want 

to benefit themselves as they understand where the money is 

going. Also it reflects how much they want us to make sure that 

the money is spent efficiently and well. And, of course, the law empowers the three of you to play critical roles, and those that work 

with you, in doing so. 

I am very encouraged by what you have said today. I think we 

are off to a good start. But we have all got a responsibility to stay 

on top of this because any significant fraud or waste in this program is going to have a devastating blow on public opinion and 

trust in government. 

Our full Committee is going to stay on this, and as frequently as 

is constructive. I definitely want to come back within the month before we break for the Easter/Passover recess to hear Mr. Devaney 

and maybe ask you to come back and tell us where you are at that 

point, and we will continue to do that on a monthly basis as long 

as it makes sense, to see how much money is out, how is it going, 

and what are you learning. Maybe there is something that is happening that requires a quick legislative fix, and we can also see 

what systems you have put in place, Mr. Dodaro, Ms. Fong, and 

38 

Mr. Nabors, to make sure that this money is being spent efficiently 

and honestly. 

So I thank you very much. We have a lot of work to do together. 

We are going to keep the record of this hearing open for 15 days, 

if you want to add to your testimony, or Members of the Committee 

want to ask you additional questions. But, most of all, thanks for 

what you have done so far. We are with you. This is very important 

to our country. 

The hearing is adjourned. 

[Whereupon, at 12:05 p.m., the Committee was adjourned.] 

(39) 

RECOVERY AND REINVESTMENT SPENDING: 

IMPLEMENTING A BOLD OVERSIGHT 

STRATEGY 

THURSDAY, APRIL 2, 2009 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:01 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, Chairman of the Committee, presiding. 

Present: Senators Lieberman, McCaskill, Burris, Collins, and 

Coburn. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. Good morning and welcome to this second 

in what will be a series of hearings our Committee will hold pursuant to our oversight responsibility to monitor how the billions of 

taxpayer dollars that we have appropriated under the American 

Recovery and Reinvestment Act, the Stimulus Act, are being spent. 

I am going to begin with a quote from Benjamin Franklin, which 

is always a safe thing to do. ‘‘It takes many good deeds to build a 

good reputation and only one bad one to lose it.’’ And so it is in 

some ways with the Recovery Act. We all want the Recovery Act 

to succeed. In fact, we all need it to succeed to protect and create 

jobs to start our economy growing again. But a mistake, a story 

about how taxpayer money is being wasted or funneled to improper 

uses, will really undercut faith in this program and, I suppose, undercut faith once more in government, no matter what other parts 

of the program are successful. 

I understand that is a large undertaking, to say that we will attempt to prevent any misuse of this money, but that has to be our 

goal because of the importance of this project to our national economic revival. So our Committee wants to use these hearings in cooperation with the Administration, particularly with Mr. Devaney, 

whom we welcome this morning, as a way together to assure ourselves that we have systems set up to guarantee two things as best 

we can. One is that the money moves out quickly, which is what 

we want it to do, but two, that we set up systems that both prevent 

waste, fraud, and abuse, and also detect potential problems in that 

regard so we can stop them before they occur. 

To help with the very kind of supervision I am talking about the 

legislation which created the Recovery Act also created a Recovery 

40 

Accountability and Transparency Board composed of a chairman 

and 10 inspectors general from across the Federal Government. 

That board met for the first time last Friday and its chairman, Mr. 

Devaney, on loan from his job and good work as an inspector general (IG) at the Interior Department, joins us here today. We look 

forward to hearing how that first meeting went and what plans or 

recommendations emerge from that or have been put in place already. 

The Recovery Act also included $250 million for Federal Inspectors General to hire additional experienced auditors and investigators for their agencies and we would like to hear about how that 

is going. 

There is a special problem that we note around the country, and 

I heard some indication of it in Connecticut, and that is to make 

sure that State and local agencies, which are now being stretched 

thin by the recession, in some cases letting people go, have the capacity to effectively manage Recovery Act funds at the State and 

local level. I am going to be holding a Committee hearing next 

Tuesday in Connecticut to explore in the State and local setting 

how the money is being watched as it is being spent at the State 

and local level. 

I am also pleased to welcome again this morning, Robert Nabors, 

Deputy Director at the Office of Management and Budget (OMB). 

In addition to providing overall guidance to Federal agencies on Recovery Act implementation, OMB has stood up the Web site, Recovery.gov, which will allow citizens, journalists, and bloggers, to keep 

an eye on stimulus spending and report waste, fraud, abuse, or 

theft if they suspect it. 

I continue to be impressed by the numbers of usage here. The 

last I heard, Mr. Nabors—and you can bring us up to date in your 

testimony—was that the site is getting about 4,000 hits a second. 

That is astounding. This can be a marvelous tool, not only to monitor Recovery Act spending but to eventually help us develop powerful tools to monitor all Federal spending. 

For Recovery.gov to work to its best potential, it is going to need, 

I think, to allow users as best we can to burrow into the details 

of where and how the money is being spent. I want to follow up 

this morning on concerns raised at our last hearing about how we 

can actually do that, how the data trail can be followed and not 

turn cold at some of the precise points spending should be monitored, and that is at the specific contract level. 

I understand, Mr. Devaney, that the board is taking over responsibility for the content of Recovery.gov while OMB will remain responsible for the collection of data that feeds into the Web site, so 

I would like to hear from you about how your work is going. 

And Mr. Nabors, finally, it is important for us in these regular 

hearings to get a sense of how much of the money is actually out 

there. We have seen some glimmering of economic upturn lately. 

Obviously, employment numbers continue to be bad, but some 

other indicators have taken an upturn, and I wonder whether some 

of that may be related to the first spending of the stimulus dollars. 

Again, we ask these questions in the spirit of trying to make this 

program work well working together with the Administration. 

41 

I close with gratitude to my staff for yet another piece of wisdom 

from Mr. Franklin. ‘‘By failing to prepare, you are preparing to 

fail.’’ So with our economy at stake, the American Recovery and Reinvestment Act really is too big and too important to fail, and that 

is what we are all about with your help this morning and every 

day. Thank you. 

Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. I feel like I should 

quote Abraham Lincoln or something just to get into the spirit of 

this day, but I will proceed nonetheless. 

Nearly 2 months ago, the President signed into law the American 

Recovery and Reinvestment Act to help turn around our economy. 

Now the challenge is to make sure that the billions of dollars provided by that law achieve the purpose of boosting our economy and 

saving and creating jobs. 

As my Senate colleagues and I worked to craft this bill, we established an oversight board and imposed tough reporting requirements to help ensure transparency and accountability in the expenditure of these funds. We remain determined to protect this 

critical spending from waste, fraud, and mismanagement. 

Several provisions included in the law provide safeguards and 

oversight of stimulus spending. Perhaps, however, the most important is the Recovery Accountability and Transparency Board, created to coordinated Federal oversight efforts. As the Chairman has 

indicated, the GAO and many of our Nation’s inspectors general 

also have been provided with additional funding to carry out investigations and reporting requirements. A new Web site, Recovery.gov, has been launched to report on expenditures and to provide the public with access to stimulus information. The more eyes 

that we have on this spending, the better. 

The Recovery.gov Web site is now up and running, and as the 

Chairman has indicated, is tremendously popular. It is my understanding that it has already received some 300 million hits. It is 

now linked to the individual Recovery Act Web sites for States and 

Federal agencies. I have included a link to the Recovery.gov Web 

site from my own Senate Web site, as well as the special Web site 

I created to provide Mainers with specific information about Recovery Act spending as it relates to our State. 

Technology not only allows an abundance of information to be 

shared quickly with people across this Nation, but also helps to ensure transparency and accountability. 

The American people have high expectations for the Recovery 

Act. The President has estimated that it will save or create approximately 3.5 million jobs and will help to turn the economy 

around. Taxpayer dollars will be used to improve roads and 

schools, enhance health care, and invest in infrastructure and 

science. Regardless of the purpose, each dollar must be spent wisely. Funds need to be disbursed quickly to meet the goals of stimulating the economy, but we must ensure that haste does not make 

waste or permit fraud and mismanagement. Striking the right balance between speed and caution will be difficult, but it is essential 

as we administer the grants and contracts funded by this law. 

42 

1The prepared statement of Mr. Nabors appears in the Appendix on page 230. 

Press reports have already questioned whether some of the first 

few contracts using stimulus funds were awarded without sufficient 

transparency and whether contracting mistakes were made. Although the press has generally described these as sloppy paperwork, this is not a reassuring start. Problems like these can easily 

erode public confidence and leave our economic goals unrealized. 

Today’s hearing will provide us with a more in-depth look at the 

most important oversight organization, the Recovery Accountability 

and Transparency Board. I look forward to hearing from Mr. 

Devaney, the board’s recently-appointed Chairman. 

From OMB, I am particularly interested in hearing how it expects to address the challenges of tracking funds at the State and 

local level, the very issue that the Chairman raised, and ensuring 

transparency, accountability, and competition in stimulus contracting. 

Our government has an obligation to make sure that these vital 

dollars provide the maximum possible benefit to our economy. The 

American taxpayers deserve no less from their investment. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you very much, Senator Collins. 

We will start with Mr. Nabors. I note, Mr. Nabors, in one of the 

recent news stories on OMB Director Peter Orszag, it mentioned 

that he drank a lot of high-caffeine tea during the day. I note the 

presence of the bottle of Coke Zero there. I share that particular 

addiction, and with that sense of brotherhood, I now invite your 

testimony. [Laughter.] 

Mr. NABORS. It might be best just to close at that point. [Laughter.] 

Chairman LIEBERMAN. Go right ahead. 

TESTIMONY OF HON. ROBERT L. NABORS II,1 DEPUTY 

DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

Mr. NABORS. Chairman Lieberman, Ranking Member Collins, 

and Senator Burris, thank you for inviting me to testify about the 

implementation of the Recovery Act. Today, I would like to talk 

about the progress we have made since the last hearing in addressing our shared goal, and that is to implement the Recovery Act as 

wisely and as quickly as possible. 

I will start by talking about where we are with respect to spending Recovery Act funds. As of this morning, Federal agencies have 

obligated about $51 billion. That is up from about $15 billion when 

we last met. While just two agencies had issued Notices of Obligation at the beginning of March, an additional 13 have done so since 

then. This includes the Department of Transportation, the Department of Housing and Urban Development, the Department of 

Labor, the Department of Education, and the Department of 

Health and Human Services. 

In addition to obligations, there is other evidence of accelerating 

spending activity. Agencies have announced nearly $151 billion in 

formula and block grants that will be made available to States. 

These allocations enable States to foresee important increases to 

their budgets and can influence States’ decision making and benefit 

43 

the economy even before they are technically obligated. Nearly 500 

Recovery Act contracting opportunities and notices have been posted. Seventy-one Recovery Act grant opportunities have been posted. 

And as of yesterday, Making Work Pay tax cuts were fully implemented, benefiting 95 percent of working families. 

Chairman LIEBERMAN. Can I interrupt you on that? I apologize. 

We will give you more time. But explain what that means, about 

the Making Work Pay tax cuts. I understood that it might go in, 

depending on the employers’ decision, as early as April. 

Mr. NABORS. It actually started in February and there was an 

April 1 deadline. 

Chairman LIEBERMAN. I see. 

Mr. NABORS. At that point, it should be fully implemented. 

Chairman LIEBERMAN. So the people should really begin to see 

now, or will see as of April 1, a reduction in the payroll tax. 

Mr. NABORS. Exactly. 

Chairman LIEBERMAN. I originally had heard that it might not 

happen until June. Maybe that was during the consideration of the 

bill. OK, that is great. Thank you. 

Mr. NABORS. But it is important to be absolutely clear that while 

getting funds into the economy is important, it is critical to do so 

in a responsible and transparent way. This remains a priority for 

the Administration and the American people who continue to monitor the government actions through Recovery.gov. 

As Senator Collins mentioned, the Recovery.gov has had a total 

of about 300 million hits. That is double the level since the last 

time we spoke. 

Speaking on behalf of OMB, I can tell you that we are taking numerous steps towards effective implementation of the Recovery Act. 

We are reviewing numerous agency spend plans to ensure that 

funds are invested appropriately and with sufficient planning 

ahead of the actual obligations. We have facilitated the launch of 

recovery Web sites at all major agencies, which are linked through 

Recovery.gov. We have worked with Federal agencies to improve 

the timeliness and completeness of their financial reports that are 

publicly available through Recovery.gov. 

And perhaps most importantly, we are preparing to release tomorrow additional guidance to enhance agency reporting requirements and clarify recipient reporting. In order to get the most upto-date information possible, the updated guidance requires agencies to report more frequently and in more detail. We will ask 

agencies to provide information about significant funding announcements to OMB as they occur. We are not going to wait. We 

are going to ask them to report that information to us as the 

spending decisions occur in order to provide a better real-time 

sense of what projects are being funded, where they are being funded, and how much funding they are actually receiving. 

We will define agency and program plan requirements with a detailed template geared towards performance and oversight. We will 

eliminate the transition into a monthly financial report that was 

included in the original guidance. The monthly report was originally intended to provide a more detailed level of reporting. But instead, we will continue the weekly financial report with enhanced 

44 

reporting requirements so that more up-to-date information will remain available for the public, Congress, and Federal managers. 

To further ensure that Recovery funds are tracked and monitored 

to the sub-recipient and project levels, the updated guidance also 

provides significantly more detail on recipient reporting and establishes data collection methods, standard data definitions, and a 

process by which the recipient information will flow into Recovery.gov. 

The guidance will clarify several points. For instance, our guidance will establish that the Administration will be able to track the 

vast majority of Recovery funding to the sub-recipient and project 

levels. For contracts, which total about $60 billion of the Recovery 

Act, we will be able to track Federal contracts awarded, how prime 

contractors are using the funds, and information on any subcontracts that they award. For the approximately $300 billion in grants that are subject to 

recipient reporting requirements, we will be able to collect detailed 

information on Federal grants awarded and sub-awards from the 

primary recipient. Overall, we anticipate that we will be able to 

collect sub-grant information in about 95 percent of the cases and 

we are working to expand that going into the future to collect the 

other 5 percent. 

I would just like to stop here and acknowledge, when we came 

before you the last time, we heard the concerns that this Committee raised with regard to making sure that we follow this money 

as far down through the chain as possible. As much as possible in 

everything that we are doing going forward, we are trying to capture those concerns. This is a first step towards addressing some 

of your concerns and we are going to continue to take steps going 

into the future. 

We are going to ensure that recipient data collection will be centralized. OMB will oversee the development of a central collection 

system for recipient reporting, which will lower government-wide 

system modification costs, improve the consistency and availability 

of data, and alleviate reporting burdens for the recipients by establishing the central point of collection. We are only going to make 

a limited number of exemptions to that centralized point, and we 

are going to make those exemptions for those agencies that have 

clear expertise or systems already set up where it might be disruptive to create a secondary system. 

Recovery Act reporting will be standardized via the terms and 

conditions for Federal grants, loans, contracts, and other awards. 

This will also assist agencies in implementing Davis-Bacon and 

Buy American provisions. 

And finally, OMB is interested in public views on this guidance 

and will be accepting public feedback through April 17. After this 

date, OMB will plan to issue another update to their guidance 

based on those comments from stakeholders, including Federal 

agencies, Congress, State and local government officials, grant and 

contract recipients, and citizens. 

There are just a few of the things that we are trying to do to address the concerns that you have raised in the past. 

To point to another issue raised by members of this Committee, 

the Administration is committed to ensuring that agencies have the 

45 

1The prepared statement of Mr. Devaney appears in the Appendix on page 235. 

skills and capacity to plan effectively, award and administer contracts, and carry out programs funded by the Recovery Act. Per the 

advice of this Committee, we are reviewing the use of a government-wide contingency contracting corps in limited circumstances. 

However, given the likelihood that the activities of the Recovery 

Act will require many agencies to handle an increased workload 

over an extended period of time, we are also encouraging agencies 

to use various existing authorities and options, such as the direct 

hire authority or coordinated interagency recruitment efforts. We 

are looking at all available personnel authorities that are currently 

available. For example, on March 17, the Office of Personnel Management (OPM) authorized the government-wide use of excepted 

service appointments so that agencies can quickly hire additional 

staff without sacrificing veterans preferences. 

We are also reviewing a bill introduced by Senator Collins recently which would authorize Federal agencies to re-employ retired 

Federal employees on a limited basis without offsetting the annuity 

from salary. Employing retirees could be a promising means of 

building capacity for Recovery Act implementation and we are supportive of the kinds of additional flexibilities proposed in this legislation. 

With that, I will conclude by reiterating that all levels of and 

branches of government have been entrusted with a great deal of 

responsibility for helping to lead the Nation out of an economic crisis. We share the burden of living up to the expectations of the 

American people and delivering the transparency and accountability and performance that we promised. 

Thank you, and I look forward to your questions. 

Chairman LIEBERMAN. Thanks very much, Mr. Nabors. That was 

very helpful in many regards and I thank you for responding to the 

concerns and questions raised by the Committee at the last hearing. 

Mr. Devaney, welcome. Obviously, we have enjoyed the presence 

of you and your testimony before at this Committee. We welcome 

you in your new capacity and thank you very much for taking on 

these responsibilities. 

TESTIMONY OF HON. EARL E. DEVANEY,1 CHAIRMAN, 

RECOVERY ACCOUNTABILITY AND TRANSPARENCY BOARD 

Mr. DEVANEY. Thank you, Mr. Chairman, Ranking Member Collins, and Senator Burris. I want to thank you for the opportunity 

to testify today. I have had the honor of testifying, as you mentioned, before this Committee in the past as the inspector general 

of the Interior Department, and as you know, the President has recently appointed me to chairman of the Recovery Accountability 

and Transparency Board, and it is in that capacity today that I appear before you. 

I am pleased to tell you that the board has recently obtained office space and is busy acquiring a staff of highly skilled oversight 

and IT professionals. Our first board meeting, as mentioned earlier, 

was held last week and we have set in motion a number of initiaVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00053 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
46 

tives to ensure that the board fulfills all of its responsibilities 

under the Recovery Act. 

The members of the board, and I, view the board as having a 

dual mission. First, the board is responsible for establishing and 

maintaining a Web site, the purpose of which is not only to foster 

historic levels of transparency, but to do so in a user-friendly way. 

Second, the board will coordinate and conduct oversight of Recovery funds to prevent fraud, waste, or mismanagement. 

Even before the Recovery Act was signed into law by the President, OMB and the General Services Administration (GSA) had 

begun designing the architecture and creating the implementation 

plan for the Web site. A great deal of credit must be given to OMB 

and GSA for their efforts to launch this Web site. Because of their 

efforts, all Americans can visit the Web site today, as we have 

talked about, at Recovery.gov. However, I think it is important to 

point out that the creation of this Web site is an evolving process 

with multiple phases. It is not a single event. 

As you know, the Recovery Act vested the board with the authority to maintain this Web site. Now that this first phase of getting 

Recovery.gov up and running is over, I am eager for the board to 

start the second phase of development. During this second phase, 

the board will begin to manage the Web site’s design and content. 

OMB will retain responsibility for the reporting guidance and the 

collection and verification of data and GSA will continue to host the 

Web site. 

I am confident that this division of labor will provide the best opportunity to maximize Recovery.gov’s use as a transparency and accountability tool, and I am equally confident that we will also have 

the opportunity to achieve an unprecedented level of citizen participation. 

IGs across the Federal Government have developed multiple 

strategies to help prevent fraud, waste, or mismanagement of Recovery Act funds. In fact, this Committee recently heard testimony 

about some of those preventative strategies from the Chairman of 

the IG Council, Ms. Fong. What I can tell you today is that IGs 

are quickly transforming those strategies into real action. For instance, at least six IGs have finished reviews of previously 

unimplemented IG or Government Accountability Office (GAO) recommendations. These reviews will allow the Departments to take 

corrective actions now to ensure that effective controls are in place 

for handling these funds. 

Interior Department’s Office of Inspector General has developed 

a risk-based model to use in conjunction with Recovery grant funds 

and is now assisting the Department with developing its own riskbased models for grants with the hope of extending those models 

to contracts and cooperative agreements. 

Energy’s Office of Inspector General has completed over 30 fraud 

awareness briefings nationwide involving over 2,000 attendees. 

And several other IGs have audits and evaluations that are about 

to be released which will include recommendations that will be particularly helpful to the Departments for Recovery Act activities. 

At our first board meeting last week, both Ms. Fong and I supported the board’s decision to form a new Recovery Funds Working 

Group, which will be co-chaired by Board Member Calvin Scovel, 

47 

the IG of Transportation and a member of the board staff, former 

IG John Higgins, will be the other co-chair. The purpose of this 

working group will be to ensure a maximum level of coordination 

and cooperation among the IGs necessary to prevent fraud, waste, 

and mismanagement. 

Mr. Chairman, you and the Members of the Committee have noticed that I have been using the word ‘‘prevent’’ to help describe the 

board’s mission of accountability. That is very deliberate on my 

part. The language of the Recovery Act strongly suggests that IGs 

and other oversight entities are being asked to minimize the risks 

inherent in distributing such an extraordinary amount of money 

and to maximize the opportunities to prevent fraud, waste, or mismanagement in the first instance before it happens. 

I see the board actively detecting fraud trends, identifying best 

practices for conducting reviews, designing risk-based strategies to 

help focus the oversight community’s limited resources. The new 

Recovery Funds Working Group will undoubtedly serve as a catalyst for an unprecedented leveraging of resources. We will also 

work closely with the Department of Justice to ensure that when 

fraud is detected, a swift, coordinated process will follow. 

Finally, I would like to talk about some of the biggest challenges 

I see the board having. First and foremost is the matter of data 

quality. Simply stated, the Federal Government’s systems have 

never been fully successful at producing timely and reliable data. 

Second to data quality is the lack of an adequate number of procurement professionals at all levels of government, not only the 

Federal Government. However, I am encouraged by the news that 

the Office of Personnel Management has tentative plans to hold a 

multi-agency job fair sometime in May to help agencies with their 

human resource needs in this arena. 

And finally, Mr. Chairman, I am concerned that there may be a 

naive impression that given the amount of transparency and accountability called for in this Act, little or no fraud or waste will 

occur. I am afraid that my 38 years of Federal enforcement experience tell me otherwise and that some level of fraud or waste is, regrettably, inevitable. Obviously, the challenge for those of us 

charged with oversight will be to significantly minimize those 

losses. My promise to this Committee today is that my staff, the 

members of the board, and I will work tirelessly to reduce those 

losses to the lowest level possible. 

Mr. Chairman, Members of the Committee, that concludes my 

oral remarks and I would be glad to answer any questions. 

Chairman LIEBERMAN. Thanks, Mr. Devaney. That is a good beginning. We will do 7-minute rounds of questions. 

Mr. Nabors, let me talk first about the speed with which money 

is being spent, because obviously one of the reasons the President 

asked Congress and Congress responded with the Stimulus Act 

quickly was to get the money out into the economy. You have mentioned some numbers, $51 billion obligated, and then I think you 

said another $151 billion, which I take it is formula money that 

will go out to the States. 

But help put that in some context for us. The total of the stim- ulus package was $787 billion, rounding off. That is over a 2-year 

period. In the Senate—I am pleased to say that under the way we 

48 

wrote the bill, 80 percent would be spent in the first 2 years as opposed to a lower number when it originally came through the 

House. Give us a sense how these numbers fit in. 

Obviously, if we divide the $780 billion by two—you tell me if this is correct—then it would seem there would be $390 billion 

available this year. So how much of that would you say has begun 

to move out into the economy? And am I choosing the right numbers as a reference point? 

Mr. NABORS. Well, I think it is a little more complicated than 

that—— 

Chairman LIEBERMAN. Yes, I would suspect it. 

Mr. NABORS. If you look at what both the OMB technical staff 

and the Congressional Budget Office (CBO) technical staff were 

projecting, they were projecting a ramp-up in year one and significantly more activity at the end of year one leading into year two, 

and I think that is exactly what you are seeing right now. 

The numbers that I talked about were just grants, loans, and 

contracts. Within the $787 billion that you referenced, there is additional money with regard to food stamps—— 

Chairman LIEBERMAN. Right. 

Mr. NABORS [continuing]. Unemployment benefits, and tax cuts. 

That money is not tracked in the numbers that I was talking about 

with regard to obligation, but that money is also making its way 

into the economic system, as well, so—— 

Chairman LIEBERMAN. And that is a substantial amount of 

money—— 

Mr. NABORS. Absolutely. 

Chairman LIEBERMAN. That is many tens of billions, and presumably, as you indicated, with the reduction in the payroll tax 

credit, that has begun to feed in as of yesterday, as of April 1. I 

presume with food stamps and other programs, the extra benefits 

are already going out, but that they would go out over a period of 

time as people become eligible for those benefits. 

Mr. NABORS. That is correct. The food stamp money has not yet 

gone out, but it will go out soon and it will go out in an even way 

over the entire length of the program. 

Chairman LIEBERMAN. Right. 

Mr. NABORS. With regard to unemployment insurance, those benefits are available through December 2009, so it is on a slightly 

shorter time frame than the rest of the benefits. 

But I think overall, what you should expect to see is that agencies—and we are encouraging this type of behavior—agencies are 

taking time right now to plan their spending activities. We will see 

increased grants, loans, and contracts being made going into the 

summer and into the fall with a—and there will be increased activity going into the end of this year and going into the beginning of 

next year. I think that both OMB and CBO were projecting large 

bumps in terms of the amount of spending that is being done probably by the end of this year and at the beginning of next year. So 

we are ramping up to that. 

Chairman LIEBERMAN. So what number do you use? I mean, the 

presumption was that all this money could not be spent in the first 

year or even in the first 2 years. What percentage of it do you hope 

will be spent in the first year, and if you can—I may be pushing 

49 

you to take a guess—what percentage do you think has already 

begun to flow out into the economy now? 

Mr. NABORS. Our goal is that within the first 18 months, through 

this year and going into the next fiscal year, we would hope that 

70 percent of the funding is actually spent. 

Chairman LIEBERMAN. OK. 

Mr. NABORS. And I think we are on track to accomplish that. 

Chairman LIEBERMAN. OK. So that is a kind of front-loading, if 

you will. 

Mr. NABORS. Yes. 

Chairman LIEBERMAN. And that does not count all of next fiscal 

year. 

Mr. NABORS. Well, it counts all of next fiscal year. It does not 

count all of the next calendar year. 

Chairman LIEBERMAN. OK. So by the end of the fiscal year 2010, 

you hope to have spent 70 percent—— 

Mr. NABORS. Correct. 

Chairman LIEBERMAN [continuing]. Of the money, which is a little lower than I think was originally anticipated. Is that because 

of the capacity of the system to spend quickly or is that just the 

way it ended up once Congress sent the bill to the President? 

Mr. NABORS. I think that is just a reflection of the changes in 

programs that were made as the bill was going through conference. 

Chairman LIEBERMAN. Right. 

Mr. NABORS. I think that we will still have a responsible plan. 

I think over the period of the plan, we are still making significant 

investments that will—even the promise of the money will jumpstart the economy. 

Chairman LIEBERMAN. Yes. I understand what I am asking is 

very dependent on definitions, but what percentage of that would 

you say has been obligated now—which does not necessarily mean 

spent yet, but it is into the flow? 

Mr. NABORS. I would want to get back to you with a more definitive answer for the record on that. I know the answers with regard 

to the spending side. I would want to talk to the Treasury Department with regard to some of the tax revenues that are floating out. 

Chairman LIEBERMAN. But to summarize it, are you feeling good 

about the extent to which the system, the governmental agencies 

responsible, have begun to move the money out into our economy 

and into people’s pockets? 

Mr. NABORS. I do. We are still at a very early stage in the Recovery Act—— 

Chairman LIEBERMAN. Right. 

Mr. NABORS [continuing]. And for the most part, the agencies are 

still in the planning phase. We want to make sure that the planning phase is as effective as possible. We are planning on working 

closely with Mr. Devaney to make sure that, as he mentioned, that 

we are trying to avoid waste, fraud, and abuse up front, and as we 

develop those plans, more of that money will go out the door. 

Chairman LIEBERMAN. OK, thanks. 

Mr. Devaney, not only do we oversee, but the press does. I want 

to ask you to respond to two press stories I have seen. One is the 

New York Times report that bids on some of the first stimulus construction projects are coming in lower than expected, which is good 

50 

news. But then others raised the question, particularly watching 

what has been happening in the area of Department of Defense acquisition, about whether the initial bids are accurate and whether 

there will not be inflation as we go along. 

The second is a story the press always loves, and we know this 

from Department of Defense history, regarding spending on toilets. 

There is a press report that the Forest Service used an existing 

GSA Schedule for the purchase of 22 precast concrete toilet buildings for the Mark Twain Forest in Missouri and therefore did not 

solicit any other bids. My own understanding of this, and I am not 

drawing a conclusion about the fairness of the price, is that when 

an agency purchases off the GSA schedules, it does not mean there 

is a lack of competition. 

So give us a quick response to both of those. 

Mr. DEVANEY. Let me start with toilets first. 

Chairman LIEBERMAN. I am not going to comment. [Laughter.] 

Mr. DEVANEY. Unfortunately, the first thing that came through 

the door was this. 

Chairman LIEBERMAN. Yes. 

Mr. DEVANEY. And it was borne from a story that chronicled the 

first 11 contracts, actually, that were let, and so when they came 

to our attention—we have the ability to do a preliminary inquiry 

and take a look and see and identify, if, in fact, it was sloppy reporting, if something was tagged wrong, or something is not in the 

right database, we probably can do that. But of the 11, we ended 

up referring nine of those to the two IGs that had the nine contracts and—— 

Chairman LIEBERMAN. So they are going to follow up on that? 

Mr. DEVANEY. They are going to follow up on that and get back 

to us, but actually, if you are going to need to do interviews in the 

field, they are going to have to do that. 

Chairman LIEBERMAN. And there was the suggestion that by 

using a GSA Schedule, they were avoiding the law’s requirement 

for competitive contracting procedures. 

Mr. DEVANEY. Well, the law does not actually forbid using the 

GSA Schedule. It just says that it should be competitive as often 

as possible. The positive thing about the GSA Schedule is these 

companies have been vetted and they have been used before—— 

Chairman LIEBERMAN. Right. 

Mr. DEVANEY [continuing]. And it is something that I think contracting officers will think about when they are trying to move 

money fast. 

Chairman LIEBERMAN. So we will rely on you to let us know 

when you get the IG reports back. 

Mr. DEVANEY. Right. 

Chairman LIEBERMAN. How about a quick response to the other 

story about the first bids on construction coming in lower than expected? 

Mr. DEVANEY. I will get back to you on that. I am really not familiar with this. 

Chairman LIEBERMAN. Thank you. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Mr. Devaney, you said in your testimony that your many years 

of experience informs you or convinces you that some level of waste 

51 

or fraud, regrettably, is inevitable. The problem here is the numbers are so huge that even if we lose a very small percentage to 

waste, fraud, and abuse, it is a big number. Do you have a percentage estimate based on your experience of what you are concerned 

will be lost to waste, fraud, and abuse? 

Mr. DEVANEY. Well, as I mentioned in my testimony, our goal is 

to reduce any percentage to as low as we can possibly get it, and 

the transparency that is going to be in this arena has never before 

been in place. So I am excited about the opportunity to have the 

force multiplier, to have citizens telling us about things that we 

probably will not discover if it were not for them calling in or emailing in that something is wrong. 

So I think we have a good shot at reducing it to as low a level 

as we possibly can, but I have been in this business for 39 years. 

With that kind of money on the table, the bad guys are going to 

come. As we put up on Recovery.gov today, I think a series of 

scams that have already started, people who say, we will send you 

a stimulus check if you send us your Social Security number and 

your bank account, that kind of stuff has already started. It started 

6 days after the bill was signed. So that kind of thing is almost inevitable and we are going to try to get those kinds of things up on 

the Web site, get the press knowing about those kind of things, 

point people to the right departments that can help them with 

that. 

Senator COLLINS. The more eyes, the better, clearly—— 

Mr. DEVANEY. Right. 

Senator COLLINS [continuing]. As I said in my opening state- ment. The problem is, if you take $787 billion, even if it is a 1 percent loss, you are talking about a huge amount of money and that 

is why I think that it really is important to enlist citizens in reporting and to make sure that you have the resources to follow up on 

those tips, because we have seen cases in the past where citizens 

or Federal employees have called to blow the whistle on fraud and 

the resources have not been adequate, which brings me to your testimony today on the two biggest challenges. 

The first is the quality of the data. The second is the lack of 

qualified procurement personnel. Mr. Nabors very kindly mentioned the bill that I have introduced with Senator Kohl that would 

allow experienced Federal employees who have retired to be reemployed temporarily to help meet this surge capacity need. Do you 

support legislation that would allow for the rehiring of annuitants 

without their incurring a financial penalty? 

Mr. DEVANEY. Well, speaking personally, yes, I do. I do not think 

the board has taken a position on that, but I cannot imagine that 

not being a good thing. 

Senator COLLINS. Thank you. 

Mr. Nabors, I want to bring to your attention an issue that has 

come up in Maine. The people of Maine are trying hard to comply 

with the guidance and report accurately, but on some issues, it has 

been difficult to figure out exactly what OMB wants to have reported. One of them centers on the very important issue of what 

constitutes a job. Now, since all of us are very interested in how 

many jobs are created—that was a major purpose of our working 

so hard to pass this bill—this is an important measure of our sucVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00059 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
52 

cess. Let me give you the specific example that the people of my 

State have given to me. 

There is a paving project that is going to be funded from the 

stimulus bill from Topsham to Gardiner in Maine, and it is going 

to create much needed jobs. Those jobs are, however, temporary 

jobs. They are only going to exist as long as this paving project is 

underway and it will take a number of months, but then it will be 

completed. Then those individuals, theoretically, at least, could go 

on to another project that is funded by the stimulus law, another 

transportation infrastructure project. 

So how are they counted? Are they counted twice, which is not 

exactly accurate because it is one person continuing to have a 

much-needed job, but on two different projects? Are they counted 

twice, because, after all, they are new jobs that are created and 

would not exist. Are they not counted at all because they are temporary jobs? What do I tell my constituents on how to comply? 

Mr. NABORS. You have put your finger on the exact issue which 

is sort of confounding us in terms of making sure that we have a 

standard way of reporting that. In the very near future, OMB is 

going to be putting out specific guidance with regard to how to calculate the job numbers. We are working very closely with the 

Council of Economic Advisers (CEA) so that we have the best economic measures and the best economic minds thinking about this 

so that we can standardize those types of issues across not just 

States, but also across Federal programs, as well. 

Just to give you one example, building on what you have just 

said, we will get estimates from the Department of Transportation, 

who is very familiar with the type of issue that you are raising. 

They use a calculation for job years. Well, job years is not the same 

as a job that the Department of Energy is calculating. What we are 

trying to do right now is come up with a methodology so that it 

can be standardized in such a way that everybody can use it in the 

same way, but most importantly, that it does not misrepresent the 

numbers. 

I think that you are absolutely right. The whole reason for the 

Recovery Act was to create or save jobs. I think the last thing that 

we want to do is misrepresent what is actually going on with the 

dollars that we are spending. So within the next few weeks, you 

should see that guidance coming out and we hope that it will be 

helpful to States and local governments in terms of making those 

types of calculations. 

Senator COLLINS. Thank you. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks very much, Senator Collins. Senator Burris, good morning. 

OPENING STATEMENT OF SENATOR BURRIS 

Senator BURRIS. Good morning, Mr. Chairman, Ranking Member 

Collins, and to our distinguished presenters. 

My question will initially piggyback on what Senator Collins was 

asking in reference to the ability to bring in talent, Mr. Devaney, 

from the other governmental employees. Do we have a number, in 

terms of these agencies, of what we are really looking for in terms 

of the number of personnel? And second, I would assume that these 

agencies with the stimulus packages have been provided resources 

53 

to handle that, what size are we talking about in terms of costs in 

that regard? 

Mr. DEVANEY. Well, Senator, I think that it is fair to say that 

this is a problem across government. It is not any particular agency. It is absolutely across the board. There has been not much hiring in the procurement professional arena over the last decade, and 

at the same time, there has been flat hiring. There has been an 

awfully big increase in spending and this bill just dumped on top 

of that is causing a great deal of concern. 

IGs are looking and working with the departments to see what 

the gaps are, what the needs are. The board is required to conduct 

a review, which we have just started, to look and see what the 

needs are and what the situation is. I think as of 2 days ago, and 

now up on Recovery.gov, the first report came out of the Department of Energy, which suggests that they are understaffed in the 

procurement professional arena. Even though they have actually 

undertaken a hiring blitz over the last 3 or 4 years and gone up 

in percentage, still, with this kind of money going to be spent, they 

are going to need to do better. We have an aging workforce. We 

have people eligible to retire. So all of this is sort of coming together as a perfect storm, if you will, and it causes me great concern. 

I think OPM is looking at a number of different kinds of solutions, and as I mentioned in my testimony, they are going to hold 

job fairs. But I think they are going to do a lot of thinking about 

issues like Senator Collins raised with retired annuitants and other 

things to bring some relief to this very troubling area. 

Senator BURRIS. Mr. Nabors had mentioned the fact that there 

are $51 billion that has either been obligated or is already out 

there, and I would assume that we are tracking that pretty closely, 

if either one of you all want to respond to that, in terms of are 

those dollars in advance of our tracking system? We need to make 

sure that they are going to get the same scrutiny that dollars will 

be 6 or 7 months from now. 

Mr. NABORS. No, they are not in advance of our tracking system. 

Right now, we currently have a system in place where the agencies 

are reporting to us on a weekly basis on their financial activities. 

Grant information, contract information is coming to OMB and we 

are making sure that information is made public. A lot of the initial funding are obligations related to things like Medicaid and we 

have a very good idea on where that money is going because it is 

largely going to States for health care types of costs. 

Senator BURRIS. Now, are you sure the States are geared up? 

Will your computer be able to track down to the spending point of 

that contract or of that grant from the States? 

Mr. NABORS. The guidance that we are going to put out tomorrow will put in place a system that will allow us to track subcontract recipients. 

Senator BURRIS. Mr. Devaney, I think about the fraud issue and 

abuse issue, and being a former attorney general of my State, 

would certainly say that you have to look for those type of resources, especially your State attorneys general that could help you 

with that fraud and abuse tracking process, and I hope that there 

would be some attempt to bring those in, especially as a part of the 

54 

overall tracking system. Will this put an additional burden on the 

State resources? 

Mr. DEVANEY. Absolutely, Senator. I think what we are looking 

to do is we are going to have in-house an experienced prosecutor 

that is going to work at all levels of government, Federal, State, 

and local, with district attorneys, attorneys general, and try to figure a way to leverage our resources, to figure out how to best 

present fraud awareness training and to help prosecutors at all levels of government. 

Senator BURRIS. But you know what will be reported, the sensational story where the one person got away with a major contract, 

and they are out there. They are trying to do it. It is amazing how 

the schemes come about. You mentioned it already, they are already advertising with their schemes to try to rip off the government. We spend more money trying to protect ourselves, which will 

then free up a lot of money to get out from people trying to rip us 

off. 

So I just hope that we are able to track this, because as Senator 

Collins said, that is a lot of money when you are dealing with these 

numbers and these sizes. If you are just talking about a tenth of 

one percent of a few billion dollars, the taxpayers are going to start 

looking at all of us, saying, why did not we do something? 

Of course, we have to make sure that we do what the President 

said we are going to do, which is that we are going to watch every 

dime. I hope that we can probably watch every $100 million rather 

than every dime, because if we can watch every dime in this, I 

want to know what format President Obama is going to be using 

and I would want to commend every staff member on your team 

and on Mr. Nabors team who protect our money. I mean, you all 

should get a major blue ribbon for that. 

Mr. DEVANEY. Thank you, Senator. 

Senator BURRIS. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator Burris. Senator 

McCaskill, welcome. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Thank you very much. 

I know we are struggling with overseeing some of this money and 

the last time we talked a little bit about the Single Audit, I heard 

back from most of the GAO and IG community on it and I completely understand that we cannot abandon some of the basics of 

the Single Audit, primarily the financial statement audit, because 

everybody depends on that for their bond ratings. And we have to 

have a schedule of expenditures in terms of Federal awards just so 

everybody can keep track of who has what. 

But the requirement that 50 percent of all Federal funds be covered and the emphasis on the very large low-risk programs, the Alevel programs, as opposed to, for example, in my State, and I 

think in all of the States, where we are going to have some ugly 

stories before this is all over is in the Weatherization Assistance 

Program. I look at the Urban League of St. Louis, and typically 

they get a million dollars a year for weatherization programming. 

They are going to get $15 million. 

55 

Where do these crews come from? Are they competent to do the 

work? Has it been bid? And are they being told it is OK to turn 

the money back in instead of the alternative of giving a second 

cousin who has a pick-up truck and two friends a bunch of money 

to go weatherize some homes, and then we go and check and 

maybe they put weather stripping around the front door and that 

is all that happened. 

I mean, we are up here, and you get right down to it, I think 

the home Weatherization Assistance Program is not like Medicaid. 

It is not like child support. But it is one of those places where you 

have a low-level program that now has incredibly high risk because 

we are overloading that program with a whole bunch of money they 

have never had before. 

Where are we on looking at the OMB annual Compliance Supplement A–133 and what chances do we have of changing it this year 

to move out some of these A-level low-risk programs and get at 

some of these smaller programs where I think we are going to have 

some problems? 

Mr. NABORS. Well, in response to your comments from the last 

hearing and in response to your letter, I have asked the OMB staff 

to work with the key stakeholders to determine how the Single 

Audit process can maximize the accountability and transparency of 

our Recovery actions. By the end of April, OMB is planning on publishing an update to the compliance supplement for Circular A–133 

and this will clarify the coverage of the Single Audit. It will highlight significant accountability requirements for Recovery dollars 

and it will help to ensure that appropriate Recovery programs are 

designated as high-risk and audited as major programs. 

Senator MCCASKILL. And they are looking at this, the issue that 

I talked about—— 

Mr. NABORS. Absolutely. 

Senator MCCASKILL [continuing]. Where we are putting a bunch 

of money—I mean, a lot of these programs are going to get looked 

at anyway, but when you have such a huge bump-up, that is where 

I think—— 

Mr. NABORS. And if I may, ma’am, you will know more about Circular A–133 than I will ever know and I was hoping that I could 

have my staff come up and work with your staff as we put together 

this supplement—— 

Senator MCCASKILL. That would be terrific. 

Mr. NABORS [continuing]. To make sure that we are, to the extent possible, capturing the concerns that you have. 

Senator MCCASKILL. That would be terrific. And what might be 

really helpful is to get somebody on the phone in a conference call 

at that time that actually does an A–133 audit in the State. There 

are people in every State that take on this responsibility to do 

these audits, the practitioners at the State level, and the government auditors at the State level. 

And I would think pulling together two or three of those people— 

I am not talking about the elected State auditors or the appointed 

State auditors. I am talking about, I mean, there was somebody in 

my office that had been doing the Single Audit, responsible for 20 

years. They know everything. Frankly, they know a whole lot more 

about it than I do. 

56 

And I think getting those kinds of practitioners together quickly 

is important, and you could do it very easily through the State 

auditors association. You could pull together five or six very senior 

State auditor practitioners, not the bosses, but the worker bees, the 

ones that are actually going to do the work papers and the ones 

that are actually going to look at internal controls and all those 

kinds of things that those of us who hold the press conferences do 

not do. 

Mr. NABORS. We will do that. 

Senator MCCASKILL. OK. Let me also ask you about the Federal 

Audit Clearinghouse for Single Audits. This is going to be a great 

location because I think all these State auditors, regardless of what 

you do with A–133, are going to want to look at these funds because there is a lot of political pressure for them to look on these 

funds, although a lot of State auditors are not elected. But having 

said that, most of them are going to feel the pressure to look at this 

money and how it is being spent. 

Typically, the Federal Audit Clearinghouse is not really particularly well-suited for the average citizen. It is not really user-friendly. And auditors—and I know that Mr. Devaney will back me up 

on this—many times, they do not speak English. They are a little 

bit like the people that hang out at the Pentagon. They have a lot 

of terminology that is not friendly for the average person. 

Have you guys on the board considered looking at the Federal 

Audit Clearinghouse and seeing if we could incorporate that into 

Recovery.gov, because it is going to be a great treasure trove of 

oversight information on the stimulus money and it seems to me 

we ought to transplant that over to Recovery.gov in a user-friendly 

way that allows people to get to their own State audits to look at 

what is actually happening in their States in terms of oversight. 

Mr. DEVANEY. Senator, I think that is a great idea. I mean, we 

really had not thought about it, but I appreciate you bringing that 

up and I fully agree that whatever we do, it has to be in English 

and not ‘‘auditese.’’ 

Senator MCCASKILL. Yes. And speaking of English, we have been 

spending a lot of time on Recovery.gov in my office and the weekly 

updates, kind of feel like internal use project plans. They do not 

feel like they are being written so people can look at it and really 

understand what is happening. I do not think they are useful to 

most people, the weekly updates, the way the terminology is and 

the way it is characterized. 

Let me ask you this. On Recovery.gov, do you have folks that are 

like the people who go into the restaurant that are working from 

the newspaper and going to see how well they do with their food? 

Do you have people accessing this Web site and giving you objective third-party feedback that are not working there in terms of 

what they are learning, what they are not learning, and how it 

works? 

Mr. NABORS. Well, the Recovery.gov does have a link that allows 

the public to comment and add suggestions with regard to how we 

are performing. But I would defer to Mr. Devaney. 

Mr. DEVANEY. Well, every morning, Senator, I get up and I go 

to Recovery.gov, the first thing in the morning, and I share your 

concern. 

57 

Senator MCCASKILL. You poor thing. 

Mr. DEVANEY. I share your concern. Well, it is mine, so I—— 

Senator MCCASKILL. I know it is yours. [Laughter.] 

You have no choice. 

Mr. DEVANEY. I have no choice. But let us say it this way, that 

the site, as I mentioned earlier in my testimony, is an evolving 

process and this site is going to be, I believe, an opportunity to 

really have an historic level of transparency and citizen participation, and it may serve, if we do it right, as the model for how we 

do this in the future. 

And so I am determined to get this right, and I think, for instance, content management is an issue, that we are now 

transitioning from OMB’s good work standing this site up to the 

board is going to take over content management, and I am working 

very hard to get on my staff people who can write in English and 

can put stuff up to which people are going to be attracted. And at 

the same time, the technology out there, it is phenomenal, what we 

can do with this site. In a relatively short time, I think we can 

have a site where people would only go on it once, but want to 

come back the next day and the day after because we will be able 

to drill down as the information starts coming back in to the level 

where people really want to see this in the neighborhood. 

Senator MCCASKILL. Thank you, Mr. Chairman, for your indulgence. Let me just say that I think another idea I would give you 

is that I discovered that the best thing I did when I was an auditor 

was I hired a journalist to begin writing the summaries for audits. 

Unfortunately for our democracy, there are a lot of journalists looking for work right now and they understand how to write a lead, 

they understand how to keep it very concise, they understand how 

to make it interesting, and I would certainly encourage you to look 

at the vast number of really qualified journalists that are out there 

looking for work right now because I think you could get some real 

talent that could really help us with that content in terms of making it interesting to people. 

Mr. DEVANEY. Senator, tomorrow morning, I am interviewing two 

journalists. 

Senator MCCASKILL. There you go. All right. Great minds think 

alike. Thank you, Senator. 

Chairman LIEBERMAN. Thank you, Senator McCaskill. Senator 

McCaskill has her own stimulus employment program. [Laughter.] 

Senator MCCASKILL. Helping all the people out there typing on 

their laptops. 

Chairman LIEBERMAN. I appreciate that. 

We will do a second round if people want to stay. I think we have 

a while before the vote-a-rama starts. 

Let me just pick up on the Web site, if I might. The usage is really miraculous or stunning. So to the extent that you are analyzing 

now, am I correct in assuming that most of those hits are just looking for information about how the stimulus works, how you might 

get funds, or something of that kind? 

Mr. DEVANEY. Mr. Chairman, I think people are coming in right 

now out of curiosity—— 

Chairman LIEBERMAN. Yes. 

58 

Mr. DEVANEY [continuing]. And seeing what is there. And what 

I would say to them is keep coming back periodically and I think 

you will see it getting more robust and more user-friendly. And I 

am really excited about the idea. There are some terrific technologies out there that we can use, interactive mapping and drilldown techniques where you can get down to where I think people 

really want to see the rubber hit the road. And I think OMB’s guidance coming out now will be very helpful in getting down to those 

lower levels that you have expressed some concern about. 

And then we need to display that. We need to be able to let people go on that Web site, click on their State, and then keep clicking 

until they get down to their city to see the projects, to see the 

money that has been spent in that area—— 

Chairman LIEBERMAN. Yes. 

Mr. DEVANEY [continuing]. And all of that is possible. It is not 

there now, but it will be. 

Chairman LIEBERMAN. I appreciate that commitment to make 

that happen. 

Let me ask you about the extent to which this is interactive. For 

instance, tell us about the process—it is early on now in the program, but this will presumably happen—where someone will say, 

hey, this Stimulus Act money in my town is being used badly, or 

my company got a grant and it is being wasted. How do you funnel 

those comments to a point where you can respond to it and use it? 

Mr. DEVANEY. Well, if the call were to come to us, we would do 

what we always do in any IG office. We would get as much information as possible and then, in our case, we are going to be funneling that to the appropriate IG and then asking that IG to get 

back to us. 

Chairman LIEBERMAN. So is there a clear portal for people to go 

to on the Recovery.gov Web site if they want to whistleblow? 

Mr. DEVANEY. There is a portal where they can make comments. 

There is a portal where they can tell a story, if they wanted to. 

Chairman LIEBERMAN. Great. 

Mr. DEVANEY. I do not think we necessarily are, from the oversight perspective, interested in the stories as much as we are the 

citizen that might look across the street and see the Web site, says 

a school is going to be built and they look across and there is just 

a forest. 

Chairman LIEBERMAN. Yes. 

Mr. DEVANEY. So we are going to have to develop the capacity, 

and this is no easy endeavor, to sift through the millions of citizen 

comments that are going to be coming into this Web site. 

Chairman LIEBERMAN. Yes, that is what was on my mind. It is 

pretty hard to do that right now, I assume. 

Mr. DEVANEY. No, we cannot do that right now, and we are talking to groups that suggest they can do that for us. But we want 

to make it real. Personally, I believe that we will lose the value of 

citizen participation if they do not think they are heard. 

Chairman LIEBERMAN. I agree. 

Mr. DEVANEY. And so if you write into the site and you never 

hear anything back or you never see any action, I mean, that is actually worse than inviting them to do it in the first place. 

Chairman LIEBERMAN. Yes, I agree. 

59 

Mr. DEVANEY. So we have an enormous challenge here. I am trying to get the smartest people I possibly can to come in and talk 

to us about this. It has never been done before at this scale, so—— 

Chairman LIEBERMAN. Right. That is a real challenge, and so we 

wish you well. I could not agree with you more that people at least 

have to have a kind of automatic response that you got their message and somebody will go over it. But to ferret out of all that 

input the whistleblowing that you really do want to know about is 

your challenge. 

Let me go to a second part of this, on the prevention part. What 

will your IGs do—what kind of systems will they set in place, not 

just to detect but to prevent, with a program this large and with 

this money moving out this quickly, to prevent waste, fraud, and 

abuse? 

Mr. DEVANEY. Well, as I mentioned earlier, we have created a 

working group where we are all going to talk to each other on a 

regular basis. We are going to try and leverage our resources. 

There are going to be some IGs that are going to be able to easily 

handle the load and then there are going to be some IGs who do 

not have the staff to do it, so we are going to have to leverage resources and achieve the highest level of cooperation, perhaps, we 

have ever seen before in the IG community. 

And I think IGs are, right now, they are out there giving fraud 

prevention awareness training to the Department staff. They are 

out there talking to local enforcement and prosecutors. They are 

doing a lot of that right now. They are developing risk models, as 

I mentioned in my testimony. We have to figure out what the risk 

models need to look like in this endeavor so that we can focus our 

limited resources in the right place. A model that suggests that 

this particular kind of a grant or this particular kind of a contract, 

if we only have a certain amount of resources, let us expend it 

there. 

But IGs are not just doing that internally. I mentioned at my 

former office, they have taken that risk model that we have always 

had internally and they shared it with the Department and they 

are encouraging the Department and working with the Department 

to help build their own risk models. So IGs are out there right now 

working with the Departments, who, by the way, are working, from 

my overview, very well in setting up their own internal shops to 

manage this money, as, quite frankly, I have never seen them do 

before. So I am encouraged by that. 

Chairman LIEBERMAN. That is good news. 

Mr. Nabors, let me ask you this question, and it may be hard to 

answer it now, but perhaps as we go on in this experience, when 

you come back, you can help us with it. Obviously, we appropriated 

this enormous amount of money because we all heard about the 

trillion-dollar gap in normal demand in the economy and we are 

trying to fill it and get economic activity going again. 

There has been some encouraging news lately. And obviously the 

discouraging news is that the economy continues to bleed jobs. The 

encouraging news is that there was some evidence last month of 

consumer spending going up a little bit, of more activity in housing 

sales, and the stock markets had their best month in March in 

quite a while. 

60 

So I do not know whether you have any ability to relate that to 

the money that the Recovery and Reinvestment Act has put out 

into the economy thus far. I would welcome that analysis as we go 

on, which is a way in a broader sense for us to try to determine 

whether the Stimulus Act is achieving its purpose. 

Mr. NABORS. We do not have it now, but I would be happy to 

work with our staff to generate that model for you. 

Chairman LIEBERMAN. I appreciate it. I mean, it is hard to imagine that putting this much money out into the economy would not 

help some. I mean, the question is, how do we track, to the best 

of our ability, how much it has helped? I thank you. 

Senator Collins. 

Senator COLLINS. Thank you. 

Mr. Nabors, I want to bring up another area that really concerns 

me, and that is when the omnibus appropriations bill was passed, 

without my support, I would add, it did not reconcile the funding 

in that Act with the funding that we had just approved a couple 

of weeks earlier as part of the stimulus bill. The result is that 

there are some Federal agencies that are going to receive an enormous increase in funding, far beyond what they have ever handled 

before. Let me give you a specific example. 

The Federal Railroad Administration (FRA) has traditionally 

been a very small agency that is responsible for dispersing some 

Amtrak funding. Now, its funding is going from $1.5 billion to over 

$10 billion. It is an enormous increase in the funding that this very 

small agency is going to have to get out the door properly in grants 

and contracts. Are you doing anything to target agencies like this 

one that are receiving, as a result of the combination of the Stimulus Act and the omnibus bill, a massive increase in funds but may 

not have the people and the procedures in place to ensure the 

money is spent wisely? 

Mr. NABORS. This issue is one of the primary issues that we have 

been focused on since the passage of the omnibus, making sure 

that there is the appropriate management and planning structure 

in place, especially for these agencies that are not used to seeing 

large sums of money. The Vice President has been very involved 

personally with regard to the FRA and ensuring that they have 

both the personnel and the plans and procedures in place to ensure 

that this unprecedented amount of money that was provided to 

them is used for what it is intended, and that is to both stimulate 

the economy and to fundamentally transform the way our infrastructure system operates in this country. 

It is going to be a challenge. I will not try to softball that one. 

And it is a challenge that we are dealing with each and every day. 

But it is something that we are all very cognizant of and it is something we are focused on and it is something that we are working 

on every day. 

Senator COLLINS. Mr. Devaney, are you giving extra scrutiny to 

agencies or programs that have had massive increases in funding? 

It seems to me that this is a recipe for the kinds of problems that 

you have been talking about. 

Mr. DEVANEY. I think you are right, Senator, and I think this IG 

Working Group that we have put together, all of those IGs, as I 

mentioned, are at some stage in developing risk models and the 

61 

kind of things you are talking about would be the kind of agencies 

we would look at as high-risk. And so I think what you will see 

emerging at some point is a strategy for IGs, maybe somewhat different in different Departments, but overall, we are going to try to 

identify those high-risk areas. That one would certainly be one. 

Senator COLLINS. Mr. Devaney, you talked earlier about the email scams that are already going around—— 

Mr. DEVANEY. Right. 

Senator COLLINS [continuing]. And one of them asks people to 

send personal data and information in order to get their ‘‘stimulus 

check.’’ I am fearful that a lot of people will fall for that scam because—and what I think was an error in policy—we did do these 

one-time checks a year or so ago of $300 or $600 to taxpayers. So 

this may well ring a bell with the citizens of this country and they 

may respond to it. 

Have you thought of enlisting groups like AARP, or there is a 

group called Triad that works with local prosecutors to try to educate seniors in particular? It is fine for the IGs to be aware of this. 

It is fine for the Federal Trade Commission (FTC) to put out alerts, 

but that is not going to reach a lot of people who will receive these 

e-mail scams. It seems to me that you need to get nonprofit groups, 

senior centers, Area Agencies on Aging involved. Is there any attempt to do that underway? 

Mr. DEVANEY. Not yet, but that is a wonderful idea. I mean, we 

have just been collecting all the various scams. We put them up, 

I think, 2 days ago on Recovery.gov and we have been working 

with the various agencies like FTC and we have all of the linkage. 

On Recovery.gov, we have links to all of those agencies. We have 

links to all the IGs at the respective agencies. But working with 

groups like AARP, that is a wonderful idea. We will do that. 

Senator COLLINS. Thank you. 

Let me just end with one final question, and that is to go back 

to the issue that waste, fraud, and abuse is inevitable. I know 

there was a Wall Street Journal interview that you gave in which 

you expressed your concern that there could be as much as 7 percent of the stimulus funds lost to waste, fraud, and abuse. When 

you are talking about $787 billion, I think that amounts to something like $55 billion. 

I just want to get on the record that we simply cannot allow that. 

That is an unacceptable percentage no matter what number it is 

applied against, but when we are talking about a number this 

large, the economy will lose significant funding. The public will lose 

significant confidence in what we are doing if more than $50 billion 

is lost to waste, fraud, and abuse. So I believe it is incumbent upon 

all of us to ensure that does not happen. 

I know what you are saying, and you are applying more than 30 

years of Federal law enforcement experience to this job, but we 

have to ensure that does not happen. 

Mr. DEVANEY. I totally agree. The 7 percent comes from a very 

reputable and well known association of fraud examiners, and I 

was asked about the 7 percent and it is $55.1 billion. I was horrified when I first did that math. I am very hopeful that we would 

never, ever see something like that, but we have to get it down to 

the lowest level possible. I do not even like talking about the 7 perVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00069 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
62 

cent because I do not want to acknowledge it ever could be that 

way. It is a number that is out there. 

Senator COLLINS. Thank you. 

Mr. Chairman, I want to commend you for the hearings we are 

holding because I think that the ideas that we are all generating 

and passing on to you in this collaborative effort will help to ensure 

that we do not see that level of waste, fraud, and abuse, so thank 

you for your leadership. 

Chairman LIEBERMAN. Thank you, Senator Collins. Thanks for 

your contribution in that regard. Too often we authorize, we appropriate, and then we leave the rest to the Executive Branch. This 

is really too critical, too big, and as I said at the beginning, it is 

too big for us to let it fail. So together, we have to make it work, 

and I thank you. 

Senator McCaskill. 

Senator MCCASKILL. I would like to talk a little bit, Mr. Devaney 

and Mr. Nabors, about blanket purchase agreements and utilizing 

the catalogs of existing deals. The toilets that have been talked 

about are in the Mark Twain National Forest and they are in my 

State, so I have spent a lot of time going through it, and you know 

what? It was not a bad deal. It made a great headline, and my 

friend, Senator Coburn, before you talk about the toilets, make 

sure I get you this memo because you will be impressed. 

In reality, what they did was they looked carefully to find the 

least expensive way to build buildings for toilets that are accessible, low maintenance, and a good value in the Mark Twain National Forest. But because they were toilets and it was a lot of 

money, all of a sudden, everybody got the vision of the gold hammer and the $5,000 toilet seat. 

But it brings me to an issue that I am wondering if you all have 

talked about, and that is I was surprised when I got here and I 

learned that agencies were soliciting other agencies to buy off their 

book of contracts because they got some kind of bump for it. In the 

Armed Services Committee we were looking at this. There was actually advertising by one agency saying, use our existing contracts 

to buy off of because, I guess, there is some kind of transfer of 

funds between the agencies if they use each other’s. So when GSA 

sells stuff to the Department of Defense (DOD), they were able to 

get some extra money. 

Have you all looked at that in terms of these transference of 

funds between these agencies using existing contracts because that 

is not what we meant this money to be used for. 

Mr. DEVANEY. Well, I would just tell you that as the IG of the 

Interior Department, I wrote some rather scathing reports about 

the use of the franchise funds at Interior. I think the Interior Department is one of seven departments that actually has that capacity. Things have gotten a lot better. They still have it, and some 

of the abuses that we chronicled have been corrected. But nonetheless, there are seven entities—I think there are only seven—that 

allow other departments to come in and they will buy you and take 

a piece, if you will, of the action—— 

Senator MCCASKILL. Right. 

63 

Mr. DEVANEY [continuing]. In some administrative fees. My critiques went to what they were doing with those fees after they got 

them. 

Senator MCCASKILL. Right. 

Mr. DEVANEY. But nonetheless, it is legislation that was passed 

by Congress and they are allowed to have it. 

I really have not thought about these funds with those systems. 

I am interested to hear that is happening and we will look into it. 

Senator MCCASKILL. Yes, because I think it is a place where we 

could have some abuse—— 

Mr. DEVANEY. Right. 

Senator MCCASKILL [continuing]. Because there is a lot of money 

being put into the system and because—and, of course, they have 

two masters here, all these agencies. One is to get the money out 

quickly and one is to make no mistakes. Well, those are two masters that are hard to serve at the same time. So I think that might 

be something we want to look at. 

Let me also, just briefly, ask you about leasing versus construction. One of the things I discovered is that we have this bad habit 

of leasing non-permanent buildings that eventually turn into permanent buildings that we buy. Is there any incentive in the way 

that we are putting this money out there that people would begin 

to engage in buying temporary buildings? Army Materiel Command 

did a temporary building, OK. Well, I went to the temporary building, and believe me, this is not a temporary building. This is a 

large office building, and they tried to tell me, well, we could take 

it apart if we needed to. 

But I am curious if you all have put any rules in place about 

uses of this money for capital as to whether or not people are going 

to lease temporary buildings or if they, in fact, are going to invest 

in buying buildings, because right now, construction costs are so 

low, they might even be lower than what we would pay to lease a 

temporary building which inevitably the government ends up getting around to buying at the end of the day. Have you all talked 

about that or looked at that? 

Mr. DEVANEY. We have started talking about it. I think that one 

of the first 11 contracts that we were asked to look at, particularly 

as Chairman Edolphus Towns on the House Oversight and Government Reform Committee asked me to look at, involve such a matter, and so we have referred that to the GSA IG and we are waiting for them to get back to us. But I think we want to learn from 

that what the scope of that problem might be. 

Senator MCCASKILL. Yes. I think you are going to see—because 

these manufacturers can come in and do a pretty good sales pitch 

on temporary buildings. I am just worried that it will be a very seductive process, that people will say, well, we can just go for this 

lease of a temporary building. We do not have to jump through all 

the hoops that we would have to if it was a capital expenditure because we can take it out of a different fund, and with this stimulus 

money, I think that is another area that we might have some 

abuse. So I would appreciate any feedback we could get on that. 

Mr. DEVANEY. Absolutely. Sure. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

64 

Chairman LIEBERMAN. Thank you very much, Senator McCaskill. 

Senator Coburn, welcome. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, and thanks for having the hearing 

and thank you all for coming to testify. I have read your testimony. 

One of the problems that we have in the Federal Government is 

Congress telling us how we budget, because outside of the stimulus 

package, we lease almost 90 percent non-military buildings. We do 

that because the accounting rules we have charges the whole cost 

of the building in the year in which you take occupancy to the 

agency. So we do not actually buy. We lease because it is the least 

budget-impacting, which is silly and something we ought to change 

in the long run. 

I was not prepared to talk about toilets this morning, so I will 

pass on that one. 

Senator MCCASKILL. I knew it was coming some day. [Laughter.] 

Senator COBURN. Maybe, maybe not. We are looking for the 

truth, not the headline. 

Mr. Nabors, I have some real concerns with what you all are 

doing thus far, and let me explain. If you go to Recovery.gov and 

you put another computer up right next to it and go to 

USAspending.gov, you see two totally different approaches. In 

USAspending.gov, you can go by city, you can go by contractor, you 

can go by grantee, you can go by Department, and you can go all 

the way down to find out who is doing what. I am waiting on a letter to come back from OMB now clarifying when USAspending.gov 

will include subgrants and subcontractors. Senator McCaskill and 

I were significantly involved in getting that done. 

I am hearing that you plan to move USAspending.gov to Recovery.gov, which scares me to death based on what I see in Recovery.gov. Recovery.gov is not searchable where as USAspending.gov 

is searchable. 

So would you mind settling me down a little bit in my worry and 

gray hair accumulation that you are going to go toward something 

like USAspending.gov, that is multi-searchable, that you can use 

almost any matrix to get where you want to go, and you can do it 

quickly? I spent 10 minutes this morning on Recovery.gov, and I 

want to tell you, there is nothing there. I know it is early, but I 

just want to know where you are going with it. If you are going 

in the direction of what it looks like versus what is on 

USAspending.gov, you are not going to give anybody the assurance 

of anything in this country about really finding out what is going 

on across the street. 

Mr. NABORS. Well, let me try to save your gray hairs. 

Senator COBURN. OK. Thank you. 

Mr. NABORS. Our plan—I think it is a misunderstanding with regard to what we are trying to do with Recovery.gov. The reason 

why we did not use USAspending.gov right now is because there 

seems to be such an overwhelming demand to get information as 

quickly as possible onto the Web sites. The data systems that feed 

into USAspending.gov just are not at the point right now where we 

can get information up as quickly as we believe that the public is 

demanding it. 

65 

But our goal in the long term is to try to merge the best of both 

Web sites, the data quality and the extensiveness of the data on 

USAspending.gov along with the search capabilities with the speed 

that we are trying to build into Recovery.gov. Recovery.gov, in my 

wildest dreams, will become a model for being able to update our 

financial systems to a degree where we are not just able to track 

Recovery Act spending in almost real time, but we can also do the 

same types of things with regard to overall Federal spending. 

I know that the Recovery Act has a special place in our economy 

at this point, but I think that both you and the President share the 

joint objective that every dollar that the taxpayers provide to the 

Federal Government for spending is special, as well, and we need 

to be able to track that money quickly. So we are trying to not necessarily bring USAspending.gov into Recovery.gov, but to learn lessons from the two to make a Web site going into the future that 

allows us to better track Federal spending. 

Senator COBURN. What is the difficulty with getting the data? 

My understanding was the difficulty with getting the data to 

USAspending.gov is that the agencies were not providing it. 

It was not a technical problem. It is that the agencies refused on 

a timely basis to bring it forward. If they did, how is that going 

to be any different on Recovery.gov using the same agencies? 

Mr. NABORS. Well, the batch processing and the financial data 

that we use for USAspending.gov does have a significant delay and 

we are trying to, at this point, speed up the extent to which data 

is available. So we are actually using not just financial data on Recovery.gov, but potentially budgetary data and other types of information, as well, to get that money out ahead of the normal time 

frames that our financial systems produce that amount of information. 

Senator COBURN. Right. Mr. Devaney, thank you for your years 

of service as IG. It is often times an unthankful job, but I know 

you have done a great job there and I appreciate it. 

The 7 percent figure bothers me, but the 10 percent figure on the 

Federal Government bothers me even more. If we look at what the 

Federal Government is doing in total, if you come in at 7 percent, 

that is not acceptable, but it is better than what we are doing everywhere else. What we ought to be doing is redoubling our efforts 

to where we get that down to about 2 or 3 percent because after 

that there are diminishing returns on the dollar. I have heartburn 

over the $787 billion. I have heartburn over the $55.1 billion. However, I do not think it is going to be in better hands than in your 

hands to see if we cannot limit the waste. 

I would suggest, besides what Senator Collins said, put Ad Council ads on TV for seniors about these scams. I mean, it does not 

cost much. You can get it out faster than AARP can. Two weeks 

from now, you can have 2 or 3 weeks’ run of Ad Council ads where 

almost every senior in the country knows, do not fall for this scam. 

You may have covered this prior to me coming in. When do you 

foresee that we will actually have a viable and multi-searchable 

Web site on Recovery.gov? 

Mr. DEVANEY. Senator, we have been doing an awful lot of meeting on this, and we have been talking to a considerable amount of 

smart people. We are going to try to hold an electronic town hall 

66 

1The prepared statement of Senator Coburn appears in the Appendix on page 229. 

in the near future where we solicit the public in general and technology folks in general, and then move quickly after that with the 

help of perhaps somebody like the National Academy of Public Administration (NAPA) to select some vendors. There is some really 

amazing stuff out there that I think is going to make this site very 

exciting to go on. So I hope you will continue to visit it as we try 

to make this thing something that people are going to want to come 

to on a regular basis and allow them to understand where their 

money has gone. 

Senator COBURN. If we are a year from now, and a year is a pretty fast pace to do something like this, a year from now we will have 

spent about 70 percent of that money already. Can we do that 

within a year? Can you get it done within a year? I am talking the 

real deal, up where people can really use it? 

Mr. DEVANEY. Yes, I think we can. That is my goal. 

Senator COBURN. Would you be so kind as to keep this Committee advised if you are going to fall behind that schedule—— 

Mr. DEVANEY. All right. 

Senator COBURN [continuing]. So that if it looks like you are 

not—we spend $64 billion a year in this government on IT. Thirtysix billion of it is wasted. The American taxpayer needs to know 

that. Thirty-six billion, over half of what we spend on IT, gets 

wasted every year. This is the one place where we should not waste 

and there should not be a hiccup. We do not need another Harris 

Corporation Census no-bid contract that does not perform that we 

paid a bonus for. 

And Mr. Chairman, I would ask that my statement be submitted 

for the record.1

Chairman LIEBERMAN. Without objection. 

Senator COBURN. And I thank you all. 

Chairman LIEBERMAN. Thanks, Senator Coburn. Very good questions. 

Thanks, Mr. Nabors and Mr. Devaney. I think it has been a very 

constructive exchange. I appreciate what you are both doing, first 

to spend the money that we have appropriated because that is why 

we appropriated it, to get it out to help the economy grow and to 

protect and save millions of jobs. And second, to make sure with 

every human and technological resource we have that the money 

really is spent for the purpose for which it is intended and not 

wasted or lost to fraud in any way. So I thank you. 

I found this so constructive, and Senator Collins did too, that we 

are going to ask you back for a repeat performance because we 

really want to keep this going. We hope you find it as productive 

as we do. We will probably ask you to come back sometime later 

in May, so you have a little more time to see how it is going. 

We will leave the record of this hearing open for 15 days for additional questions or statements. 

I will just end with thanking both of you. You are really both 

very impressive public servants and we need you to do what you 

are doing. 

The hearing is adjourned. 

[Whereupon, at 11:33 a.m., the Committee was adjourned.] 

(67) 

THE AMERICAN RECOVERY AND 

REINVESTMENT ACT: MAKING 

THE ECONOMIC STIMULUS 

WORK FOR CONNECTICUT 

TUESDAY, APRIL 7, 2009 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Hartford, Connecticut. 

The Committee met, pursuant to notice, at 10 a.m., at the Learning Corridor, Greater Hartford Academy of the Arts, Theater of the 

Performing Arts, 359 Washington Street, Hartford, Connecticut, 

Hon. Joseph I. Lieberman, Chairman of the Committee, presiding. 

Present: Senator Lieberman. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. This hearing of the U.S. Senate Committee on Homeland Security and Governmental Affairs will now 

come to order. Let me thank all of you for being here. 

I want to apologize to all of you out there on behalf of the witnesses that their backs are turned to you, but such is our custom 

in the U.S. Senate. 

Let me also quickly but quite sincerely thank Eric Bernstein, 

Principal of the Hartford Academy of the Arts, for hosting this field 

hearing; and Jim Keller, Managing Director of the Theater of the 

Performing Arts, for handling the logistical arrangements. And let 

me give a particular welcome to the students and teachers of the 

Greater Hartford Academy of the Arts and the Greater Hartford 

Academy of Math and Science. 

[Applause.] 

Let me welcome also everyone else who has come, including some 

in State and local service who are here to join us in what is a continuing series of hearings that our Committee is holding. The first 

two occurred in Washington DC. This is the third one, a field hearing here. 

And the basic goal we have is to monitor how the billions of taxpayer dollars that the President requested and Congress approved 

for the so-called stimulus program are being spent. 

I thought because the students are here I would take just a moment to give some history and explain why we are here and what 

this Committee is about, and maybe I will start with a personal 

story. 

68 

Shortly after I was elected to the Senate in 1988, I was down in 

Washington for some orientation meetings for the new senators, 

and I was at a reception, and Senator John Glenn, who was then 

the Senator from Ohio—and, of course, world famous for being an 

astronaut—came over to me and he said, ‘‘Joe, I am going to try 

to return a favor to you that was once done to me.’’ He said, ‘‘Just 

after I was elected, I was at a reception somewhat like this, and 

the then-Senator from Connecticut, Abraham A. Ribicoff ’’—probably the students do not remember that name, which should inspire some humility in people like me, but others will remember 

our former governor and Senator from Connecticut. Senator Glenn 

said, ‘‘Abe Ribicoff came over to me, and he said, ‘John, you are 

going to have the opportunity to select what committees you want 

to be on. A lot of times, people do not think about the Governmental Affairs Committee, but it is an extraordinary Committee. It 

has the responsibility, among other things, to oversee the expenditure of Federal money and to monitor what every department of 

the Federal Government is doing and to hold investigations’ ’’— 

which, over history, the Committee has done. These investigations 

go back to Senator Harry S. Truman, when he investigated, during 

the Second World War, the spending of money during wartime. 

There were other investigations held by the Committee. Probaly 

the most famous, when I was a kid, was done by a Senator from 

Tennessee, named Estes Kefauver, into organized crime. It goes on 

and on. 

Senator Glenn said, ‘‘Why do not you put your name down for it? 

I do not think there is much interest.’’ So I did. And Senator Glenn 

by that time had become the Chairman of the Committee, and he 

said, ‘‘I always look back and I am grateful to Abe Ribicoff for giving me that suggestion.’’ 

So I did put my name down. It was not my first choice. My first 

choice was the Environment Committee, which I was lucky enough 

to get on, but there was not much interest in this Committee. And 

so I also got put on it. The students probably have heard about the 

seniority rule in the Senate. This is the rule that basically says 

that you get the opportunity to move up in almost all cases based 

on how long you have been there. I remember that at the orientation session we had when we first arrived, there was a Senator 

named Wendell Ford from Kentucky, who had been a Senator for 

a long time. He came in and he said to the 10 or 11 of us who were 

new Senators, ‘‘A lot of the things you are going to find around 

here, you are not going to understand or they are actually going 

to annoy you.’’ He said, ‘‘That is the way I felt about the seniority 

rule when I got here. But, the longer I have been here, the more 

sense it makes.’’ [Laughter.] 

So it goes. You never know how your seniority is going to play 

out because you never know what is going to happen to the people 

ahead of you in seniority on the Committee. I have been very fortunate to become the Chairman of this Committee. 

In 2002–2003, this Committee generated the legislation that created the Department of Homeland Security, and when it came time 

to decide which Committee would oversee this new Department, 

they asked us to do that, in part because our Committee has had 

a really good reputation for bipartisan work, and I have had the 

69 

privilege to work with two Republican chairmen, Ranking Republicans when Democrats have been in the majority: Senator Fred 

Thompson, who left me to go back to ‘‘Law and Order’’—I do not 

know how he could have made such a choice—and Senator Susan 

Collins from Maine. So the Committee is now known as the Senate 

Committee on Homeland Security and Governmental Affairs, but it 

is in the second capacity, Governmental Affairs, which is the oversight of how Federal programs are operating and how Federal 

money is being spent, that I am privileged to conduct this hearing 

today. 

In a way, I want to use our State of Connecticut as a microcosm 

of the challenges facing all of our State and local governments as 

we try to get Federal stimulus money moving through our economy, protecting and creating jobs, and making investments in our 

future. 

I am not going to spend much time talking about the economic 

problems that brought forth the stimulus because we live with 

them. This is an unprecedented economic experience. Last year, the American people, American households, lost $11 

trillion of value, assets, and wealth in the loss of value in our 

homes and in the loss of value in stock markets and the savings 

and investments that we have had. In the State of Connecticut, 

since the recession began in December 2007 to January 2008, we 

have lost over 50,000 jobs. We had the worst month of job loss in 

Connecticut in February, the worst month in 15 years, in which we 

lost over 15,000 jobs. 

It is that set of facts that led President Obama and his Administration, as they came into office, to reach out to Congress and to 

propose what we call a Federal stimulus package. The formal name 

of it is the American Recovery and Reinvestment Act. It is the largest Federal appropriation of its kind in American history, and it 

came about because the economic situation we are in is unprecedented. We have never had one like this. 

This is not the Great Depression, thank God. Unemployment and 

the loss in the economy are nowhere near as great as they were 

then. And we have the beginning of some signs of hopefulness. The 

markets which measure all of this had their best month in years 

in March. There was the beginning of economic activity. Consumer 

spending went up a little bit. The newspapers today, here in the 

State, say that the Connecticut Business Industry Association did 

a survey of small businesses in the State, and it found that they 

were finding it easier in the month of March to get loans from 

banks, which has been a real problem. 

But State and local governments are hurting, and will continue 

to hurt, and until we begin to create jobs again and stop the bleeding off of jobs with people becoming unemployed, we are not going 

to be anywhere near where we want to be. That is what occasioned 

the stimulus package, $787 billion authorized over 2 years, and 

here is what the basic thought was. 

There was a real problem in our economy: Subprime mortgages, 

loss of housing values, trouble in the financial sector and banking, 

people could not borrow money, the beginning of unemployment— 

real problems. Those real problems did two things: First, they created understandable anxiety, a lack of confidence in the American 

70 

people about their future economically, whether they were going to 

lose their jobs, for instance, or if they had lost wealth in the stock 

market or their housing values. And so people stopped spending, 

and spending drives about 70 percent of economic growth in our 

country. 

A lot of economists told President Obama, and told Members of 

Congress, that there was a $1 trillion gap between what the American people will normally spend and what will be spent. Businesses 

stopped investing because they could not borrow the money for this 

year and probably next year. And in that reality, the only entity, 

the only organization that could begin to spend to try to turn the 

economy around and restore people’s confidence was and is the 

Federal Government. That is why the President made the recommendation to enact a stimulus, and why we adopted it. I was 

privileged to be in the middle of the negotiations to not only form 

the bill but to get the 60 votes we needed to get it out of the Senate 

to a conference committee and to pass and be signed by President 

Obama. 

I believe that the stimulus package has begun to put money out 

into the economy in a way that is working, and I think that is part 

of why confidence has gone up and why some of the economic indicators have gone up. But there is a lot more that we have to do, 

and that is why we are really here this morning. 

I will tell you that there were two goals that the Administration 

spoke of, and I think most Members of the Congress have, for the 

stimulus package. The first was to get money out into the economy 

to protect and create jobs. The second was to try to do it in a way 

that would make investments, significant investments in a better 

future for the American people; in other words, not only to stop the 

bleeding and build up the economy again, but to do it in a way that 

would be an investment in better quality of life and sustained economic growth, particularly in three areas—education, health care, 

and energy independence. 

As you probably heard, under this program, the State Government of Connecticut is in some cases not holding all the money 

itself but in most cases distributing it, including through local governments, particularly education money. The State will receive $2.9 

billion in funding, and I am very glad we have been able to do that. 

This total does not account for other programs that will be funded 

under this that people will apply for directly from the Federal Government, nor does it count the payroll tax reductions that are beginning this month and will reduce the payroll tax for 1.4 million 

workers in Connecticut and their families, $400 for a single worker 

and $800 for a couple. Some people say that is not a lot of money. 

For a lot of people in our State right now, that is a lot of money, 

and it is going to enable them to maybe pay some bills off or maybe 

buy some things that they need that they otherwise would not be 

able to buy. 

So, today, we are really focusing on that $2.9 billion that is coming to the State Government of Connecticut for spending and also 

redistribution to other entities. And we are privileged to have with 

us a perfect group of witnesses, one representing the State, the others representing an education group, a health care group, and a 

71 

1The prepared statement of Mr. Genuario appears in the Appendix on page 252. 

broader group, which speaks particularly for children, but also for 

social services in our State. 

So let me now go, with that introduction, to our witnesses. Each 

of them, I think we have told you, will have 10 minutes for an 

opening statement, and then we will go on to a question-and-answer period. 

Our first witness is the Secretary of the Office of Policy and 

Management of the State of Connecticut, Hon. Robert Genuario. I 

cannot think of a better preparation for this job that he had than 

to be a State Senator. Since I was once one myself, I have a bias. 

Secretary Genuario, welcome, and we look forward to your testimony now. 

TESTIMONY OF HON. ROBERT L. GENUARIO,1 SECRETARY, 

OFFICE OF POLICY AND MANAGEMENT, STATE OF CONNECTICUT 

Mr. GENUARIO. Thank you, Senator Lieberman, and it is a pleasure to be here. Let me, on behalf of Governor M. Jodi Rell, extend 

my thanks to you for holding this hearing and giving us an opportunity to have a conversation, a dialogue about the stimulus package and its impact on Connecticut. We appreciate very much the 

effort and the rapidity with which this package was passed. It 

came to Connecticut when Connecticut, as other States, was going 

through a very difficult time. 

I might add that the current economic crisis may adversely impact Connecticut to a greater degree than most other States because of Connecticut’s dependence or involvement in financial services industries, both from the point of view of its population and 

from the point of view of the revenues that the industry generates 

for the State budget so that the State budget can provide services 

to many others. 

So, by way of backdrop, at the time the Congress and the President were putting together the package for our Nation, Governor 

Rell, my office, and members of the Rell Administration, were putting together a proposed budget for the General Assembly’s review, 

and we were facing very substantial deficits. Our revenue situation 

had deteriorated significantly. My office had projected a $6 billion 

deficit back in January over the 2-year period. Since that point in 

time, my office has looked at the data that is coming in, and we 

are currently projecting a $7.4 billion deficit. 

So difficult decisions needed to be made, and the fact that the 

Federal Government was recognizing the problem that all States 

were facing and was providing assistance—not assistance to make 

all our problems go away, to be sure, but significant assistance by 

virtue of a variety of revenue streams targeted in many ways at 

those services that States historically have stepped up to the plate 

on and have provided for their populations. 

So Connecticut, we believe, began even before the Federal legislation was adopted by including our best estimates of what that 

legislation would provide in Governor Rell’s State budget. We have 

been working with various agencies at the Federal level ever since 

to make sure that we are in a position to maximize the benefits of 

72 

this legislation for Connecticut and Connecticut’s citizens, and to 

do so in a way that makes Connecticut citizens proud and the Federal Government proud and keeps to the goals of transparency and 

accountability that are contemplated by the legislation. 

To that end, Governor Rell issued Executive Order No. 25, which 

calls for the creation of a State accountability officer, a State transparency officer, and a stimulus project oversight officer. The governor is very focused on making sure that Connecticut leads the 

way in demonstrating how transparent a process this can be. Early 

on in the process, the governor called together groups of legislators, 

municipal leaders, representatives from the nonprofit community, 

and stakeholders of all sorts to try to put together a list of projects 

that would meet the shovel-ready definitions in the Federal legislation. That has been an open and transparent process. She created 

very early on in the process a State Web site to follow the workings 

of this group. Decisions that are made are posted immediately on 

the Web site as those decisions are made. Those meetings are public, recorded, quite transparent in the manner in which the decisions to move the stimulus money—particularly what I would call 

the shovel-ready or the infrastructure portion of the stimulus package money—out to Connecticut citizens and to the folks who will 

create the jobs and improve the infrastructure for the State of Connecticut contemplated by the Act. 

As you might imagine—and I think as everybody recognized 

going forward—because of speed with which this legislation was 

developed, because it was developed at a time when States were 

putting together their own budgets, there has been and currently 

is a lot of interaction between our State agencies and their counterparts on the Federal level as policies on the Federal level are developed to tell us what we can do and what we cannot do with the 

money, how we can access it, what it is intended to do, what are 

the limitations, what are the condition on it. 

Chairman LIEBERMAN. Are you finding the Federal Government 

personnel responsive? 

Mr. GENUARIO. We are finding them to be very responsive, Senator, and that is really one of the most pleasant experiences about 

this. These are complicated questions. There is a clear policy contemplated by certain provisions of the Act, but by its nature, there 

is not time to adopt formal Federal regulations for the use of this 

money consistent with the speed with which we would like to see 

the money get out. But my office, and the offices of various State 

agencies, have had numerous phone calls, conference calls, meetings with their counterparts at the Federal level, and we have 

found the answers are coming very quickly and that the Federal 

Government is showing a demonstrable willingness to work with 

the States in order to solve problems that come up on a day-to-day 

basis. So we are very pleased with the Federal Government’s response. 

Chairman LIEBERMAN. Good. 

Mr. GENUARIO. From where I sit, Senator, assisting the governor 

in promulgating and hopefully passing a State budget, the help 

that came to us by way of a stimulus package was very important 

to us. And as far as its impact on the State budget itself as a budget and as a mechanism to deliver services, those funds fall into sevVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00080 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
73 

eral categories. First and foremost, there is the increased Federal 

Medical Assistance Percentage (FMAP) Medicaid money, that Connecticut will share generously in. Connecticut will receive over the 

course of 3 years about $1.3 billion additional Medicaid reimbursement. That will begin in fiscal year 2009, which is important because the State faces a significant deficit for the fiscal year that we 

are in. It will also assist us over the course biennium. 

There are, appropriately, conditions although, in my view, not 

too onerous in terms of the use of that money. When the governor 

proposed her budget, some of those conditions were not known. We 

will necessarily withdraw a proposal or two that she had made that 

are inconsistent with those conditions. But, by and large, the additional FMAP money does not unduly constrain the States in our 

view in order to access it. 

Perhaps I am speaking more from Connecticut’s point of view. 

Connecticut tends to have relatively generous benefit packages, 

and I will use the unemployment compensation component as an 

example. Connecticut stands to get about $87 million in additional 

unemployment compensation money. 

I noted in some of the national colloquy that certain conditions 

are required; certain benefit levels at the State level need to be 

adopted in order to access that money. The truth of the matter is 

Connecticut already meets 95 percent of those conditions from a 

benefit point of view. 

We did need—and the governor has proposed and the legislature 

is poised to adopt—one fairly inexpensive improvement to that benefit package in order to access that $87 million. We are quite willing to do it. From where I sit, again, it will probably cost us $2 

to $3 million per year. I think any businessperson would be willing 

to—— 

Chairman LIEBERMAN. That is a good deal. 

Mr. GENUARIO [continuing]. Undertake that additional burden in 

order to access the $87 million at a time when it is sorely needed. 

The other significant component of the stimulus package that 

flows through the State budget is the State stabilization fund. Obviously, that is targeted primarily, though not exclusively, towards 

making sure that we are able to continue our commitment to funding public schools. And the governor has, in fact, proposed a budget 

that will provide an amount of money to public schools in Connecticut equal to that which it provided last year. The governor essentially flat-funded all of its major educational grants. And I say 

that with some pride because in this day and age of shrinking revenues, flat-funding is a sign of priority. We are not in a position to 

increase our funding in too many areas, so that if we are able to 

maintain our commitment over the course of the next 2 years and, 

therefore, be in a position to continue the gains in those areas in 

the out-years, it is a win for us. 

I might add that Connecticut under Governor Rell’s leadership 

provided one of the most significant increases in public school funding over the last biennium, so we are starting at a higher plateau 

than we would have been say 3 years ago. 

The stabilization money does provide—and it is somewhat of a 

curious mechanism, but not one that I believe we will find difficult 

to work with. But we need to appropriate less than what we approVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00081 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
74 

priated last year in order to access the money. But if we do so, then 

that money will then flow to the municipalities and the boards of 

education in amounts equal to what they would have gotten under 

the grant. It is not a provision that we think in the long run will 

provide us any difficulty. We will have to craft legislation that will 

accommodate that condition, but at the end of the day, the result 

will be the same, that every public education entity will get the 

same amount of money this year that it got last year consistent 

with the governor’s proposal. 

The stimulus package also provides additional money under Title 

IV–E in order to assist Connecticut in its efforts to provide programs and services for children who are in need of adoption and 

in need of the services of the Department of Children and Families, 

and we are grateful for that as well. 

Beyond those three areas that flow through the State, Con- necticut will receive approximately $150 million—and when I say 

Connecticut now, I am talking about entities other than the State 

itself—in other education programs, primarily special education, 

which we are grateful for, and educational technology; $450 million 

in transportation infrastructure money; $48 million in clean water 

funding; $64 million in weatherization; and $38 million in other energy programs. 

All in all, the stimulus package has provided the State with 

needed resources at a time when the State needs it the most. We 

are grateful for that, and we are particularly grateful with the efforts of the Federal Government to make clear the methods and 

conditions that we need to comply with in order to access these 

funds. 

Chairman LIEBERMAN. Thanks, Secretary Genuario. That gets us 

off to exactly the right start, and I think your testimony perhaps 

shows—I tried to say this in my opening statement also—the main 

goal of the stimulus package was to get money out into the economy quickly to stop the slide down of our economy, but obviously 

also we had two other goals, which are: First, not to spend it so 

quickly that it is wasted or it is subject to fraudulent uses; and the 

second, obviously, is to make sure that it gets used for the purpose 

for which we intended it. 

Let me ask you just a factual question at this point about the 

flow of money to the State now from the Federal Government. Has 

it begun in a significant way? 

Mr. GENUARIO. We have not actually received the cash yet, 

but—— 

Chairman LIEBERMAN. But the check is in the mail. 

Mr. GENUARIO. The check is in the mail. [Laughter.] 

We do expect to be receiving it very shortly, particularly the fiscal year 2009 Medicaid money. Our counterparts down in the Federal Government have assured us that those dollars are available. 

We need to file our applications. The applications are involved. 

I think we are poised to file our application for the energy funds 

today. I was told, though, late last night that the electronic components are not up to receive the application as yet. But those are 

things that will be worked out. 

So, as you say, I think the check is in the mail. I am very confident that we will receive it by the close of business—— 

75 

1The prepared statement of Mr. Yrchik appears in the Appendix on page 256. 

Chairman LIEBERMAN. In a timely fashion. I appreciate that. 

That is a good beginning. 

The challenge here is to make sure that the money is spent for 

what we wanted it, not just to avoid waste and fraud but to get 

to the benefits we wanted. And I will admit that there were mixed 

feelings, at least, in the Congress, probably in the White House, 

too, about this. We do not want it to be used just to pay for the 

operations of State government that otherwise would have to be 

paid for in the State. On the other hand, clearly, if one of the 

things we are doing by getting the money to you is to enable the 

State and local governments, education, etc., not to have to let people go, then that is part of what we wanted to do. And that line 

is a difficult line, and I think it is one that we will probably hear 

about as we hear our next three witnesses. 

John Yrchik is the Executive Director of the Connecticut Education Association (CEA), and education obviously was very much 

in the minds of Members of Congress and the President in adopting 

the stimulus package in all the ways that I have stated. So please 

proceed now with your testimony, Doctor. 

TESTIMONY OF JOHN P. YRCHIK, PH.D.,1 EXECUTIVE 

DIRECTOR, CONNECTICUT EDUCATION ASSOCIATION 

Mr. YRCHIK. Good morning, Chairman Lieberman. I want to 

thank you for your invitation to appear at this hearing on the 

American Recovery and Reinvestment Act, and I would like to 

thank you, Senator Christopher Dodd, and other members of our 

congressional delegation for your roles in assuring the passage of 

this legislation. The CEA would like to commend you and other 

Members of Congress for recognizing the critical importance of education in our economic recovery. 

In the next 2 years, over three-quarters of a billion dollars in 

new education aid will flow into Connecticut. This aid is unprecedented both in size and in nature. It is the very first time the Federal Government has stepped in to directly fund school funding formulas. But even with this enormous infusion of Federal dollars, 

like other States, Connecticut is projected to have layoffs and reductions in positions in a number of districts in our State. The reason for this, as Secretary Genuario has alluded to, is in part due 

to the enormous concentration of financial services jobs in our 

State. We have approximately 60 percent more financial services 

jobs than other States on a national average basis, and those jobs 

in turn produce many other jobs. So when the rest of the Nation 

has a cold, we catch the flu, and that is really what we are struggling with. The size of our deficit is a matter of great dispute in 

our State. One projection has it as high as $8.7 billion, or approximately one-quarter the size of the entire budget. 

Connecticut is one of the relatively small number of States that 

is proposing to use the State fiscal stabilization fund to supplant 

State aid that the State currently provides to municipalities. Our 

State may be alone in proposing to use the entirety of the State fiscal stabilization fund to backfill existing State education aid to municipalities with Federal dollars, and in doing this, our State will 

76 

have reduced its actual commitment to education aid by over 14 

percent over the next 2 years. 

Connecticut’s governor did have the option of using stabilization 

funds to exceed the fiscal year 2009 appropriation but chose not to 

do so. And as Secretary Genuario said, we are not funding municipal aid to education at the level of current services. And next year, 

the State will be contributing 21 percent less than what it would 

have contributed if it merely provided an increase sufficient to 

maintain current services at this year’s level of education cost-sharing grants. 

But, I have to say that as difficult as the situation is now, it 

would undoubtedly have been far, far worse had the American Recovery and Reinvestment Act not passed Congress. By way of illustration, our State Board of Education earlier this year passed a 

budget in which it cut education cost-sharing grants by 12 percent. 

Had a cut of this magnitude or anything like it survived the legislative process, it would have had catastrophic results on education 

in Connecticut. 

Chairman LIEBERMAN. And I presume, if I can draw you out on 

that, that would have meant significant layoffs of teachers and 

other school personnel. 

Mr. YRCHIK. Enormous. And so I think it has to be said that, as 

bad as things are now, they would have been considerably worse 

had these funds not been available, and that is a point that has 

to be stated categorically. 

At the same time, because these are one-time funds and our 

State is using them to supplant existing State dollars, the question 

arises: What will we do when the funds run out and our State does 

need to begin, it seems, rather soon to develop a plan to deal with 

the hole in the budget that will come when the Federal dollars are 

no longer there? That is one challenge. 

Another one is that as a condition of accepting the stabilization 

funds, the State has to make progress in four areas: Teacher effectiveness, standards and assessment, improving achievement in lowperforming schools, and creating systems that track student 

progress. 

In the governor’s original budget, she eliminated the funding for 

a mentor program that would have been extremely important in 

improving effectiveness in our State, and particularly in ensuring 

teacher quality across Connecticut districts. 

Chairman LIEBERMAN. Mentoring for teachers. 

Mr. YRCHIK. That is correct. 

Chairman LIEBERMAN. Not students, right? 

Mr. YRCHIK. Yes. 

Chairman LIEBERMAN. Important. 

Mr. YRCHIK. In addition, her original budget eliminated funding 

for a program called CommPACT Schools, which takes some of our 

lowest-performing schools and, in a historic collaboration with the 

School of Education of the University of Connecticut (UConn), attempted to turn them around using a whole school reform approach 

that has been proven successful in many other parts of the country. 

Both of these programs have been restored in the most recent 

budget of the General Assembly, and we are hopeful that they will 

survive the legislative process. 

77 

Last, with respect to transparency, we believe that our State’s efforts to ensure transparency are adequate, and we believe that 

they are doing an admirable job in trying to track the use of funds. 

I would just say that we want to ensure that the need for transparency does not create so many administrative burdens that it becomes counterproductive, and that is something I think we will 

monitor as we go along. 

On the subject of IDEA, our State will be receiving $133 million 

in IDEA funds. 

Chairman LIEBERMAN. Please define IDEA? 

Mr. YRCHIK. IDEA is the Individual with Disabilities Education 

Act. The Federal Government originally committed to spend about 

40 percent of the total costs of IDEA when the Act was first passed. 

Currently in our State, it spends something like 16 or 17 percent. 

With the stimulus package came an enormous infusion of new 

IDEA dollars. The State currently receives $150 million in IDEA 

funds and over the next 2 years will receive an additional $133 million. 

Chairman LIEBERMAN. Almost doubling. Or a little less. 

Mr. YRCHIK. A 60-percent increase in each of the next 2 years, 

correct. And one of the things that the last reauthorization allowed 

is for school districts to use 50 percent of the increase, just 50 percent of the increase, to supplant State and local funds currently 

being expended on special education to defray other costs in the 

school operating budgets. 

In a time like this, when teachers are being laid off in many 

parts of the State, this would seem to be an important issue. But 

so far, school districts have not really moved to aggressively use 

the IDEA funds that can be freed up in this way to prevent layoffs. 

I think in part that is because at an initial meeting of superintendents, they were not told that they could. And then when guidance 

finally came from the State department, they were told that if they 

did, they could have holes in their operating budget 2 years from 

now. 

But given that these funds are arriving in our States under the 

guise of an act whose primary purpose is to preserve jobs, to retain 

jobs, and to create jobs, it would seem to be important that we look 

at the potential uses of money in this way to do exactly that. 

I would also like to talk about Title I, which is education for disadvantaged students. In fiscal year 2009, Connecticut received 

$102 million and over the next 2 years will receive an additional 

$97 million, roughly a 50-percent increase in each of the next 2 

years. A perennial criticism of No Child Left Behind has been that 

it was underfunded, and one of the primary areas of criticism was 

that Title I was underfunded. And with this historic increase, it 

would seem we are much closer to our goal of properly funding No 

Child Left Behind. 

The problem is that these are not ordinary times, and in the context that we are in, we are looking at effectively a reduction in 

State aid because level funding is a reduction for next year. We are 

looking at layoffs, eliminations of programs, positions, and pretty 

severe fiscal stress in many municipalities. And I think the question really is: Can $97 million over 2 years adequately compensate 

78 

for the losses that will come to education from the distress that I 

have just mentioned? 

In normal times, it would be used to provide professional development, to create after-school tutoring programs, pre-K programs, 

and other things that we know work. But at this time, it is difficult 

to know what its effect will ultimately be. It will ameliorate some 

of the effects of the distress, but whether it will ultimately be able 

to help districts fulfill the promise that comes with it is hard to 

stay at this point. 

As with IDEA, we believe that a portion of these funds could be 

used at this time to help districts preserve their core education programs and bridge the shortage in revenues that they will experience between now and fiscal year 2011. What we need to do this, 

however, is clear guidance from our State department and from the 

Federal Government, and we need the ability to get this guidance 

on a rapid basis. 

I would like to say just two quick points in conclusion: That the 

CEA stands ready to work with the State Department of Education 

in helping to ensure that these funds are used properly; our teachers at the local level stand ready to work with local school districts. 

And we believe that this is an important time for all of us to work 

together. 

I would like to say, too, to reiterate what I said earlier, that the 

overall result of almost $800 million in Federal funding is unreservedly positive. We believe that the promise of the Recovery Act 

is great, and on behalf of the CEA and the National Education Association (NEA), we very much appreciate your effort to hear our 

stories and to work with you toward economic recovery. 

Thank you. 

Chairman LIEBERMAN. Thank you, Dr. Yrchik, both for the tone 

and the substance of your statement. And I think you really highlight the moment we are at, a moment of real need in which this 

Federal money can avert and will avert some really disastrous consequences at the State level in education, for instance. But we 

want it to do more than that, and that is the challenge that everybody has here because we want it really to be not just a stop-gap 

now but an investment in a better future for our kids through the 

education system. It is not easy to do because there is a natural 

tendency to try to put your finger in the dike so it does not get 

blown away by the water. But, on the other hand, if I may continue 

this old metaphor, maybe we really need to rebuild the dike so that 

it is a better dike. That is the challenge, and I want to engage in 

some conversation after we get to the other witnesses about that. 

Our next witness, speaking for the health sector, is Steve 

Frayne, who is the Senior Vice President for Health Policy at the 

Connecticut Hospital Association. He has been a long-time advocate and thoughtful spokesperson for better health care in the 

State. We welcome you now. 

79 

1The prepared statement of Mr. Frayne appears in the Appendix on page 267. 

TESTIMONY OF STEPHEN A. FRAYNE,1 SENIOR VICE PRESIDENT, HEALTH POLICY, CONNECTICUT HOSPITAL ASSOCIATION 

Mr. FRAYNE. Thank you, Senator. Good morning. As you said, my 

name is Steve Frayne. I am the Senior Vice President for Health 

Policy at the Hospital Association, and we do appreciate this opportunity to testify on the benefits that the American Recovery and 

Reinvestment Act of 2009 will have for Connecticut hospitals and 

Connecticut communities. We also want to thank the hosts here for 

this wonderful facility and also for all of the students who are participating. I am sure some of them might feel a little anxious about 

some of the things we are talking about here, but I am sure you 

agree, as I am hopeful most of the panelists do as well, that really 

we do have the best and brightest folks working on these issues. 

I think we are all very confident that we will succeed, and succeed 

in a terrific way, in turning our economy around and producing 

some great things for the future. 

I would certainly encourage all of them, as they are thinking 

about their future, to also consider careers in public service. These 

are terrific careers. They are very rewarding. Whether it is in 

health care, education, or in government, these are things that we 

would certainly encourage them to think about. 

This morning, in terms of my testimony, I would like to talk 

about a few things. One is to give a little context about what hospitals are and who they serve. Second is to talk about how we are 

doing right now. And then third is to really talk about how the Recovery Act affords us some opportunities to, in fact, be able to advance where we need to go as both a hospital community and as 

a State as a whole. 

Connecticut hospitals are really more than just facts and figures 

and dollars and cents. At their very core, hospitals are really people taking care of people. Each year, the more than 66,000 employees who work in Connecticut hospitals do their level best to provide 

the absolute highest quality of care that the citizens of our State 

need. 

Last year alone, we had roughly 2 million days of care delivered 

by hospitals to patients in the State of Connecticut. We also had 

more than 4 million outpatient visits to the hospitals throughout 

the course of the State. Some of those visits, about a million and 

a half of them were emergency department visits; other visits, well 

over 600,000 of them, were for basic primary care services, basic 

physician services that individuals just could not find access to at 

a private physician’s office, and they needed to seek out that care 

in a hospital. 

We also contributed quite significantly to the overall economy of 

Connecticut. Last year, those 66,000 jobs together, with the direct 

employment and then the employment for all of the other jobs that 

actually provide services to hospitals, combined produced over 

97,000 jobs in the State of Connecticut, almost $13 billion in economic activity, and we purchased nearly $6 billion in goods and 

services locally here in the State of Connecticut. 

80 

So, obviously, hospitals are a fairly significant part both of the 

economic health of the State as well as the personal health or contributing to the personal health of those who need our assistance 

when they are ill. 

In the best of times, the ability of Connecticut’s hospitals to contribute to the general economy as well as to providing high-quality 

care is often taxed, and taxed quite significantly. In a routine 

year—and, obviously, we are not in a routine year—it is quite typical for hospitals to experience well over half a billion dollars in 

losses providing services to individuals who are enrolled in State 

and Federal programs, as well as the uninsured. This is really a 

fairly significant burden, one which we have to figure out how to 

deal with on an annual basis. It never goes away and it grows larger and larger every year. 

As I said, obviously these are not typical times, and what we are 

experiencing, unfortunately, for the very first time in our history 

is a situation where those instances where we have had investments that we were able to use to help offset some of those losses 

through Federal programs or State programs, those investments, 

not dissimilar to what other folks are experiencing in their 401(k)s 

or dollars that they might have had saving for the future, have declined quite dramatically over the last year. We are now in a situation where not only are they not contributing to our ability to manage some of these routine losses, they are actually adding to the 

losses on a routine basis. And this is really a very devastating situation that we find ourselves in at the moment. 

Switching to hopefully some of the good news, thankfully, I 

think, Senator, with your leadership, Congress is delivering some 

very significant relief to the State of Connecticut. It is much needed, and we are clearly very appreciative of all the hard work that 

you and your staff and others in Congress have put forward to 

bring desperately needed funds into the State of Connecticut. 

I am going to talk about four elements of the Recovery Act and 

how those might be particularly helpful to hospitals. 

I think earlier, Mr. Genuario referenced the Medicaid match and 

how that will provide a significant benefit to the State, particularly 

in its ability to be able to continue to provide much needed access 

to health care. Where we stand at the moment in terms of how 

those funds are going to be used is we have kind of a range of options, anywhere from, on the upside or the best of situations as it 

currently looks, we may experience no cuts to our current levels of 

funding; and in the worst-case scenario, there are proposals out 

there where there may be potentially upwards of $170 million 

worth of cuts over the course of the next 2 years. 

This is a difficult situation, and I think it gets to the point that 

you were raising earlier, which is where is that fine line and do we 

find the right place where, on the one hand, we both stimulate the 

economy and preserve jobs and increase jobs in our State and, on 

the other hand, we also make it possible for the States to help balance their budgets. That is a very difficult line to find, and I think, 

respectfully, we all may have very different opinions sometimes 

around where that line may lie. 

Our view, obviously, is that first and foremost those dollars are 

intended for Medicaid and need to be used for Medicaid. We think 

81 

that it is absolutely critical that we preserve access to health care 

for those folks who, through no fault of their own, find themselves 

in a situation where they need to rely on the State and Federal 

Government for their basic health insurance. So we certainly do 

not want to see any of those funds not used to both preserve access 

as well as to meet the growing number of individuals who need to 

use those services. 

Chairman LIEBERMAN. So you would say your minimal goal for 

the use of the Medicaid reimbursement or support that is part of 

this bill, is that there be no cutbacks in services available to anyone in the State eligible for Medicaid? 

Mr. FRAYNE. Correct. That is our minimum starting point for 

which we think those funds should be used. 

Chairman LIEBERMAN. Let me just interrupt you. I do not usually interrupt, but since we are at home, Secretary Genuario, do 

you accept that goal or does the State accept the goal? 

Mr. GENUARIO. We have proposed some changes to our Medicaid 

plan, changes that I think are reasonable. I do accept as a general 

premise that Medicaid is an important program, that there should 

be no deterioration in rates that we pay for services, and that there 

should be no deterioration in eligibility for Medicaid services. But 

I think the State should reserve the right and is entitled to reserve 

the right concerning the particular programs that it provides and 

whether or not modifications in those programs are warranted. 

Chairman LIEBERMAN. So that means what? 

Mr. GENUARIO. I will give you an example. 

Chairman LIEBERMAN. Yes. Obviously, what I am interested in 

is whether it means a reduction in benefits under Medicaid in the 

State. 

Mr. GENUARIO. I will give you a couple of examples, and they are 

examples that vary in range. But Connecticut, for example, for 

those who are dually eligible for Medicaid and Medicare, pays for 

preferred policies as opposed to benchmark policies offered under 

the Federal Medicare Part D plan. 

Chairman LIEBERMAN. That is the prescription drug program. 

Mr. GENUARIO. Yes. Under the governor’s proposal, this year, 

given our economic times, we have suggested that the State will 

pay for benchmark plans but not for preferred plans. I know of no 

other State in the Nation that pays for the preferred plans. 

So there are changes like that that I think are appropriate. 

Chairman LIEBERMAN. Mr. Frayne, do you want to react to that? 

Would that meet your minimum threshold or does it go beneath it? 

Mr. FRAYNE. I think in the example that the Secretary provides, 

it probably could meet it, but I think there are a number of other 

changes which have been proposed that, we have testified before 

the legislature that we think do not, for example, imposing co-pays 

on individuals, requiring them to share in a cost of the premium, 

I think changing who might be necessarily eligible for the program 

or some of the benefits of the program. I think in those instances 

we would hope, first and foremost, we use these dollars to make 

sure—we do not have to make it more difficult for folks. 

Let me just say, we do genuinely appreciate this Administration 

and those in the legislature who are having to wrestle with these 

incredibly difficult problems. 

82 

Chairman LIEBERMAN. Yes, tough times. 

Mr. FRAYNE. How to balance this and make it work. We certainly 

do not envy the decisions that they have to make. And I think it 

is our goal to, as respectfully as possible, communicate to them our 

views on how these things might work and how they could best be 

used and how actually they can help create jobs in the State. 

One of the things that has been kind of a consistent theme of 

ours is that, in order for it to be a stimulus, it actually needs to 

have some portion of increased spending. If, in fact, all we do is 

crowd out the State dollar for a Federal dollar and there is no actual increase in spending, then, in fact, in part some of the stimulus impact has been lost. 

We think, quite frankly, there is a way to balance the objectives 

of both preserving the Medicaid program intact for those who are 

in need of it, helping the providers so they can continue to provide 

that care, and having an enormous amount of funds left over to, 

in fact, contribute to the State budget. So we think we can meet 

all three goals. 

Chairman LIEBERMAN. OK. That was an important exchange. 

Incidentally, I would say this with regard to education, health, 

and the whole array of child services that Sharon Langer is going 

to talk about: Part of why I am doing a hearing like this and why 

we are continuing our oversight is, as I said earlier, to make sure 

that we are achieving in a difficult time the goals we want to 

achieve. And I will tell you that Congress will reserve the right to 

legislate again on this before this 2-year period is over if we think 

that the difficult balance—nobody is making it easy—between sustaining current services and investing in new services that are 

meant to improve our future, is not met adequately, not only here 

but across the country. I think you can expect Congress to get back 

in and mandate or speak more clearly in some areas of this law 

where, frankly, there was some room left for judgments at the local 

level. 

So, I am sorry, go ahead, Mr. Frayne. Please finish your statement. 

Mr. FRAYNE. There are a few other things that I would talk 

about that are in the Recovery Act. There is the provision to, in 

fact, provide to hospitals in particular access to additional funds to 

deal with the fact that the number of individuals in this State who 

find themselves without any access to health insurance at all and, 

therefore, perhaps not access to basic fundamental care. Those 

numbers of individuals are growing, and thankfully, as part of this 

legislation, there was a provision in there that said we are going 

to open up some additional funding to States to allow them to be 

able to pass that on to providers. 

One of the caveats or one of the hooks that causes those funds 

to come in is at first the State has to be currently expending all 

of the available dollars that it could access. This is a program 

called the disproportionate share program. Every hospital in the 

State of Connecticut is, in fact, eligible for those, so it is not a program just limited to cities or towns. It helps suburban hospitals 

and urban hospitals and large hospitals and small hospitals. 

Sadly, in this instance, as we see it, we are not going to be able 

to get access to those funds principally because, as it stands right 

83 

now, the State is not fully accessing existing dollars. So it would 

require in this environment to have the State actually increase 

spending, which is not likely—not possible, really. And, therefore, 

I think those dollars will not be able to be accessed for the purpose 

they were intended. 

On this point—and I think the next two points that I am going 

to raise—as Congress thinks about these things in the future, one 

of the things that we would hope some thought is given to, particularly when the States find themselves in a very difficult place 

where they need to spend a dollar in order to bring in a dollar, perhaps it might be better in the future when the States find themselves in a situation where they literally cannot spend another dollar, even though they may want to do everything they can to help 

us, they just find themselves not in a position to do so. And I would 

at least propose for consideration that we find some way to make 

sure that those dollars that you are looking to send to us are not 

simply contingent upon the good will or the ability of the State to 

be able to access those funds. 

Chairman LIEBERMAN. That is a good recommendation. Yes, I 

take your point. 

Mr. FRAYNE. The last two things I would talk about are interrelated with each other. There are dollars that will flow through 

the Medicare program starting in 2011 over the course of 4 years. 

Actually, a fairly large sum of funds, probably about $150 million, 

will come into the State of Connecticut over the course of 4 years. 

The purpose of those funds is to help hospitals, in fact, implement 

electronic health records so that we can actually improve the quality of care that we provide to patients. What many may not know 

is that these kinds of undertakings—electronic health records, physician order entry systems, and computerization, really of a lot of 

what we do in health care—are extremely expensive, very time-consuming, and could take multiple years to complete these projects. 

It would not be unusual for an average hospital to have to spend 

upwards of $20 to $30 million and be engaged in a 3 to 5-year 

project to implement these things. So these kinds of resources coming through us would be extremely beneficial and should go a long 

way to helping us succeed. 

The very last point which is related to that is—and one I hope 

that we will be able, in fact, to work with the Secretary on and the 

balance of the Administration and the legislature—that there is another provision in the law which relates to this that says States 

can actually create loan programs to, in fact, help providers—not 

just hospitals but physicians and other providers—be able to borrow money so that they can, in fact, purchase these electronic 

health record systems, which we know are extremely expensive. 

And it is really unprecedented, I think, the benefit of this program, 

where the Federal Government will match $5 to every $1 the State 

is able to put forward. 

Now, obviously, we realize it is a very difficult time for the State 

to even come up with the $1, but we are hoping that, given the fact 

that this is not a grant but it is, in fact, a loan program, we will 

be able to find during the course of this legislative session both the 

will and the commitment and the means to be able to do this, because I think we really need to be looking out for the next several 

84 

1The prepared statement of Ms. Langer appears in the Appendix on page 273. 

years on how are we going to improve the care that Connecticut 

citizens want and expect. 

So I think I would just conclude that, as I said earlier on, we are 

clearly very appreciative of all the hard work that you personally 

have put into this Act. And I think yourself as well as the Congress 

have really put before us really an unprecedented opportunity, one 

which we really just cannot afford to squander. We have to find a 

way to make this work. We have to find a way to balance both the 

needs of the citizens in Connecticut and the care that they need 

along with balancing the State budget. I am reasonably confident 

that we are going to be able to do that. Thank you. 

Chairman LIEBERMAN. I appreciate that very much. Thank you. 

I would just say a word to the students about something you said 

earlier, which maybe is not evident. The hospitals of Connecticut, 

the health care system, like the schools, do not just deliver a service, which is health care or education. They are tremendous centers 

of economic activity. In almost every city in this State, probably the 

largest employer or close to the largest employer is the local hospital. And part of why we want to keep them healthy is not just 

so that they keep us healthy, but that so they keep our metropolitan areas healthy economically. And part of why we want this 

money to be used to avoid the disastrous layoffs of teachers, for instance, that would have occurred without the stimulus funding is 

that, to say the obvious, you want to protect the jobs. I always feel 

the best thing government can do is to try to help people get and 

hold good jobs to provide for themselves. But if they lose their jobs, 

they obviously do not have the money to go out and buy the things 

they would normally buy, and that trickles down in the economy 

so that the recession gets worse and worse. Stores close, etc.; other 

people get laid off because the stores are closed. 

Anyway, that is why at the center of this stimulus program the 

first goal was to protect and create jobs, for the jobs themselves but 

also for what they mean to the rest of the economy. 

That is the end of my economic lesson for today, students. 

Sharon Langer is the Senior Policy Fellow at Connecticut Voices 

for Children. Thank you for being here, and thanks for your patience. 

TESTIMONY OF SHARON D. LANGER,1 SENIOR POLICY 

FELLOW, CONNECTICUT VOICES FOR CHILDREN 

Ms. LANGER. Thank you, Senator Lieberman. I am honored to be 

here today, and I echo many of the sentiments of the other panelists. I am here on behalf of Connecticut Voices for Children. For 

those of you who do not know, it is a research-based public education and advocacy organization which works statewide to promote the well-being of Connecticut’s children, youth, and families. 

And I appreciate particularly the invitation to discuss the enormous challenges that our State faces in ensuring that the stimulus 

funds for health care and education are spent quickly, wisely, and 

fully. 

And I echo Mr. Frayne’s comment that I do not envy Secretary 

Genuario his job, but I want to say on behalf of those of us who 

85 

are not part of the government, who are not either in the Executive 

Branch or the legislature, that we stand ready—and I think the 

Secretary knows that Connecticut Voices for Children stands 

ready—to be a partner, not merely to criticize, but to be a full partner in helping the State move through this very difficult next 2 or 

3 years. And I am delighted that the Federal Government, represented by you, Senator, and Secretary Genuario today representing the State, that you are here together, that this is a dialogue that hopefully will continue on many levels. 

I will just reiterate a couple of points that others have made. 

We know that our State is reeling from the collapse of the financial markets, the slump in the housing market, and the alarming 

increase in our State unemployment rate, which I believe is approximately 7.4 percent. And at the same time, the governor and 

the State legislature are faced with tackling a projected State 

budget deficit, as we have heard earlier, of anywhere between $6 

and almost $9 billion for the two State fiscal years that will begin 

July 1. And just to keep it in perspective—and I think maybe Dr. 

Yrchik actually said this—if we have a projected State deficit for 

1 year that is anywhere between $3 and $4.5 billion of an $18 billion State budget, that is approximately 25 percent of our State 

budget, which is unprecedented. And at the same time, Connecticut, our little State, which has 169 cities and towns, faces terrible budget choices, including the town of West Hartford that I 

live in. And as a result, I agree that the Federal stimulus dollars 

have come none too soon to help our State keep its commitment to 

children, struggling families, and all the residents of our State. 

I also want to reiterate what has been said before about the Federal Government agencies—the Department of Health and Human 

Services, the U.S. Department of Education—it is seemingly unprecedented that they have been able to issue guidances to help the 

States understand and interpret the stimulus legislation. And I 

think that those kinds of efforts by the Federal Government are 

enormously helpful. It is my understanding that the Federal Government and its State partners are on the phone, practically daily 

and for weekly conference calls. 

I would urge both the Federal Government and the State government, to engage nongovernmental stakeholders in these conversations. I was in Washington recently, and one of the general counsels for the Department of Health and Human Services talked 

about the fact that they are trying to figure out how to reach out 

to others who are very interested in understanding how this money 

is used, both to make sure that it fulfills the multiple objectives to 

stimulate the economy and to preserve critical services. It is also 

so important that everyone knows what is happening on the 

ground so there is not unnecessary concerns about waste or fraud. 

I mean, everyone has to be vigilant given how much money is at 

stake and how quickly the attempts are being made to move it on 

the ground. 

We were particularly pleased that the Department of Health and 

Human Services, its Centers for Medicaid and Medicare Services, 

came out with a guidance that really explained to the States what 

they can and cannot do in order to receive the increase in the Federal Medicaid matching funds. And I just want to say, for those of 

86 

you who do not know, that the Medicaid program in Connecticut 

alone provides critically needed health care services to one out of 

four children. Over 30 percent of the births in this State are to 

moms on our Medicaid program (which includes those moms on the 

Healthcare for Uninsured Kids and Youth (HUSKY) A program). 

While the guidance from the Federal Government and the law 

make clear that the States cannot cut back their eligibility rules, 

there are many other ways, as we know from years and years of 

research, that you can create either intended or unintended barriers to getting families on publicly financed health programs, 

keeping them on, and getting them services. Proposals that have 

been put forward to institute cost-shifting onto low-income families, 

persons with disabilities, or elderly folks, garner savings by inhibiting people’s ability to either get on the program or to access the 

health services. So we encourage both the Federal Government and 

the State Government to really carefully assess whether such proposals are in the best interests of children and families. 

I would also point out that we have to appropriate the Medicaid 

dollars, in order to draw down the stimulus funds to appropriate 

the money. We have to spend the money in order to receive Federal 

reimbursement. And so there is not a guarantee. And so to the extent that we are cutting back in our Medicaid budget, for example, 

we put at risk our ability to access all of the Federal dollars that 

we get from the Federal Government. 

I also want to reiterate what Mr. Frayne said, that we are worried that Connecticut may forego opportunities to utilize all the 

Federal funds available because Connecticut, quite frankly, has a 

long history of leaving Federal funds on the table, whether those 

are Medicaid funds, as Mr. Frayne said, a disproportionate share 

of hospital payments. During the 10 years of the Children’s Health 

Insurance Program, we left a lot of money. Delightedly, the law 

with your help and the help of your colleagues, Senator Lieberman, 

the Children’s Health Insurance Program (CHIP), was recently reauthorized. It is a fabulous law. It attempts to fix the funding problems to give States many options to cover more children, to simplify eligibility requirements and processes, to do outreach. And, 

quite frankly, Connecticut is very unlikely to take advantage of 

most of the opportunities in that law, partly because of our fiscal 

crisis and partly because Connecticut in some ways has been ahead 

of many other States, and it will just be a very difficult process. 

The other challenge has to do with the way that Connecticut actually budgets. I do not know if there are other States that do this, 

but we are one of a few States that gross budgets both the Federal 

Medicaid dollars and actually the Title IV–E dollars, which, as Secretary Genuario said, goes to fund our child welfare program to 

help families adopt children. Those are really our poorest children 

in the State. And we also gross budget, which means we appropriate many of the Federal block grant funds that the Federal Government sends us. 

So what that means in plain English is that the Federal and 

State dollars are combined in line items of the State budget. For 

example, the anticipated Medicaid stimulus funds in the form of 

the increased what they call Federal Medical Assistance Percentages (FMAP) payments to the State will just appear as a Medicaid 

87 

line item in the State Department of Social Services budget. And 

as a result of this longstanding practice of including the Federal 

funds without explanation in the State budget, it will be difficult 

to track the actual use of the stimulus funds. 

I am delighted to hear from Secretary Genuario, and after I 

wrote my testimony, I did become aware that the governor has 

issued an executive order to create various positions, a stimulus 

project oversight officer, and the like. And so, in order to facilitate 

increased transparency and accountability, we would urge the governor to make sure that any work of these officers is put on the 

State recovery Web site and that the work of any work groups that 

Secretary Genuario referred to is also on the State’s recovery Web 

site. 

I would also let you know that Connecticut Voices for Children 

has created our own web page concerning the Federal stimulus, 

and so as soon as we see something new, whether it is a guidance 

from the Federal Government, information from Secretary 

Genuario’s office, or elsewhere related to the implementation of the 

stimulus, we have put that information on—— 

Chairman LIEBERMAN. Ms. Langer, let me interrupt and I apologize. The time is going on. 

Ms. LANGER. I am basically done. 

Chairman LIEBERMAN. Let me say for the record that we are 

going to enter everybody’s statement in the record in full—and I 

have read them; you have some good statements. I want to leave 

some time for back and forth. But I appreciate what you have said. 

I actually want to pick up on the final point that you made. The 

Recovery Act itself and the President are very set on this being as 

transparent and accountable a program as we have ever had in the 

Federal Government, particularly using technology and the Internet. The government set up a Web site called Recovery.gov, and as 

of last Thursday, when I held my second hearing on this in Washington, the Web site had received over 300 million hits since about 

the middle of February when the Act was signed. It is quite startling how much interest there is in what is happening, and the 

President has set some very high standards that have never been 

met before here for people to be able to follow contracts, and to follow money from the Federal to the State to the local level. 

So I want to ask you, Secretary Genuario, first, what the State 

is doing to try to comply with those requirements? 

Mr. GENUARIO. The State has its own Web site. 

Chairman LIEBERMAN. Specifically with regard to the stimulus? 

Mr. GENUARIO. Absolutely. 

Chairman LIEBERMAN. What is that address? Ah, I got you. 

Mr. GENUARIO. You got me on that one. It has its own Web site. 

I think it is up on the governor’s—— 

Chairman LIEBERMAN. Ms. Langer, what is it? 

Ms. LANGER. I have it. 

Mr. GENUARIO. Terrific. 

Chairman LIEBERMAN. What is it? 

Ms. LANGER. It is www.recovery.ct.gov. 

Chairman LIEBERMAN. That is recovery.ct.gov, good. 

Mr. GENUARIO. Thank you. 

Ms. LANGER. You are welcome. 

88 

Mr. GENUARIO. I was going to point out before that when I want 

information, I go on Connecticut Voices’ Web site. [Laughter.] 

But Governor Rell’s office, early on, formulated its own Connecticut stimulus Web site. It can be accessed directly. It can be 

accessed off the governor’s own Web site. The minutes of every 

working group meeting are posted on that Web site. Decisions that 

the working group make or that the governor makes following recommendations of the working group are posted on the Web site. 

Decisions have already been made with regard to certain Department of Transportation infrastructure. Not only have those decisions been made, but as contracts are entered into, those will be 

posted on the Web site. 

So I think Governor Rell has actually been in the forefront of 

making sure that this is a transparent process. Backing up, even 

before that, she engaged a variety of stakeholders in order to help 

make decisions in these areas. 

Chairman LIEBERMAN. That is really important, and to say what 

is obvious to you at the table, this transparency that you will find 

on the Federal Web site and now on the State Web site is important for many reasons, one of which is obviously for people to figure 

out how to access funding under the stimulus bill; but the second, 

of course, is to see how it is being spent and in a certain sense to 

enable any citizen to become a whistleblower, to say, for example, 

the Web site says that this money is being used to build a new 

building in my town, and I live across the street from that property 

and nothing is happening. So it is very important. 

As part of this desire to make sure the money is spent wisely, 

we set up a Recovery Accountability and Transparency Board, 

which is being headed by Mr. Devaney, who is the Inspector General at the Interior Department. He has said that one of his goals 

will be to try to help the States in fraud prevention and waste prevention by conducting briefings. 

Is that something you think would be helpful for State officials? 

Mr. GENUARIO. I do think it would be helpful, and I think we all 

need to be conscious of the fact that this is a lot of money going 

out the door relatively quickly. 

Chairman LIEBERMAN. Right. 

Mr. GENUARIO. So I think that would be very helpful. 

Chairman LIEBERMAN. Incidentally, we appropriated, believe it or not, $250 million over the 2 years for the hiring of additional 

inspectors and investigators for the inspectors general to pursue 

the spending of money across the country, just as a kind of guarantee. 

I know you mentioned some appointments Governor Rell has 

made. Governor Schwarzenegger recently got some attention by 

employing a separate inspector general at the State level to monitor stimulus spending in California. Is the governor contemplating 

anything like that? 

Mr. GENUARIO. She has made several appointments. She has appointed a transparency officer, an accountability officer. We are 

looking to hire a stimulus officer who will track each and every 

project within that office. 

Chairman LIEBERMAN. So that would be the equivalent of what 

Schwarzenegger has done in California. 

89 

Mr. GENUARIO. Exactly. 

Chairman LIEBERMAN. And I think in your prepared testimony, 

Ms. Langer, you endorsed a State Senate bill? 

Ms. LANGER. Right, and it was a Senate bill before the State legislature that basically would set up a commission to do what I believe Secretary Genuario is talking about. We applaud the governor 

for instituting these kinds of offices, and what is important to us 

is the transparency and the opportunity to give feedback. 

Chairman LIEBERMAN. So do you still favor the creation of a 

State commission on Federal stimulus fund distribution, or do you 

think what the governor has done satisfies that? 

Ms. LANGER. All I know about what the governor has done was 

in the press release, so it appears to do that. I guess the question 

is whether the commission goes farther because it is made up of 

a group of people rather than just several individuals. 

Chairman LIEBERMAN. Secretary, does the governor have a position on this bill? Are you familiar with it? 

Mr. GENUARIO. I am generally familiar with it, and I think the 

governor’s position is that the Federal legislation sets up the Executive Branch as the director of most of these funds, though not all. 

And to the extent that the Federal legislation sets that up, that 

ought to be the system that Connecticut uses. 

With regard to advisory commissions or advisory boards, the governor has frequently worked with the legislature in terms of creating those types of bodies, and I doubt whether there would be an 

objection to that. 

Chairman LIEBERMAN. Let me ask you about some of the questions Mr. Frayne raised about the State losing the possibility of 

Federal funding because of its unwillingness or inability to put in 

the State’s share. Would you respond to that? 

Mr. GENUARIO. Well, over the course of the last several years, 

the State has, I think, gone to great lengths to maximize, to the 

extent possible, Federal reimbursement. Now, I believe he is correct that there is some room within our Disproportionate Share 

Hospial (DSH) pools for additional State appropriations that would 

result in additional Federal reimbursement, though if memory 

serves me, the DSH pools are not eligible for the increased FMAP 

stimulus reimbursement. 

Chairman LIEBERMAN. I believe that is right. 

Mr. GENUARIO. So there would not be any increased Federal reimbursement. 

There are times when, pursuant to the amount of revenue we 

have available, we spend what we think is reasonable and obtain 

the Federal reimbursement that is appropriate. You cannot always 

spend a dollar to chase 50 cents, and there are probably times 

where hospitals and other providers would like to see us increase 

rates in order to get additional Federal reimbursement. And to be 

sure, we have done what we think is reasonable. 

I will point out that over the course of the last 2 years, Connecticut has increased Medicaid rates substantially—clearly not to 

the extent that some of the providers in the hospitals would like. 

But there has been a substantial movement towards increased 

Medicaid rates over the course of the last 2 years, and those increased rates will remain in effect under the governor’s budget, and 

90 

presumably under the budget that finally passes, we will get the 

additional FMAP for those increased rates, though not for any DSH 

payments. 

Chairman LIEBERMAN. Let me ask you a question that each of 

the other three witnesses in one way or another raised. And I know 

it is hard, particularly when you are in the midst of the budget crisis the State is in, to look too far forward. But I guess some people 

call it keeping away from the edge of the cliff. In other words—and 

Dr. Yrchik I think stated it very explicitly—the significant additional Federal funding for education that will flow through the 

States to the local governments for education purpose will go on for 

2 years. Those funds are stopping some significant cutbacks that 

otherwise would have occurred. In one sense certainly with IDEA 

and with Title I of No Child Left Behind, they are helping to meet 

commitments that the Federal Government has not met, where the 

Federal Government set a mandate but did not fund it. 

But then what happens after the 2 years? In other words, obviously we all hope and I believe that the economy will be doing better so that tax revenues will be coming in at a more normal pace 

2 years from now for the State and local governments; but, nonetheless, we have a real challenge ahead. 

Mr. GENUARIO. Well, I thank Dr. Yrchik for raising it, and thank 

you for asking the question, Senator, it is not something that we 

find hard to look at. It is something that we look at very carefully. 

And in fiscal year 2012, we will have some significant issues. 

I might add that not only will the stimulus money go away, but 

under anybody’s budget—let me back up just very briefly. 

One of the things Connecticut has done right over the last 4 or 

5 years, it has been very diligent in building up its budget reserve 

fund. And, clearly, that budget reserve fund under anybody’s proposal will be utilized over the course of the next 2 years. So that 

when we get to 2012, we not only will have, presumably, a loss of 

stimulus money, as is intended, but we will no longer be able to 

rely on our budget reserve fund. So 2012 will be a very challenging 

year. I estimate that our structural deficit for 2012, if all goes well, 

will be in the area of $1 billion plus. 

So we have 3 or 4 years of difficult budget cycles ahead of us, 

and one of the reasons we make decisions that we make in terms 

of not expanding programs in 2010 and 2011 is because we know 

there is a problem in 2012 and we need to be conscious of that as 

well. 

Chairman LIEBERMAN. Let me ask a specific question about Head 

Start funding. The stimulus bill included $2.1 billion for Head 

Start funding. Last week, as I understand it, a small portion of 

those funds were released basically for cost-of-living increases and 

quality improvement for existing grantees. And, of course, I hope 

the Department of Health and Human Resources moves quickly to 

provide information on how you can apply for the bulk of the remaining funds. 

But I want to ask you, Secretary, how do you envision, the State 

best utilizing the Head Start funds to improve early support and 

education services? And I will ask Ms. Langer and Dr. Yrchik 

whether they want to comment. 

91 

Mr. GENUARIO. Well, early childhood education has been a significant goal of Governor Rell since she has been in office, and we 

have had a fairly significant expansion of those services over the 

course of the last several years, including Head Start but also including some State-funded programs. 

We think that we have built up an infrastructure for early childhood education that will serve us well and be able to better access 

some of the Federal dollars for Head Start than we might otherwise have been able to do. But it is money that will flow through 

Connecticut’s Department of Social Services (DSS), will move to appropriate grantees as expeditiously as possible. A number of the 

Head Start programs are run through the Community Action Program (CAP) agencies in the State of Connecticut. They will continue to be, by and large, the providers of the services for those 

programs, and that money will flow through DSS to those providers 

consistent with that legislation. 

Chairman LIEBERMAN. Ms. Langer, Dr. Yrchik, do you have a response to that and how you would hope this money would be spent? 

Ms. LANGER. Well, we have made progress, but it is like a lot of 

areas where we need to do more. And I actually would like to defer 

the answer. There is someone in my office, another senior policy 

fellow, who really knows far better than I do about the details of 

this area. 

Chairman LIEBERMAN. That is fine. We will leave the record 

open for filing of that kind of statement. 

Dr. Yrchik, do you want to add anything? 

Mr. YRCHIK. I would like to make a comment about early childhood in our State. I think that several years ago we really began 

to make considerable progress in this area. We agreed that relatively soon teachers of early childhood would have to be certified 

or have a B.A. in early childhood development. It was landmark 

legislation. The governor created a policy council to advise her on 

expanding early childhood opportunities. But a combination of 

things has occurred this year which I think has probably set us 

back. 

The governor disbanded her Early Childhood Policy and Research Council. The economic circumstances of our State have 

caused the number of slots for early childhood to be level funded. 

And our progress has been, I think one would have to say, halted. 

So I think everyone in the State recognizes that this is a critical 

area and will be an enormously important area for improving student achievement over the long term. 

At the same time, the funds that have come into the State 

through the stabilization fund, IDEA, Title I, those that could have 

been used to buttress support for early childhood programs have 

largely been used for other purposes or certainly have not lived up 

to the potential that they would have had in ordinary times. 

So I would say that I think while our State recognizes the importance of this area, we really have been dealt a blow by the economy, and there is no getting around that fact. 

Chairman LIEBERMAN. Yes, I agree. That is the corner we have 

to turn. 

Let me ask a last question to you, Mr. Frayne. This bill has a 

lot of traditional infrastructure investment in it, which has been 

92 

proven to create jobs, protect jobs, and the money flows to highways, bridges—significant investments I am really pleased to say, 

in mass transit. But one of the more interesting new infrastructure 

investments the bill makes is $2 billion in health-related information technology. This is a sort of transition to the next great challenge we are going to face in Washington this spring, early summer, which is to really get into health care reform, both to provide 

affordable health care for every American and also, obviously, to 

try to reduce the costs of high-quality health care. 

Just give us a little bit of a sense of the hurdles we need to get 

over so that Connecticut receives all the health information technology funding to which it may be entitled. And give us an idea of 

how this money will be spent by some of the hospitals here in the 

State. 

Mr. FRAYNE. Sure. Thank you. As you noted, one of the things 

hospitals have been working on for quite some period of time is to 

evolve their plans to go from a paper-based world into what we 

would call an electronic world, a computer-based world, where all 

of the information would be able to be transferred by computers. 

And there are enormous benefits to doing that. One, it would hopefully make us much more efficient than we are today in the care 

that we deliver, and probably an even more promising advantage 

of doing that is not only that we will become more efficient and actually help the economy as our cost structures will hopefully come 

down slightly over time, but also it will actually help improve the 

quality of care that we deliver to folks by having access to what 

were their most recent tests, what were the results of those tests, 

did they have an x-ray over at another facility, and what did that 

look like so we can get that without having to duplicate that test. 

So these are kinds of efficiencies and economies and quality improvements which are really desperately needed. 

The good news is that nearly all of the institutions in this State 

are on that journey already. They are making significant investments in personnel, in time, in energy, and in dollars to evolve, in 

fact, from where we were to where we need to go. 

The current challenge that we are facing is not dissimilar to, 

really, many other industries in that the markets to borrow money 

from are essentially closed. We cannot go and issue bonds, for example, through our State bonding authority. If we had the ability 

to do that, the interest rate currently would be too high. And the 

typical vehicle that we would use—and this is a little inside ballpark, but if you would bear with me one second—bond insurers— 

these are entities that actually improve the creditworthiness of our 

bonds—they have not fared very well recently in the economy. Actually, the underlying creditworthiness of hospitals now happens to 

be higher in some instances than the entities we rely on to help 

boost our creditworthiness. So it is an unfortunate turn of events. 

But the combination of all those things essentially means you 

cannot get the money to borrow to be able to implement these 

projects, which everybody knows to an absolute certainty are critical for our future. And, one of the things that we are very hopeful 

of that we will be able to do over the course of the next few 

months, even in a very difficult State budget, is to be able to work 

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93 

sional delegation to put in the application to create this loan program, because thankfully in this instance now the Federal Government is saying, ‘‘We think this is an important goal, we want you 

to get there, providers, and we are going to help you get there by 

allowing you to borrow the money from us.’’ 

So I think if, in fact, we can work with the Administration and 

those in the legislature to make that happen, it would be really terrific. 

Chairman LIEBERMAN. I would look forward to helping in any 

way I can. 

I want to thank the four of you. Your testimony has been very 

helpful to me. Congress and the President’s initiative did something that we have never done before, certainly not at this dimension, in passing this stimulus program. That is because we are facing an economic challenge the likes of which we have never faced 

before. We worked hard to get our fair share of it, Senator Dodd 

and I and all the members of the congressional delegation from 

Connecticut, for Connecticut. So it is very important to us, of 

course, that it be used well and effectively to protect and create 

jobs, to move more money through the State economy, and hopefully to make some investments in a better future. 

I acknowledge the natural tendency to use the money to survive. 

We are going to constantly push to do more than that to try to use 

it in a way that is an investment in a better economic future and 

a better quality of life for people in the State. My own impression 

from the testimony that you have given, all four of you, is that we 

are off to a good start here in Connecticut. But I want to stay involved with you and others here. I know there are others who were 

good enough to come to the hearing. I saw some firefighters and 

police officers; they benefit from other programs that are part of 

the stimulus. Very important. There are other recipients who are 

here. Not only do we have a Web site in my office, but I invite you 

to call me or call our office, either here in Hartford or in Washington, with any ideas you have or anything you want to report to 

us about how this money is being spent, because it is your money. 

That is the bottom line, and we want to make sure that you benefit 

from it. So I thank you for that. 

In the normal course, the record of this hearing—and we are 

keeping a transcript of all of this—will be open for 15 days if any 

of you want to submit additional statements. In the normal course, 

other Members of the Committee may submit questions. I doubt 

that they will ask you questions. We may have one or two followup questions. And then I would say to anybody else, and this is a 

little bit unusual, but if anybody else in the audience wants to file 

a statement with the Committee, please do so and it will be printed 

in the official record of this hearing. 

I cannot thank you enough, those of you who testified, those of 

you who were here. This is probably the most attentive, well-behaved group of students that I have ever had sit at a hearing. 

[Laughter and applause.] 

There must be some future Senators up there, maybe even Presidents. Anyway, I thank you all, and with that the hearing is adjourned. [Applause.] 

[Whereupon, at 11:48 a.m., the Committee was adjourned.] 

(95) 

FOLLOW THE MONEY: STATE AND LOCAL 

OVERSIGHT OF STIMULUS FUNDING 

THURSDAY, APRIL 23, 2009 

U.S. SENATE, COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 9 a.m., in room SD– 

342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, 

Chairman of the Committee, presiding. 

Present: Senators Lieberman, Carper, McCaskill, Tester, Burris, 

Bennett, Collins, and McCain. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. Good morning, and welcome to this fourth 

in a continuing series of hearings that our Committee is holding on 

the American Recovery and Reinvestment Act to monitor how effectively and efficiently the $787 billion in tax cuts and spending are 

being used, but also to make sure, to the extent that we can, that 

it is doing the job that we, in Congress, intended it to do, which 

is to breathe life back into our economy. 

While the Office of Management and Budget (OMB) tells us that $60 billion of the Recovery Act money has been committed so far, 

the vast bulk of the Recovery Act money is still in the pipeline. One 

of the questions that I want to ask the witnesses today is whether 

they feel the Federal Government is moving this money out into 

the economy as rapidly as it could, because, obviously, that was the 

goal that Congress had, with an understanding, as one of the witnesses—I think, Mr. Scheppach said—‘‘you have got attention here. 

You want to move it out as quickly as you can, but you want to 

make sure it is spent efficiently and not wastefully.’’ 

Personally, I am impressed by the extensive planning, at all levels of government, to meet the Act’s accountability and transparency provisions, which obviously are critical to creating pressure for effective, efficient, and non-wasteful spending of the 

money. I am also impressed by what appears to be a strong spirit 

of cooperation between Federal, State, and local governments in 

implementing this Act. 

But the next few months are going to be the real test as to 

whether we can ramp up spending quickly enough to stimulate the 

economy the way it needs to be stimulated and the way Congress 

intended with this American Recovery Act to have it stimulated. 

And to do that, we are asking all levels of government to do more, 

to do it well, and to do it in record time. 

96 

1The letter referenced by Senator Lieberman appears in the Appendix on page 283. 

2The prepared statement of Senator Lieberman appears in the Appendix on page 277. 

3The GAO report referenced by Senator Lieberman appears in the Appendix on page 350. 

On April 7, I convened a field hearing for our Committee in Connecticut. And the State Secretary of Policy and Management, the 

chief budget officer, if you will, in Connecticut, testified that the 

Federal Government has reacted swiftly to his questions on behalf 

of the State and, he thought thus far, has imposed an acceptable 

level of red tape, or at least kept it to a minimum. 

However, during that hearing, he also testified that there were 

very important implementation challenges from a State level; in 

particular, the need to give State and local governments clear direction and whether some of the Recovery Act money can be used 

to help pay for administrative and oversight costs. And I hope that 

the witnesses will talk about that today. 

We know that the Act includes $250 million for additional Federal investigators and inspectors to be hired to monitor from the 

Federal level, but about $300 billion, by the last calculation we saw 

of this, in stimulus spending will be under the supervision of State 

and local governments. And, of course, those State and local governments are themselves under real fiscal financial pressure now. 

And the question is whether they have adequate personnel to monitor the spending at the State and local level. Therefore, I know 

they have asked for permission to use Federal stimulus money to 

retain personnel for that purpose. 

I am very pleased that this morning, Vice President Joe Biden 

has released a letter to Senator Collins and me,1 indicating that his 

office is working on this, and that OMB will be issuing guidance 

soon that will give new flexibilities to the States and local governments to cover administrative costs with the Recovery Act funds. 

In this balance that we are trying to strike, it seems to me that 

makes a lot of sense. 

In the interest of moving ahead with the hearing, I am going to 

put the rest of my statement in the record.2

I do want to say how pleased I am that the Acting Comptroller 

General, Mr. Dodaro, is today going to release before this Committee his first bi-monthly report on State and local spending 

under the Stimulus Act as required by the Act.3 The Government 

Accountability Office (GAO) helps us enormously in performing our 

function of oversight on this critical piece of legislation. 

It is too early to say. There are obviously some glimmerings of 

hope about some movement in the right direction in the economy. 

We are not going to know until more of the stimulus spending is 

actually out there. And, of course, more significantly, beyond the 

jurisdiction of this particular Act or the purview of this Act, until 

all the steps that the Treasury Department, the Federal Reserve, 

and other institutions are taking to try to reestablish the health of 

the financial sector of our economy, and to get money flowing 

again, from banks, to businesses and individuals. Until all that 

happens, we are not going to have the kind of recovery, or the kind 

of confidence, that will lead to the recovery, that we need. 

But anyway, we are pleased to have the three of you here: Gene 

Dodaro, and then a front-line report from Ray Scheppach of the 

97 

National Governors Association, and Carolyn Coleman of the National League of Cities. We look forward to your testimony today. 

Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. 

The American Recovery and Reinvestment Act is vital legislation 

intended to boost our troubled economy and to create and save jobs. 

If properly implemented and overseen, the law will also improve 

our Nation’s roads and bridges, prevent cuts in health care, and 

provide important investments in education and science, while 

helping to turn our economy around. 

State and local governments are playing a critical role in distributing, spending, and measuring the impact of Recovery Act funds. 

The GAO estimates that State and local programs will receive 

about $280 billion under the law. As a result, they must prepare 

to handle the challenge of managing and overseeing this influx of 

new funds, a resource-intensive undertaking. 

This challenge is further compounded by the fact that many 

State and local governments are facing major budget shortfalls that 

often leave them short-staffed. Like the Chairman, I, too, welcome 

the Vice President’s letter this morning, which tells us that new 

flexibility is going to be allowed for States to recover the costs of 

certain administrative activities. 

It would indeed be unfortunate and ironic if money is lost to 

waste, fraud, and abuse because States had insufficient funds to 

hire the necessary contracting officials, auditors, and oversight employees to ensure that the funds are well spent. 

The Recovery Act also creates several important oversight mechanisms that the Chairman and I worked hard to ensure were included. These oversight mechanisms include the bi-monthly reports 

from the GAO on the use of funds by selected States and localities. 

The GAO is issuing its first of these reports today, and we are 

eager to hear the progress that State and local governments have 

made in developing plans and internal controls to ensure that the 

Recovery Act funds are not lost to waste, fraud, and mismanagement. 

Today’s hearing will also explore the mandates for accountability 

and transparency placed on State and local governments under the 

Recovery Act, as well as how quickly the money is being spent. 

This was a major issue in the Senate debate. The Senate was determined to make sure that the final version of the bill had a 

quicker impact on the economy by having a faster spend-out rate 

than the House bill had. 

I am pleased to welcome, not only the GAO, but the National 

Governors Association and the National League of Cities to this 

hearing. These associations can provide useful insight into the innovative approaches State and local governments are taking, including how they are planning to communicate funding opportunities to hospitals, fire departments, businesses, schools, and nonprofit organizations. A complaint that I hear from my State, is that 

a lot of the intended beneficiaries of this funding are still uncertain 

how to access it. 

98 

1The prepared statement of Mr. Dodaro appears in the Appendix on page 286. 

2The chart referenced by Mr. Dodaro appears in the Appendix on page 326. 

3The chart referenced by Mr. Dodaro appears in the Appendix on page 327. 

In addition, I want to hear about the steps that States are taking 

to ensure that the infrastructure contracts are awarded competitively, fairly, and effectively, and, of course, to ensure that taxpayer dollars are not wasted. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks very much, Senator Collins. 

I welcome Senator McCain and Senator Bennet. 

And now we will go right to Acting Comptroller General Dodaro. 

Thanks for being here and thanks for issuing this first report before our Committee this morning. 

STATEMENT OF GENE L. DODARO,1 ACTING COMPTROLLER 

GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. DODARO. Thank you, Mr. Chairman. Good morning to you, 

Senator Collins, Senator McCain, and Senator Bennet. We appreciate the opportunity to be here today to discuss the results of our 

first bi-monthly review of the use of the funds by selected States 

and localities. 

As I mentioned to this Committee on March 5, when we were 

here to outline our plans, our review focused on 16 States and the 

District of Columbia across the Nation that will account for about 

two-thirds of the total amount of money that is allocated by the 

Federal Government to States and localities. And I also mentioned 

that we were going to follow these 16 States and the District over 

the next 2 or 3 years to do a longitudinal study of how they use 

the money but also what the impact of the Act had been and 

whether or not it was going to achieve its objectives. 

This first chart explains why a longitudinal study is important.2

This is the estimated Federal outlays by the Congressional Budget Office (CBO) and other information we have put together as to 

when the Federal moneys will be outlayed to the States and localities. And as you can see, there is a ramp-up here in Fiscal Year 

2009, but a lot of the outlays will be in 2010 and 2011 and in ensuing years. 

Now, as the next chart will show,3 for this fiscal year, Fiscal 

Year 2009, there will be about $49 billion outlayed to the States 

and localities. Most of that, 90 percent of that, will be in the health 

area, education, and transportation. 

Now, over time, as you can see, this chart compares Fiscal Year 

2009 to 2012. The composition of the Federal spending will change. 

While a large part, 64 percent, this fiscal year will be spent in 

health care, as represented by the red piece of the pie, by 2012, 

that will be only about 1 percent. That is because the increased 

Federal share of the Medicaid program is for a 27-month period 

that will stop at the end of 2010. 

You can also see that the amount of money that is going into 

community development, energy, and environment, will increase 

along with the transportation spending as new programs come on 

line, the broadband program, high speed rail program, and some of 

the housing and community development initiatives. 

99 

Our first bi-monthly review, therefore, focused on the three programs where there is the largest amount of money to be spent during Fiscal Year 2009: The Medicaid program, the highway program, 

and the State Fiscal Stabilization Fund. Now, in the Medicaid program, the 16 States and the District that we looked at received an 

allocation from the Centers for Medicare and Medicaid Services 

(CMS) at the Federal level of about $16.9 billion. As of April 1, 

they had drawn down $7.96 billion of that or about 47 percent of 

the total amount of money that was available. They reported using 

the money to sustain eligibility requirements for the Medicaid population within the States and also to help them meet increased 

caseload demands. As we all know, during economic downturns, 

other people come on to the Medicaid rolls, and so they were able 

to do that. 

Now, the Federal share increased quite a bit. In the States that 

we looked at, it went from a 7.9 percent increase in Iowa to an 11.5 

or almost 11.6 percent increase in California. So the Federal shares 

increased significantly as a result of this legislation. That also may 

mean in some States they are able to reduce their share, thereby 

making funds available for other purposes. And some States have 

reported being able to do that and using that to avoid layoffs in 

other areas or to offset general fund deficits. And this helps to prevent other actions that might be detrimental to economic recovery. 

Now, in the transportation area, money was made available to the 17 jurisdictions that we looked at, about $15.5 billion. As of the 

middle of this month, about $3.3 billion had been obligated. Now, 

obligated in this sense means that the Federal Government and the 

States have agreed on the projects to be funded. Many of these are 

still out for bid during the April and May time frame, while a few 

States, Mississippi and Iowa, among our sample, had actually let 

contracts to begin work. Most of the other States are in the process 

of completing the competitive bidding process and will then be 

awarding the money. 

So far, there have not been a significant amount of Recovery Act 

funds spent yet for the highway programs, but as you mentioned, 

Mr. Chairman, the pipeline is there. The projects that have been 

agreed to by the Federal, State, and local governments for the jurisdictions we are looking at—there were over 950 projects that 

had already been approved. So this is moving through the system, 

and I think it will have the desired effect. 

Now, in the State Fiscal Stabilization Fund, this is a new program, about 81.8 percent of the money in the State Fiscal Stabilization Fund is to be used for education purposes; 18.2 percent 

can be used for basic government services, including education. 

Now, about a little over $20 billion had been allocated to the 17 

jurisdictions that we looked at, but in order to be able to use this 

money, States have to submit an application to the Education Department. The Education Department reviews it, and then once the 

Education Department determine it is complete, the States can 

move forward. 

Among the jurisdictions that we looked at, two have submitted 

their applications and have the review completed by the Education 

Department. Last Friday, the Education Department gave the OK 

to California, and this past Monday to Illinois. Other States are in 

100 

various processes of preparing their applications and submitting 

them to the Education Department for review. 

Now, in addition to looking at the uses of the funds, we also 

looked at the efforts being made by the States to ensure that there 

are proper safeguards and proper accountability mechanisms put in 

place. Here, we were pleased to see the States paying very close attention to their new responsibilities. They were appointing people 

to focus on this program full time, either as a Recovery Act czar 

or special person associated with it. They were trying to assess 

what some of the internal control risks were up front, as you mentioned, Senator Collins. And there are some risks; some of the prior 

audit work and other things done note some areas where sub-recipients have not been monitored in the past as they need to be, 

but people were trying to put in place proper improvements to ensure that those risks were mitigated. 

Now, here we found exactly what was mentioned by both of you, 

Senator Lieberman and Senator Collins, in your opening statements. Most of the States have been under fiscal stress and they 

have cut back, some significantly, in the amount of oversight activities that they are funding at their level, both in the management 

side as well as on the auditing side. So that is a concern that they 

had, and we recommended to OMB that it clarify where administrative funds can be funded through the Recovery Act. There are 

a number of possibilities. There are also indirect cost rates in some 

of the existing Federal programs. So we were pleased that OMB 

and the Vice President adopted our recommendation, and they are 

going to clarify that. 

The other recommendation we made to OMB was to modify the 

Single Audit process. This is the State audit of the departments by 

the State auditors. It is a very important tool, but unless it is 

changed, as Senator McCaskill mentioned in our last hearing, and 

modified to allow for earlier testing of the program and to give 

some relief to the State auditors, it will not be a timely, effective 

tool, as much as it could be, to help with Recovery Act funding. 

Now, our recommendations would mean the auditors would do 

some testing of internal controls in 2009, before a lot of the money 

is spent in 2010 and 2011. So it is very important. OMB has acted 

positively. We were hoping that they implement those changes. 

We also made recommendations that OMB provide better clarity 

on the methodologies used to estimate the number of jobs created 

and preserved, which is a very important aspect of evaluating the 

impact of this program. And we also made recommendations that 

OMB move to improve the communications with the States, to give 

them more timely notice of the availability of the money, the application process. And importantly, a lot of States were concerned that 

they were not getting information about the amount of Federal 

money that would flow directly to localities within their State that 

would not come through the State agencies. So they would not have 

a total picture. That would impede their ability to assess the overall impact. So we made the recommendation to OMB that they provide that information to the States, and they have agreed to do 

that. 

So, in closing, I just would say we have made a series of recommendations to OMB. They are acting on those recommendations. 

101 

1The prepared statement of Mr. Scheppach appears in the Appendix on page 328. 

We are very pleased with their response and also would want to 

publicly thank all the State and local officials, including the associations that are here today. But we have received very good cooperation in every State and locality that we have been in, as well 

as with our Federal officials. So we look forward to continuing our 

responsibilities under the Recovery Act, and we will produce regular reports as required. And I will be happy to take questions at 

the appropriate time, Mr. Chairman. 

Chairman LIEBERMAN. Thanks very much. You got us off to a 

good beginning. And I appreciate what you did, because I am sure 

there is a connection between the work that you have done and 

your communication with the Vice President’s office and his announcement today about the guidelines that will make it easier for 

the State and local government. 

Also, during the question and answer session, I want to come 

back to this because this is really quite interesting, and probably 

surprising to most people. One, much more of the money will be 

spent in Fiscal Year 2010 than this year. And then, two, a lot will 

be spent from 2011 right out to 2016. 

Mr. DODARO. And, actually, some of it may even go further. 

Chairman LIEBERMAN. I want to get into that a little bit—— 

Mr. DODARO. Sure. 

Chairman LIEBERMAN [continuing]. During the questions and answers session. 

Next is Ray Scheppach, who is with the National Governors Association. He has been here before, although not recently, and always welcomed. Thank you for your testimony this morning. 

STATEMENT OF RAYMOND C. SCHEPPACH, PH.D.,1 EXECUTIVE 

DIRECTOR, NATIONAL GOVERNORS ASSOCIATION 

Mr. SCHEPPACH. Thank you, Mr. Chairman. Good morning, Senator Collins, Senator McCain, and Senator Bennet. I am pleased to 

be here on behalf of the National Governors Association (NGA) to 

talk about implementation of the Recovery Act. 

My best estimate right now of the fiscal shortfalls in States is 

somewhere between $200 and $250 billion over the next 3 fiscal 

years, and that is the States fiscal years of 2009, 2010, and 2011. 

Because 49 out of the 50 States have a balanced budget requirement, they can only take two actions. One, they can cut budgets 

or raise taxes, both of which will have a negative impact on the 

economy. Because of that, it actually has a multiplier effect on the 

economy, making it longer and deeper. This is why many economists argue that one of the most productive strategies is to provide 

flexible money to State and local government to offset that negative 

action. 

In terms of how much is coming to States, we estimate it is probably around $246 billion that comes to States or through States to 

individuals out of the total $87 billion. I tend to think of this 

money in four broad categories, or buckets, depending upon the intent and the timing of it. 

The first category I would argue is the counter-cyclical funds, or 

the funds that are relatively flexible. I put the $87 billion of MedVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00109 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
102 

icaid money in there not because you can utilize the Federal 

money, but, again, because you can withdraw the State money that 

you had planned to put in there and move it to, in fact, plug holes 

other places. 

The second component would be the State Stabilization Fund, 

that $39.5 billion, really, plus the $8.8 billion flexible money. And 

the reason that is relatively flexible is that education represents 

about 32 percent of State budgets, if you add higher with elementary and secondary. So because of that, you have a fair amount of 

flexibility to move that around across those various categories. 

If you add those two categories together, you get about $135 billion in relatively flexible money. And that is going to go a long way, 

and you are already seeing a number of States, basically, not go 

forward with planned cuts because they know that the money is, 

in fact, coming. And so I would argue, some of that is already having a positive impact by offsetting negative cuts. 

The problem is, in all honesty, that even after that money, States 

are going to continue to have a shortfall in the neighborhood of 

$200 billion over the next 3 years, which means most States are 

going to have to continue to downsize, consolidate, and/or raise 

taxes. 

The second category I would like to talk about would be the 

straight appropriations, which is mostly the formula grants. This 

is the highway money and the sewer money. This is the energy 

grants, the weatherization, and so on, which is a little short of 

about $100 billion in those funds. Most of it is in existing programs, so it can be at least obligated relatively quickly because the 

rules of the game are generally known. With the exception of those 

new programs or some programs where you have had dramatically 

increased budgets, I think those will go along fairly smoothly, and 

you will begin to see, shortly, outlays in a number of those programs. 

The third category is what I call the safety net. That is essentially the food stamps, unemployment, and so on. That is about $40 

billion. And there is a fourth category, which I will argue is a 

longer term investment, trying to develop the foundations for economic growth in the longer run. I put the money in terms of alternative energy and smart grid, health information technology (IT), 

broadband build out, high speed rail, and research and development money into that category, where I think you actually have to 

spend somewhat more time in planning to ensure that money is actually spent efficiently. 

In terms of the good news, I think there is a lot of good news 

so far. I would argue that the Vice President’s office actually has 

provided a lot of leadership on this issue, and has been in touch 

with governors. And I think I would give the Administration, OMB, 

and agencies, pretty high marks in terms of getting out guidance 

as fast as they can, trying to get out the allocations so States know 

what they are going to get. So a lot of information has flowed already. 

Second, I think governors have all designated their leads, and 

many of them have, in fact, appointed task forces or working 

groups. A lot of those have included private sector, local governVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00110 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
103 

ment, and other organizations, so trying to get at some of that outreach that you were talking about. 

Third, I think OMB and GAO have been very accessible. We actually have calls every Friday morning to talk about emerging 

problems and try to feed those back into OMB. And they have been 

very responsive about trying to deal with those issues as we find 

that they come forward. 

Finally, I would say that most times, I would probably argue as 

an economist, that attempts to stimulate the economy through fiscal policies have generally failed. They have been too late. Generally, the money starts being spent after the economy is already 

recovering. 

I suspect this time, you are probably going to be much closer to 

the mark. Again, I would say that already I see a number of States 

postponing cuts because they know the money is coming. That is 

having a positive effect on the economy. And I think over the next 

2 to 3 months, we will begin to see some additional outlays from 

this package. And I can tell you that, as far as the revenues in 

States is concerned, it is still coming in month after month, the 

worst estimates. So we see no recovery yet or even leveling off in 

State revenues. 

There are a number of challenges, I think, however, that governors have. The biggest one is that we do believe that this budget 

hole will be for 3 years. Two years because we probably will not 

get GDP back to the 2008 level for 2 years, and we know from the 

last three downturns, the biggest impact is on States in the year 

after the recession is declared over. And that is primarily because 

the Medicaid spending is very late. It takes time for people to lose 

their jobs and then apply for Medicaid, and so that spending is 

very late. And, of course, similarly, income tax revenues continue 

to fall very late in the cycle. 

So governors are going to have this tension between spending the 

money now quickly to gain the job creations on one hand, and on 

the other hand, trying to maintain program stability and fill the 

budget hole that is going to last for 3 years. 

The second one is there is a lot of accountability here, much more 

than is normal. Not only are governors going to be accountable to 

OMB and the agencies, but also now the Recovery Act Transparency Board, the inspectors general (IGs), and, of course, GAO, 

is out in the field. So there is a phenomenal amount of accountability. 

The only issue there, I think, is that we hope that the data requests can be streamlined and that congressional committees also 

do not ask for separate information, which is happening in some 

instances, because it is not the oversight as much as it is the data 

collection that I think is potentially burdensome to the States. 

You have already mentioned this issue of funding for this. I 

would argue that this has been one of the biggest issues, that there 

is no place to charge the additional work that is necessary. And so, 

to the extent that OMB and the Vice President’s office is dealing 

with that issue, I think that is going to be very valuable. 

I do think that this whole issue of collecting the number of jobs 

is going to continue to be difficult. I am not sure at the end of the 

day, even when we get more guidance, that the data is going to be 

104 

1The prepared statement of Ms. Coleman appears in the Appendix on page 337. 

particularly usable to look across States or across programs just because of the difficulties in collecting accurate information. 

The only areas that I think that there are going to be problems 

are when you are establishing a new program, that is something 

like in weatherization, where you may have gone from an appropriation level previously of $200 million to $6 billion. That is a phenomenal ramp-up, and I think it is going to be difficult to maintain 

program stability and efficiently at the same time as ramping up 

that program. 

You have already mentioned the capacity problem. It is true, as 

Mr. Dodaro has indicated, States have cut back over the last couple 

of years, and, therefore, have less capacity in the accountability 

area, and, therefore, are going to have to build that up over time. 

It is also true that the existing information systems may not be the 

ones that can handle the new data requests, and, therefore, it may 

be that those are going to have to be reprogrammed, which will 

take time. 

The only final comment I will make is that there is a lot of funding going to local government and to port authorities and other 

places, where governors do not have control over. They are concerned about making sure that they are at least informed when 

that money goes directly to other entities so that it is coordinated. 

With that, Mr. Chairman, I would be happy to answer questions. 

Chairman LIEBERMAN. Thanks very much. A very good and helpful report from the State level. 

Next, we have Carolyn Coleman, who is here to represent and 

speak on behalf of the National League of Cities. 

Good morning, and thanks for being here. 

STATEMENT OF CAROLYN M. COLEMAN,1 DIRECTOR, FEDERAL 

RELATIONS, NATIONAL LEAGUE OF CITIES 

Ms. COLEMAN. Good morning, Chairman Lieberman. It is good to 

be here. 

Also, good morning, Senator Collins. Good to see you again. I 

know the local leaders who were here in Washington a few months 

ago really appreciated your remarks at our conference. 

Senator McCain, Senator Burris, and Senator Bennet, it is good 

to be here with you as well. 

I welcome the opportunity to discuss this important issue with 

you. Local governments across the country are working very hard 

to plan and to be ready for the funds as they begin to flow a little 

bit later this year into our communities. Different from the remarks you just heard from Mr. Scheppach and the National Governors Association, we are estimating about $40 to $60 billion of 

funds will come to local governments. And it is not just cities and 

towns, but other local government entities in our States across the 

country. So we do not have quite the firm handle on exactly which 

funds, but we believe that is a good estimate. 

It has also been clear to us, and becoming clearer everyday, that 

while these funds are welcomed and cities and towns will be able 

to put them to good use, that they will not begin to fill the budget 

holes and the stresses that are happening at the local level, given 

105 

what we have seen with sales taxes, property taxes, and income 

taxes. So while these funds will be helpful, much more will be 

needed to meet the budget gaps that are on the horizon for cities 

and towns. 

We do believe that the transparency and accountability provisions in the Act will help ensure that we can get the maximum possible benefit out of these funds. And also, and I think importantly, 

that we will be able to best engender the American taxpayer’s confidence in the ability of all levels of government to actually get 

things done in our communities. I want to assure you that in conversations that we have been having with local leaders everyday 

over the last several months, that they are truly embracing the accountability provisions and ramping up to move forward. 

I want to talk just a little bit about what the National League 

of Cities (NLC) and other organizations have been doing to help 

local leaders get ready. 

Senator Collins, you made the comment about it is not just local 

governments, but it is also nonprofits, the fire stations and others 

that are striving to understand, still, what is in the bill, what can 

be accomplished, and how do we access those resources. 

We have been working very hard here in Washington to help 

them understand exactly how to do that. For example, NLC has 

hosted three recovery-focused Webcasts. Each Webcast is reaching 

4,000 to 5,000 listeners. The demand is high and they are hungry 

for this information, and we will continue to do this. We do appreciate the ability that we have had to invite our partners here in 

Washington, the Federal agencies, and we look forward to OMB 

and GAO and others on those calls, so, again, that we can help get 

the information out to them quickly. 

I mentioned that we had a conference here in Washington recently. We, at sometime in February, decided to really customize 

the programming for that conference so it was focused around the 

Recovery Act. So it gave us another opportunity. And I know that 

the other associations here in Washington did something very similar to make sure to get the information into the hands of the people 

who had to make this work. 

I think probably the most important discovery that we have embarked on lately, another initiative, is the recovery coordinators 

network. We have invited about 50 to 60 local government czars to 

convene in a forum where they can exchange ideas, find out what 

is working, what is not working, where they are having obstacles, 

where can they, perhaps, implement some self-help and get some 

solutions to some of the challenges in terms of moving forward with 

the Recovery Act. And I could tell, based on just an hour phone call 

with them yesterday, that while they are moving forward, they do 

share some of the same concerns we have heard this morning from 

you, as Senators, as well as from Mr. Scheppach, and from GAO, 

that the capacity issues and the stress on the current infrastructure and local governments is going to be tough. And what we certainly do not want to see is governments making decisions not to 

pursue recovery funds because they are afraid that there will not 

be the administrative dollars to help manage those grants effectively. I think that is just the course of actions that we do not 

106 

want, to leave these dollars on the table when they are so needed 

in our communities. 

We are convinced at this point that OMB, the Federal agencies, 

and the Vice President’s office—and you have heard this before— 

are doing a great job in terms of the spirit of cooperation. We know 

that this is an emerging process, but I think it has been working 

very effectively in terms of not only our ability to reach out to them 

with questions and to consult with them as they develop new guidance, but also for them to reach out to us and to the local governments and try to give information that will be helpful. 

I am going to talk just a little bit about some of the mechanisms 

that cities and towns are putting into place in order to comply with 

accountability and transparency provisions of the Act. 

Many of them, just like the Federal Government, have been 

launching their own recovery Web sites on their own home pages. 

And, for example, I am going to give you just a few of the jurisdictions that have been doing this, but I can assure you that many 

of them have launched their own Recovery.gov Web sites. But 

Hartford, Connecticut, has launched one; Lewiston, Maine; Reno, 

Nevada; Kansas City, Missouri; Detroit, Michigan; Denver, Colorado; as well as Chicago, Illinois, have launched Web sites that are 

making it a little easier and a little more transparent for not only 

citizens but also vendors in their communities to understand how 

to access these resources and to understand the process that the 

city will use to allocate those dollars. And I think we will begin to 

see more of those as we go forward. 

In terms of how cities are organizing themselves to oversee the 

implementation of the Recovery Act, as you might suspect, it has 

not been a one size fits all. We are basically seeing a couple of different models, with some cities establishing the recovery czars and 

the mayors appointing a recovery working group. That could be 

just city staff. It might also involve members of the private sector. 

That is one model. 

Then the other model we are seeing is a little less centralized approach, where the mayor’s office might be overseeing the recovery 

implementation, but the individual city agencies are making the 

decisions about which funds they will apply for. I think it is important, then, we just have to recognize, with the many different types 

of governments and sizes of local governments that are involved 

and pursuing funds to the Recovery Act, that they will have to customize their internal bureaucracy to best fit the needs of the Act 

as well as their city. 

I do want to echo—and this has been mentioned before—that 

there are lots of questions, and there continue to be questions, in 

terms of what is a job created, what is a job retained, and how do 

we track those. So like the other comments you have heard on the 

panel this morning, cities and towns, too, would welcome additional 

guidance that we believe will be forthcoming from OMB on that important topic. 

I just want to briefly echo—and I have mentioned this already, 

and I share this with the others who have talked before—we would 

welcome and look forward to the additional guidance from OMB in 

terms of the administrative costs and getting some additional funds 

to do that good work. 

107 

I believe that covers many of the areas that I wanted to mention 

this morning, and I look forward to the questions from the panel. 

And I just want to say that we look forward to continuing to work 

with the Federal agencies, with OMB, the Vice President, as well 

as with the States and the other organizations here in Washington 

to make this a success. Thank you. 

Chairman LIEBERMAN. Thanks very much, Ms. Coleman, for that 

testimony. 

We will do 7-minute rounds of questioning. And there are two 

elements of our interest. First, is the money being spent rapidly 

enough? And then, second, are we setting up mechanisms to monitor how it is being spent to avoid waste and fraud? 

Let me begin on the second question with the Vice President’s 

letter this morning, and just try to develop that a little bit, Mr. 

Dodaro. 

In the letter itself, it says that the OMB guidance will provide 

for ‘‘new flexibilities for States for cost of administrative activities 

associated with the Recovery Act.’’ 

So help us understand, because your work, I think, has been a 

big part of generating this letter, as well as concerns and realities 

expressed from the State level. 

Is it the flexibility for overall Administration funding for the 

State and local governments or is it primarily money to audit or 

oversee this funding? 

Mr. DODARO. It is basically, from a management perspective, to 

oversee the programs. It is not on the audit side. Now, the audit 

side is a concern. 

Chairman LIEBERMAN. Right. 

Mr. DODARO. And our recommendation, though, basically, on the 

audit side, Mr. Chairman, would be to give the auditors flexibility 

to reallocate their resources from low-risk areas to the Recovery 

Act areas and focus more on high-risk areas. 

Chairman LIEBERMAN. Federal auditors or State—— 

Mr. DODARO. State and local auditors. 

In 1984, there was a mechanism put in place called the Single 

Audit Act for State and local auditors to audit their entire entities, 

including Federal funds, and there is certain testing. And that is 

a foundation accountability tool that has been put in place. And it 

is a very effective tool, but it could be modified. But if it is not 

modified, it is going to be too late, because they will not look at a 

lot of this until 2010 is over. This gives flexibility up front and reduces the amount of money that would need to be spent. 

Now, if they do not want to give the State and local auditors 

flexibility, then they should give them additional money to cover 

this earlier. But most of what the Vice President is talking about 

deals with giving States the management capacity, people administering the program—— 

Chairman LIEBERMAN. So, for instance, the people administering 

the Medicaid program or State transportation programs. 

Mr. DODARO. Yes. Or in the administrative areas, the procurement people, the people to monitor sub-recipients in the program 

areas. It is those type of people that have been cut back as well. 

Chairman LIEBERMAN. Incidentally, I noticed that Congressman 

Ed Towns, who chairs our partner committee in the House, the 

108 

1The response from Mr. Dodaro appears in the Appendix on page 652. 

2The chart referenced by Senator Lieberman appears in the Appendix on page 326. 

Committee on Oversight and Government Reform, is proposing legislation to separately fund State and local auditors to oversee stimulus spending. 

What do you think about that? 

Mr. DODARO. Well, that is an important proposal that I think 

could work. Our proposal is intended to minimize the amount of 

additional funding, but the additional funding is very appropriate, 

commensurate with the amount of additional Federal resources 

that are going to go there. So I would be supportive of that. I think 

that is very important. 

Chairman LIEBERMAN. Do you have any idea about the amount 

of money it would require? 

Mr. DODARO. Not offhand, but I could provide an estimate.1

Chairman LIEBERMAN. Please do that, and we will be in touch 

with Congressman Towns. I have no idea whether it is even plausible to think about that, but I am interested in the idea. 

Let me go to the spending side now, because I think one reaction 

to that chart would be—well, let me define the chart first.2 This 

is under the Stimulus Act. This is just the money going to States 

and localities, right? 

Mr. DODARO. Yes, that is correct. 

Chairman LIEBERMAN. What does not it include? 

Mr. DODARO. It does not include the $280 billion in estimated tax 

relief provisions, and it does not include direct—— 

Chairman LIEBERMAN. And payroll taxes are not included. 

Mr. DODARO. Right. It includes about $280 billion of the $787 billion estimated amount for the Recovery Act. 

Chairman LIEBERMAN. So on that chart, what jumps out at me, 

certainly, and I presume would at others, is that a relatively small 

proportion of that money is going to be spent in this fiscal year. 

Mr. DODARO. Well, I think, Senator, if you reflect on the fact that 

the Act was passed in February, we were almost halfway through 

Fiscal Year 2009 before the Act was passed. So there is only about 

7 months of spending in Fiscal Year 2009. So if that was extrapolated, you would have a greater figure, but I think that is part of 

the reason for that. 

Chairman LIEBERMAN. So you are not critical, at this point, that 

the Federal Government is putting this money out too slowly. In 

other words, your attitude—I do not want to put words in your 

mouth. 

Mr. DODARO. Right. 

Chairman LIEBERMAN. One would look at that and say, how 

come so little is going out this year and so much more in the next 

2 years, when we need it now, people would say. 

Mr. DODARO. Well, I would say two things. One, I agree with Mr. 

Scheppach’s comment, that because the States know the money is 

coming, they are able to take action to avoid making some cuts 

right now. 

Chairman LIEBERMAN. Right. 

109 

Mr. DODARO. They know they will have a steady stream of payments, for example, in the Medicaid area, which is a large portion 

of this funding, so they can plan accordingly going forward. 

I think particularly for areas that are new areas, like the State 

Fiscal Stabilization Fund, the balance between spending the money 

wisely with the proper amount of controls in place is being balanced appropriately with due speed to get things out. In the transportation area, there was a lot of planning in advance of passage 

of the Act by the State departments. They are focused on construction and maintenance before they can get the contracts out right 

away. 

So I think it is proceeding in a balanced fashion, where we will 

both get the money out as quickly as possible, but wisely and with 

the proper degree of accountability, so we will get the right result 

at the end. 

Chairman LIEBERMAN. Obviously, you will keep monitoring and 

let us know if you think that it is moving more slowly to State and 

local governments than it should or could. 

Am I correct that if you did a chart—and I would not ask you 

to do that today—of all money being spent under the Stimulus Act, 

including tax relief, unemployment checks, and reduced COBRA 

premiums, that a greater percentage would be spent this year, or 

am I wrong? 

Mr. DODARO. My staff tells me, yes. CBO has already produced 

that in scoring the bill, so we can provide that. 

Chairman LIEBERMAN. Yes. I would appreciate that. I did note, 

in the hearing we held in Connecticut a couple of weeks ago, that 

the State budget director seemed very pleased with the Federal 

Government’s interaction with the State, but ultimately said that 

money had been obligated, but they actually had not seen any 

money yet. But they were reassured that it was coming, and as a 

result, they were not laying some people off that they thought they 

would have to. 

Mr. DODARO. That is exactly right, Senator. And that is what we 

have seen across the States that we visited. 

Chairman LIEBERMAN. Right. I am over my time. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Mr. Dodaro, in the last hearing, we talked about the importance 

of the accurate and agreed upon measures on the number of jobs 

either created or retained. The Administration has estimated that 

more than 3 million jobs will either be saved or created by this Act. 

That, arguably, is the most important measure of the effectiveness. 

Two other witnesses today have commented on how difficult that 

measurement is. I brought up in the last hearing the concerns of 

my State officials about whether, if you are creating a construction 

job for 3 months, and then that person goes on to another construction job that is funded by this Act, is that two jobs? Is it one job? 

Is it a job created in the first place and then preserved? 

I know in response to the concerns that we raised at the last 

hearing, that OMB has put out additional guidance. Do you think 

that guidance is accurate as far as allowing us to assess how many 

jobs really were created or saved by this important bill? 

110 

Mr. DODARO. I think the guidance was a good first step, but it 

does not go far enough. And that is what we heard from the States 

and localities that we visited. 

To deal with the question that you mentioned, they try to deal 

with it in a full-time, equivalent type discussion, so you do not do 

double counting. But you also need to have a way to measure the 

indirect effect on employment or the multiplier effect, as Mr. 

Scheppach, and other economists would say. So we recommend in 

this report that they develop additional methodologies to try to get 

a consistent reporting approach so that the proper amount of information can be gathered to draw the conclusions that you and others seek to find. 

So we think additional guidance is necessary. We think a cooperative effort at the Federal, State, and local level is warranted. And 

I believe OMB agrees, and we will be trying to move to develop additional guidance. 

Senator COLLINS. I think that is so important in terms of credibility and also uniformity, because it cannot have one State doing 

it one way and another doing it a completely different way. 

Mr. Scheppach, I want to follow up on a comment that is in your 

March 10 report on State implementation of the Recovery Act. You 

made a very interesting point in that report about the new law 

having several ‘‘use it or lose it’’ provisions, which require State 

funding to be allocated to other States if they are not obligated by 

a certain deadline. 

Now, I am not talking about those few States that have decided 

to refuse recovery funds altogether. I am talking about States that 

have accepted the funds but now face deadlines to expend the 

money. 

Several years ago, I headed an investigation into fourth-quarter 

spending in the Federal Government, and we found that the ‘‘use 

it or lose’’ mentality causes money literally to be shoveled out in 

wheelbarrows because of the fear that it would not be available. It 

led to a lot of wasteful spending. 

There is a balance here, a tension between our desire to make 

sure that the money is being spent quickly so it stimulates the 

economy in a timely fashion, a point you made in your opening remarks. But there is also the concern that if there are deadlines for 

spending it, that the money may be just put in that wheelbarrow 

and shoveled out, and not spent wisely. 

Could you comment on what you think we could do to ensure 

that the use it or lose it requirements do not lead to wasteful 

spending? 

Mr. SCHEPPACH. I would say right now, when you talk with the 

leads who are basically administering this money, they are very 

scared because of all the oversight; that I am not sure you are 

going to see that this time at the end of the queue because nobody 

wants a story in the local newspaper, or down here, that money 

went out inappropriately. 

So my own view is that until we get to that point, that money 

is probably going to come back to Washington, and it is going to 

be redistributed. I do not think anybody out there in States right 

now is going to take any risks with accelerating that money. 

Senator COLLINS. Thank you. 

111 

Ms. Coleman, you mentioned that your organization is doing 

Webcasts to help educate local officials, and I really commend you 

for that because this is in some ways a bewildering maze for smaller communities to try to follow. I want to give you a specific example and see if you have some suggestions. 

There is a small fire department in Maine, the Readfield Maine 

Fire Department, that was looking for a potential source of funding 

under the Recovery Act and could not determine a source, based on 

the information available. This fire department went to the State’s 

Commissioner of the Department of Administrative and Financial 

Services, who found that there were 30 different Web sites that potential Recovery Act funding recipients would have to access to find 

funding that they might be eligible for. 

Now, it turns out for this fire department, there is a pot of 

money in the Federal Emergency Management Agency (FEMA) 

that we increased by $200 million that would meet its needs. But 

how is a small fire department going to figure that out if there are 

30 separate Web sites that need to be accessed? 

We focus so much on oversight and transparency, but do you 

think that more needs to be done to help the potential recipients 

of money determine how to apply and where the money is located? 

Ms. COLEMAN. That situation or scenario you describe is happening across the country, and it is, in part, why the national local 

government associations and the State affiliates of those organizations, are working very hard to educate and make information 

available to local city leadership so that they know more quickly 

and do not miss deadlines, and do not leave money on the table, 

so they can find out what is it that we could use to fund this need 

in our community. 

On top of that, there is no one place, yet, where you can find all 

of the funding opportunities for cities in the Recovery Act, so that 

is being cobbled together. But it is a particular challenge, and that 

is why we want to continue using the technology via Webcasts, conferences, meetings out in the various cities and towns. 

I know some State associations have been hosting townhall meetings and inviting representatives from the different Federal agencies, using the regional offices of the Departments of Housing and 

Urban Development (HUD) and Homeland Security, and inviting 

those representatives into a townhall meeting in communities 

where the public and nonprofit groups can then be on site asking 

these questions. 

But I think it will continue to be a challenge. And I go back to, 

if recovery is to be successful in cities and towns, the first most important thing we need to do is help educate our local leaders so 

that they know what is possible and how to get to those resources. 

But it is a challenge. 

Senator COLLINS. Thank you. 

Chairman LIEBERMAN. Thanks, Senator Collins. 

I will call on Senators in order of arrival, which today is Senator 

McCain, Bennet, Burris, Carper, and McCaskill. 

Senator McCain. 

112 

1The table referenced by Senator McCain appears in the Appendix on page 307. 

OPENING STATEMENT OF SENATOR MCCAIN 

Senator MCCAIN. Thank you, Mr. Chairman, and thank you for 

holding this hearing today. It is obviously very important that we 

do the best we can to monitor the expenditures of these large 

amounts of funds. 

Mr. Dodaro, much of this funding has been expended, and it is 

being expended, for State expenditures for Medicaid services. 

Is that pretty much across the board to make up for deficits that 

the States are experiencing? Is that what you are finding out? 

Mr. DODARO. Senator, the Medicaid money, the way that the Act 

worked is that it gave each State a 6.2 percent increase in the Federal matching rate, and then depending upon the unemployment 

rate in the State, there is an additional match, additional funding. 

The States that we visited, for example, Iowa received a 7.09 percentage point increase in the Federal match. California is 11.60 

percent. 

Now, the underlying theory here was to give fiscal relief to 

States, but also to help them meet increased caseloads and to 

maintain eligibility requirements. So the States have to use the 

Federal money for Medicaid services. They have to maintain eligibility requirements that were in place as of June 2008. So they 

cannot reduce the eligibility requirements. They have to continue 

to pay providers promptly in order to continue to receive the 

money, and they cannot use any of the money to put into a rainy 

day fund within the State. 

Senator MCCAIN. Isn’t it true that some States’ eligibility rules 

on Medicaid has prevented them or hindered them from getting 

this money? 

Mr. DODARO. I believe there is one that had to go back and restore some of the eligibility requirements to get the money, but 

they have to maintain the eligibility requirements that were in 

place in June 2008. 

Almost all the States that we have looked at have drawn down 

the money, Senator, except for Colorado. Colorado had not, among 

the States, drawn that down. So that is one of the areas that we 

and the inspector general are going to continue to look at, is to 

make sure that the States meet the maintenance requirement and 

eligibility standards. I am not aware of any particular situation. 

Senator MCCAIN. I see. 

I was looking at your table number 4 here,1 which shows the percentage of apportionment that has been obligated by the various 

States. It is a part of your report, I believe, on page 19. 

Mr. DODARO. Yes. 

Senator MCCAIN. The thing that kind of interested me here is 

that at least one State, Iowa, has obligated 62 percent, and yet 

there are several States that have obligated zero. What is the story 

here? 

Mr. DODARO. Well, in some States, the legislatures have to approve the projects before moneys can be spent. And that is the 

case, for example, in Florida that you see here, that has—— 

Senator MCCAIN. Zero. 

Mr. DODARO [continuing]. Zero. So every State is set up different. 

113 

In some cases, the transportation department is not even under 

the governor’s authority, like in Mississippi, for example. So depending upon the State’s structure and what the rules are in terms 

of the legislatures having to approve the funds, that dictates in 

large part the pace that you see here and the differences among 

these States. 

Senator MCCAIN. So it is really a matter of procedure rather 

than lack of action that has gone on here, in other words? 

Mr. DODARO. That is correct. It is the process within the State 

to commit to be able to move that forward, and it varies. All the 

ones that we looked at were planning and are trying to move forward. It is just a matter of going through their proper, normal 

process. 

Senator MCCAIN. And according to your chart there that we are 

looking at, we would anticipate by the end of 2010 to have dispensed roughly about 60 percent of the funds? 

Mr. DODARO. Yes, to the State and localities. Right. 

Senator MCCAIN. And what are the major problems that you 

have found the States are encountering? 

Mr. DODARO. Major problems are, first, having clarity, guidelines, on whether they can use some of the moneys to increase their 

oversight and accountability mechanisms. And we make a recommendation to OMB that they clarify that so the States can deal 

with that issue. 

Senator MCCAIN. Have you found that in some areas, that apparently there are insufficient mechanisms in place for oversight? 

Mr. DODARO. Yes. We think that in some States, they have cut 

back considerably on their oversight. That heightens the risk. I 

mean, we have not seen actual problems yet because of the status 

of the money, but I am concerned, based upon their analysis of 

where some of the risks are. And unless they move to address those 

risks, we could have problems down the road. 

Senator MCCAIN. I interrupted you, by the way. Do you want to 

complete your answers? 

Mr. DODARO. Yes, right. On the second area, Senator, there is 

greater need for communication at the State level about what 

money is going directly to the local government, bypassing the 

States. So we have recommended to OMB they clarify that, and 

they have agreed to do that. 

Third, States need some guidance on methodologies and definitions for the number of jobs preserved or created, and the total 

amount of data collection requirements that are being imposed on 

them. And we have made recommendations in both of those areas 

in our report today to address that. And OMB understands those 

issues and hopefully will move to clarify them. 

Senator MCCAIN. Ms. Coleman or Mr. Scheppach, do you have 

any comment on those questions that I asked Mr. Dodaro? 

Mr. SCHEPPACH. Well, the only thing I would say on the Medicaid 

issue is that the Medicaid was the one area where the payments 

are actually retroactive to October 1, 2008. So it seems to me that 

Congress intended by that to provide some money early to offset 

potential cuts that States were going to make. And I think that 

was very helpful. I mean, most of the money that is, in fact, going 

114 

to pay out in 2009 I am assuming is the Medicaid money. So it is 

the fastest money that will be going out. 

Senator MCCAIN. Not exactly the largest job creator. Ms. Coleman. 

Ms. COLEMAN. Senator McCain, I would just echo what GAO has 

said. We also look for additional guidance and clarity around the 

performance measures, the data management requirements, and 

greater communication about where dollars are going, not just 

States and locals, but just overall. 

Senator MCCAIN. Thank you. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator McCain. 

Next is Senator Burris. Senator Bennet has left. 

OPENING STATEMENT OF SENATOR BURRIS 

Senator BURRIS. Thank you, Mr. Chairman, Ranking Member 

Collins, and other colleagues on the Committee. 

I would like to welcome our distinguished panelists and certainly 

have some major concerns. I just hope that my concerns can be addressed by this panel. 

Having been home over the recess, and when I go home on Saturday, I am getting confronted with questions about where the 

stimulus money is going. Primarily in the minority communities, 

and specifically in the black community, I want to know whether 

or not any of the Federal guidelines, for example, on that transportation money, when it is going to the States, whether or not those 

States have to follow any type of guidelines with reference to those 

minority requirements, that those moneys be shared with minority 

companies and small businesses. 

Any one of you want to respond to that? Mr. Dodaro, if you would 

like to, or the governors. I have some more questions down that 

line as well. 

Mr. DODARO. Right. In the transportation area, they basically 

use the existing Federal highway program, but there are some new 

requirements. One is that the States have to maintain their level 

of spending and have to certify that they will do that in order to 

continue to receive funds, and that they give priority to economically distressed areas. 

Now, those two areas we are going to look at more carefully in 

our subsequent reviews to make sure that they comply with those 

requirements because we want them to get through their process 

to designate the full range of projects that they are going to fund 

in those areas. 

But as I mentioned, and we discuss in our report today, there 

has not been a significant amount of money allocated yet, or spent 

yet I should say, in the transportation area, with the exception of 

a couple of States, Mississippi and Iowa. Most of the projects now 

are out for competitive bid. 

Senator BURRIS. I understand Illinois has been allocated $187 

million in transportation dollars. I do not know whether or not the 

dollars have come. And then they had all these 5-year projects, and 

that is where the dollars are going, to those projects. The reason 

why Illinois got the money so early—— 

Mr. DODARO. Right. 

115 

Senator BURRIS [continuing]. Is because we already had projects. 

And the question is whether there are any stipulations on those 

projects, because that is all I am hearing. The stimulus money is 

coming to Illinois, and the small businesses are saying where is it 

going, who is getting it. I know it has to go through the States, it 

has to go through the legislature to be appropriated. 

But were there any other special guidelines that would deal with 

that for smaller, minority companies, other than those standards, 

which mean that it would be very little dollars getting into those 

companies that are going to need it. 

Mr. SCHEPPACH. Yes. I would just echo. I think what the law requires is the normal standards that have been in place for all 

transportation spending and all spending. And then, second, in the 

transportation area, you are supposed to give preference to distressed areas. But it is true that there is very little money that has 

been obligated in States yet, so it is hard to say what is happening. 

Senator BURRIS. So we will be able to track those and determine 

what is happening there? 

Mr. DODARO. Yes. 

Mr. SCHEPPACH. There are very detailed requirements in the Act 

for States to report on a quarterly basis of exactly where that 

money goes for every specific contract. 

Senator BURRIS. Well, I was looking at a figure in Illinois, having received $15 million for the Illinois Health Center funding. And 

there were 36 projects, and the data is there. And I am looking at 

some of these clinics and health centers that are on the money for 

allocation. And I am just wondering, is there oversight responsibility as to whether or not those clinics are in underserved communities? And if they are not, then what type of penalty or requirement would be faced on these States, or the local government, whoever is responsible for allocating those moneys to these health centers, if they are not giving money to health centers in underserved 

areas? 

What is the punishment if they do not? The money will then be 

out and spent and will not be shared. 

Mr. SCHEPPACH. Well, first off, I think that in most categories, 

you are required to come back to the Federal Government with specific projects that are going to be done, to be approved at that particular level. So there is some additional oversight there as well. 

I do not know of any penalties, but I can tell you, most people who 

are dealing with this money do not want to make errors because 

they know they are going to be called out publicly. 

Senator BURRIS. Pardon me, Doctor. It is not a matter who is 

dealing with the money. What my constituents are going to—how 

this stimulus money is going to impact the black community, in 

Chicago, in Peoria, in Rockford, and what Federal authority would 

we have to make sure that there is sharing of these stimulus tax 

dollars that are supposed to be stimulating these underserved communities? 

Yes, Mr. Dodaro? 

Mr. DODARO. Yes. Senator Burris, in the transportation area— 

this is with projects—in Illinois, our work has shown that they 

were apportioned $936 million, and that they have obligated, which 

is the Federal Government and the States have agreed on 214 

116 

projects—this is as of April—that account for about $600 million of 

that amount of money. 

Senator BURRIS. Those are the 5-year plans and 10-year plans 

that the Department of Transportation (DOT) has in place. 

Mr. DODARO. Right. That is exactly right. So for those 214 

projects, the States has to follow the normal rules to make sure 

that they give attention to contracts for disadvantaged areas, disadvantaged businesses, rather. 

Senator BURRIS. Right. 

Mr. DODARO. And then there is also the additional requirement 

for economically distressed areas. 

So part of our job will be to follow up to see—once these projects 

are in place and once the other ones are there, there should be a 

proper reporting back by the States. And we will be able to look 

to see whether or not they have met those requirements. 

Senator BURRIS. Yes, but there is nothing—if they do not do it, 

and there are no requirements, and the money has been spent and 

has gone to all these major construction companies, and they did 

not meet the guidelines, is there a penalty to be paid? 

Mr. DODARO. Well, there are additional projects in the pipeline 

that the Federal Government would have the ability to not approve, and there may be some other issues. These are not all the 

projects. There have to be additional projects. So I think there is 

supposed to be oversight by the Department of Transportation. 

Senator BURRIS. But wouldn’t we do better if we could get some 

type of upfront requirement before that money—whether or not the 

Federal Government would have any authority to oversee prior to 

the signing to rebuild I–75. 

Mr. DODARO. Well, in this case, Senator, the Federal Government 

has approved these projects reviewing exactly what they have 

looked at is something that we need to do. But there is a check in 

the normal process that the State cannot go forward with the bids 

until the Federal Government approves the project. So all the ones 

I mentioned here, DOT has signed off on. 

Senator BURRIS. I see my time is up. 

Mr. Chairman, I do not know whether or not there will be a second round, but I have a lot more questions in this regard. 

Chairman LIEBERMAN. OK. 

Senator BURRIS. So if there is a second round, I would like to 

stick around and raise these questions. 

Chairman LIEBERMAN. Well, we will see how the clock goes. 

Senator BURRIS. We have to vote today I understand, too, this 

morning. 

Chairman LIEBERMAN. The rumors are mixed. I guess it has been 

vitiated. They originally thought we were going to have a vote, but 

I think it has been vitiated. 

Senator BURRIS. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator Burris. 

For the sake of clarity, Mr. Dodaro—because I know some of us 

have been affected by that chart. But it is clearly labeled. This is 

the pace of spending for State and local funds. But just to clarify, 

that is basically what GAO is charged to do here in oversight of 

this stimulus bill. Am I right? 

117 

Mr. DODARO. That is one of our responsibilities. We have other 

responsibilities. For example, to review the recipient reports once 

they come in; special attention to jobs created and preserved. 

Chairman LIEBERMAN. Right. 

Mr. DODARO. We have been required to look at special education 

grants. 

We issued a report last week on the Small Business Administration’s efforts to increase liquidity in the secondary market for small 

business loans. 

Chairman LIEBERMAN. I did not mean to interrupt you, because 

I do not want to take—— 

Mr. DODARO. But I have the numbers on the total amount of the 

Recovery Act. 

Chairman LIEBERMAN. Oh, you do? That is great. 

Mr. DODARO. Yes, I do. 

Chairman LIEBERMAN. Because that is somewhat beyond what 

you are doing; am I right? 

Mr. DODARO. Right, that is correct. 

Chairman LIEBERMAN. It is probably better for us to ask OMB, 

but since you have them, let us hear from you. 

Mr. DODARO. Right. For Fiscal Year 2009, it is $185 billion; $400 

billion in Fiscal Year 2010; and $134 billion in Fiscal Year 2011. 

Chairman LIEBERMAN. That is the total spending. 

Mr. DODARO. Right, estimated total Rocovery Act impact outlays. 

Chairman LIEBERMAN. And that includes, for instance, the payroll tax cuts. 

Mr. DODARO. Yes. 

Chairman LIEBERMAN. That is surprising that it is still—— 

Mr. DODARO. But I think you always have to keep in mind that 

Fiscal Year 2009 is only half of a year. 

Chairman LIEBERMAN. Yes, exactly. On October 1, we are starting the new fiscal year. 

Mr. DODARO. Right. 

Chairman LIEBERMAN. OK. 

Mr. DODARO. So you only really have, from February 17 to September 30 in the 2009 numbers. 

Chairman LIEBERMAN. So I suppose in fairness, as we judge the 

impact—I am thinking of Mr. Scheppach’s statement that the history of fiscal stimulus is not always a happy one because a lot of 

times the moneys arrived after the economy has begun to recover. 

So $185 billion is not small change, but the real impact is going 

to come after October 1 of this year. And I suppose, in that sense, 

in fairness, we are not going to be able to judge the impact of the 

stimulus until then. 

I guess from our point of view—and I am going to stop here because I want to yield to Senator Carper—the question that we will 

always ask is if we are getting this money out as quickly as we 

can. Because, clearly, there is a desperate personal need for it 

around the country to get the economy going. 

Yes, go ahead, Mr. Scheppach. 

Mr. SCHEPPACH. Just to make a comment, you have to remember, though, that unemployment peaks very late in this cycle. 

Chairman LIEBERMAN. Right. 

118 

Mr. SCHEPPACH. So we are probably not going to get to the 10 

percent unemployment for another 12 months to 15 months. So I 

think that the amount of money that you have going out in 2009 

and 2010, I can assure you, history is going to write you well, Senator. 

Chairman LIEBERMAN. Well, that is very kind of you. [Laughter.] 

Senator COLLINS. I wish Senator McCain had been here to hear 

that. [Laughter.] 

Chairman LIEBERMAN. This reminds me of a great Churchill 

quote—which I am paraphrasing. But somebody asked him, after 

the end of World War II, how he thought history would treat him. 

And he said he thought history would treat him well because he 

intended to write it. [Laughter.] 

So I thank you for writing it here this morning. 

Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Speaking of Churchill, Dr. Scheppach, were you 

the head of the National Governors Association when—— 

Mr. SCHEPPACH. When it began. 

Senator CARPER. I was going to go back in time when George 

Voinovich was the chairman. 

You were, were not you? 

Mr. SCHEPPACH. Yes. 

Senator CARPER. How about when Bill Clinton was chairman? 

Mr. SCHEPPACH. Yes. 

Senator CARPER. How long have you been there now? 

Mr. SCHEPPACH. About 25 years. 

Senator CARPER. That is terrific. You have done a great job. We 

are grateful to you. All of us are grateful to you. 

Mr. SCHEPPACH. I have trained a lot of senators. 

Senator CARPER. And one or two governors. And at least one 

president—— 

Mr. SCHEPPACH. Yes. 

Senator CARPER [continuing]. When you think about it. 

I got here too late to hear Mr. Dodaro give his testimony, but I 

am curious. I would just ask you and Ms. Coleman, did he use 

notes today? 

Mr. SCHEPPACH. Did he? 

Senator CARPER. Yes. 

Mr. SCHEPPACH. No. He memorized it all. 

Senator CARPER. He never uses notes. And I am told Churchill 

used to memorize his speeches. And once, I think, in an address 

he was giving before Parliament, he lost his train of thought in the 

middle of a speech, and he never memorized his speech again after 

that. 

So I just want to be on hand when Mr. Dodaro is right in the 

middle of one of his testimonies and just loses it, entirely. 

Mr. DODARO. Not yet. [Laughter.] 

Senator CARPER. Well, you keep coming back and we will keep 

coming back. It is always a pleasure to hear your testimony. 

I have three hearings going on at the same time, so I am going 

to slip out here in a minute. 

119 

Will you just give me the most important take-aways from your 

testimony, please, for our purposes today, each of you. 

Mr. DODARO. Basically, the States are taking their responsibility 

seriously. They are trying to move through their processes as 

quickly as they can. They are concerned about their ability to provide proper accountability and oversight over the areas. 

We made a series of recommendations to OMB to make the Single Audit process more effective, and we think that will help with 

accountability; to clarify how much Recovery Act money or what 

Recovery Act money can be used to strengthen the States’ oversight 

and accountability mechanism is very important. The OMB needs 

to provide additional guidance to help people determine the amount 

of jobs created and preserved so we have credible estimates down 

the road. And they need to improve their communication with the 

States and localities to help them plan better. They are doing a 

good job. They are off to a good start, but they can build on that 

and do better. 

Senator CARPER. Good. Thank you. Dr. Scheppach. 

Mr. SCHEPPACH. It is very early now, so it is hard to say. The 

reports by States are not even due until October for the first one. 

But I think there is a lot of good cooperation. We are getting the 

guidance that governors need and moving forward. 

You have to understand, though, that as much help as there is 

for States to offset the draconian cuts, that States are still going 

to be in a big hole for the next 3 years. And they are going to have 

to continue to cut and/or raise taxes in the order of magnitude of 

$200 billion over the next 3 years. 

Senator CARPER. Yes. Ms. Coleman. 

Ms. COLEMAN. Senator, I would echo that we are off to a good 

start. The spirit of cooperation between the States, the Federal 

Government, the local governments, OMB, the Vice President’s office, and others, I think, is going well. The local governments continue to get ready and are internally organizing their systems to 

be prepared to handle these resources. But we do share the concern 

about the resources to oversee these programs and to manage the 

grants effectively and in the manner that was intended. 

I would also share what the governors have mentioned, that 

while these resources will be helpful, that the gaps will continue 

to be big at the local level in terms of our budget. 

Senator CARPER. Well, they certainly are in Delaware, I can assure you. 

I realize that the legislation is fresh, the money’s just beginning 

to be dispersed, and the systems are set up to make sure States 

go out and get as much as they are eligible for and put the money 

to good use. 

What do we need to be doing here in the legislative side, in this 

hearing? We are actually doing a series of oversight hearings, 

which would seem to certainly be appropriate given how much 

money is involved. 

What should we be doing to exercise our appropriate roles? 

Yes, Mr. Dodaro? 

Mr. DODARO. Senator Carper, we made these recommendations 

to OMB about modifying the Single Audit legislation and also Senator McCaskill had mentioned this issue before. We followed up, as 

120 

she requested, and made these changes. And also clarifications on 

the administrative expenses. 

There has been a bill introduced on the House side to give funding to the State auditors to carry out responsibilities. I would say, 

if OMB has not made the proper clarifications soon, that Congress 

may want to consider legislation to strengthen the ability of State 

oversight mechanisms, both to manage it, provide proper controls, 

and also audit it at that level, and, also, on the creation of a different approach or a uniform approach for job measurement on jobs 

created and preserved. 

So I would wait to see what OMB does, if they take the proper 

action. I do not have any suggestions additionally for Congress at 

this time. 

Senator CARPER. Do you recall who is the author in the House 

of Representatives of the Single Audit Act? 

Mr. DODARO. It was 1984 when the Act was originally passed, 

and we made the last set of amendments in 1996. 

Senator CARPER. An at-large congressman from a small State on 

the East Coast. 

Mr. DODARO. Great foresight. [Laughter.] 

Senator CARPER. I do not know. Let me follow up on that. State 

auditors already bear a significant responsibility for oversight of 

Federal spending by State agencies, pursuant to the Act and to the 

amendments that have been made to it. Those audits are generally 

conducted annually. They provide some assurance to the Federal 

Government as to the management and the use of funds that the 

States receive, as well as their subdivisions. 

The importance of the Single Audit process is, I think, magnified, 

rather than minimized, by the Recovery Act’s emphasis on accountability. And given the additional responsibilities now given to State 

auditing agencies, what plans are in place—and you spoke of this, 

but what plans are actually in place to ensure that these efforts are 

coordinated with Federal agencies? 

Finally, what is being done by the Federal Government to increase outreach and coordination and communication with the 

State and local audit community, and to determine ways of improving data sharing? 

If you would just comment further on that, I would appreciate it. 

Mr. DODARO. States are in the process now of going through their 

planning activities for the Single Audit program. And the concerns 

that we have raised and, as I mentioned, Senator McCaskill had, 

and others before, was that the States right now, unless they adjust the process and it follows this amount of money—we think the 

Single Audit Act can be used more effectively to test controls before 

these expenditures are made in 2010. That will not happen unless 

OMB modifies the guidance. We will get the reports after all the 

money has been spent in 2010. And they could give them more 

flexibility to focus on the Recovery Act and less on low-risk programs as they know. So that is what we would suggest in that particular area. 

Now, in terms of sharing responsibilities, soon after the Act was 

passed, sharing information, I had a conference call with 40 some 

State auditors. I followed that up at Senator McCaskill’s request. 

Senator CARPER. Was she a former State auditor? 

121 

Mr. DODARO. Yes, we have regular contact with the State auditors. They were one of the first places we stopped in the 16 States 

and localities that we visited. We are also working with the IGs 

and the Recovery Accountability and Transparency Board to coordinate all the audit activities. 

We are also working with the National Association of State Auditors, Comptrollers, and Treasurers, and other groups, on the reporting requirements with OMB. And as Dr. Scheppach had mentioned previously, we have regular meetings every Friday to coordinate. So there is a lot of coordination going on. I am a big believer 

in that. I think it is very important early on this process. 

Senator CARPER. Well, I applaud those efforts and urge you to 

continue them. 

Let me just say to each of you, thank you for being here. It is 

a special privilege to see Dr. Scheppach. 

Chairman LIEBERMAN. Thanks, Senator Carper. Senator 

McCaskill. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Thank you. This will segue nicely into what 

you were just talking about, Mr. Dodaro. 

As a former auditor, I have looked at three programs in Missouri, 

and I know that the State auditor’s office in Missouri is aware of 

this. But I will tell you where I think we are going to have a big, 

huge problem. 

We have a weatherization program that in fiscal year 2008 received $6.1 million. It is going to get $125 million. We have a Missouri State energy program that has $9.6 million in the current 

year, they are going to get $60 million. A clean water State revolving fund that has $18.8 million on an annual basis is going to get 

$100 billion. And a drinking water State revolving fund that gets 

$15.8 million is going to get $30 million. 

Now, the weatherization program particularly, I mean, this is— 

and the thing that makes me nervous about this is that I know 

how this is going to get covered. I am just sitting here and—everybody just circle the day on the calendar because there will be scandalous stories across the country about problems with the weatherization program. And the reason is that we are giving them so 

much money, and these are all going to be contracted out. 

I mean, we have the St. Louis Urban League in St. Louis that typically gets a million a year. They are getting $16 million. Now, 

who are they hiring? Where are these people coming from? And 

who is checking to make sure that there is any internal controls 

in this program? 

So I am a little nervous that OMB has not yet come out with any 

guidance on the Single Audit. And I am even more nervous because 

I know there is a tendency—I mean, changing the Single Audit 

guidelines is like moving a huge tanker. 

Is there anybody here from OMB? 

[No response.] 

OK. Well, I will make sure that we call them today. 

But if they do not act quickly and say to these States, you have 

to make sure there are internal controls in these small, new programs, we are going to have a horrible set of stories that are going 

122 

to indict the entire stimulus, when, in fact, these are relatively 

small programs but with huge potential for abuse and problems as 

it relates to internal controls. 

Tell me where you think they are in this process. I am worried. 

They have said they want to meet with our staff, but not until May 

8. Why is this taking so long? 

Mr. DODARO. I have been concerned as well. At your request, we 

met with the State auditors or had a conference call with them, got 

their ideas. We talked to the inspector general community. I 

thought we were moving along and making the modifications. But 

there is a resistance to making significant changes in the process 

and staying with the status quo. That is why we elevated our proposal, we had been working jointly with them on a recommendation 

to try to get more urgency to act. 

I think it is just inertia that has prevented them from acting, 

and some people do not want to change the process. I think it has 

to be changed. I think the State auditors would use good judgment 

in assessing risk. Unless the internal controls are looked at for 

these new programs in advance of the spending for 2010, the prevention that you are talking about will just not be there. 

Senator MCCASKILL. It will not be there. 

Mr. DODARO. And so, I would encourage you to try to encourage 

OMB to act on our recommendation. We think it is a reasonable 

approach to doing this, and I think the Single Audits can really 

play a big role, but only if those changes are made. 

Senator MCCASKILL. Part of the problem is that hardly anybody 

knows what a Single Audit is. Senator Carper would know, people 

on this Committee would know. But I think even a lot of the Members would not know. And it is just a natural. And it is just frustrating me that people do not see that now is the time to be flexible 

about what the Single Audit should do. 

The big programs that they are going to focus on, they already 

have internal controls. I mean, Medicaid has internal controls. All 

these programs have internal controls. State highway departments 

have internal controls. They are used to contracting out major, 

multimillion dollar road projects. But this guy with a pick-up truck 

who is going to go out there and hammer up some weather stripping, or maybe not, and just say he is hammering up the weather 

stripping, and maybe he is getting his check. I mean, who is checking to see the work is actually done, especially in a program like 

home weatherization? 

So I think it is really a problem. 

Mr. DODARO. On that point, my staff just gave me a note saying 

OMB is now not thinking about putting the guidance out until 

June 30, and that is way too late. 

Senator MCCASKILL. That is way too late. 

Mr. DODARO. Yes. So I would urge you to do that. I will continue 

my efforts on this as well. 

Senator MCCASKILL. And, Mr. Chairman, I hate to interrupt you. 

But I would really hope that you and the Ranking Member might 

consider, as the Chairman of this Committee, weighing in on this 

with OMB. I think it is a golden opportunity for oversight, a golden 

opportunity to make sure we have internal controls. 

123 

Individually, these programs seem small, compared to the overall, but if you add them all together in every State—and I think 

if we do not put a lot of pressure on OMB right now to tell them 

that they need to tweak the Single Audit requirements immediately to harness that power without spending another dime, that 

is a special moment in the Federal Government, when we can get 

real meaningful oversight without spending another dime. And we 

can. But if we wait another 60 days, it is going to be too late. The 

cow is going to be——is it the cow out of the barn or the horse out 

of the barn? Is it is the horse out of the barn, or cow, I guess, either one? 

Which is it, Senator Tester? 

Senator TESTER. The hogs are out of the shed. [Laughter.] 

Senator MCCASKILL. The hogs are out of the shed. 

It will be the hogs out of the shed that we will not be able to 

recapture. So I hope that I could get the added weight of the Committee leadership on this so that maybe we can convince the folks 

at OMB that now is not the time to rest on the way they have always done it. They really need to step up and do it differently. 

Thank you very much. 

Chairman LIEBERMAN. Thank you, Senator McCaskill. 

I mentioned before you came in that Senator Collins and I have 

been in communication with the Vice President’s office. And he did 

send a letter today to us, but it bears following up on your point. 

But I do want to reassure you, though, to this extent. 

He said that OMB is aware of some of the problems we are talking about and will begin issuing updated guidance, beyond the two 

they have done already, in early May. The letter says the guidance 

will ‘‘address several points that GAO has touched on, as well as 

concerns from State and local officials.’’ And then he summarizes 

some of the areas of the guidance that will be forthcoming, including changes to the Single Audit precisely to ensure the Recovery 

Act activities receive special emphasis and audit scrutiny. But it is 

not clear that will be in early May. 

So we will follow up to stress the Committee’s concern that, specifically, with regard to those guidelines, that they will be put at 

the top of the list. 

Senator MCCASKILL. I think it is important. 

Chairman LIEBERMAN. Yes. I agree. Thank you very much. Senator Tester, we do not say hogs out of the shed in Connecticut. 

Senator TESTER. Well, we do not say it in Montana either, but 

I thought it would go over well. [Laughter.] 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. I have a very quick opening statement, and 

then I have some questions. 

Thank you, Mr. Chairman. I appreciate you calling this hearing, 

and I appreciate the panel members for their good work. 

The Recovery Act’s transparency provisions build on efforts that 

I have been doing, going back to 2007, to bring more accountability 

and transparency to government. It is critically important. In these 

tough economic conditions, the Recovery Act in Montana is already 

working to rebuild the economy from the ground up with infrastructure projects—like roads, bridges, water systems, and many 

124 

others. But we do need aggressive oversight to make sure that 

these projects, with only rock solid merit, are getting the taxpayer 

money. So I am pleased, Mr. Chairman, with you calling this important hearing about oversight. 

I have several questions, many which I had before I came in the 

door, and a lot more since I have been here. 

I am going to start with you, Mr. Dodaro, because I have heard 

a lot of comments about State auditors and their role in oversight. 

I do not know what it is in other States, but in Montana, the State 

auditor’s main job is insurance commissioner, oversight of the insurance industry. I do not know that they have ever been asked to 

do things like auditing a weatherization program, for example, as 

Senator McCaskill talked about. 

So the question I have for you is what if—I mean, the mechanisms are there in places like the Departments of Transportation 

and Health and Human Services (HHS) and those kind of things, 

but what if the State auditor does not typically do those kind of 

oversights? What do you do then? 

Mr. DODARO. I am not familiar with Montana, but I am with 

many of the States. And there is a legislative State auditor—each 

State is set up a little bit different. But each State has to, according to Federal law and regulations and OMB, arrange for these 

Single Audits. Now, some may contract them out. 

Senator TESTER. OK. 

Mr. DODARO. So that process is standard and in place. 

Senator TESTER. Right. Quite honestly, the legislative auditor 

has got a full plate already in our State. 

What percentage of the money can they utilize and where does 

that money come from to enable them to have the resources to be 

able to do an additional set of work? 

Mr. DODARO. They are all funded a little bit differently, but I 

think there is some ability to recover the administrative costs of 

carrying out those responsibilities. But the audits are supposed to 

cover all spending, including the Federal spending, and then have 

testing on Federal compliance requirements. 

Senator TESTER. Yes, but how does a legislative auditor get the 

money to do their audits? 

Mr. DODARO. They receive an appropriation from the State legislature just like the legislature appropriates moneys. 

Senator TESTER. I know that. 

Mr. DODARO. Right. 

Senator TESTER. The issue here is that they get their appropriation from the State legislature. The question is that they have additional work here to do. And where do they get the resources to 

do that? Does it come from the State legislature or does it come out 

of the Recovery Act? 

Mr. DODARO. That is what we are asking OMB to clarify now. 

First, I would say, Senator, our recommendation about changing 

the Single Audit process would be to change the focus of it, which 

would not require additional money. 

Senator TESTER. OK. 

Mr. DODARO. But if they do not know, then OMB can determine 

and—— 

125 

1The response from Mr. Dodaro appears in the Appendix on page 652. 

Senator TESTER. That is good. Are you recommending caps on 

the amount of money that they can use for audit oversight? 

Mr. DODARO. We have not addressed that issue in particular, but 

I would expect them to use prudent judgment. 

Senator TESTER. All right. Well, thank you. 

There are States that have full-time legislatures and there are 

States that have biannual legislatures, and everything in between. 

The Department of Energy (DOE) changed the rules after we 

went in, so the State of Montana, who happens to be in the biannual session right now, had to pull back, do some things different. 

That is all cool. 

How do you anticipate this happening in areas where there is a 

citizen part-time legislature and we have OMB or anybody changing guidance, and they release it after the sessions are over with? 

And this is to you, Mr. Scheppach. How do you anticipate them 

handling that? 

Mr. SCHEPPACH. Well, again, it is going to differ quite a bit by 

the State. Some States, you will have to pull back the legislature 

for special session. Some States, essentially, have a committee that 

just needs to come back, and they can deal with it. Some States 

you could probably deal with it with executive order until the next 

session. So it really differs by State. 

Senator TESTER. OK. A fair amount of this money is going into 

regions typically because unemployment rates are higher there 

than in other areas, where the most need is for jobs. In Montana, 

the Forest Service in Region 1 just gave significant moneys to the 

region, in the northwest part of the State. Our unemployment rate 

there is approaching 16 percent, very serious because of the wood 

products industries is in the tank. 

Although there is no stipulation in the bill, to my knowledge— 

and I want you to enlighten me if there is—that once the money 

is allocated to a region, they can contract it out, and somebody 

from a different part of Montana or a different State could come 

in and do some of the restorative work, or the bridge building, or 

the road building, or putting in culverts and all that. 

To your knowledge, is there anything in the bill that would require moneys that go to an area where unemployment is high, to 

actually be spent on people who live in that area that do not have 

jobs? Do you understand the question? 

Mr. DODARO. Yes. I understand the question. I am thinking of 

the answer. 

Basically, Senator, it will vary by program activity. Obviously, 

the Medicaid program is spent for the eligible population in the 

State, and there is a factor for unemployment rates. The highway 

programs have to be given priority to economically distressed areas 

within the counties, and they have to consider disadvantaged businesses as a certain percentage of it. 

But to your particular question, I am not aware of anything that 

is in the legislation that would require that. I will go back and ask 

our attorneys to take a look at it.1 But each program has its own 

unique regulations. 

126 

Senator TESTER. I would like that, if you could do that; and then, 

if you have any recommendations on what I could do. Because, see, 

the truth is—and this is just a comment—in different regions of 

the country, unemployment is much higher in some areas than it 

is in other areas. In Montana, it easily swings 10 points. 

If we are plugging money into doing important work, important 

infrastructure work—it is not to make work, it is work that needs 

to be done and should be done—but, yet, people can come in from 

outside to do that work, and not employ any of those people to reduce that unemployment rate, we are really not accomplishing everything that we wanted to accomplish. 

So if you have any recommendations, I would love to hear them. 

Thanks for your work. Appreciate it. 

I would like to grill all of you, or at least ask you questions, but 

I cannot do it. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks very much, Senator Tester. 

Maybe we will do one more question on this round. 

Senator Burris, at the end, if you have more questions, I might 

just ask you to carry on the hearing until you are done with your 

questions because I want to go over to the Days of Remembrance 

commemoration. But let’s start with one question each and see how 

we go. I will go first quickly, and then I will go over to you. 

I am pleased to hear about how many States and localities have 

created Web sites to provide accountability and transparency. It 

really is quite remarkable. In some sense, just as the size of the 

stimulus is unprecedented in Federal Government history, the efforts that the Federal Government, with the Recovery.gov Web site 

and at the State and local level, I think are unprecedented, too, in 

terms of bringing modern technology to bear on all this. It strikes 

me that if nothing else, the Recovery Act is creating jobs for Web 

designers and Web managers. [Laughter.] 

That is good. 

But I want to ask you how the State and local sites will complement Recovery.gov, and is Recovery.gov sort of piggybacking on 

what the States and localities are doing, or are these basically separate sources of information? 

Let’s start with you, Ms. Coleman. 

Ms. COLEMAN. Yes. I will give you my sense just from perusing 

through the various Web sites. Most of the local government Web 

sites I have looked at provide a link to Recovery.gov, the Federal 

Web site. But there is a range of content. New York City has a very 

sophisticated Web site and will actually be modeling its efforts to 

attract recovery dollars, very similar to the Baltimore City statistics local government accountability measure. So it is probably on 

the unique high end, but certainly New York City has different 

challenges and resources available. 

To vary on the other end of the spectrum, there are very static 

Web sites are just posting the information and providing the links 

to not only the Recovery.gov, but also the different Federal agencies who also have all launched their own recovery Web sites. So 

some very dynamic ones were seen as well as some that are static, 

but at least making the information available and letting their constituents know who they can contact if they have questions about 

recovery. 

127 

Chairman LIEBERMAN. We were really impressed, surprised, by 

the usage, the number of hits on the Recovery.gov Web site. The 

last time Rob Nabors from OMB was here, it was over $300 million 

since it was instituted. 

Are you finding similarly heavy traffic on the State and local, or 

do you know? 

Mr. SCHEPPACH. I do not really have a good sense. 

Ms. COLEMAN. I do not have a sense of that. 

Chairman LIEBERMAN. OK. How about the States’ sites, Mr. 

Scheppach? 

Mr. SCHEPPACH. Well, a lot of it is going to be duplicative. Everything that is going to go on Recovery.gov is also going to go on the 

States. But I think there will be more information on States about 

the task forces that have been created, when there are public meetings that you can attend. Also, I suspect some of them are gearing 

up to put out more of the regional information in terms of contracts 

and so on, so you can accumulate it various different ways. 

Chairman LIEBERMAN. Mr. Dodaro, do you have anything to add 

to that? 

Mr. DODARO. Yes. The only thing I would add, I know on the Recovery.gov Web site, there are links to each State Web site. So I 

think the links are there, which is helpful. Also, some of the States 

we have looked at—I know Ohio, for example, is using a Web site 

to take ideas from the public on specific projects. So I think some 

of the States are using it to get some input, too, to help them make 

decisions. So I would add that. 

Chairman LIEBERMAN. Good. Thank you. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. Just one final question for me. 

Mr. Scheppach, I want to talk to you about the issue of the restrictions on funding being used to supplant State funding. I think 

this is a very confusing area because Congress put some of these 

restrictions into the law to ensure they were getting the stimulative effect of additional funding. If the Federal funding is simply 

displacing State funding that otherwise would occur, then it is not 

going to stimulate the economy. 

On the other hand, if the funding is going to allow the States to 

avoid cuts that would displace people—cause them to lose their 

jobs or services to be reduced—then, presumably, that is a use that 

we want to see. 

Could you help us sort through this, and do the governors have 

an understanding of what is supplanting versus displacement? Because as I understand it, OMB has indicated that if States ‘‘misuse’’ the discretionary money by displacing instead of supplementing State budgets, the Federal Government could seek to recover the money. 

I think this is extraordinarily confusing. 

Mr. SCHEPPACH. It is a difficult problem. And I think the biggest 

place that this is an issue is in the State Stabilization Fund, $45 

billion worth of education money. And the maintenance of effort 

there says that no State can go below their 2006 level. 

The problem is that States were in such different places because 

we had four or five States—like Florida, Arizona and everything— 

that went down very early economically, and a bunch of others did 

128 

not have major problems until later. So anytime you pick a year 

for a maintenance of effort, it works pretty effectively for a group 

of States but not for others. 

A perfect example there is Florida, which had, I think, cut their 

budgets quite significantly. So maintaining that 2006 maintenance 

of effort, they were so far under it, that it was causing a big problem. But at least you did build a waiver approach into it so they 

can apply for a waiver from the department so that it sort of helps. 

It is just a difficult problem to get a concept that is effective 

across the board for all States. And something like the Medicaid 

one, where you are not measuring money, you are actually measuring eligibility and other issues, is cleaner in that sense, but in 

a lot of other areas, you just cannot do that. 

So I think something is in there, which is pick a reasonable year 

for most States and provide a waiver authority is probably as good 

as we can do, in all honesty. 

Senator COLLINS. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator Collins. Senator 

Burris. 

Senator BURRIS. Ms. Coleman and Dr. Scheppach, if you could let 

me know what the States’ position is going to be for these underserved communities, minority businesses, or the local community 

municipalities, whether you have any knowledge that they have in 

place programs to make sure that the stimulus dollars would go to 

minority companies, small businesses, to create jobs in those areas. 

Do you have any specific knowledge as to what your municipality 

or the State governments are going to be doing? 

Ms. COLEMAN. Senator, I would say that I do not know what all 

the specific cities and towns are doing. They are quite diverse and 

there is quite a range. But I can share that in my conversations, 

in our conversations with minority, local elected leaders, that they 

are certainly being champions for that cause as their cities and 

towns move forward with the requests for proposals or other decisionmaking processes as it relates to the recovery dollars. 

So there are champions, hundreds and thousands of champions, 

for that cause who are in the local governments and a part of that 

decision-making process that I think will call attention to any disparities or efforts that do not seem to be in compliance with the 

Federal requirements, as well as any local requirements that there 

might be. 

Senator BURRIS. Well, in Illinois, they are coming to me saying 

how can they get their local businesses to get a piece of this action, 

a piece of the project that is coming in, whether it is a weatherization project or a highway construction project. And they have no 

knowledge of how the process is working. 

Do they talk to the mayor of the city? Do they talk to the governor of the State? And they are coming to me saying who do we 

talk to. 

Ms. COLEMAN. Well, I would echo what you are saying in that 

the first step is education and awareness about what are the opportunities and how to access those opportunities. And this is where 

we will go back to the communication that local governments are 

doing with their constituents, and the vendors who are interested 

in these opportunities, as well as the communications from the 

129 

State and the Federal Government. These are important so that 

people and vendors wanting to do business can understand what 

are the opportunities and who do I talk to about those opportunities. 

I know that cities and towns across the country, as well as the 

States and the Federal Government, are working hard to make 

those communication vehicles available so that the information is 

accessible. 

Senator BURRIS. Do you have an example of any entity that you 

know about that might be an example of what is taking place? Is 

there a city councilman who has his business person put a grant 

in, let’s say, for one of these community health centers, and that 

grant was approved? 

Ms. COLEMAN. I do not have any particular examples, but I am 

happy to do some work on that issue when I return to the office, 

and we will be happy to follow up with your office. 

Senator BURRIS. Will you be following that piece of it with your 

authority under the National Governors Association, how they are 

following up with the minority piece? 

Mr. SCHEPPACH. It is probably not something we would normally 

do. The State of Illinois has appointed people who are their leads 

for this. And I would recommend that the community sit down with 

those leads and talk about this issue. I mean, no money has been 

spent yet—— 

Senator BURRIS. He is named the stimulus czar. We have a stimulus czar. 

Mr. SCHEPPACH. Well, I would encourage you to sit down with 

that person and talk about the issue, because, as I say, you are in 

front of it. There are very few decisions that have been made so 

far. 

Senator BURRIS. But right now I am getting all the heat from it. 

I was getting calls in yesterday about how do we get a piece of the 

stimulus? I mean, that is all I am hearing from my constituents. 

And I am now trying to get some answers from them. I have certainly met with some local officials, and they did not know as much 

as I knew in Illinois. 

So there is major concern. And I tell you, if these dollars come 

into the community, and none of them get into those underserved 

and minority communities, then there is going to be—here again, 

this is what we are looking at; it is all at the top. They are going 

to keep us at the bottom and not give an opportunity for a chance 

to grow businesses and to share in our dispersion of tax dollars. 

Mr. SCHEPPACH. Well, again, I would sit down with the mayors 

in your particular area, as well as the governor’s people. 

Senator BURRIS. Thank you, Members of the Committee. I appreciate your response. 

Chairman LIEBERMAN. Thanks, Senator Burris. 

Thanks to the three witnesses. I think this has been a very informative hearing. That is why we are going to keep doing them. 

And bottom line, I am encouraged by what you have all said. I 

think the Federal, State, and local governments are trying to work 

very hard together. In our oversight, there are questions, but there 

are responses coming, including the Vice President’s announcement 

of the guidelines today. 

130 

Overall, the money has gone out. So not only am I encouraged 

about what we have heard in the short term, but I am encouraged 

by Dr. Ray Scheppach’s vision of what history holds. [Laughter.] 

We do not normally look that far ahead. 

Anyway, the record of the hearing will stay open for 15 days for 

any additional questions or statements. I thank you all very much 

for what you have been doing. We had a very good turnout today, 

and, frankly, beyond what I expected for Members of the Committee, which shows how much interest there is among the Members. And a lot of it is because there is so much interest, as Members have indicated, back home. 

Senator Collins, do you want to add anything? 

Senator COLLINS. I do not. 

Chairman LIEBERMAN. Thank you very much. The hearing is adjourned. 

[Whereupon, at 10:55 a.m., the Committee was adjourned.] 

(131) 

FOLLOW THE MONEY: AN UPDATE ON 

STIMULUS SPENDING, TRANSPARENCY, 

AND FRAUD PREVENTION 

THURSDAY, SEPTEMBER 10, 2009 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:03 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, Chairman of the Committee, presiding. 

Present: Senators Lieberman, Carper, Pryor, McCaskill, Tester, 

Burris, Collins, Coburn, and McCain. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. The hearing will come to order. Good 

morning and welcome to the witnesses and everyone else who is 

here. 

This is the fifth in a series of oversight hearings that our Committee, pursuant to its oversight responsibility as the Governmental Affairs Committee, has conducted on the American Recovery and Reinvestment Act (ARRA or Recovery Act), the $787 billion 

stimulus package that was enacted earlier this year to help pull 

our economy out of the worst recession in the living memory of 

most Americans. 

We hold this hearing on the heels of what I would call mixed 

news about our economy. That is that we are still not where we 

want and need to be, but we seem to be making some progress. 

After a slight decrease in the unemployment rate in July, down a 

tenth of a point to 9.4 percent, the jobless rate, as we all know, 

went back up to 9.7 percent in August, which is the worst rate of 

unemployment in America in 26 years. We know that unemployment is a lagging indicator of an economic recovery, so this was not 

entirely unexpected. 

We also know that just a few months ago, our financial sector 

was on the verge of collapse and the overall economy was teetering 

somewhere between a great recession and, at worst, a depression. 

Thankfully, both of those calamities have been averted. The stock 

market is up. Housing sales are up. And manufacturing grew last 

month for the first time in more than a year. 

But the unemployment level now is above what many economists 

predicted when we passed the stimulus in February, particularly 

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132 

ment still exceeds 17 percent in many States, including my own 

State of Connecticut. Perhaps that explains why, when I met with 

workers in the construction trades in Connecticut during August, 

they were having a hard time expressing any gratitude for the 

positive effects of the stimulus. So the danger of a jobless recovery 

remains all too real. 

With that in mind, a lot of people, understandably, are asking if 

we can do more. Some have called for a second stimulus, although 

those calls seem to have receded. Others are asking, and I number 

myself among those, whether we can implement what we have already passed faster, whether we can speed up the process so that 

more of our citizens can feel the positive effects of the stimulus 

that we intended more quickly than will happen in the normal 

course. I, for one, hope that we can and I look forward to exploring 

that with the witnesses today. 

This morning, overall, we are going to take a status check on 

what has been done so far and ask about the capabilities of all levels of government, and the performance of all levels of government 

in administering Recovery Act programs. The pace of spending naturally will pick up—we have known all along that we would spend 

more in fiscal year 2010 than in fiscal year 2009—and, of course, 

we will ask whether we can increase the pace of that spending 

even more. 

Personally, I believe that much has been accomplished since the 

Recovery Act was passed as a result of the Recovery Act. While I 

am going to not fall to the temptation about telling old jokes about 

economists never reaching a similar conclusion, I think, from what 

I have read, most of them agree that the Recovery Act has helped 

halt America’s economic slide and is helping the private sector toward a recovery. 

I can tell you that certainly mayors and governors, and other 

local officials, make clear to me and others that things that would 

have been worse without the help that the Recovery Act provided. 

Let me briefly sum up where we are now and the progress we have 

made. 

On the tax side, 95 percent of working Americans have seen their 

paychecks increase because of the Make Work Pay tax credit. It 

has put about $23.2 billion into the pockets of these families so far. 

And in total since the Act was adopted, $62.5 billion has been 

pumped into the economy through tax relief, with $225.5 billion 

more of tax cuts still to come. Nearly 334,000 new homeowners 

have claimed the Recovery Act’s $8,000 first-time homebuyer tax 

credit. Many analysts, and maybe in some senses more importantly, many people in the real estate business—brokers, agents, 

etc.—that I have talked to in Connecticut say that this provision 

really has played a part in steadying the housing market and even 

now is helping to increase home sales for 4 months in a row. 

In transportation infrastructure, over 6,700 highway projects 

have been approved and more than 2,200 are underway. Hundreds 

of airports across the country have been awarded funds for improvements, and about $1.1 billion in Amtrak improvements are on 

the way. 

The Recovery Act is also helping families through these tough 

times with extended unemployment insurance, increased Social SeVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00140 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
133 

curity payments, more food stamp assistance, and aid to States 

through increased Medicaid grants. 

Recovery Act payments to the States through the Federal Medical Assistance Percentages (FMAP) program and the State Fiscal 

Stabilization Fund have helped, by the numbers that I have seen, 

keep 135,000 teachers and 5,000 law enforcement officers on the 

job. 

We will come back to all that with some questions and answers. 

Besides the spending of stimulus money, another topic of this 

hearing will be our continuing interest in the transparency of Recovery Act spending and a final, but critical, question that we want 

to deal with today with particularly the presence of—I would like 

to see ‘‘Hon.’’ before Jon Leibowitz’s name. He worked here in the 

Senate many years. We always thought he was honorable, but now 

he has been officially declared honorable. 

The challenge we want to deal with today is the Federal Government’s efforts, which he is helping to spearhead, to prevent Americans from being bilked by scam artists who fraudulently promise 

government money in return for credit card information. Scams directly related to the stimulus appear to be few so far, but unfortunately, tough economic times are always accompanied by people 

who are eager to take advantage of other people’s misery and try 

to exploit those who are financially strapped and desperate for 

cash. So we look forward to that additional and unique part of the 

government’s response to this recession. 

So I welcome all the witnesses today. I look forward to your testimony, and I am glad to call now on our distinguished Ranking 

Member, Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. 

Seven months ago, the American Recovery and Reinvestment Act 

was signed into law. Since that time, this Committee has conducted 

oversight to help ensure that these funds are used as intended, to 

help revitalize our economy by creating needed jobs, improving 

roads and bridges, sustaining vital health care programs, and investing in infrastructure and science. 

These funds must be disbursed quickly to meet the goal of stimulating the economy. At the same time, we must ensure that haste 

does not make waste or permit fraud or mismanagement. Striking 

the right balance between speed and caution has been a challenging task. 

For example, we recently learned that the Social Security Administration erroneously sent about 10,000 stimulus checks for $250 

each to people who were either dead or incarcerated. This mistake 

may cost taxpayers about $2.5 million and it could easily have been 

prevented. Now, instead of these funds stimulating the economy, 

the Social Security Administration must work to recover them and 

put controls in place to prevent similar errors in the future. 

Today, as the Chairman has indicated, we will explore three 

issues that could blunt the economic recovery impact of the stimulus: The first, unnecessary delay; second, inadequate transparency; and third, outright fraud. 

134 

1The chart referenced by Senator Collins appears in the Appendix on page 661. 

First, some reports indicate that stimulus funds are entering the 

economy too slowly, delaying the potential economic benefit. The 

Office of Management and Budget (OMB), however, has reported 

that it is on track to meet the spending targets. I am interested 

in exploring with our witnesses whether the spending to date has 

had the desired effect on the economy, whether the money is being 

pushed out of Washington and to the intended recipients as quickly 

as possible. 

Second, I want to ensure that we are providing the American 

public with accurate and thorough data about stimulus projects 

around the country. Congress directed the creation of the Recovery.gov Web site to increase transparency, allowing the American 

people to monitor stimulus spending in their own States and to 

help be a watchdog and report abuses. Progress on Recovery.gov 

initially has been slow, however, particularly when compared to 

some private sector alternatives. 

Third, I am concerned about the growing incidence of fraud and 

predatory scams that appear to be on the rise as con artists prey 

on citizens facing financial hardships. These crooks are smart and 

they are opportunistic. They exploit these tough economic times to 

lure Americans into scams that look and sound legitimate. They 

uses phrases that we hear on news reports and see in the headlines, such as ‘‘stimulus grants’’ and ‘‘government funding’’ to confuse victims. They manufacture forms that have an official look to 

them when, in fact, the services offered are not connected in any 

way to any government agency or to the Recovery Act. 

To appreciate the potential that these scams have to spread and 

grow, possibly ensnaring thousands of trusting consumers, we must 

recognize that the Federal stimulus program is instantly recognizable. It is part of our economic and political vocabulary. It carries 

so much weight and credibility that the police in Florida recently 

used the lure of economic stimulus checks to conduct a sting operation in which 75 people were arrested. 

The Florida example demonstrates the attention-drawing power 

that the words ‘‘economic stimulus’’ can have on the American people. It is critical that we aggressively pursue scam artists who brazenly use the stimulus program as a springboard for fraudulent or 

other unfair activities. 

I have brought to the hearing today two examples of mailings 

that were sent to my constituents in Maine in order to illustrate 

my point. The first example, sent shortly after Congress passed the 

Recovery Act, is misleading because it resembles an official government form. It could easily be mistaken as a legitimate government 

offer of help and assistance. For those of you who can see the 

blown-up form or have it before you, it looks very much like an Internal Revenue Service (IRS) form. It provides an identification 

number for the individual. It has Form Number 009–S. It has 

‘‘Stimulus Act 2008.’’ It is easily mistaken for an IRS form and 

looks very official.1

The second example is a letter that was sent to my constituent 

telling him that he is preapproved for a Consumer Debt Initiative 

because he may be experiencing a financial hardship. Well, most of 

135 

1The chart referenced by Senator Collins appears in the Appendix on page 662. 

2The prepared statement of Mr. Nabors appears in the Appendix on page 663. 

my constituents are experiencing financial hardships, regrettably, 

nowadays. The letter implies that the initiative was established 

under the Economic Stimulus Act of 2009. In the letter, the alleged 

manager of the so-called Credit Relief Division, a fictitious but realistic-sounding title, encourages the consumer to call and refer to 

the case number provided. It has a Washington, DC, address. It 

looks very legitimate.1

So I am particularly looking forward to hearing from Mr. 

Leibowitz today about the Federal Trade Commission’s (FTC) efforts to identify, publicize, and stop stimulus scams. 

I also appreciate the work that the Department of Justice has 

done to train more than 10,000 Federal, State, and local officials 

to monitor the contracting process for abuses such as collusion and 

bid rigging. These officials can help play an important watchdog 

role. 

With a combination of education and enforcement, we can help 

prevent exploitation and stop scams. At the same time, I hope that 

this hearing will serve as a warning to con artists out there that 

our government is on the lookout. We will alert citizens. We will 

expose scams. And criminals will be prosecuted. Preventing fraud 

in the execution of stimulus funding is a key element to the ultimate success of the Recovery Act. 

I appreciate the Chairman’s continued scheduling of very important hearings to provide sufficient oversight in this area and I look 

forward to hearing the testimony of our witnesses. Thank you. 

Chairman LIEBERMAN. Thank you very much, Senator Collins. 

I thank the other witnesses of the hearing who are here this 

morning. We will go now to Robert Nabors, who is the Deputy Director of the Office of Management and Budget with special responsibility for the ARRA, the Stimulus Act. Thanks very much for 

being with us again. 

TESTIMONY OF HON. ROBERT L. NABORS II,2 DEPUTY 

DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

Mr. NABORS. Good morning, Mr. Chairman. Good morning, Members of the Committee, and thank you for inviting me to testify 

about our progress in implementing the Recovery Act. 

Today, I would like to focus on four key areas that are of particular concern to the Committee. That is the rate of Recovery Act 

spending, recipient reporting, job counting, and the Single Audit 

system. 

The Recovery Act is making a difference, and the Congressional 

Budget Office (CBO) has noted it is one of the reasons why economic activity is expected to begin its rebound in the coming 

months. At the heart of this approach is an effort to accelerate the 

pace of spending. In previous hearings, you have asked me whether 

our pace of spending is on schedule. The answer is yes. The Recovery Act was designed to ramp up in 2009, have its peak impact in 

2010, and lay the groundwork for further growth moving forward. 

In April, when I last testified here, Federal agencies had obli- gated about $54 billion. Today, nearly $234 billion has been obliVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00143 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
136 

gated. When combined with more than $66 billion in tax relief, 

about $300 billion has been committed to date. Importantly, agencies have outlaid nearly $94 billion in spending so far, up from $12 

billion in April. Combined with the tax relief, this totals to about 

$159 billion. This pace of spending is consistent with our original 

goal of outlaying 70 percent of the $787 billion contained in the Recovery Act by the end of fiscal year 2010, and it is also consistent 

with CBO’s initial projections. 

The Administration has worked to meet or exceed a series of ambitious funding targets. As the Government Accountability Office 

(GAO) has noted, Recovery Act funds are actually moving to States 

faster than anticipated and certain programs are being implemented faster than anticipated. For example, the Making Work 

Pay tax credit for middle-class families was implemented about 3 

months ahead of schedule, and all States obligated at least half of 

their highway funds at least 10 days before the deadline set in the 

Recovery Act. 

At the beginning of the summer, the Vice President presented 

the Road Map to Recovery, a plan for 10 major benchmarks that 

would help define the Recovery Act during its second 100 days and 

speed implementation. Last week, the Vice President announced 

that the government had met or surpassed each target. 

In addition to implementing the Recovery Act quickly, it is critical that we do so in a way that is transparent and accountable to 

the American people. That is why Congress required funding recipients to provide detailed reports on the use of funds and on the 

jobs that these funds have created or saved. 

The first report from recipients are due on October 10. We have 

taken several actions in recent months to anticipate the needs of 

recipients and develop the appropriate leadership structure and 

technical capacity to manage the expected workload. Three rounds 

of OMB recipient reporting guidance have clarified the expectations 

on grant recipients and contractors. Our guidance responds to the 

President’s charge for greater transparency by going beyond the 

data elements required by law to capture significant payments to 

vendors, those dealers, distributors, merchants, and other providers 

of goods and services necessary to conduct Federal programs. 

Working with the Recovery Accountability and Transparency 

Board, we have provided detailed instructions for registering and 

submitting information at Federalreporting.gov. We have worked 

with the board to test and fine-tune the site, which is now open for 

registration. As of last evening, there were about 19,000 registrants 

so far and we are pushing hard to increase registration. 

In addition, we have worked with the board to conduct seven 

Webinars, attracting more than 17,000 registrants in a total of 

more than 20 different training sessions with recipients to explain 

their reporting responsibilities, to discuss how to calculate job estimates, and to review the technical solutions and data elements for 

reporting on recovery funds. 

As some challenges will require specialized attention, we are coordinating with the board to provide on-site technical assistance in 

State capitals and several localities during the reporting period. We 

will deploy about 100 on-site liaisons to every State capital and to 

many of the largest counties and cities. The liaisons will provide 

137 

State and local Recovery Act coordinators with daily data on registration and reporting trends and to serve as a backstop for questions that are pending resolution from the board, service desks, and 

the agencies. A 10-person Project Support Team will oversee their 

operations, provide training, and coordinate information flow. 

Finally, there will be a team of 20 to 30 coordinators drawn from 

different agencies, positioned to get answers from agencies and 

OMB to recipients and to compile reports documenting what liaisons have learned on the ground. 

To further improve the flow of information, we responded to a 

recommendation from GAO and implemented a new State notification process, which requires agencies to notify States within 2 days 

of any grants awarded within their boundaries and will provide for 

up-to-date listings of new contracts, as well. 

We are committed to strengthening the reporting processes and 

collecting the data that we need to track spending, count jobs, and 

deliver on the President’s promise of unprecedented transparency 

and accountability. 

Later today, the White House Council of Economic Advisors 

(CEA) will release its first quarterly macro-economic impact analysis of the Recovery Act. I am not in a position to discuss the report’s specifics in this hearing, but I did want to take this opportunity to explain to the Committee the differences between the 

CEA report data and the data to be submitted in October by funding recipients. 

The data will differ in several important ways. First, the Recovery Act recipient reports encompass only those projects and activities funded by State Fiscal Relief Grants and other investment 

spending. That comprises about one-third of the total spending in 

the Act. The CEA report, however, will assess the total Recovery 

Act program, from grant spending to tax relief to safety net programs. 

Second, recipients are only required to report on direct jobs and 

not additional job impacts that may be occurring beyond that. CEA 

will look at direct as well as indirect economic benefits. 

Finally, the October data will be driven by the quality and quantity of information provided by funding recipients. The completeness of their submissions will determine the quality of the October 

job count. We are working with the agencies to urge funding recipients to register and report on time and we expect the data to improve with each successive quarter of reporting. While recipient 

data will be useful in informing CEA on their estimating model, 

the two different job estimates are not intended to reconcile with 

one another. 

As my final point today, I would like to focus on some changes 

that we have made in response to concerns about the Single Audit 

process. When I first appeared before the Committee, Senator 

McCaskill expressed concern that the Single Audits were not set up 

to meet the demands of the Recovery Act oversight. GAO echoed 

her concerns. Both have pointed to a few key issues, including the 

time lag that typically exists in the auditing cycle and the fact that 

the Single Audit process might not cover all Recovery Act programs 

that should be examined. 

138 

1The prepared statement of Mr. Leibowitz with attachments appears in the Appendix on page 

669. 

In response, OMB staff worked with this Committee and GAO to 

develop a solution that could be implemented quickly and in a targeted manner. The collaboration is ongoing. We have modified 

OMB Circular A–133 such that the majority of programs with Recovery Act funding will be audited. And our August 6 addendum 

to this supplemental stresses that auditors should be prompt in relaying any information that they discover about deficiencies or 

weaknesses. 

Also, we are planning to use pilot authority to improve internal 

control communication for selected major Recovery Act programs. 

As part of this program, OMB will work with agencies to identify 

at least 10 at-risk Recovery Act programs that should be audited 

on an expedited basis of 6 months versus the normal 9-month time 

frame. To participate in the program, States must consent to being 

audited with respect to at least two of these programs. As an incentive, participant States will be exempt from being audited on smaller, lower-risk programs. 

In addition, we have responded to concerns about State oversight 

capacity by issuing a memorandum that allows States to use up to 

0.5 percent of funds for administrative costs and to obtain those 

funds more quickly than traditional schedules would have allowed. 

With that being said, we continue to listen to your concerns and 

look forward to continuing our constructive dialogue about the critical issues over the coming weeks and months, and particularly as 

we approach the October 10 reporting deadline. 

Thank you again for this opportunity to testify. 

Chairman LIEBERMAN. Thank you, Mr. Nabors, for the opening 

statement. You touched on some of the items that I certainly wanted to ask you about and I look forward to the question period. 

Jon Leibowitz comes to us today as Chairman of the Federal 

Trade Commission. We are pleased to have you with us. As you can 

hear from Senator Collins’s opening statement and my own, we 

have a real concern about scam artists trying to take advantage of 

this stimulus program and the hard times that a lot of people are 

experiencing, so it is reassuring, even before I hear what you have 

to say, based on what I know of you, that you are on duty in this 

regard. 

TESTIMONY OF HON. JON D. LEIBOWITZ,1 CHAIRMAN, 

FEDERAL TRADE COMMISSION 

Mr. LEIBOWITZ. Well, thank you, Senator, for those kind but perhaps undeserved words. Chairman Lieberman, Ranking Member 

Collins, Senator McCain, Senator Burris, Senator Tester, and Senator Coburn, I am Jon Leibowitz, Chairman of the Federal Trade 

Commission, and I do appreciate the opportunity to be here today. 

Unlike my colleagues on this panel, who are talking about frauds 

directed at the Federal Government, I am going to be talking about 

frauds falsely invoking the Federal Government but directed at 

American consumers and what we do at the Federal Trade Commission to try to stop these scams. 

139 

1The chart referenced by Mr. Leibowitz appears in the Appendix on page 684. 

2The chart referenced by Mr. Leibowitz appears in the Appendix on page 683. 

My oral statement highlights a series of fraud cases that the 

Commission has recently brought involving false promises of government grants. They are part of Operation Short Change, a sweep 

of 120 legal actions announced on July 1 that we undertook with 

the Department of Justice and 14 State partners. In addition to 

grant scams, as you mentioned, Senator Lieberman and Senator 

Collins, we challenged a variety of frauds exploiting people harmed 

by the economic downturn. All told, with our Federal and State 

partners, we have brought 389 cases or legal actions in four fraud 

sweeps in just the past 5 months. 

Mr. Chairman, to today’s con artists, the challenging economy 

presents a golden opportunity. Sadly, it is an opportunity to prey 

on the economic distress of American consumers and bilk them out 

of their hard-earned savings. As they do with any crisis, these 

malefactors have sought to exploit the government’s stimulus plan. 

Their Web sites promise government grant money, usually requiring consumers to pay in advance or to provide personal financial 

information. But though they promise to rescue people in troubled 

financial waters, after they take the money, these scammers throw 

consumers an anchor instead of a life line. 

Some sites have even used the images of high-ranking government officials, as you can see over there,1 to add legitimacy to their 

misrepresentations. This poster shows one site, part of the Grant 

Connect scam, which featured images of President Obama and Vice 

President Biden. Just 2 weeks ago, at the Commission’s request, a 

U.S. District Court judge temporarily shut down these sites and we 

have a preliminary injunction hearing coming up tomorrow with 

the same judge. 

But as you know better than anyone, whatever a Web site may 

say, the Federal Government does not award grants to individuals 

to pay personal expenses or bills, nor does President Obama hand 

out stimulus money for leisure travel. 

Let me tell you about another scam, Grant Writers Institute. 

Grant Writers claimed that consumers could get money from the 

economic stimulus. Together with State attorneys general from 

Kansas, Minnesota, and North Carolina, earlier this summer, we 

filed a complaint against the defendants allegedly responsible for 

this scam. The defendants sent mailings, including post cards, such 

as the one that we blew up on this poster, ‘‘You are guaranteed a 

$25,000 grant from the U.S. Government. Use your money to pay 

bills, start or expand a business, pay for your children’s education, 

help you purchase or fix up your own home, travel the world.’’ 2 Mr. 

Chairman, I am not making this up, and I know that those grants 

do not go for leisure travel, do they? 

Chairman LIEBERMAN. No. 

Mr. LEIBOWITZ. Or to individuals. 

Another mailing, shown in this poster, from the same company, 

used—and this is very much like what you showed, Senator Collins—used official-looking seals, and as you can see, this postcard 

says, ‘‘Official Government Information. A $25,000 grant from the 

140 

1The chart referenced by Mr. Leibowitz appears in the Appendix on page 685. 

2The charts referenced by Senator Collins appear in the Appendix on page 661–662. 

U.S. Government.’’ 1 Now, consumers who responded by calling a 

toll-free number heard this, and I am quoting again, ‘‘If you have 

been reading the papers, you know that recently, our government 

released over $700 billion into the private sector. What you probably do not know is that there is another $300 billion that must 

be given away this year to people just like you.’’ 

Ultimately, these consumers did not get grants, but many people 

did fork over $69 to the defendants and the defendants talked others into paying several thousand dollars for additional upstream 

so-called grant services. Just last week, several of the defendants 

responsible for the Grant Writers Institute scam agreed to a preliminary injunction halting their scheme. 

I will briefly highlight two other FTC cases involving grants. 

First, Grants For You Now allegedly promised, for a fee, access to 

or expertise in getting free government grants to pay personal expenses. And Cash Grants Institute placed illegal robocalls to consumers advertising, ‘‘free grant money available from Federal, 

State, and local governments.’’ Its Web site included images of both 

President Obama and the U.S. Capitol building. Neither company, 

of course, facilitated grants to consumers, but both pocketed money 

from them. And these four cases, by the way, involve 270,000 potential victims. 

We will also follow up on the poster and on the entity that you 

showed earlier in your opening statement.2 It is conceivable that 

the Web site has been taken down, because a lot of the Web sites 

have been taken down since we announced our sweep, but we will 

follow up on that and get back to you. 

Our actions here did not stand alone. They were part of Operation Short Change, which also challenged scams that preyed on 

unemployed Americans looking for work, exploited the entrepreneurial spirit of individuals looking to start their own business, 

promised much-needed credit to consumers, but instead delivered 

unnecessary debt. 

As we did on this sweep, we regularly work together with State 

attorneys general, including those from Connecticut and Maine, 

and with other Federal agencies on sweeps like this, including the 

Departments of Justice, and Housing and Urban Development 

(HUD), and Treasury, and working together really can have a 

much bigger impact. 

Mr. Chairman, we bring a lot of fraud cases, but, of course, we 

would vastly prefer that no one falls for these scams in the first 

place. One part of that solution is to educate consumers, and we 

do that, we think, very well, as we hope the materials in front of 

you demonstrate. 

The Commission has also reached out to legitimate companies for 

help in pulling down ads for these scams. At our request, several 

major online ad companies, including Facebook and Google, moved 

to screen out ads touting the economic stimulus as providing grants 

for individual consumers. Let me commend these companies for 

their help. 

141 

1The prepared statement of Mr. Devaney appears in the Appendix on page 686. 

Let me also commend this Committee for all of your support. 

There is a lot more to be done in this area, and we do have some 

ideas about ways you can make us more effective, for example, by 

growing our agency, which is actually about 35 percent smaller 

than it was 30 years ago though the American population has 

grown by more than 30 percent during that time. But I am happy 

to report that the President has committed to increasing our resources, and I am also happy to expand on this issue at my next 

Appropriations Committee testimony before Senator Collins. And 

finally, I am happy to answer any questions you have. 

Thank you so much, and I will yield the balance of my time. 

Chairman LIEBERMAN. Thanks very much, Mr. Leibowitz. Your 

statement actually justifies my confidence, as expressed earlier, 

and I thank you for it. 

Next, we are going to hear from Earl Devaney. Are you still Inspector General at the Interior Department or are you on leave to 

do this job? 

Mr. DEVANEY. I am on a leave of absence. 

Chairman LIEBERMAN. This is a full-time job. 

Mr. DEVANEY. It is. 

Chairman LIEBERMAN. Today, Mr. Devaney, who has really done 

great public service, comes before us as Chairman of the Recovery 

Accountability and Transparency Board, which was created by the 

Stimulus Act. We look forward to your testimony now. 

TESTIMONY OF HON. EARL E. DEVANEY,1 CHAIRMAN, 

RECOVERY ACCOUNTABILITY AND TRANSPARENCY BOARD 

Mr. DEVANEY. Mr. Chairman, Ranking Member Collins, and 

Members of the Committee, I want to thank you for the opportunity to appear before you today to provide an update on the recent and planned activities of the Recovery Board. My testimony 

today will address the current status and future direction of the 

board’s missions, and after my opening remarks, I will be glad to 

answer any questions you have. 

I would like to begin by addressing some of the suggestions put 

forward by Members of this Committee when I last testified before 

you in April. One recommendation was that the board seek the assistance of AARP and Triad in publicizing and creating awareness 

of recovery-related scams, like the Chairman just spoke about, 

given that perpetrators of scams frequently target senior populations. The board has since reached out to both of these organizations, as well as the FTC and the National Association of Attorneys 

Generals. And although we have seen a decline in recovery scams 

since the initial period of the law’s enactment, the board’s relationships with these groups are now in place in the event that these 

scams begin to rise again. 

Another suggestion made at the April hearing was that the board 

consider employing former journalists to assist with our reporting 

requirements and to make the board’s Web site more reader-friendly. Since that hearing, the board has hired former journalists in 

various staff positions, where their superior writing skills will be 

put to good use. 

142 

I am pleased to report that the redesign of Recovery.gov has been 

completed and its companion data collection Web site, Federalreporting.gov, has been created, performance tested, and open for 

registration. As mentioned earlier, more than 19,000 recipients as 

of last night have registered since the site was launched on August 

17. However, we are actively encouraging recipients to register 

prior to October 1, which is when the system will first be open for 

reporting purposes. 

The fully enhanced version of Recovery.gov is scheduled for release prior to October 10. It will provide visitors with a visually 

pleasing, user friendly, and highly interactive Web site. For instance, it will have a mapping capacity that will allow visitors to 

search for spending all the way down to their own zip codes or 

their own Congressional districts, for that matter. The redesigned 

Recovery.gov is currently undergoing user testing by citizen groups 

and various stakeholders around the country. 

As you may sense, I am very hopeful about the new features of 

Recovery.gov 2.0 and the data the Web site will display once the 

reporting begins next month. However, I do not believe that just 

throwing data up on a Web site classifies it as transparency, nor 

am I under the illusion that the first quarter or even the first several quarters of reporting will be free of data quality problems. 

This kind of data reporting represents new territory and brings the 

potential for new complications. The government has never before 

required recipients of Federal funds to report to this degree. 

While I am on the subject of data quality, Mr. Chairman, I think 

a distinction needs to be made between data quality and data integrity. Although the board and the inspectors general (IGs) will 

play a role in data quality, chiefly by reviewing the agency’s processes for ensuring the quality of the data, the board’s main goal 

will be one of data integrity. That is, the board will strive to ensure 

that the data on Recovery.gov is a true reflection of what recipients 

report, including any subsequent modifications made to that data. 

The board intends to carefully track all changes to the data and 

make that information on Recovery.gov for all to see. 

The prime responsibility for data quality, however, rests with the 

recipients of the funds and the agencies distributing those funds, 

as they are in the best position to know the details associated with 

these funds. Indeed, any direct involvement by IGs in the assessing 

of the data quality process could run afoul in participating in the 

data quality process and could run afoul of the Inspector General 

Act’s longstanding prohibition on IGs performing programmatic 

functions of a department or agency, as well as government auditing standards. 

Although the status of Recovery.gov receives most of the public’s 

attention, transparency is only part of the board’s mission, as you 

well know. The board continues to focus equally on the second mission of accountability and the attendant goal of minimizing fraud 

and waste. 

At this point, I would like to expand briefly on my view of waste 

in the context of the board’s mandate. Whenever I say that the 

board is trying to minimize waste, I am referring to an objective 

assessment of contracting practices rather than a subjective viewpoint of the nature of a particular expenditure or project. My view 

143 

is that aside from being mindful of the Recovery Act’s flat-out prohibition on funding for aquariums, zoos, and the like, the purpose 

of the board is not to weigh in on spending choices that come down 

to an agency’s judgment or opinion. Such decisions are the result 

of political and policy determinations made by multiple layers of 

watchful individuals. Instead, when the board focuses on waste in 

the spending of recovery funds, we will be looking principally at the 

incurring of unnecessary costs due to ineffective practices or internal controls. 

The board continues to strategize ways to not only receive reports of fraud, waste, and mismanagement and then refer them to 

the appropriate IG, but also on how to analyze trends in light of 

publicly available open-source data. To that end, the board has recently put out a solicitation for analytical tools and personnel that 

can best extract and harness existing information in order to make 

the board’s referrals more value-added for the IGs and also contribute greatly to risk-based predictions about potential fraud. We 

have high hopes that this risk-based fraud prevention and detection program will serve as a future model for government oversight. 

The board’s compliance and investigative staff also continues to 

review Recovery Fund procurements as they occur, coordinating 

with IG offices on a myriad of issues. Thus far, we have referred 

more than 100 matters to various IGs to ensure a heightened scrutiny of specific procurements that the board staff have identified as 

potentially problematic. These issues range from instance of administrative oversight to awards that may raise more serious questions 

requiring resolution. 

The board also will be implementing a hotline where the public 

can report potential cases of fraud, waste, and mismanagement. 

After researching several public and private hotline options, the 

board has selected a hotline that will allow citizens to call, e-mail, 

fax, or mail letters to trained operators, and the board staff will 

then use this information to refer complaints to the relevant IGs 

for investigation or for other suitable response. This enhanced hotline solution will be launched in conjunction with the upgraded Recovery.gov in early October. 

In conclusion, Mr. Chairman, I look forward to returning to this 

Committee once we have begun to unveil to the American public 

the full scope of recovery spending. These will be interesting times. 

I do not claim to be a prognosticator, but I suspect that there will 

be a strong reaction when the American public sees how the government actually spends its money for the first time. Some of the 

instantaneous reaction may be negative, but I think there will be 

substantial positive reaction, as well. 

Whatever the short-term effects, however, I truly believe that the 

long-term effects of such transparency will be decidedly positive. 

That is why I remain optimistic that the board and I will be able 

to achieve success in this grand experiment created by the Recovery Act and I firmly believe that what we accomplish here will lay 

the groundwork for how future government spending takes place. 

Mr. Chairman and Members of the Committee, that concludes 

my oral remarks and I stand ready to answer any questions. 

Chairman LIEBERMAN. Thanks very much, Mr. Devaney. 

144 

1The prepared statement of Mr. Mihm appears in the Appendix on page 691. 

I have a quick informational question. I remember at earlier 

hearings, I was impressed by the number of hits on the Recovery.gov site. Are there any current numbers on that? 

Mr. DEVANEY. Well, it has gone down a little since the last time 

I talked to you. I think people are waiting, and I certainly am, for 

the new site—— 

Chairman LIEBERMAN. Right. 

Mr. DEVANEY [continuing]. And so I am going to suggest to you 

that when that new site goes up, there will be a phenomenal 

amount of hits. 

Senator MCCAIN. What potentially—— 

Chairman LIEBERMAN. Senator McCain wants to know, what are 

the numbers now, do you know? Mr. Nabors, do you have a quick 

answer to that? 

Mr. NABORS. I do not. 

Chairman LIEBERMAN. OK. 

Mr. DEVANEY. I think they were about 32,000 hits per minute 

not too long ago. 

Chairman LIEBERMAN. Yes, which is down from what it was 

originally. But it is still substantial. 

Mr. DEVANEY. It is still substantial, and a hit does not necessarily mean that somebody comes in and spends time there. 

Chairman LIEBERMAN. Right. 

Mr. DEVANEY. So, quite frankly, the more appropriate measurement is how long they stay and how often they come back. So those 

are the kind of metrics we are going to use when the new site goes 

up. 

Chairman LIEBERMAN. And again, the new site going up is October—— 

Mr. DEVANEY. Well, probably the first part of October, maybe October 5. 

Chairman LIEBERMAN. So as soon as you have data on the hits, 

it would really help us to know those, comparatively. After it has 

some time to get started, I think the Committee would be interested in that. 

Mr. DEVANEY. Absolutely. 

Chairman LIEBERMAN. Thank you. 

Our final witness is Chris Mihm, who is the Managing Director 

for Strategic Issues at the Government Accountability Office. 

Thanks for being here. 

TESTIMONY OF J. CHRISTOPHER MIHM,1 MANAGING DIRECTOR, STRATEGIC ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. MIHM. Well, thank you, Mr. Chairman and Senator Collins, 

Members of the Committee. It is indeed a great honor to be here 

today to discuss our July report on the Recovery Act. As the Act 

specifies several roles for GAO, including conducting bi-monthly reviews of selected States’ and localities’ uses of funds. 

I should mention that the GAO has made a significant commitment to its Recovery Act work and I would be remiss if I did not 

acknowledge and express my great appreciation for the extraorVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00152 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
145 

dinary effort that my colleagues across GAO—we fanned out all 

across the country to make sure that we are providing the work 

that can support congressional oversight, and they have done just 

a remarkable job. 

Our July report, the second in response to the Act’s mandate, addressed, first, the uses of funds; second, the approaches taken by 

States and localities to ensure accountability; and third, States’ 

plans to evaluate the impact of Recovery Act funds they receive. 

The report has our findings, makes recommendations, and discusses the status of actions in response to the recommendations we 

made in our April report. Our third report will be out later this 

month, towards the end of September. 

As in States across the country, the budget situation is bad, and 

in many cases, the future looks even bleaker, and that is, in a 

sense, the good news. The States are being forced to take dramatic 

actions to balance their budgets, including staff layoffs, furloughs, 

and program cuts. However, and consistent with the purposes of 

the Act, the Recovery Act is helping States stabilize their budgets 

and minimize the reductions and the painful cuts that they have 

to take in services and minimize the need for tax increases. Many 

States reported to us that they would have had to make further 

deep cuts in services and programs without the receipt of Recovery 

Act funds. However, while the funds have helped cushion the impact of States’ budgets, the current revenue estimates indicate that 

additional State actions will be needed—cuts will be needed in the 

coming years. 

Nonetheless, significant Recovery Act funds are moving out to 

States and localities. Overall, across the United States as of August 

28, the most recent data that we have, Treasury has outlaid about 

$45 billion of the estimated $49 billion in Recovery Act funds projected for use in States and localities in fiscal year 2009. I should 

mention, or just to underscore, these funds to States and localities 

are just a subset of the overall expenditures going out this year 

that you, Mr. Chairman, talked about and Mr. Nabors talked 

about, which include obviously the tax provisions and direct payments to individuals, as well as others. Nonetheless, this $45 billion is a sizeable amount of money. 

More than three-quarters of the Federal outlays have been provided by increasing Medicaid’s FMAP and the Department of Education’s State Fiscal Stabilization Fund. In addition, as of September 1, the Department of Transportation (DOT) had obligated 

about $18 billion for almost 7,000 highway, infrastructure, and 

other eligible projects. DOT has reimbursed States about $1.4 billion to pay for these 7,000 projects. Across the Nation, almost half 

of the obligations have been for pavement improvement projects, 

half of the highway obligations. 

In regards to accountability, we reported in July that the Single 

Audit reporting deadline does not provide audit results in time to 

address identified problems and did not effectively respond to Recovery Act risks. We also noted that State auditors needed additional flexibility in funding to undertake their added Single Audit 

Act responsibilities. Fortunately, since our July report, as Mr. 

Nabors noted, OMB has moved out on a pilot program that is to 

have auditors provide early notice of internal control deficiencies. 

146 

If properly scoped to achieve sufficient coverage of Recovery Act 

programs, we believe the pilot program would largely address concerns about the timeliness of Single Audit Act reporting. 

The success of the pilot program, in our view, is also very important to striking the right balance, as Senator Collins was talking 

about, between accountability and getting the money out quickly. 

If we can have these internal control reviews come out earlier rather than waiting until the full Single Audit Acts are done, then we 

can provide ourselves with assurance that the right controls are in 

place as we are seeking to get money out more quickly into the 

economy. 

We continue to believe that Congress should provide a mechanism to help fund the additional Single Audit costs and efforts of 

Recovery Act auditing, and I want to express my appreciation to 

the leadership that this Committee has shown over the legislation 

that Congress is now considering in that regard. 

As Mr. Devaney and Mr. Nabors noted, the next big challenge for 

the Recovery Act will be recipient reporting. Direct recipients of 

Recovery Act funds, including States and localities, are expected to 

report quarterly on the number of measures, including the use of 

funds and estimates of the numbers of jobs created and retained. 

The first of these reports is due, of course, in October. 

OMB issued implementing guidance for recipient reporting in 

June that established requirements and a central reporting framework. And in recent weeks, Federal agencies have issued their own 

guidance and training that builds on OMB’s guidance, and OMB 

has provided, as Mr. Nabors noted, additional clarifications on Recovery Act reporting. 

OMB is also preparing to deploy the Regional Federal Liaisons 

that were noted to provide the on-site assistance and to establish 

a call center for entities that do not have an on-site liaison. These 

efforts, in our view, are both welcome and sorely needed. 

Nonetheless, I agree with Mr. Devaney when he mentioned that 

indications are that recipient reporting, especially for this first 

round, will pose a significant challenge for many entities. As we 

have a mandate under the Recovery Act to comment on the jobs estimates, along with CBO that has an equivalent mandate, and will 

be reporting on that in November on this first round of recipient 

reports. 

Let me conclude my comments at that point and obviously I 

would be happy to take any questions that you all have. 

Chairman LIEBERMAN. Thanks very much, Mr. Mihm. Thank you 

all. It was a good beginning. 

We will have 7-minute rounds of questions by the Members who 

are here. 

Mr. Nabors, let me begin by going back to the question that I 

raised in my opening statement, which is acknowledging some of 

the positive indicators in the economy and a general view among 

economists that the stimulus has had a positive effect. Nonetheless, 

there is this stubborn persistence of high unemployment, and with 

that and other factors, a continuing anxiety among the American 

people about their and our country’s economic future, which itself 

has a depressing effect, of course, on the economy, including on 

spending. 

147 

And so the question is, can we, and should we, attempt to speed 

up spending and, if possible, the implementation of the tax cuts to 

accelerate the recovery of the economy? I understand, as you said 

in your opening statement, that in the normal course of what was 

projected, we will be spending, or investing, and putting much 

more money in the economy under the Recovery Act in fiscal year 

2010 than we have in 2009. Should we be trying to accelerate it 

even further to accelerate the overall recovery of the economy? 

Mr. NABORS. This is an issue that the Vice President has taken 

a personal interest in, and he meets with the cabinet agencies once 

a month to go through Recovery Act issues, and first and foremost 

in each one of those meetings is what opportunities are available 

to speed up Recovery Act spending. 

A couple of areas where we have made some progress. The first 

is an acknowledgement that there has been a lot of focus on outlays, but in certain programs, obligations have a tremendous economic benefit, as well, and that is one thing that the Federal Government has direct control over, and I will just give you an example of that. 

Chairman LIEBERMAN. All right, and also give us a quick layman’s definition of outlay and obligation. 

Mr. NABORS. Yes, sir. What it boils down to is essentially an obligation is when the Federal Government allows a recipient to start 

spending money. An outlay is when the recipient actually spends 

the money itself. 

Chairman LIEBERMAN. So it is like the authorization and then 

the actual check being in the account. 

Mr. NABORS. Absolutely. 

Chairman LIEBERMAN. Yes. 

Mr. NABORS. With regard to a set of programs like transportation, for example, we have obligated a fairly large amount of 

money, and that money—which means that we have given the 

States the ability to start spending that money, but the States have 

been relatively slow to spend it. That does not mean that it does 

not have an economic impact, however. 

What is actually going on behind the scenes, because of the way 

the transportation programs are set up, is that the money can be 

used to reimburse projects that have already started or that are already beginning. So what many States do is just knowing the fact 

that the money is available to them to be reimbursed later on allows them to go off and start the projects right away. And what 

you will oftentimes see is obligations that sit there for large periods 

of time and then a tremendous amount of outlays that come in at 

the end. In those instances, in programs like transportation, the 

availability of the money, the obligation has a tremendous economic benefit. 

In other programs, there are more sensitive problems that we are 

trying to work with the agencies to try to address. For example, we 

are very focused on removing as many bureaucratic hurdles that 

exist within agencies as possible to allow the money to go out as 

quickly as possible. We are trying to do that in such a way as to 

be sensitive to the appropriate oversight that needs to be done over 

spending—— 

Chairman LIEBERMAN. Right. 

148 

Mr. NABORS [continuing]. But we are trying to remove unnecessary bureaucratic hurdles, including within OMB. Things as simple 

as doing concurrent review of projects has allowed us to speed 

projects up from taking months to perhaps taking weeks, and we 

are looking at every opportunity that we can to do that. 

Chairman LIEBERMAN. OK. 

Mr. NABORS. The second point that I just wanted to make is that 

we are trying to take lessons learned from particular agencies and 

trying to apply them across programs. For example, when the Federal Government spends money on programs that relate to tribes, 

there is a unique set of issues that pop up, and they pop up across 

different agencies. What we are trying to do is transplant the information that we are learning from particular agencies and trying to 

educate all of the agencies about the hurdles that they are going 

to run into and making sure that is taken into account when they 

are developing their spend plans. 

Chairman LIEBERMAN. So, bottom line, based on what you have 

said, and the question that you have told us the Vice President is 

regularly asking, am I correct to conclude that the Administration 

feels that the more it can accelerate the spending of stimulus 

money in the coming fiscal year, in the coming months, the better 

it will be in encouraging a faster recovery? 

Mr. NABORS. Yes. 

Chairman LIEBERMAN. I assume, just based on common sense, 

that the more we accelerate the infusion of Stimulus Act funding, 

both spending and tax cuts, the better effect we will have on the 

unemployment rate. That is, it is more likely to create more jobs. 

Is that a fair conclusion? 

Mr. NABORS. It is a fair conclusion, but it is a tricky conclusion, 

as well. Unemployment tends to be a lagging economic indicator. 

Just outlaying and obligating the funds does not mean we will have 

employment benefits right away. The faster we can expend money 

in a responsible way, the sooner the jobs will come online, and that 

is really what we are trying to do, spend money in a responsible 

way to create good, solid jobs that can benefit the economy over the 

long term. 

Chairman LIEBERMAN. Obviously, we have put a fair amount of 

money out into the economy in tax cuts in this first period of 

months, $65 or $66 billion. But we still have, by the estimates that 

I have seen, over $225 billion more in tax cuts under the Stimulus 

Act. Just give us a brief description of what those are, why that 

number is so high, because I think many of us were focused on the 

Make Work Pay reductions in the withholding tax that people have 

seen. What else is coming? 

Mr. NABORS. I would point to two things, very briefly. The first 

point is that the tax relief was a 2-year tax relief and it was always 

thought that roughly half of the money would come out in 2009 and 

roughly half of the money would come out in 2010. So that is part 

of what you are seeing. 

The other thing that you are seeing is a large chunk of the 

money is related to the Alternative Minimum Tax, and that comes 

due next year. So next year, we will see almost all of that money 

outlay. 

149 

Chairman LIEBERMAN. In other words, when people are paying 

their taxes next April—— 

Mr. NABORS. Yes. 

Chairman LIEBERMAN. Is that what you are saying? 

Mr. NABORS. Exactly. 

Chairman LIEBERMAN. There will be a reduction in the taxes 

they would otherwise have paid—— 

Mr. NABORS. That is exactly right, sir. 

Chairman LIEBERMAN. I do not know if you have a number offhand, about how much—— 

Mr. NABORS. I do not, but I can provide that to the Committee 

for the record. 

Chairman LIEBERMAN. Is the number that I have been given, 

that there is yet $225 billion more in tax cuts to come under the 

recovery, sound right, or is it—— 

Mr. NABORS. I think that might be a little bit high. It is well over 

$150 billion, though, but I would have to get you the specific number. 

Chairman LIEBERMAN. Thank you very much. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Mr. Nabors, previously, Mr. Devaney has estimated that as much 

as 7 percent of the Recovery Act funds may be lost to fraud and 

abuse. That amounts to an astonishing $55 billion. We have seen 

some disturbing examples already. The Social Security Administration, as I mentioned in my opening statement, first sent out 8,000 

to 10,000 checks to individuals who had died. Then 2 months later, 

we learned that the government also sent checks to people who 

were incarcerated and obviously did not qualify for them. 

The GAO mentioned today the importance of internal controls to 

prevent these kinds of improper payments from happening in the 

first place. What precisely is OMB doing to ensure that internal 

controls are in place across the Federal Government to prevent 

fraud and improper payments? 

Mr. NABORS. We are doing two things. With regard to the State 

and local governments that GAO mentioned earlier, we have increased the amount of money that is available to State and local 

governments to do their internal controls and checks, and two, we 

are setting up this pilot program that would allow more extensive 

and earlier review of programs and highlighting of potential issues 

to stop problems before they actually arise. 

The second thing that we are doing, and I want to give Mr. 

Devaney significant credit for this, when he came on board, the 

thing that he had mentioned to me was that for this to work, we 

need to make sure that the IGs and the oversight is brought in— 

is part of the program discussions, that it is not all on the back 

end, because all you are doing then is catching people after the 

fact. So we are having ongoing discussions with our colleagues at 

the Department of Justice, FTC, Recovery Board, and with the IGs 

to incorporate as much as possible, both real-time lessons learned 

and best practice program management into the ongoing activities 

of the particular Federal agencies, and we are doing that on an ongoing basis. 

Senator COLLINS. Mr. Mihm, are you satisfied with OMB’s efforts 

in this area? 

150 

Mr. MIHM. They have certainly been doing a great deal, Senator 

Collins. There is still obviously more that all of us can be doing and 

should be doing in this regard. 

One of the things, shortly after the Act was passed, the Acting 

Comptroller General did was to get together with the IG community, separately with State and local auditors, to collectively coordinate our audit responsibilities. Let us make sure we are getting the 

best bang collectively from the buck from the accountability community, that there is no overlap, that our efforts are coordinated. 

We are continuing to do that. 

We also were focused on making sure that we were getting out 

the best practices in fraud prevention and in internal controls, 

down to program officials, not only at the Federal level but the 

State and local level, as well. And so there is this continuing concerted effort to get it out there. 

Our continuing concern, is that we think that States, both in the 

audit and program communities in the States, need to continue to 

work doing the risk assessments and making sure that they have 

the controls in place down at the State level to effectively oversee 

and make sure that the funds are being properly spent. 

Senator COLLINS. I think that is a very worthwhile effort, but 

clearly, there is something amiss when the Social Security Administration can send out nearly 10,000 checks that should not have 

been sent out. So I think we need to more aggressively look at the 

internal controls in the Federal Government as well as at the State 

and local levels. 

Mr. Leibowitz, let me switch to my concern about consumer 

fraud. First, I am very pleased with the work that the FTC is doing 

in this area. I think it is absolutely essential. You discussed four 

cases that the FTC has been pursuing. Do you have any estimate 

at this point of the number of people who are being harmed by the 

scams, or could you give us an idea of the financial impact? 

Mr. LEIBOWITZ. Sure. We know in these four cases alone, and obviously we have more investigations in the pipeline, it affected 

about 270,000 people. The amount of money that we think was at 

risk here or might have been lost to these scammers—of course, we 

will try to get it back and we are in the process of doing so—isn’t 

that great. It is about $30 million. But we think of this as a small 

part of the approach we are taking to going after scammers who 

are taking advantage of consumers who are feeling legitimate financial anxiety or having problems paying their mortgages. 

So, for example, we did another sweep involving foreclosure rescue scams and mortgage modification scams, and we did it with attorneys general. And that one, for example, probably involves billions of dollars in potential losses overall. 

In the financial stimulus area, it is a little bit of a whack-a-mole 

problem. When we did this announcement, we know that a bunch 

of Web sites—because we put them on the alert, we said we are 

going to make this a priority—just went down. And so that is good. 

But sometimes they pop up again, and so we keep on monitoring 

the Internet. We watch commercials. We look at our consumer 

database and we try to go after these malefactors as quickly as we 

can. 

151 

Senator COLLINS. I think a lot of the work that you are doing, 

while extremely worthwhile, is probably the tip of the iceberg, because what I have seen in my State is a lot of times the senior citizens who are victims—— 

Mr. LEIBOWITZ. Sure. 

Senator COLLINS [continuing]. Are too embarrassed to go forth 

and try to file a complaint, or they are too concerned about where 

to go. They do not even know where to begin. 

My last question on this round for you is, what advice would you 

give consumers who believe that they may have been taken advantage of? Who should they go to? Where should they turn? 

Mr. LEIBOWITZ. Well, I would say the first thing is, if you think 

you have been taken advantage of in a scam, you ought to check 

your bank account records and you ought to check your credit card 

records. And, of course, there is a mechanism, especially in the 

credit card context, for consumers to challenge unfair or inappropriate charges. 

Then we have a Web site, www.ftc.gov, and people can send complaints to us, and we look at that—and they go to something called 

Consumer Sentinel and we look at Consumer Sentinel all the time 

to monitor the number of complaints and we go after the worst 

malefactors. I think State attorneys general have also been very involved, particularly when the scams have a local dimension. And 

then if it involves an economic stimulus scam, one way you can tell 

if it’s a fraud. First of all, there are no individual grants from the 

economic stimulus. 

Second of all, there is a government Web site—it is run by the 

Department of Health and Human Services (HHS)—and is called 

grants.gov, and if you want to check, it is worth checking on that 

Web site because you can find—it is an official Web site, not just 

an official-looking Web site, and you can confirm whether something you have read about or someone who has importuned you is 

legitimate or whether they are just out for your money. 

Senator COLLINS. Thank you. 

Chairman LIEBERMAN. Thanks, Senator Collins. 

We will go now to the Senators in order of arrival. For the information of my colleagues, the list I have is in this order: Senators 

Tester, Burris, Coburn, McCain, McCaskill, and Pryor. Senator 

Tester. 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. Thank you, Mr. Chairman, and I want to thank 

the witnesses for being here today. 

Before I get to my questions, I want to begin by saying a few 

words about a story that has bothered me over the last few weeks. 

It is the notion that when it comes to spending dollars, Recovery 

Act dollars, on ports of entry on our Northern Border, it is somehow not as important as ports of entry along our Southern Border. 

Recently, there have been a few folks that have pointed to one 

port in northeastern Montana, in particular. That port is Whitetail. 

It is in Daniels County. It is a part of the country that is vast and 

open, and I mean that—very vast, very open. And some folks have 

asked me why the port is getting rebuilt with Recovery Act dollars 

even though it is not as busy as some other ports. A lot of reasons, 

152 

not the least to say that there are some asbestos issues. The port 

is 45 years old. A lot has changed over the last 45 years when it 

comes to our national security. 

It was not my decision, but I will tell you it was the decision of 

Customs and Border Protection (CBP). But I will tell you that I 

have pushed CBP on the Northern Border to make it more secure. 

They did decide to upgrade all 23 ports along that border and those 

ports are owned by the CBP. The Northern Border is complicated. 

It is wide open and uncrowded in certain areas. It is very crowded 

in other areas and there are issues of water when it comes to the 

Great Lakes region. So we have to keep our eyes open as far as 

it comes to drug smugglers, for terrorists who would do harm to 

our country. 

For me, it is an issue about making this country as safe as we 

possibly can, keeping illegal immigrants out and keeping drugs 

away from our kids and neighbors. It all starts by making our 

ports of entry as strong as they can be, by closing all the gaps and 

not pretend that the threats only exist on the Southern Border. 

Our borders are only as strong as its weakest link. I can give you 

plenty of examples of what has transpired over the last few years 

of drugs, potential terrorists wanting to cross. 

But the fact is, is that I think this Committee needs to work and 

we need to work with CBP to make sure that no taxpayer dollars 

are wasted along the borders and that we maximize our security 

options along all our borders and all our ports, and I know our 

community would join me in that. Thank you, Mr. Chairman, for 

that. 

For the questions, there have been many documents—the Ranking Member brought some up, you gentlemen brought some up— 

about people who are getting scammed, and the thought occurred 

to me, what is the penalty? If you catch these guys red-handed, 

what is the penalty? 

Mr. LEIBOWITZ. Well, that is a great question, Senator Tester, 

and we are a civil law enforcement agency. So what we do first is 

try to shut down the scammers, so they cannot do further harm. 

Sometimes we can get redress for the injured consumers and the 

victims, and we try to do as much of that as we can, although 

sometimes money is dissipated. For the most part, we do not have 

fining authority, unlike, I believe, 47 State attorneys general. 

Senator TESTER. Does anybody have the authority to put these 

folks in the clink? 

Mr. LEIBOWITZ. Well, what we do is two things. One is sometimes 

we pair with State agencies, in part because they have fining authority. And then sometimes, with the most egregious cases, we 

pass them along to the Department of Justice for prosecution, and 

some of the worst offenders do get prosecuted and they do go to 

jail. 

Senator TESTER. It just occurs to me, I mean, I was out in Montana and was harvesting when I went back for the August recess 

and there were ads continually about how you could personally 

benefit from Recovery Act dollars—— 

Mr. LEIBOWITZ. Right. 

Senator TESTER [continuing]. In this bailout era, is what they 

called it. It was baloney. I knew it was baloney. But the fact is, 

153 

these guys are reaching out to people through various media. You 

guys talked about the Internet. They are doing it on the radio. And 

I think if there is no penalty, what the heck—— 

Mr. LEIBOWITZ. Well, we agree with you—— 

Senator TESTER [continuing]. If you are of that ilk. 

Mr. LEIBOWITZ. Well, we support in our reauthorization, and I 

think as part of the Consumer Financial Protection Agency proposal by the President and Treasury, we support civil fining authority because we think that makes—or the majority of the Commission does, because we think that is important, to have a sanction. 

Senator TESTER. I actually support jail time. 

Mr. LEIBOWITZ. And we will not have the ability to give jail time 

to these people, but we certainly support—— 

Senator TESTER. Maybe, Mr. Chairman, we need to visit about 

opportunities—and I mean that in a very negative sense—to make 

these folks think about what they are doing. 

Chairman LIEBERMAN. Yes, I think you are onto something, Senator Tester. There is obviously no better deterrent than to convict 

somebody who has been a scam artist and put them in jail for a 

while. That sends a message. And the fact that we are all seeing 

these ads in various media means that people are making money 

on the scams. 

Senator TESTER. Yes, they are making some bucks. 

Chairman LIEBERMAN. Yes. 

Senator TESTER. Thank you. Mr. Nabors, just this week, I 

pushed your agency to get some money out to some water projects 

along the Northern Tier, and I appreciate your efforts in that. Of 

these particular water projects, some go to Indian country, but they 

are mainly Indian water projects. I guess the question is, for you 

or Mr. Mihm, since they are sovereign nations and the money goes 

out, you talked about local liaisons, do you have the ability to do 

oversight in sovereign nations, to make sure the money does get to 

the ground once it leaves our hands? 

Mr. NABORS. Mr. Mihm, do you want to—— 

Mr. MIHM. I will defer to you, Mr. Nabors. [Laughter.] 

Mr. NABORS. Yes, we do. I mean, our local liaisons are limited, 

but we do have the ability, working through the overall structure 

of the oversight community, both the IGs and the agencies who 

work very closely with the tribal governments to make sure that 

the money is spent the way we intended it to be spent, and to provide assistance to the tribal governments in terms of applying for 

the funding. There is a double-edge to that that we want to ensure 

is done. 

Senator TESTER. Mr. Mihm. 

Mr. MIHM. Yes. We have oversight, as well, although most of our 

efforts, Senator Tester, are focused on 16 States and the District 

of Columbia, which collectively give about two-thirds of the money 

and two-thirds of the population. 

Senator TESTER. And we appreciate that. 

I just want to talk about contracting just for a second. From 

what I found out, there are a lot of different levels of contracting. 

There is a national general contractor. There is potentially a regional general contractor. And there may be a bunch of contractors 

154 

in between that before you get to the guys that are actually running the shovels and doing the work. 

Do you ever look at that system and make recommendations saying, you know what? Everybody is taking their 10 percent or 20 

percent or whatever they take, and by the time we get down to the 

folks that are running the backhoes and pouring the concrete, there 

is not near as much left as there should be. Do you ever make recommendations saying, why is this done this way? 

Mr. MIHM. Yes, we have, and to add on another complicating feature of that is you are seeing this play out in the Recovery Act— 

you can have Federal requirements in contracting and then, of 

course, once the money goes to the States and if they contract out, 

there are different requirements very often, including different 

definitions of what it means to competitively bid a contract, and so 

it can force an understanding of 50 different contracting regimes in 

States. So it is both a very tiered and a very complexly tiered approach to contracting that you see across government. 

Senator TESTER. I would like your opinion on what we can do 

from a policy standpoint to take some of the complexity out of it. 

I will give you an example. There is a general contract, the contract 

in Afghanistan, the contract along the Northern Border, for example. They do not know anything about the Northern Border. They 

get a hold of the local folks to do it. Why are we not dealing with 

the folks that know what they are doing? And that is the question, 

how do we cut through that? I would appreciate any ideas you have 

on that. 

Thank you, Mr. Chairman. 

Mr. MIHM. We will get you that in short order, sir. 

Chairman LIEBERMAN. Thanks, Senator Tester. Senator Burris. 

OPENING STATEMENT OF SENATOR BURRIS 

Senator BURRIS. Thank you, Mr. Chairman and Members. Really, 

I am impressed with everyone’s testimony, so you are doing a great 

job and we really appreciate that. 

Mr. Nabors, we have a bill that has been in this Committee and 

we have been trying to get it out. It has been held up somewhere, 

called S. 1064, which would give 0.5 percent of financing to those 

local State auditors and finance officers. You said that you are giving money to state and local governments for that increased responsibility. Is there a dollar amount that you have on that? 

Mr. NABORS. We allow up to 0.5 percent to be used for administrative costs and for oversight. I think what S. 1064 does is allow 

an additional 0.5 percent to be used—— 

Senator BURRIS. Yes. 

Mr. NABORS [continuing]. And we have indicated our strong support for that bill. 

Senator BURRIS. Mr. Chairman, that bill has been held up somewhere and we have to get that bill to the floor. The House, I think, 

has already passed it. And those local governments—being a 

former State comptroller and former State finance officer—we need 

those funds. They need them and we do not want to come up short 

in that regard. 

Mr. Leibowitz, on the consumer fraud problem, probably a response to my colleague, Senator Tester—being a former attorney 

155 

general of my State—what we have on the fraud officer is whether 

we are dealing with the consumer who is being defrauded out of 

their funds. These are not really Federal funds that they are using. 

They are using the vehicle of the Federal Government to defraud 

the consumer, so they are more of a local prosecutory responsibility 

there. Am I correct in that? 

Mr. LEIBOWITZ. Yes. I mean, that is exactly what we do, we do 

a lot of education on the front end to try to prevent consumers from 

being victims. But yes, I think almost all of what we do involves, 

at least in the stimulus scam context, people who are falsely representing themselves as facilitating individual stimulus grants to 

consumers. But it is not entirely local in the sense that a lot of this 

is Internet-related, and so it has a national scope. 

Senator BURRIS. But sometimes they would try to skim some 

stimulus money themselves. I mean, certainly the stimulus money 

is subject to be a victim of fraud, as well. But what you see in 

terms of mostly the senior citizens—is they have advertised, send 

us some money so that you can get your stimulus money. That is 

more of a local issue with the State attorneys general—— 

Mr. LEIBOWITZ. That is right, and that is why we work with 

State agencies. 

Senator BURRIS. Congratulations. Please work with my former 

colleagues. The attorneys general are really taking—— 

Mr. LEIBOWITZ. The attorneys general are terrific. They are on 

the case in this area—— 

Senator BURRIS. And also our State auditors, as well. They will 

do a tremendous—— 

Mr. LEIBOWITZ. And just going back to your point and Senator 

Tester’s point, a lot of the cases we are bringing are really criminal 

fraud cases, and so we are prosecuting them because this is in our 

bailiwick, but they could also be prosecuted criminally. 

Senator BURRIS. The Federal Government is letting out contracts 

with contracting agencies to help track these funds or to bring in 

computer skill teams to help them with all of this, and I want to 

know how much of these stimulus dollars that are coming directly 

into costs that are going to minority contractors. And for some reason, we find it difficult to get this kind of data. With the stimulus 

money, there are outside contracts that are being let in order to 

process this, and if you have any information on that, Mr. Nabors, 

in terms of how we are handling that for minority contractors, and 

specifically if you have any black contractors. 

Mr. NABORS. I do not have the numbers specifically for black contractors, but some of the more recent numbers that we have with 

regard to some of our small business targets, small businesses have 

received about 22 percent of the contracting dollars—— 

Senator BURRIS. Now, are you talking about small minority businesses? 

Mr. NABORS. No. I am going to go through a list of numbers for 

you. Twenty-two percent for small businesses. About 3 percent for 

disabled veterans businesses. And about 5.9 percent for Historically 

Underutilized Business Zone contractors, which in some ways captures some of the minority businesses. I do not have a specific 

number for you for black businesses, but I will see if I can get that 

number for you. 

156 

1The response from Mr. Nabors appears in the Appendix on page 754. 

Senator BURRIS. Would you please, and Hispanics, as well. Hispanic and black businesses. There is deep concern about making 

sure that there are skills in these areas and that our government 

is being aggressive in supporting those type of businesses for their 

economic viability.1

And I did have another question, but I got so wrapped up in that 

one. Mr. Leibowitz, in terms of the numbers, you gave Senator Collins the numbers of the frauds. What was it, 270,000 people and 

$30 million—— 

Mr. LEIBOWITZ. For these four cases that we brought along. We 

know that there is more fraud out there involving the stimulus, but 

in the cases we brought thus far, that is our estimate of the number of consumers harmed and the amount of the potential harm. 

Some of these schemes involve initial payments on a credit card 

of, say, $1.99 or $2.99, but then there is what we call a negative 

option scam that is part of this, where they have your credit card 

number. They just keep on billing you every month, and until you 

figure out that you can cancel it, and if you cancel it in a timely 

manner, then you keep on paying. As someone in a different context who has been a victim of a negative option scam, they are 

sometimes hard for the individual consumers to detect. 

But again, we also know that there are more people out there 

who are probably victims. We watch the Internet. We look at advertisements all the time. We look at our consumer database and 

we try to do as best we can to stop these types of frauds. 

Senator BURRIS. Mr. Devaney, we are going to have a new Web 

site, Federalreporting.gov 2.0, or is Recovery.gov still available? 

Mr. DEVANEY. Recovery.gov is up and running right now, Senator, and will be replaced by a newer version around the first part 

of October. 

Senator BURRIS. October 10, because I just told a couple of people 

to go to Recovery.gov—— 

Mr. DEVANEY. No, you still go to Recovery.gov and you will get 

the newer version when we put that up. 

Senator BURRIS. OK. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks very much, Senator Burris. Senator Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman, and let me personally thank each of you for your service. You have a tough job, a 

really tough job. What we want to be is not somebody that is critical, but really someone that is helpful. 

Mr. Nabors, in your testimony, you said that each of the stimulus 

projects is carefully reviewed by OMB to ensure that their uses of 

Recovery Act funds are thoughtful and appropriate. You work with 

agencies to identify and revise projects that do not meet that 

threshold. Could you make that list of those projects that you have 

identified and revised available to the Committee?

157 

1The response from Mr. Nabors appears in the Appendix on page 755. 

Mr. NABORS. I do not know that there is a consolidated list of 

those types of activity, but let me go back to the office and see 

what we have and what we can provide to the Committee.1

Senator COBURN. One other concern that I have, and again, I am 

sure these are old numbers, but the Government Executive article 

on August 31, 2009, said that more than half the Recovery Act contracts that the Federal agencies have awarded are on a cost-plus 

basis. I agree with the President. That is exactly what we do not 

want to do. We want fixed-price contracts. We do not want costplus contracts. Cost-plus contracts always cost more. What is the 

Administration doing, Mr. Nabors, to make sure that this trend, as 

reported in this article, does not continue? It is 53 percent of all 

the contracts let so far are cost-plus, which is pretty worrisome. 

Mr. NABORS. I think we are doing two things. First, the Director 

of OMB and the President put out instructions to the agencies that 

our preference, when at all possible, is to use competitive processes 

and to ensure that, as much as possible, that we are using fixedprice contracts. I think what we are seeing with the cost-plus is 

somewhat of an anomaly because a lot of that is being driven by 

the Department of Energy. And where we have seen a lot of variable-price contracts used is when you have things like research and 

development, where the true costs are not known up front. 

If you look at most of the money for that category of contracts 

right now, about 90 percent of the money is the Department of Energy, which was not unexpected. 

Senator COBURN. And that went out earlier than much of the 

other money—— 

Mr. NABORS. Exactly. 

Senator COBURN [continuing]. So that tended to skew it. Well, I 

am willing to stand corrected on the numbers, because I know that 

is just a snapshot. All I am saying is I am concerned about it and 

I know the President is concerned about it. 

The other point I would make and I have made it several times, 

if you do not get a buy-in of companies’ capital on research, in 

other words, having capital at risk when they get these contracts, 

they are not ever going to be as efficient. 

So my message to you would be, even though it is the Department of Energy and even though it is research, companies should 

put capital at risk. That is one of the ways we are going to control 

the costs. When contracts are cost-plus, managing those contracts 

are difficult. You are looking at after-the-fact rather than preventing it in the future. The way to get that is to make sure those 

contracts—those companies have to have some of their capital at 

risk. 

Mr. NABORS. The point well taken, sir. 

Senator COBURN. That will help us a lot. 

Mr. Devaney, again, for you and Mr. Nabors, because I am very 

appreciative of your work, are we going to be on time with Recovery.gov and the Web site? 

Mr. DEVANEY. Absolutely. 

Senator COBURN. So it is coming up on the 10th or the 11th of 

October? 

158 

Mr. DEVANEY. It will be up before that. 

Senator COBURN. One of the things that is bothering me a little 

bit, and I know it is a big job, but you differentiated between integrity and quality. I do not have any doubt that you are going to 

make sure that the integrity of the data that you are putting up 

is accurate, but I am wondering, can you reach further to make 

sure that the quality of data is accurate? 

Mr. DEVANEY. Well, it is a major concern, Senator, and growing, 

quite frankly, that we have at the board. We are asking, as I mentioned in my oral remarks, for recipients to report far more things 

to the Federal Government than they ever have before, and it is 

a tough job. They have to meet the deadline of reporting, which is 

October 10, and they are doing some unique things out there. For 

instance, 30-plus States are going to be reporting centrally in bulk 

form, and I think they are doing that to ensure that they report 

on time and to maybe give themselves a tad more time to look at 

the data at the State level to ensure that it comes in in an accurate 

way. 

But having said that, I am concerned that the public’s view of 

inaccurate data would actually harm rather than enhance transparency. So, the board and I want to do everything possible to 

allow folks to go in and check that data once it has gone in, to 

make revisions if they have to, and we are going to track those 

changes very closely. 

Senator COBURN. Is it going to be starred on the Web site so everybody else can see that this has been changed? 

Mr. DEVANEY. We are going to be tracking and chronicling those 

changes on a daily basis and make all of that available for anybody 

who wants to see, for instance, to download it and just take it off 

and look at it for themselves. But also, we are going to put up on 

the Web site a dashboard, if you will, with pie charts and graphs 

that shows where the changes were made, what categories changes 

were made in, whether or not X-percent was over at the Department of Commerce. We are going to make all that available for everybody to see after those changes take place. 

Senator COBURN. Part of your statement was the fact that you 

think this is going to change the way the government operates. Actually, the President, Senator Carper, myself, and Senator McCain 

put through USAspending.gov. Recovery.gov is modeled after 

USASpending.gov. If it accomplishes everything, it is going to be 

great, and I agree with you. But the quality of the data—the integrity can be fine, but if the data is not any good, and it is not a true 

reflection of what is happening, we really have not bought anything. 

What is going to be in force to make sure that the agencies which 

are going to be responsible for the quality of data will—at least, 

that is what I understood you to say—— 

Mr. DEVANEY. Yes. 

Senator COBURN [continuing]. Bring good quality data to you? 

Mr. DEVANEY. Well, the agencies are going to be actively involved 

in looking at that data along with their State recipient counterparts to get it in the best shape possible. My suspicion is it will 

get better as—the second quarter will be better than the first quarter, etc. 

159 

1The chart referenced by Senator McCain appears in the Appendix on page 699. 

As you may know, when USAspending.gov was stood up initially, 

51 percent of the data was inaccurate—— 

Senator COBURN. Yes. 

Mr. DEVANEY [continuing]. And we are 21⁄2 years later and it is 

13 percent, 14 percent inaccurate. So it is a hard thing for recipients to report data, seemingly, and we are asking them in this instance to report more data than they ever have before. So it is 

going to take a leveraging of resources. OMB is going to play a role. 

The agencies are going to play a role. And I can assure you the Recovery Board will do its best to aid in that process. 

Senator COBURN. All right. You are having a problem with quality right now, is that correct? 

Mr. DEVANEY. Right. 

Senator COBURN. So the site will be up, but full implementation 

of the site probably is going to be some time, is that correct? 

Mr. DEVANEY. Well, the site will be up and very interactive. As 

I mentioned earlier, you are going to be able to do a lot of things 

and slice and dice the data any number of ways you want. And our 

hope is that the data will be as accurate as it possibly can be, 

knowing it will not be fully accurate initially, and that it will get 

better. I really do believe that once people get used to doing this, 

this being the first time and coming at an awkward time of year— 

October is usually an awkward time for most financial entities, 

particularly in the States—we will have a lot of good data in there 

after a period of time. 

Senator COBURN. Thank you very much. 

Chairman LIEBERMAN. Thanks very much, Senator Coburn. Senator McCain. 

OPENING STATEMENT OF SENATOR MCCAIN 

Senator MCCAIN. Thank you, Mr. Chairman, and I thank the 

witnesses for being here today and all of their hard work. 

Mr. Mihm, in March, the GAO launched a hotline Web site for 

citizens to report waste, fraud, or abuse. How many complaints has 

that hotline received? 

Mr. MIHM. Senator, we have 80 credible or initially credible responses that came in. Of those 80, we are doing eight detailed investigations. From those, another 12 or so are pending, and then 

22 of them we have referred over to the inspectors general. I do not 

have the top-line number of how many have come in, but at least 

80 of them were credible enough to warrant an additional review. 

Senator MCCAIN. So it has been worthwhile? 

Mr. MIHM. Yes, sir. 

Senator MCCAIN. Thank you. I noticed in your prepared statement, Mr. Mihm, that one of the charts,1 Figure 2, Estimated Federal Recovery Act Outlays to States and Localities, in 2009 as a 

share of the total, and then it goes on to show 87 percent of estimated Federal Recovery Act outlays to States will be in the nine 

programs that you have reviewed. 

Mr. MIHM. Yes, sir. 

Senator MCCAIN. Sixty-three percent has been in Medicaid? 

160 

Mr. MIHM. Yes, sir. That is the adjustment. The increase in the 

FMAP was a 6.2 percent across the board that went to all States 

in increasing the Federal match and then an additional bump-up 

for States that had significant increases in unemployment rates. So 

for the first couple of rounds, this is the big money issue that is 

out there. Most of the States are using it in order to maintain eligibility and deal with increasing caseloads that they are having as 

a result of the recession. 

Senator MCCAIN. And tell me how that is a job creator. 

Mr. MIHM. First, since this is a mandatory program, it does not 

have to be reported as part of the recipient reports in terms of job 

creations or job retained, and so they are off the table in that regard. What it usually does, or what many of the States told us, is 

in addition to helping with eligibility in caseloads, it also freed up 

State money, and then the State money has allowed them to do 

less draconian cuts than they otherwise would have done. But 

again, the short answer to your question, sir, is that they are not 

subject to the reporting requirements that we have been talking 

about in terms of—— 

Senator MCCAIN. And how much money are we talking about in 

this 63 percent that went for Medicaid? 

Mr. MIHM. It will be $87 billion over a 2-year period. The exact money is that it is $19.6 billion from October 1, 2008, to September 

4, 2009, in the 17 locations we have been looking at. 

Senator MCCAIN. Do you have any comment on that, Mr. 

Nabors? 

Mr. NABORS. I concur with the assessment. I think our view of 

the importance of the FMAP program is exactly how Mr. Mihm laid 

it out. What States have told us is because they have access to this 

FMAP money, in other areas, such as education or law enforcement, there is reduced pressure on their budget and they are able 

to both create and retain other types of jobs through the availability of the FMAP money. 

Senator MCCAIN. Sort of a trickle-down economics, I guess. 

Mr. Nabors, I have seen many Administration witnesses and I 

understand that you have to tout the success of whatever program 

that the Administration is running. I do think that it might be well 

to complete the record, that when the stimulus package was being 

considered in the U.S. Senate, the economic advisors to the President and the Director of OMB said that a maximum unemployment 

would be 8 percent. It is now 9.7 percent. 

I just came back from spending a lot of time in my State, as 

many Members did, and my State is one of the hardest hit, and our 

small business owners that are closing their doors and storefronts 

and shutting down are asking me why they are too small to save 

and financial institutions are too big to fail. I have yet to come up 

with a very good response to that. 

So the fact that unemployment is at 9 percent, lag or not lag, 

comes as small comfort to the citizens of my State who are unemployed and the people who are unable to remain in their homes 

with one of the highest foreclosure rates in the country. I would be 

glad to hear your response to that diatribe. [Laughter.] 

Mr. NABORS. Sir, I do not disagree with anything that you have 

just said. Our initial assessments of the state of the economy was 

161 

based on inaccurate and incomplete information and the downturn 

in the economy turned out to be much more significant, much more 

severe than we had originally projected in January and February. 

As we look at the unemployment growth—and it is not just the 

numbers that we are seeing today, but the numbers that we put 

out in our mid-session review project that unemployment could 

reach as high as 10 percent. That is unacceptable to us. As I said 

to the Chairman and to the Ranking Member, we are trying very 

hard, as much as possible, to increase the spending coming out of 

the Recovery Act and to try to do everything possible to minimize 

the impact of this recession on the American people. 

Senator MCCAIN. I thank you for that answer, Mr. Nabors. 

Mr. Mihm, in your prepared statement, there was a number of 

recommendations that GAO had proposed. There is not a page 

number on it, but it says, GAO recommendations, accountability, 

and transparency, then you have various bullets. Have those recommendations been largely complied with, and if not, maybe for 

the record, you could provide us the areas where you think there 

needs to be further accountability and transparency. 

Mr. MIHM. In the second half of your question—yes, sir, in our 

September report, the one that is coming out in a couple of weeks, 

we will give an assessment of all the recommendations we have 

been making and where OMB or other Federal agencies are in that 

regard. 

Now to the first half, as to whether or not they have been complied with, as I mentioned earlier, I think the pilot program that 

Mr. Nabors was talking about for Single Audit is very important 

to addressing many of the concerns that we have in regards to the 

accountability and transparency aspects here, and that is that we 

need this internal control testing earlier. Not to get into too much 

of the weeds of this stuff, but most State fiscal years end on June 

30. The Single Audits then come out 9 months after that. That is 

the required date. Often, they lag a little bit more than that. 

And so we will not know how things are going from an audit perspective in States in some cases, for the fiscal year that has just 

begun, until March 2011. There has been too much money by that 

point, of Recovery Act money that will be out the door, and so then 

it will be just a historical document rather than a document that 

can really help people manage and help us to address risk. That 

is why we need the risk assessments to come out earlier from the 

State auditors, so that as a deficiency or weakness is identified, 

they can be dealt with before they become big crises, before they 

show up over at FTC, for example. So focusing on that pilot is very 

important to us, and I know it is a major focus of the Administration. 

Senator MCCAIN. I thank you. Mr. Chairman, my time has expired. I want to thank the witnesses. Mr. Leibowitz, I am not sure 

we need this packet, but it is very good information. Thank you. 

Chairman LIEBERMAN. Thanks again, Senator McCain, for your 

thoughtful questions, and, I might add, your high-quality diatribes. 

[Laughter.] 

Senator McCaskill. 

162 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. I am going to try to live up to the example 

that Senator McCain had—— 

Chairman LIEBERMAN. I have every confidence that Senator 

McCaskill—— 

Senator MCCASKILL [continuing]. On diatribes. [Laughter.] 

First, let me say, I could not agree more with Senator Tester. 

These people that are out there preying upon folks at this point in 

time, they are pond scum and they should go to jail, and whatever 

we need to do to help them go to jail, you need to let us know, because I know you are doing sweeps, I know you are doing all this, 

but nothing counts more than cuffing somebody. 

Mr. LEIBOWITZ. I absolutely agree with you, and in the context 

of the Commerce Committee reauthorization that we hope to see 

later this year or early next year, we will have some ideas we can 

talk over with you. 

Senator MCCASKILL. Great. 

Now, I do not want you to think, Mr. Nabors, that I am picking 

on you, but it is going to feel like I am picking on you. We sent 

out requests to all the State auditors asking for input on how they 

think this is going in light of their Single Audit responsibilities and 

the stimulus funds that are out there. One of the things that came 

back loud and clear was the ridiculous—I think ridiculous notion 

that we are mechanically making the decision that any program 

that gets ARRA funds becomes a Type A high-risk program. 

Let me give you a good example—foster care. Foster care is a 

low-risk Type A program under A–133 and the ARRA funding is 

approximately 2 percent. And what you do now is you push that 

into high-risk as an A-level program, which takes a tremendous 

amount of resources in terms of auditing. I really think you have 

missed the boat in terms of using the expertise on the ground of 

the State auditors that are doing these Single Audits to make decisions about high risk and low risk as it relates to these monies. 

And I am just curious, and I do not mean to be a smart aleck, 

but is there anyone that is making these decisions over there that 

has ever done a Single Audit? 

Mr. NABORS. The answer is yes, and I do not feel that you are 

picking on me and I will try to answer appropriately. There are 

people in our shop that have done Single Audits and we are in constant communication with the auditing community. In essence, the 

pilot program that we are proposing today was born out of conversations that we had with GAO, with some of your staff, and 

with the audit community. That conversation is going to be ongoing 

and we will continue to have that conversation with them. 

Senator MCCASKILL. Now, I have to really pour lighter fluid on 

the charcoal briquettes here, because I have to figure out, if we are 

just rolling out a pilot program, do we have specifics on when this 

is going to—I think Mr. Mihm and Mr. Devaney will back me up— 

the barn door is already open and the cow is out of the barn and 

we are announcing the rollout of a pilot program. It will have no 

value whatsoever, as Mr. Mihm just said, if this pilot program isn’t 

on the ground ASAP. 

I am worried that we have gone this many months and we are 

announcing a pilot program. How many States are in the pilot? 

163 

How are you informing the States of the pilot? The State auditors 

of Missouri do not know anything about it. How long will the pilot 

last? How much relief from other programs is being given in connection with the pilot programs? 

Mr. NABORS. The pilot program was just announced today by the 

Deputy Director of the Office of Management and Budget, so we 

will be providing additional guidance about the pilot going forward. 

But this is something that we plan on implementing almost immediately. We do want to make sure that we are in very tight coordination with the GAO. It is one of the things where we believe that 

we have made a change in the oversight regime. Too often, OMB 

and GAO go off on their separate ways. 

Senator MCCASKILL. Right. 

Mr. NABORS. In this instance, we actually sat down and tried to 

figure out what actually makes the most sense. 

In terms of some of the specifics that we have already fleshed 

out, the number of States, it actually would be available to any 

State that wants to involve themselves in the pilot. We are calling 

it a pilot mainly because we are using pilot authority. That is the 

authority that we have available to us to make these types of determinations. But it would be as expansive as the number of States 

that want to participate in the program. 

Our initial vision of the program is that we would look at the 10 

highest-risk programs based on conversation with GAO and the 

agencies and say, of that list, a State that wants to participate in 

the pilot has to select two of those programs for expedited audits. 

If they want to participate in the project and they make those two 

selections, then what we will do is we will give them relief from 

doing audits on smaller, lower-risk programs. 

Senator MCCASKILL. Well, that is terrific, and I am glad to hear 

it is going to be available to anybody who wants to participate. I 

am really pleased you guys are working closely with GAO. I do 

know you are in contact with the State auditors, but I do think if 

you guys will let loose of the reins a little bit as it relates to the 

Single Audit, knowing that next year’s Single Audit is big because 

of the way this money is rolling out, I think you will find you will 

get a much better product that will provide much more transparency and accountability than just arbitrarily saying everything 

that gets ARRA is high risk. I think that is a huge mistake. 

Mr. NABORS. Well, we do allow the auditors to ask for an exception, but I take your point for what it is—— 

Senator MCCASKILL. The exception is really hard. I mean, it is 

a big bunch of paperwork. I have asked for exceptions before. I 

know that it is like arm wrestling a gorilla to try to get an exception. So I think it would be better if you could figure out a way to 

loosen up a little bit. 

Mr. Devaney probably will not like this—but I had never met 

Mr. Devaney until I came to Washington, but I know that he spent 

20 years in the Secret Service. He was Director of Criminal Enforcement at the Environmental Protection Agency for 8 years. He 

has been an inspector general for 10 years in the Department of 

the Interior. I would say that he and the staff he directed caught 

Jack Abramoff and the corruption involved there. 

164 

I think to use his name on a list of cheap political hits by calling 

him some kind of unaccountable czar is unfair to him as a public 

servant. I think that the members of this body should rise up and 

defend people like Mr. Devaney, who have clearly not come to government to make big money, who clearly do not have political allegiance, who clearly have done everything in their career to look 

after the public’s money. And I think including him and others on 

some cheap political hit list by some cable commentator does a disservice to him and many of the other people that are serving in positions of accountability and I wanted to put that on the record before I finished. 

Mr. DEVANEY. Thank you very much, Senator. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks, Senator McCaskill. I appreciate 

what you said and identify myself with your remarks. I want to 

say, from visual observation, you are right. Mr. Devaney was very 

uncomfortable as you were praising him. [Laughter.] 

Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. I thought he was uncomfortable at first, but I 

thought the more you got into it, he kind of relaxed and—— 

[Laughter.] 

So toward the end, he seemed like maybe he was enjoying it. 

I was going to take a cheap shot at you, but I guess I will not. 

Sometimes we run into people in our business, on this side of the 

table, and people know we are elected officials and they will say, 

‘‘Are you some politician? You are one of those politicians, aren’t 

you?’’ And over time, I have taken to either saying, well, actually, 

I am not. I know some who are. But sometimes I will describe myself as I am just a servant. Or sometimes I will say, well, I am a 

statesman. [Laughter.] 

I used to be a politician, but now I am a statesman. Whenever 

I hear folks called government bureaucrats, I do not take too kindly 

to that, so we thank you for your service and I, too, would like to 

be identified with the remarks of Senator McCaskill. That is one 

of the nicest things I have ever heard you say about anybody. So 

treasure this day. [Laughter.] 

Senator Coburn is gone, but he and I share an interest in a number of things, along with others on our Committee. One of the 

things we have an interest in is trying to recover money that has 

been misappropriated or money that has been misspent. One of the 

laws we have to comply with deals with improper payments, and 

we know that every year, agencies are supposed to report their improper payments. And last year, I think OMB told us that we are 

up to about $72 billion worth of improper payments, mostly overpayments, and we are offering legislation this year to not just 

tighten that money up, but to go after and recover more of the 

money that is inappropriately spent. 

When folks ask me, well, how are we going to pay for health 

care? Where is the money going to come from, and without cutting 

people’s benefits in ways that are untoward? I talk to them about 

what we are doing in going after money in the Medicare program 

that has been inappropriately or fraudulently spent. The last couVerDate Nov 24 2008 12:04 Aug 09, 2011 Jkt 049638 PO 00000 Frm 00172 Fmt 6601 Sfmt 6601 P:\DOCS\49638.TXT SAFFAIRS PsN: PAT
165 

ple of years, we have been going after and trying to recover money 

from Medicare, a lot of it fraud. 

The first year we tried to do it, we did not get anything. The second year, we just got a little money back. The third year, last year, 

we got $700 million in just three States. This year, we are going 

after recoveries in the other 47 States. If that goes well, we hope 

to be able to do the same kind of thing in Medicaid. 

I wanted just to ask you all to share some thoughts with us 

about when we find where there has been fraud, where monies 

have been misspent, inappropriately spent, what are we doing, or 

what are we prepared to do to go after and reclaim the money for 

the Treasury and for the taxpayers? 

Mr. DEVANEY. I will take a stab at that. 

Senator CARPER. Please. 

Mr. DEVANEY. I think that early on, the board and all the IGs 

have been interacting with the Department of Justice. There is an 

already existing task force, Procurement and Grant Fraud Task 

Force, that provides entre into the 95 U.S. Attorneys’ Offices 

around the country, and when a case comes up, we are going to be 

very aggressive about seeing that gets prosecuted, as aggressive as 

we can possibly be if the facts support those kinds of things. 

So I think the answer is we have about nine cases right now that 

are in the various U.S. Attorneys’ Offices, which is a very small 

amount, and quite frankly, I am a little surprised it is that small. 

But as soon as we see it, we make sure the appropriate IG is doing 

an investigation and that gets brought into a U.S. Attorney for review. And we work closely with the Department of Justice. And I 

know from talking to them, they are very interested in sending 

some very loud signals early as often as they can with this money. 

Senator CARPER. Does anyone else want to respond? 

Mr. LEIBOWITZ. Just from our perspective, when we see consumers as victims—and that is where our jurisdiction is—we go 

after it. We work with Treasury and Justice. Some cases we refer 

for criminal prosecution because the fraud is so egregious. And 

with State attorneys general who are often better equipped to get 

fines and then to go after malefactors who are in their jurisdiction. 

So we try to do this collectively. 

And we also try to look at where the money is going. I mean, it 

is really the title of this hearing. Fraudsters or malefactors are opportunistic. They go, like Willie Sutton said, where the money is. 

And so you want to try to at least figure out where it is going a 

little bit in advance so you can get there maybe a little bit before, 

sometimes. 

Senator CARPER. If I did not misunderstand, I think Senator 

McCaskill used the word ‘‘pond scum’’—not a word we hear every 

day. 

Mr. LEIBOWITZ. It is a legal term of art, actually. [Laughter.] 

Senator CARPER. Probably a well-chosen word in this case, describing some of the folks who are trying to take advantage of people with some of this money that is supposed to be used for economic recovery. And I think she said there is nothing that is more 

effective, maybe, than cuffing somebody that has been behaving, 

not just badly, but criminally. 

166 

And the other thing that is really important is, as we follow the 

money and money that has ended up where it should not be, let 

us get it back. To the extent that we can get the money back, we 

need to do that. Find and cuff people, that is good if they ought 

to be cuffed. We ought to get the money back as much as we can. 

The other thing I wanted to mention, our Governor in Delaware; 

Mike Castle, our Congressman; Ted Kaufman, our colleague; and 

I were down in an area between Wilmington and Dover, the other 

day where Senator Lieberman has driven by a time or two when 

he was running for President in 2004 on the campaign trail. His 

campaign trail came right by this place. 

But we had a major expansion of, of all things, a park-and-ride, 

which sits right alongside two major north-south highways in Delaware and in a bedroom community place called Middletown. We 

were expanding the park-and-ride. We are putting in bicycle paths 

and pedestrian walkways from some of the neighborhoods that people can get to the park-and-ride. We are initiating new bus service 

for the park-and-ride. So it is actually a nice multimodal deal. The anticipated cost of the project had been about $900,000. The price of the project came in at $600,000, and what I am starting 

to notice, and I do not know if my colleagues here are noticing it 

in projects in their States, we have a lot of people, a lot of contractors hungry for work and anxious to bid. I know Senator Coburn 

expressed concern about cost-plus contracts, but we are finding 

that, probably better than any time I can remember, bids coming 

in under—way under, in some cases—the anticipation. I do not 

know if others are seeing that. Mr. Mihm, any comments on that? 

Mr. MIHM. Yes, Senator Carper. Your experience is consistent 

with what we have seen in other States. The transportation officials are telling us the bids are coming in anywhere between 5 and 

30 percent below what they had originally estimated. It does show 

that the economy is in bad shape in the sense that they are able 

to get that, but it is also a good deal in that then they are able 

to do additional infrastructure projects or additional transportation 

projects because of that. And so your experience is, again, consistent with what we have seen elsewhere. 

Senator CARPER. In this case, it was a Delaware Department of Transportation (DelDOT) project, but the extra $300,000 stays in 

the State, can be used for other DelDOT projects, that is my understanding. Is that correct? All right. Good. Well, that is a silver lining in what can otherwise be a rather dark cloud. 

Thank you very much. Thanks for your stewardship. Thank you 

for giving the term ‘‘government bureaucrats’’ a good name. Thank 

you. 

Chairman LIEBERMAN. Thanks, Senator Carper, very much. 

Senator Collins and I each have a few more questions and so we 

will try to do them as quickly as we can. 

Mr. Nabors, in your opening statement, I would say that you 

veered slightly over into Mr. Leibowitz’s territory in what I would 

call some consumer protection, which is with regard to the report 

of the Council of Economic Advisors today, and I was interested in 

it and I appreciate it. I think what you were saying is that this 

first quarterly report of the Council of Economic Advisors today on 

the Stimulus Act will produce results that will be greater than the 

167 

recipient reports that come in in October, and I presume in job creation particularly, and this will arouse some controversy, so I appreciate your raising the point. 

The temptation is to ask which one of the two will be right, or 

to some extent are you saying that they will both be right because 

they are both answering different questions? 

Mr. NABORS. I am saying the latter. Really, what we are asking 

the recipients to tell us is how many direct jobs did you create 

using the Recovery Act funding. What we are asking CEA to do is 

to calculate the economic impact of the Recovery Act overall on the 

economy, and there is more than just direct jobs from direct Federal spending involved in that. 

As I had mentioned in the conversation with Senator McCain, 

even something like FMAP is viewed as having an economic benefit, because even though it does not directly create a job, it does 

free up money for States to use in other areas and those areas are 

seen as producing jobs, either for law enforcement, education, or in 

other fields. 

So what the CEA report will do is two major things that are different from the recipient reporting. One, it will calculate a broader 

base of job creation. It is not just capturing direct jobs, but it is 

capturing direct, indirect, and what we call induced jobs, the jobs 

that are created as a result of manufacturers producing things for 

highway companies that are building the roads. All of that will essentially have a trickle throughout the entire economy. 

Chairman LIEBERMAN. Yes. 

Mr. NABORS. The second thing that the CEA will be doing is 

when you look at the direct jobs that the recipients will be calculating, it is not necessarily clear that they have all of the information with regard to jobs that are necessarily retained as a result 

of that money, and that is something that is very important in the 

overall context of the economy, and that is something that CEA’s 

report will also be capturing. 

Chairman LIEBERMAN. Right. So I want to move on to one more 

question, but it sounds to me as if you are saying they are both 

right. They are both answering different questions. But is it correct 

to infer that you are also saying that the CEA answer is a more 

comprehensive answer—— 

Mr. NABORS. Absolutely. 

Chairman LIEBERMAN [continuing]. And therefore, perhaps ultimately more accurate. It is not that the recipients are being inaccurate, but they are not calculating all the effects of the stimulus— 

Mr. NABORS. It depends on what precise question you are asking. 

If you want to know how many jobs the transportation project in 

your neighborhood created, then the recipient reporting—— 

Chairman LIEBERMAN. Right. 

Mr. NABORS [continuing]. Is probably more accurate. If you want 

to know what the economic impact of the Recovery Act and all of 

its manifestations are, then the CEA estimate is going to be more 

accurate. 

Chairman LIEBERMAN. That is actually a great transition to my 

next question. I mentioned in my opening statement that in meetings I had last week with some building trades people in Connecticut, there were great complaints about the fact that they just 

168 

did not see much work, and it was particularly perplexing because 

I had convened a meeting either right before the Stimulus Act was 

adopted or right afterward with the State Transportation Department, construction firms, and labor unions, and the State said the 

jobs were permitted and ready to go when the money came forward. 

My staff did some background on this, and unfortunately, it 

ended up with a result that was unsettling and dismaying to me 

about my own State, but I want to ask you if it is a broader problem. I am going to ask the State of Connecticut to respond as well, 

but here is what I found. 

I am using the language of obligations, money authorized, and 

actual outlays, money actually spent. According to the numbers we 

found, the State of Connecticut received a total of $454 million for 

highway and mass transit through the middle of last month. Approximately 59 percent, or $269 million of the Stimulus Act funds 

have been obligated, in this case meaning that the project is officially chosen and the Department of Transportation has been notified. But here is the stunning number to me. Only $506,000 of that 

has been outlaid in the State. Now, in checking, that turns out to 

be one of the lowest payout rates in the country, according to the 

White House. 

So I wanted to ask you, from your perspective overseeing this 

program, what is happening there? Is this occurring in a lot of 

other States? And if so, what is the Administration doing about it, 

or what can the Administration do about it? 

Mr. NABORS. It is something that we are seeing in a variety of 

different States. I think Connecticut is on the extreme side of 

things. I think there are two issues here. One is that, as I had 

mentioned previously, this is a relatively unique aspect of the 

Highway Transportation Fund and other transportation monies, 

and I think that in part, what has occurred is the State transportation offices have gotten used to doing business the same way 

every year with regard to their normal money. If you were looking 

at their annual appropriations, this would be a similar type of pattern that you would see. 

What we are doing and what the Vice President is personally 

doing is reaching out directly to the governors and the State legislatures and saying, this isn’t a normal time. We need to make sure 

that the money is getting out the door and stimulating the economy 

in a much more direct way. And people are being responsive to 

those requests and we will continue to make those requests of the 

States. 

Chairman LIEBERMAN. Thank you. Thanks, Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Mr. Mihm, let me follow up on the issue of how we track the 

number of jobs that have been either created or saved by the Recovery Act. For most of us, looking at the job creation or the job 

saved numbers is a very important measure of whether the stimulus bill is achieving the goals that those of us who supported it 

hoped for. OMB is allowing two different methods for counting the 

jobs created or saved under the bill. The first is direct counting. It 

is obvious what that means. But OMB also allows a second option, 

169 

which is an extrapolation, an estimate based on project information. 

My concern about having two different methods of measuring job 

creation or the number of jobs saved is that it could serve to undermine the public’s confidence in the credibility of the numbers. 

Could you comment on the issue of whether we need two different 

ways, or whether we just need one set or one approach to measuring jobs created or saved? 

Mr. MIHM. That is exactly one of the questions we are going to 

be looking at as we look at these recipient reports, is the methodologies they used. First, is there transparency in the reporting as 

to which methodology did they use? That is, does a user of this understand how they got the number? And then, second, as we do our 

assessments, does it make sense at a high level why people would 

choose one methodology over another? That is, is it done for all the 

right reasons? 

Our approach is, over the next couple of weeks, our State teams 

that are out there in those 16 States and the District are sitting 

down with officials in the States, or the direct recipients who will 

be doing the reporting to Federalreporting.gov, and understanding 

what are the controls that you are going to have in place. How are 

you going to be reporting on the jobs? To the extent that you are 

relying on information from sub-recipients, what are you going to 

be doing to assure yourselves that you get good data? That is all 

before the reporting takes place. 

And then after the reports come in, we are going to go back out 

there and say, did you actually do what you said you were going 

to do? And then beyond that, then test for some sub-recipients. Go 

down and find out that it flows all the way down. 

As I mentioned earlier, our primary focus is going to be this time 

around on transportation programs, highway programs, because 

that is where a lot of the money is already and that is also, and 

my economist friends tell me that is where we can expect job impacts to the extent that we are going to see them. 

So that is going to be the focus, but you are asking exactly the 

right question. The transparency on that is going to be very important. 

Senator COLLINS. It is critical. I am very pleased that Maine has 

the opposite situation of Connecticut. We rank first in the Nation 

in the expenditure of stimulus funds for transportation projects. 

And it was very heartening to me to meet recently with the owner 

of a construction company who told me that there were 100 people 

working who otherwise would not have been, just on this one particular project. 

But it also became clear to me that this becomes very complicated on how you count. If you have a project with 100 people 

working on it, that project ends and then there is another project 

that hires 50 of those people, how is that measured? Are those 50 

new jobs, so the total is 150? Or is that a subset of the 100 that 

was originally counted? It becomes difficult, and the problems are 

obvious as you try to measure this, which is why I think it is important that we have an agreed-upon measurement system and 

just stick with it so the same standards are used everywhere and 

we have apples to apples. 

170 

Mr. MIHM. On the particular example that you are talking 

about—— 

Senator COLLINS. Yes. 

Mr. MIHM [continuing]. And I will obviously defer to Mr. Nabors 

on this, but OMB has tried to address that by asking recipients to 

report on a full-time equivalent basis rather than on a specific job 

so that we do not get into these—— 

Senator COLLINS. Double-counting—— 

Mr. MIHM [continuing]. Types of situations, because the one you 

were describing, an argument could be made, well, did that second 

job then kill 50 jobs, and that is not what we are trying to get at. 

Senator COLLINS. Right. 

Mr. MIHM. And so the full-time equivalent calculation is designed 

to make sure we are comparing apples and apples across the board. 

Senator COLLINS. Thank you. 

Mr. Leibowitz, I want to go back to the issue that Senator 

McCaskill raised about what happens to these con artists. The FTC 

does a terrific job of shutting down the Web sites, doing the 

sweeps, but obviously you cannot cuff them, as she puts it, or you 

cannot prosecute it. You have to refer the case to the Justice Department. 

Mr. LEIBOWITZ. Sure. 

Senator COLLINS. So that raises the question, is the Justice Department receptive to pursuing these cases? What you always wonder and you always worry about, and I have done a lot of work over 

the decades on consumer fraud issues, the fear is that it is viewed 

as small potatoes and thus a case is never brought unless it 

reaches a certain threshold. And what happens, particularly in the 

Internet age, is that a con artist then goes on to set up another 

Web site and scams the next set of victims. That is closed down. 

The prosecution is declined because it is small again, although it 

is probably not because the range of victims is probably far greater 

than is realized. But how receptive is the Justice Department to 

following through on these cases? 

Mr. LEIBOWITZ. Well, you have identified all of the problems and 

you did it without a diatribe, by the way. [Laughter.] 

We work with the Justice Department. There is always a tension, 

and I have been on the Commission for 5 years, so there is always 

a tension at the Justice Department between the things that are 

their highest priorities—terrorism, hard-core crime—and things 

like fraud, which sometimes fall through the cracks. 

But Attorney General Eric Holder and Lanny Breuer, who is the 

head of the Criminal Division, have both been very receptive to the 

idea of bringing more cases. We also have relationships with Assistant U.S. Attorneys and U.S. Attorneys, so we go directly to 

where the malefactors are. And, in fact, my recollection is, and I 

will check this and get back to you, that in one of the cases that 

we brought, Grant Connect, one of the malefactors is actually in 

jail now, or the husband who started the scam that was taken over 

by his wife who is actually the former Mrs. Nevada, is in jail. 

So we are pretty good at getting cases to the Justice Department 

and the folks who can put these bad guys in jail. We have a Criminal Liaison Unit that has been great at referring cases. But it is 

an ongoing effort. On the other hand, we also respect the Justice 

171 

Department’s priorities and so we want to be in there as quickly 

as we can. 

But I will get back to you on that particular case and we will 

keep the effort up. And again, they have been very receptive at the 

Justice Department. 

Senator COLLINS. Thank you. 

Mr. Devaney, I am not familiar with the story that Senator 

McCaskill brought up this morning. While there are obvious issues 

with Congressional oversight, accountability, and transparency 

with the creation of new czar positions within the Executive Office 

of the President, that is a totally different issue from Senate-confirmed individuals who are performing important roles who do testify before us regularly. Although I am not familiar with the report 

that Senator McCaskill brought up, it is extremely unfair if your 

position is being lumped into the category with these other issues. 

Let me just ask you one quick final question. You brought up a 

difficult issue in passing, and that is you said that the board that 

you are overseeing is not involved in making judgments about the 

quality of projects for which stimulus money is spent and that you 

are focused, if there is a direct bar against funding an aquarium, 

for example, then you would come into play, or if there is fraud, 

obviously, or improper payments. 

But that raises a question of whether there is a gap here, because there are some projects that have been reported in the press, 

for example, building a guard rail around an evaporated lake, that 

clearly should not be funded. And traditionally, I have looked to 

the GAO or the IG to identify those projects. So if it is not your 

job to raise a red flag on those projects, and I understand why you 

think it may not be, whose job is it? 

Mr. DEVANEY. Well, we are seeing things like that, and when we 

do, we bring that to the attention of either the agency directly, and 

we have made a lot of referrals directly to the agencies, you need 

to look at this, and also OMB. And reflecting back on something 

Mr. Nabors said earlier, there is a very aggressive approach on the 

part of the Vice President and his staff to get right on this. I mean, 

if they see something like that, my observation is, from a distance, 

they have been very aggressive about that. 

I suspect when the data starts to roll in, we will see more of that. 

We will see more questionable projects. And we certainly are going 

to make sure that all that information that we get in the data gets 

out to the right people, gets over to the Department so they can 

look at that project to see if it was approved, if it was not approved, 

and do some watchful thinking about whether or not that was a 

smart thing to do. 

But there are going to be projects that two or three people look 

at in very different ways. Was that a smart bridge or was that a 

bridge to nowhere? There are going to be a lot of opinions out there 

when people see this data, and that is what I meant earlier about 

sort of it is going to be an interesting time when people get to see 

that. We do not want to get involved in those sort of subjective 

judgments and want to be very clear about that, but nonetheless, 

if we see something that we think is clearly wrong, we are going 

to make sure that gets sent to the right place. 

Senator COLLINS. Thank you. 

172 

Mr. Chairman, I just want to thank you for your leadership on 

this set of hearings that we have been holding. As you mentioned, 

this is the fifth oversight hearing, and I also want to thank their 

staff for their work. I particularly want to thank the staff for their 

work on the consumer fraud issues. I have long been very interested in those issues, since my days in State government and also 

as Chairman of the Permanent Subcommittee on Investigations, 

and I appreciate your including that aspect in this hearing. Thank 

you. 

Chairman LIEBERMAN. Thank you, Senator Collins. Thank you 

for your leadership in all the efforts that were leading up to this 

hearing, and I appreciate also the work that your staff did on the 

consumer protection part of the hearing and the work that both of 

our staffs did together on the overall hearing. 

I must say, I am proud of the Members of the Committee. I 

thought the questions were thoughtful. There were one or two diatribes, but—— [Laughter.] 

This is exactly what we want to do here. My net impression is 

that the Stimulus Act is having a positive effect on the economy. 

It is not perfect. I appreciate the fact, Mr. Nabors, that you said 

the Administration, with the Vice President leading the effort, is 

particularly committed to trying to accelerate the spending, and 

the Vice President in his characteristic way is hands on. I thought 

it was very important that you told me that he is on the phone 

himself calling governors in States where the rate of spending, or 

outlay, actual spending, is not what we hoped it would be. And I 

thank you, Mr. Devaney and Mr. Mihm, for the work that you are 

doing to assist us in our oversight. 

This was an extraordinary legislative act with an enormous 

amount of money in it. We did it because of the sense of urgency 

we had about where our economy was heading. We worried it was 

heading over the cliff. We are comforted to feel now that it is not 

anywhere near the cliff, but still there is a lot of suffering. 

But the bottom line here is that with this much money being 

spent this quickly, we feel ourselves a sense of accountability and 

responsibility, and you are out there working for us in the various 

ways you are, sharing that responsibility, and it is comforting to 

us. The reward for all your good work is that we are probably going 

to call you back here sometime at the end of October or early November, particularly after the Recovery.gov gets up and we begin 

to receive some of those recipient reports to see what that tells us 

about how we are doing. 

Mr. Leibowitz, you added a very important dimension here and 

I appreciate that you were here. You can tell from both the public 

questioning by the Members, and I can tell you from the sort of private conversations as people were coming by the chair here, that 

Members are very interested and concerned about the scam artists. 

It has been a long time since I have heard the term ‘‘pond scum.’’ 

It strikes me that we are in an age where we may soon be referring 

to ‘‘iPod scums,’’ not pond scum. [Laughter.] 

In any case, there is real interest in the Committee in exploring 

whether there are any changes in law that can improve or 

strengthen the work that you are doing by way of deterrence, by 

putting more power in the hands of not only the Commission, but 

173 

the Justice Department. So I ask that you work with our staff and 

your staff work with ours to see if there is something constructive 

that we can do in that regard. 

Mr. LEIBOWITZ. We would be delighted to do that. I have had discussions with Senator Collins, because she is the Ranking Member 

of our Appropriations Subcommittee. I will get back to you with a 

list, but part of it is growing the agency. We are 30 percent smaller 

than we were 30 years ago, even though the population has grown 

from 225 million to 305 million in the United States. Part of it is 

just having a stronger deterrent. 

So one thing that we are interested in and that there is growing 

support for is giving us fining authority. Another is giving us easier 

rulemaking authority. In the Omnibus Appropriations Act, Congress gave us the ability to do a rulemaking involving mortgages 

under the Administrative Procedure Act rulemaking, which is easier rulemaking. We are under something more or less medieval 

called the Magnuson-Moss Act. And because of that, we will do 

something very useful that sets a clear baseline. 

So thank you for that support, and we are going to stay on top 

of this issue and we will get back to you—— 

Chairman LIEBERMAN. Good. We will work together on it. 

Thank you all. The record of the hearing will be held open for 

15 days for any additional questions or statements Members would 

like to submit. 

With that, I thank you very much for your very important public 

service. 

The hearing is adjourned. 

[Whereupon, at 12:22 p.m., the Committee was adjourned.] 

(175) 

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713 


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719 


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720 


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723 


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731 


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735 


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736 


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738 


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739 


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49638.566
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746 


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749 


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764 


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766 


49638.586
767 

Æ 


49638.587