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32–356 PDF 2007

S. Hrg. 109–930

HURRICANE KATRINA: STOPPING THE FLOOD OF

FRAUD, WASTE, AND ABUSE

HEARING

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

DECEMBER 6, 2006

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

BRANDON L. MILHORN, Staff Director 

AMY L. HALL, Professional Staff Member 

JAY W. MARONEY, Counsel 

MICHAEL L. ALEXANDER, Minority Staff Director 

TROY H. CRIBB, Minority Counsel 

MARY BETH SCHULTZ, Minority Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

(III)

C O N T E N T S

Opening statements: Page 

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

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

Senator Coleman .............................................................................................. 5

Senator Pryor .................................................................................................... 6

Senator Carper ................................................................................................. 6

WITNESS 

WEDNESDAY, DECEMBER 6, 2006

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

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

Testimony .......................................................................................................... 8

Prepared statement with attachments ........................................................... 23

Responses to post-hearing questions for the Record ..................................... 52

APPENDIX 

Federal Emergency Management Agency/Department of Homeland Security 

prepared statement for the record ...................................................................... 54

(1)

HURRICANE KATRINA: STOPPING THE FLOOD 

OF FRAUD, WASTE, AND ABUSE 

WEDNESDAY, DECEMBER 6, 2006

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. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senators Collins, Coleman, Lieberman, Carper, and 

Pryor. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

Today the Committee holds its fourth hearing investigating the 

loss of taxpayer dollars to waste, fraud, and abuse in the wake of 

Hurricane Katrina. I would like to begin by thanking our two witnesses, Greg Kutz and John Ryan of GAO’s Forensic Audits and 

Special Investigations Unit, for their dedicated work, and I welcome them back to the Committee. 

It has now been more than 15 months since Hurricane Katrina 

devastated our Gulf Coast and since this Committee launched an 

investigation into the failures at all levels of government that came 

to light in that disaster. Hurricane Katrina revealed how unprepared the Nation was for a natural disaster that was long predicted 

and specifically forecast and raised serious concerns about our ability to respond effectively to a terrorist attack. 

Although the initial focus of our investigation was to identify 

ways to expedite relief to the stricken region, most of our work examined the many flaws in our Nation’s emergency preparedness 

and response structure. 

No flaw has been more persistent and more damaging to effective 

relief for disaster victims and to public confidence in their government than the rampant waste, fraud, and abuse that have plagued 

Federal relief and recovery programs. 

To be sure, the majority of the billions of dollars of assistance 

provided to more than 2.6 million applicants in the wake of Hurricanes Katrina and Rita was necessary and warranted. But FEMA 

has yet to strike a proper balance between expedited assistance 

and good stewardship of taxpayer funds. Current practices invite 

and enable fraud, harming the very people these programs are designed to help. 

2

Today’s hearing provides a follow-up to three previous hearings: 

Our February hearing that focused on FEMA’s Individuals and 

Households Program, known as IHP; the field hearing held in April 

at the request of Senator Pryor, examining FEMA’s purchase of 

thousands of manufactured homes that sat unused in Hope, Arkansas; and the July hearing investigating the Department of Homeland Security’s use of purchase cards. 

At these hearings, our GAO witnesses testified that weak or nonexistent controls left the IHP program vulnerable to widespread 

misuse. They testified further that fraudulent or improper payments could total more than $1 billion. Just think of the additional 

relief and reconstruction and rebuilding that could have been accomplished with that $1 billion that was lost to fraud, mismanagement, and poor decisionmaking. 

Today our witnesses will discuss their continuing investigation, 

and their findings are truly alarming. I will cite a few. 

Nearly $20 million in potentially improper or fraudulent disaster 

assistance payments went to some 7,000 individuals who appear to 

have registered the same damaged property for compensation 

under both Hurricane Katrina and Hurricane Rita. 

FEMA paid nearly $3 million to more than 500 ineligible foreign 

students. In several cases, payments were made even after the students informed FEMA of their international student status and, 

thus, their ineligibility for aid. 

Our witnesses will also testify that FEMA has collected only 

about $7 million of the estimated $1 billion in fraudulent and improper payments. FEMA has informed me that it has repayment 

plans in place to collect another $8 million. While FEMA is attempting to recover assistance obtained by some ineligible individuals, even if you add what is in the pipeline, the recovery still 

amounts to only pennies on the dollar and is happening far too 

slowly. The fact is that once the money is out the door, it is very 

difficult for FEMA to recover it. 

In our July hearing, the GAO also found excessive prices, duplicative payments, wasteful purchases, and substantial missing property. Equipment was simply not tracked effectively and may have 

been stolen or lost. 

My Committee colleagues may remember that barely 2 hours before our hearing convened on July 19, we received an e-mail from 

DHS telling us that they had located some 80 percent of the missing purchases identified by the GAO, ranging from electronics to 

flat-bottomed boats. They disputed the GAO testimony before it 

could be delivered. 

At that time, Special Agent Ryan told the Committee that he was 

skeptical of DHS’s claims. We now have concrete evidence that the 

skepticism was warranted. We will hear today that 48 items that 

the Department claimed it had located in that early morning prehearing announcement are, in fact, still missing. The GAO witnesses will describe their efforts to verify the location of items purchased by DHS for hurricane relief. I remember Mr. Ryan telling 

us that he wanted to actually go touch the property. Well, the fact 

is that I understand that 34 percent of the items that they tried 

to locate are still missing, whether they are lost or stolen. 

3

I should add that one of those infamous flat-bottomed boats reported missing in July has, in fact, been located—but not by DHS 

personnel, rather by GAO investigators. I will be interested to hear 

why DHS was not able to locate this boat and where GAO investigators found it. 

This Committee performed an extensive investigation in response 

to the Hurricane Katrina debacle. Our work has gone beyond merely uncovering problems and has extended to crafting remedies. Our 

legislation to rebuild FEMA into a more effective entity and, indeed, to strengthen our entire national emergency management 

structure provides a clear road map to improvement, but this Committee must remain committed to see that it is followed and that 

administrative and other reforms are, in fact, implemented. 

Throughout our Hurricane Katrina investigation, I was concerned that another major natural or manmade catastrophe would 

strike while a structure that has so utterly failed was still in place. 

In some sense we got lucky. The 2006 hurricane season has passed 

without another major storm coming ashore, and we have been 

spared other disasters as well. 

We have been given the luxury of time to get this right. We must 

use that time wisely. The American people are generous and willing to open their hearts and their wallets to the victims of disasters. But they expect that their tax dollars will be spent carefully 

to help storm victims, not be lost in a hurricane of waste, fraud, 

and abuse. 

[Lights failed for a few moments.] 

Senator Lieberman, there are those who say that this Committee 

often operates in the dark. [Laughter.] 

Senator LIEBERMAN. You may be interested to know I have been 

informed that the power is out in the whole building, so we have 

to operate the emergency system. 

Chairman COLLINS. Please proceed. 

OPENING STATEMENT OF SENATOR LIEBERMAN 

Senator LIEBERMAN. Madam Chairman, it is good to know that 

under your leadership, which I will aspire humbly to emulate, not 

even a power outage could stop this Committee from going forward. 

Madam Chairman, I thank you for convening today’s hearing on 

the GAO’s ongoing efforts to identify waste, mismanagement, and 

fraud in FEMA’s administration of the Individuals and Households 

Program (IHP), as well as DHS’s use of purchase cards for goods 

and services during the responses to both Hurricane Katrina and 

Hurricane Rita. 

I think we are back on. Welcome. Nice to see the outside, too. 

[Laughter.] 

The record will note that neither of the witnesses nor anyone 

else in the room moved during the power outage, and we thank you 

for that. [Laughter.] 

Testimony we will hear from the GAO’s Forensic Audits and Special Investigations Unit on this Individuals and Households Program I would describe as not only powerful but maddening to me 

personally. 

The GAO’s investigations over the past year, as well as FEMA’s 

own data on overpayments, show that the agency squandered hunVerDate 0ct 09 2002 12:26 Jul 06, 2007 Jkt 032356 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\32356.TXT SAFFAIRS PsN: PAT
4

dreds of millions of dollars in improper payments to individuals 

and households that our government may never recover. Some people who were not eligible for assistance abused the process, and 

FEMA had no effective mechanisms to stop them. And some ineligible people who had no intent of gaming the government but 

thought they might be eligible for assistance were granted payments, even though FEMA should have known that they were not 

eligible and should have explained to them that they were not eligible. 

On the other hand, as is well known, last week we heard that 

a Federal judge ruled that FEMA wrongfully cut off housing assistance to thousands of Hurricane Katrina and Hurricane Rita evacuees without properly documenting why, making it difficult for applicants to appeal FEMA’s decision. 

So we have this bizarre situation where FEMA apparently doled 

out millions of dollars to people who did not deserve it, but denied 

assistance to many people with potentially legitimate needs without using proper procedures. 

During our Committee’s investigation of Hurricane Katrina earlier this year, the GAO provided an extensive look into flaws in 

FEMA’s processing of these Individuals and Households Program 

applications. The GAO’s investigation revealed significant breakdowns in the IHP registration system that resulted in payments to 

individuals and households who were not qualified for assistance or 

who received duplicate payments. 

Today’s testimony further confirms the gross inadequacies of 

FEMA’s control systems. Chairman Collins has documented some 

of the specifics. I will not repeat them. 

FEMA’s low success rate in recovering payments also makes 

abundantly clear the need to implement proper controls up front. 

FEMA has collected only $7 million in improper payments out of 

the $290 million of such payments that FEMA itself has identified. 

The GAO estimates FEMA’s total improper payments, as the 

Chairman said, to be $1 billion through February 2006. We do not 

know yet what FEMA’s plans are for recouping this money or the 

extent to which it can recover the money. Clearly, the better solution for the future is not to chase after improper payments once 

they are made but to prevent those improper payments from being 

made in the first place. 

GAO’s testimony on this program to this Committee in February, 

as well as more detailed reports issued in June and September, I 

hope you know, Mr. Kutz and Mr. Ryan, provided the basis for a 

series of corrective actions that Senator Collins and I proposed and 

that were included in the FEMA reform package that passed into 

law as part of the fiscal year 2007 DHS Appropriations Act. 

This law mandates that FEMA institute verification procedures 

that minimize the risk of unauthorized and duplicative payments 

under the IHP program, while providing an expedited review and 

appeals process for individuals or households who believe that their 

applications were wrongfully denied. 

Having conducted a major investigation of the immediate response to Hurricane Katrina and having enacted significant reform 

legislation, our Committee’s task now is to continue our oversight 

and to ensure that the reforms are fully implemented. 

5

Today we are also going to hear testimony from the GAO on the 

efforts of DHS to locate missing items, and I will look forward with 

anticipated exasperation to hearing that result. 

In a November 27 letter to Senator Collins and me, the DHS 

Chief Financial Officer conceded that the Department is still having difficulty tracking down those assets, and Mr. Kutz, I hope you 

will share with the Committee your assessment of the efforts of the 

Department of Homeland Security to improve its property management. 

So, bottom line, the record here is clear and disconcerting. The 

fact is that, going forward, FEMA has a lot of work to do before 

we can be confident and the taxpayers can be confident that FEMA 

is providing assistance to those who are eligible and who need it, 

while denying it to those who do not. The reforms that we have 

adopted should make a difference, and Senator Collins and I are 

committed to being especially vigilant in the months ahead to make 

sure that they do. 

Thank you very much. 

Chairman COLLINS. Thank you. Senator Coleman. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Madam Chairman. 

Before I touch on this hearing, first I want to thank you and the 

distinguished Ranking Member for having this hearing. I also just 

want to take the time to thank you for your leadership. 

Chairman COLLINS. Thank you. 

Senator COLEMAN. I think you have provided extraordinary leadership. We have passed major legislation: Intelligence reform, 

chemical security, lobbying reform, port security, postal reform, 

FEMA reform, and enhancement of homeland security grants. I 

think we have accomplished an incredible amount of important 

work not just for the Senate, but for the Nation. I just want to personally express my appreciation for the kind of leadership that you 

have offered. We talk a lot today about bipartisanship. I don’t know 

if there is a better operating Committee in the Senate in terms of 

working together. As I look at my colleagues who are seated here 

today, people for whom I have the most respect for, just the most 

respect for, from the Ranking Member, and a former local official, 

governor, Senator Pryor and I have worked together, the prayer 

breakfast. This is an extraordinary group of people, but your leadership has really pulled it together, and I just want to personally 

at this moment—probably our last time that we will get together 

with the gavel in your hand—say thank you and tell you what a 

pleasure it has been for me to be part of this Committee. 

I look forward to working with you and the new Chairman in the 

same tone and attitude and hopefully measure of accomplishment. 

Chairman COLLINS. Thank you so much. 

Senator COLEMAN. Let me just turn to the matter before us 

today. First, I want to thank the dynamic duo, Mr. Kutz and Mr. 

Ryan. We have worked together on this Committee and our Subcommittee. Thank you for your work. It is important. It makes a 

difference. 

What we see here today are unauthorized payments, improper 

and fraudulent payments, duplicate payments, inadequate recoupVerDate 0ct 09 2002 12:26 Jul 06, 2007 Jkt 032356 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\32356.TXT SAFFAIRS PsN: PAT
6

ment. We still have work to do. We have work to do with FEMA, 

and I think it is important to bring it to the table. It is important 

for us to look at it and say that this is unfair to American taxpayers, it is not the way government should operate, and we are 

going to clean it up. And I think we have the opportunity. This is 

part of a process. It is an ongoing process. 

You gentlemen have done extraordinary work. We have our work 

to do, and this is the kind of oversight that we need to be doing. 

And I am certainly proud to be part of it. 

So I look forward to the testimony, look forward to discussing 

what new measures we need to implement, look forward to making 

sure that we are doing a better job for American taxpayers. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you so much, and I very much appreciate your kind comments. 

Senator Pryor. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you, Madam Chairman. I would like to 

echo Senator Coleman’s comments about your leadership here. 

Your competence is just overwhelming. You have been able to get 

so many things done in a very bipartisan way, and you have really 

been a great role model for newer Senators to see how the Senate 

can work and should work. In fact, a lot of times when I go back 

to Arkansas, people say, ‘‘What is wrong with you people in Washington? Why do you just not get along? Why are you always at each 

other’s throats?’’ And I tell folks, ‘‘Well, there is hope. There is the 

Homeland Security and Governmental Affairs Committee, and if 

you look at how that Committee works, it really works the way it 

should work.’’

As you well know, if there has ever been a question about which 

committee some bill should go to, I always argue for Homeland Security because it has just been a great Committee with your leadership. And I know Senator Lieberman and you have an extraordinarily good working relationship. Like I said, it has really been 

a role model for all of us. 

Chairman COLLINS. Thank you. 

Senator PRYOR. So I thank you for being such a great Chairman, 

and I really don’t have any further comments. I look forward to 

hearing from our witnesses today, but I did want to thank you for 

your leadership. 

Chairman COLLINS. Thank you so much. Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thank you, Madam Chairman. I was not going 

to say anything, but I am moved to say something. [Laughter.] 

Chairman COLLINS. You mean you have no choice. [Laughter.] 

Senator CARPER. It is what we affectionately call in Delaware 

‘‘piling on.’’ We were putting together orientation for new Senators 

a couple of weeks ago, and we were looking for a couple of Committee Chairs and Ranking Members to invite to come and speak 

to our new Senators about bridging the partisan divide. And the 

very first recommendation that I made was that, Madam Chairman, you and Senator Lieberman be invited to attend. I think beVerDate 0ct 09 2002 12:26 Jul 06, 2007 Jkt 032356 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\32356.TXT SAFFAIRS PsN: PAT
7

cause of scheduling problems you were not able to come, but I 

think the relationship that the two of you enjoy is just an example 

for the rest of us in the Congress, in the Senate, and in the House, 

and I think in the Administration as well. 

Our friend Senator Pryor is from Arkansas, and they actually 

have a place there, I am told, called Hope. And I think he mentioned the word in his remarks. When I think of a place called 

Hope, I don’t think of Arkansas. I think of the kind of relationship 

that you have had and the way that it has sort of permeated this 

Committee, the trust that you enjoy and the way that it has inspired the rest of us to work on a whole host of issues that Senator 

Coleman has mentioned. And my hope is that before we leave here 

at the end of this week, we can add one more to that list, and that 

would be good not just for this Committee, but I think that would 

be very good for our country. And I applaud both of you for your 

efforts in that regard. And welcome to our love fest here this morning. [Laughter.] 

Chairman COLLINS. Thank you. 

Senator LIEBERMAN. Madam Chairman, if I may, if I remain silent in the midst of this spontaneous eruption of appreciation for 

you, people may wonder about how good our relationship is. 

[Laughter.] 

I had been thinking I would do this later, but I appreciate that 

my colleagues did it. It has been an extraordinary honor and pleasure to work with you on this Committee, and it really is what I 

think all of us came to the Senate to do, and somehow we have 

been able to do it. But you have been the Chair, so you have set 

the tone. The record of accomplishment in your chairmanship has 

been extraordinary, and I don’t know how I am going to build on 

it. But we are going to do it together. That is the important thing. 

I said to Senator Collins when we talked about the transition 

that will occur that, as far as I am concerned, the only thing that 

is going to change is our titles because we are going to have the 

same partnership that we have had over the years here. And it has 

worked just so well. 

The bottom line is that we have common goals and I have total 

trust in Senator Collins in ways that I will document at some point 

in a book that will not sell any copies but really will be worth reading. [Laughter.] 

It is the trust that reaches across the not unimportant but ultimately not most important party identifications that we hold, to 

the values that we hold in common, and our shared interest in 

making our government work better and our country be better. So 

you are the best. Thank you. 

Chairman COLLINS. Thank you very much. 

While I would love to continue with further tributes to myself, 

I do believe we should turn to our panel. [Laughter.] 

But let me just thank you all for your very kind comments. This 

Committee does have a wonderful tradition of bipartisan accomplishment, and I do think that is what the American people want. 

And I am confident that it will continue under your leadership, 

Senator Lieberman, and I look forward to being your partner. 

Senator LIEBERMAN. Thank you. 

8

1The prepared statement of Mr. Kutz appears in the Appendix on page 23. 

2The poster appears in the Appendix on page 51. 

Chairman COLLINS. I hope the only difference will be instead of 

bills being Collins-Lieberman, they will now be Lieberman-Collins. 

But it would not be possible without the Members of the Committee who have taken exactly that same constructive approach. 

Senator LIEBERMAN. That is true. 

Chairman COLLINS. So I very much appreciate the opportunity to 

work with all of you, and remember, I may be back in 2 years. 

[Laughter.] 

I would now like to welcome our witnesses today: Greg Kutz, who 

is accompanied by Special Agent John Ryan. They have appeared 

before us many times, so I am not going to go through a lengthy 

introduction other than to thank you both for continuing your exceptionally good work. 

Mr. Kutz, we will start with you. Thank you. 

TESTIMONY OF GREGORY D. KUTZ,1 MANAGING DIRECTOR, 

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

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

OFFICE 

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

thank you for the opportunity to discuss fraud, waste, and abuse 

related to Hurricanes Katrina and Rita. Our testimony relates to 

the completion of our work on individual assistance and the use of 

government purchase cards. Previously, I testified that $1 billion, 

or 16 percent, of individual assistance payments were fraudulent 

and improper. I also testified that weak controls resulted in lost or 

stolen government property, bought using government purchase 

cards. The bottom line of my testimony today is that our work 

shows additional fraud, waste, and abuse related to Hurricanes 

Katrina and Rita. 

My testimony relates to FEMA and has two parts: First, individual assistance payments; and, second, lost or stolen property 

bought with credit cards. 

First, our work across the government has shown that fraud prevention, as you mentioned, is the most efficient and effective means 

to minimize fraud, waste, and abuse. Our $1 billion estimate of 

fraudulent and improper payments related to individual assistance 

clearly shows the consequences of the lack of an effective fraud prevention program. 

The posterboard supports my point. Next to the $1 billion estimate, you can see that through November, FEMA has detected 

$290 million of improper payments. However, only $7 million of 

this $290 million has actually been collected. Absent effective fraud 

prevention, once money is improperly disbursed, the government 

can only hope to collect a few pennies on the dollar.1

It is important to note that our $1 billion estimate is likely understated because it related only to the application process and disbursements through February 2006. Today’s testimony supports 

that point, as we found at least tens of millions of dollars of addiVerDate 0ct 09 2002 12:26 Jul 06, 2007 Jkt 032356 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\32356.TXT SAFFAIRS PsN: PAT
9

1The poster appears in the Appendix on page 50. 

2The poster appears in the Appendix on page 48. 

tional fraudulent and improper payments. These problems result 

from FEMA’s lack of an effective fraud prevention program. 

For example, FEMA made $17 million of rental assistance payments to individuals staying in trailers and mobile homes, also 

paid for by FEMA. The posterboard shows that for these individuals the government paid twice for their lodging—first by providing 

them free housing and second by sending them rental assistance 

money.1

FEMA also improperly paid rental assistance to individuals staying in apartments paid for by FEMA. For example, FEMA paid 

$46,000 to 10 individuals staying in a FEMA-paid apartment complex in Plano, Texas. Many of these are fraud cases, as seven of 

these individuals represented to FEMA that they were entitled to 

rental assistance. We cannot estimate fraud and abuse in this area 

because of limitations in FEMA’s data. 

FEMA also made $20 million of improper payments to thousands 

of individuals who used the same address to get benefits for both 

Hurricane Katrina and Hurricane Rita. FEMA policy is that victims of both disasters are generally entitled to only one set of payments for the same damaged address. It appears that some of these 

individuals were paid twice for the same television, refrigerator, 

washer, and dryer. 

Finally, FEMA made millions of dollars of improper payments to 

non-qualified aliens. Non-qualified aliens include foreign students 

and temporary workers. For example, FEMA paid $3 million to 

over 500 students at four universities. This substantially understates the magnitude of this problem because there are many colleges and universities in the region. 

FEMA also paid $156,000 to 25 individuals claiming to be foreign 

workers on temporary visas. We believe these 25 individuals 

worked at a crab house in Louisiana. We also identified several illegal aliens who received disaster assistance in Texas. Total payments to non-qualified legal and illegal aliens could be substantial. 

Moving on to my second point, FEMA has substantial problems 

accounting for property bought with government credit cards. For 

example, 85 of 246 items that we investigated, or 34 percent, are 

lost or stolen. The posterboard shows one of these missing items: 

A flat-bottom boat. As the posterboard shows, this boat is actually 

in possession of the original owner in a shed in Texas.2

In conclusion, our work shows that for individual assistance payments, at least tens of thousands of individuals took advantage of 

the opportunity to commit fraud. That is right—tens of thousands. 

I am hopeful that FEMA has learned from these costly lessons and 

will make fraud prevention a focus for future disasters. 

With respect to lost property, there is no valid reason for FEMA’s 

inability to account for over a third of the property bought with 

government credit cards. I think the posterboard on my right says 

it all. 

We have enjoyed the opportunity to work with this Committee on 

fraud, waste, and abuse related to Hurricanes Katrina and Rita. 

Our work has resulted in 25 recommendations for FEMA with 

10

which they generally concur. My hope, Special Agent Ryan’s hope, 

and all of our staff’s hope is that our work will bear fruit in future 

disasters. And, Chairman Collins, I will just say, too, we have really enjoyed working with you and your leadership on this Committee. It goes back quite a long ways, even to PSI, Senators Coleman and Levin, and we look forward to working with the Committee going forward under both of your leadership. 

Thank you. 

Chairman COLLINS. Thank you very much. 

Mr. Ryan, do you have anything you would like to add now? 

Mr. RYAN. I would just add that it was a real pleasure working 

with Senator Lieberman’s staff and your staff, very professional. 

Mr. Bopp was a great leader of yours and pushed your work, and 

we really enjoyed working with the staff and with all the members 

here. 

Thank you. 

Chairman COLLINS. Thank you. 

Mr. Kutz, whenever I bring concerns about the alarming and 

widespread fraud and improper payments plaguing FEMA’s assistance programs, I hear the response that it is a choice between getting out assistance quickly to the victims or carefully safeguarding 

taxpayer dollars. 

Isn’t that a false choice? Isn’t it possible for FEMA to deliver assistance to the right people quickly without compromising the integrity of these programs? 

Mr. KUTZ. Yes, we agree it is not a choice. We believe that you 

can do both and that the technology and the processes exist that 

they could have done a substantially better job here. For example, 

they had ChoicePoint under contract, who has some of the technology necessary to deny invalid applications. They just did not effectively use the tools that were available for these two disasters. 

Chairman COLLINS. And, in fact, did you find any examples 

where FEMA actually disabled software that would have allowed 

duplicative payments to be caught? 

Mr. KUTZ. Yes, in many cases there were hundreds of millions 

of dollars, I believe, that their systems had flagged as questionable, 

duplicative, improper—whatever the right word—and they sent the 

money out, for whatever reason. I think there was a rush to get 

the money out. And we do not disagree with getting money quickly 

to legitimate victims. That is the primary focus of FEMA. But, 

again, I believe that if they had field tested their controls ahead 

of time and were ready for these disasters, which is what our recommendations have been going forward, to take whatever controls 

you are going to implement, field test them, make sure you have 

a safety net for legitimate people who get kicked out when you 

tighten up the fraud prevention controls, we believe that they can 

be much more successful, not only getting money quickly to people, 

but preventing fraud, waste, and abuse. 

Chairman COLLINS. Because, in fact, every dollar that is lost to 

fraud or frittered away in wasteful purchases is a dollar lost that 

could have been directed to helping the victims rebuild their lives 

and communities. That to me is the true tragedy of this. The needs 

are so great. And when we hear your testimony that more than $1 

billion has been lost to waste, fraud, and abuse, to poor decisions, 

11

wasteful purchases, outright fraud, it is just an outrage given that 

the needs are so great. 

I realize we are dealing with a large volume of claims—but is 

this a case where the internal controls simply are too sophisticated 

or too difficult to implement to prevent this massive fraud? 

Mr. KUTZ. No. I have called it Fraud Prevention 101. Basic building blocks of an application are: Does the person exist? Does the 

property exist? Did that person live at the property at the time of 

the disaster? Those are things that the technology is there to determine almost instantaneously, and they did not use that effectively. 

And that is just one of many things that they can do. 

So it is basic fraud prevention, and, again, we are very hopeful 

that they will do a better job for future disasters. At this point, the 

horse is out of the barn right now. The money has been spent. You 

are going to get maybe a couple pennies back on the dollar, so the 

taxpayers have become the new victims here. The issue is, going 

forward, can we actually put effective fraud prevention in place, 

and we believe the technology is there, and with your oversight and 

some good management, they can get it done. 

Chairman COLLINS. Mr. Ryan, tell me more about this flat-bottom boat? How was it found? Did FEMA have title to the boat? Did 

FEMA or DHS officials find it? Tell us a little more about the boat 

that was found in possession of the original seller? 

Mr. RYAN. This boat is one of 20 boats that FEMA purchased. 

When we initiated our——

Chairman COLLINS. At an exorbitant price, if I recall. 

Mr. RYAN. It was $208,000. They paid for 20 boats. 

Mr. KUTZ. Twice retail price, yes. 

Mr. RYAN. This boat, as part of our work that we did on the 

property in July, was missing. We did an investigation, and we determined that the security director at the New Orleans Convention 

Center actually had the boat. It took him some time, but he researched it and found that the boat was titled to an individual in 

Texas. He contacted that individual, and he said, ‘‘Hey, I sold that 

boat to FEMA. It was a used boat.’’ They said, ‘‘Well, you are still 

the titled owner, so you need to come and get it.’’

So the individual went to New Orleans, got the boat, had to buy 

new tires for the trailer because the tires were gone, and he carted 

it back, and he put it in his shed in Texas. As part of an ongoing 

investigation that we had with the Hurricane Katrina Task Force, 

the FBI, and local law enforcement, they were able to determine 

that the boat was parked in the shed of the original owner, and 

they took a photograph of it. 

None of the 20 boats as of October are titled to the government. 

There is still an ongoing investigation in which the owner of 11 of 

the boats has filed a complaint indicating that the boats were stolen, so the government does not have title to any of the 20 boats. 

Chairman COLLINS. So let me get this straight. The government 

paid twice what the market price should have been for these 20 

boats and yet does not have legal title to a single one of the boats, 

and at least one of the boats is not even in possession of FEMA. 

Is that correct? 

Mr. RYAN. That is correct. And I will add that there is another 

boat still missing, and no one really knows where that is at. So we 

12

know that they have—based on going down, touching, and looking, 

we know they have 18 boats. 

Chairman COLLINS. Thank you. Senator Lieberman. 

Senator LIEBERMAN. Thanks, Madam Chairman. 

Mr. Kutz, one of the examples in your testimony that is maddening is the duplicate payments for 10 residents of an apartment 

complex. According to your report, these 10 residents were receiving rental assistance, and at the same time, FEMA was providing 

rent-free housing at the apartment in Plano, Texas. The report 

states that over $46,000 in duplicate payments were made. 

How could that have happened? 

Mr. KUTZ. I believe it happened because you have stovepiped programs within FEMA. You have the individual payment program, 

and you have different people managing the apartment program. 

They have different databases. All they would have had to do—and, 

again, the data was limited there. 

Senator LIEBERMAN. Right. 

Mr. KUTZ. But at least if they had talked and coordinated, they 

could have done a better job of getting information on who the actual people living in the apartments were and determining whether 

or not those people had received these apartments before they sent 

them rental assistance. So, again, I think it is a matter of coordinating two programs. We found the same thing for the hotel program, the trailer program, the mobile home program. They are all 

stovepiped programs within FEMA, and these people do not appear 

to talk very well. 

Senator LIEBERMAN. So this is a pretty simple thing to coordinate, isn’t it? 

Mr. KUTZ. Yes. 

Senator LIEBERMAN. With modern information technology. 

Mr. KUTZ. Yes, and that is how we came up with our estimates, 

for example, for the trailers, the mobile homes, and prior work for 

the hotels is because we just took the two sets of data and matched 

them together and did some analysis. 

Senator LIEBERMAN. Every time we hear from you, it builds on 

the conclusion that we reached in our overall investigation of the 

government’s response to Hurricane Katrina, which was that we 

were a Nation unprepared. In this case, this was an agency unprepared in the most fundamental ways, almost simplistic ways, to 

deal with basic distribution of assistance payments that did not 

waste taxpayer money. 

Let me ask you, it is my understanding that FEMA has generally, if not fully, concurred with your recommendations. Do you 

believe that they have begun to make the necessary adjustments, 

for instance, in breaking the stovepipes that you have just described? 

Mr. KUTZ. They have represented that they have. We have not 

actually tested it in a live environment, nor do we know if they 

have actually tested it doing a desktop or some sort of a practice 

test, because one of the recommendations we have with all of these 

improved fraud prevention program processes is to test them before 

a major disaster. Because once a disaster hits, if you have not tested them, you could deny legitimate victims assistance, and none of 

us wants to see that either. 

13

So we are hopeful they have agreed with most of our recommendations. They have stated they have taken progress. We 

have not been able to follow up on all of them yet, and some of 

them we will have to actually test in a live environment and see 

if they work. 

Senator LIEBERMAN. Right. But in the normal course of your 

work, you will follow up on those? 

Mr. KUTZ. Yes. 

Senator LIEBERMAN. All right. Have you performed any investigations or analysis of FEMA payments in disasters that have 

happened since Hurricanes Katrina and Rita? 

Mr. KUTZ. No. 

Senator LIEBERMAN. So there is at this point no comparison. 

Mr. KUTZ. And the reason we have not is because there has not 

been many individual assistance payments. There have not been 

that many larger disasters to test, so there has not been that much 

to test. 

Senator LIEBERMAN. I want to go back to the foreign students applying for aid and the findings that FEMA’s files actually contained 

documentation showing that the students were not qualified. Were 

you able, again, to determine in your investigation how FEMA 

could, having seen that in the file, gone ahead and made the payments to self-evidently unqualified aliens? And if you would, I want 

to ask the broader question about whether FEMA has a problem 

with training their employees or contractors in the simple processing of these applications. 

Mr. KUTZ. It certainly appears that, whether it was FEMA employees or contractors—and it is probably some of both—they either 

did not understand or they did not care, one of the two. Because 

if you look in the files, there are pictures of the student visas and 

there are even FEMA fliers that say foreign students are not eligible for these benefits. 

Senator LIEBERMAN. Right. 

Mr. KUTZ. Right in the same file. It is scanned into the FEMA 

databases saying this, yet they paid them anyway. Again, training 

is a very important point here. I think because there are so many 

contractors—FEMA has to staff up to do these major disasters, and 

it appears that the training was not effective in this case. 

Senator LIEBERMAN. Let me ask you about this in a somewhat 

different way because we all know that in the first days after Hurricane Katrina hit, when we all watched the suffering of the people 

in New Orleans in particular, there was a lot of embarrassment, 

and FEMA came under great pressure. Mr. Brown resigned. Did 

you find any evidence that part of the problem here might have 

been that somebody high up in FEMA said, in response to the public and congressional, political anger at FEMA’s actions, ‘‘Get out 

the checks. If there is a mistake, we will come and deal with it 

later, but let’s not get criticized for not making payments’’? 

Mr. KUTZ. It is very possible. We did not see any documented evidence of that, but it is very possible because, again, when they first 

started making the disbursements, they identified hundreds of millions of dollars of potential duplicate and improper payments, and 

someone somewhere—we cannot tell exactly where—made a decision to let them go. And, again, I think some of it was manpower. 

14

They were overwhelmed by the sheer volume of the edits that had 

identified these improper payments, and so they would have had 

to hold up those payments for potentially months. And so the 

choice at that point was—again, because you had not pre-tested 

your controls—shoot the money out the door and try to come back 

and collect it later. 

Senator LIEBERMAN. OK. Thanks very much. Again, the two of 

you have really done an important public service here. 

Thank you. 

Chairman COLLINS. Thank you. Senator Coleman. 

Senator COLEMAN. Thank you, Madam Chairman. 

I want to follow up on the system checks here, the National 

Emergency Management Information System. They have an edit 

check system that was kind of a first line of defense. Is there any 

data, any information as to what the delay might have been? And, 

again, what I understand, we have been told that the National 

Emergency Management Information System edit check system 

was disabled apparently to facilitate a more expeditious processing 

of some of these claims and some of this money. But do we have 

any information on, if the system had been kept running, what the 

delay would have been? 

Mr. KUTZ. It would have been many months. Again, I seem to re- member it was about $900 million that had been flagged at some 

point in time, which would have been a substantial number of applications, and they just did not have the people to work those 

cases. So I anticipate it would have been many months to get that 

money out. 

Senator COLEMAN. Had there ever been another instance that 

you are aware of in which the National Emergency Management 

Information System edit check had been disabled? 

Mr. KUTZ. We are not aware of any. 

Senator COLEMAN. No experience with it? 

Mr. KUTZ. No experience with it, so we do not know. 

Senator COLEMAN. At a press conference on November 30, FEMA 

Director Paulison stated that they had established an identity 

verification system to confirm displaced residents who are who they 

say they are and where they have lived. His indication was that 

it would cut down on waste, fraud, and abuse. Have you had a 

chance to review the system at this point in time? 

Mr. KUTZ. We have met with ChoicePoint. I believe they are 

using ChoicePoint still, and so we are aware—ChoicePoint has a 

whole menu, Senator, of various fraud prevention controls that 

they can put in place. Again, FEMA did not effectively use 

ChoicePoint the first time. So if they better use ChoicePoint—I am 

not saying they can eliminate fraud, but they can make a significant dent in fraud, waste, and abuse by implementing many of 

those controls that FEMA or the other ones that do what ChoicePoint does implementing those controls. 

Senator COLEMAN. Mr. Ryan. 

Mr. RYAN. Senator, I still go back to the point that you can talk 

about controls, you can write them down on a piece of paper, but 

somebody needs to test these controls because, quite honestly, it is 

like everything else. You can say you found the property, but until 

you touch it, you really don’t know if you have it. In this particular 

15

case, you can talk about the controls, but I really do think there 

has to be some type of an agreement where someone will actually 

come in and test what you are actually putting on a piece of paper. 

And until that is done, I am not real happy that it is going to be 

satisfactory. 

Senator COLEMAN. What I am hearing then is that until you 

have really had a chance to review this, you are not in a position 

to say whether it meets the kind of specification, the standards 

that you want to see to prevent further waste, fraud, and abuse. 

Mr. KUTZ. You really have to test it in a live environment to 

know. 

Mr. RYAN. Yes, not only review it, but you have to test it. There 

are going to be so many different circumstances that come up, we 

have so many different citizens that needed assistance that they 

are going to have different stories and different situations. You 

have to be able to test your program, find out where you are going 

to have an overflow of problems, and make sure that you can plan 

for your manpower so that you can handle those situations to make 

sure that the people that need the assistance get it as quickly as 

they possibly can. 

Mr. KUTZ. Senator, can I just add, we did test—with this disaster 

we tested, and that is one of the results of the test is them sending 

us money. I mean, because we went in with bogus information, we 

tested the system various ways to see if we could beat it, and that 

is one of the results. We did it right down the hall from our offices. 

Senator COLEMAN. In terms of testing, some of the scenarios, let’s 

say there were two back-to-back disasters. Do we have a sense of 

how the system would operate under those circumstances? 

Mr. RYAN. Well, they have an edit that can actually identify people making claims for both disasters. In this particular case, based 

on the work that we did, we found out that they turned that edit 

off. 

Senator COLEMAN. Right. 

Mr. RYAN. Therefore, if the edit was in place, they would have 

been able to identify potential targets. We are not saying that all 

of the individuals who got duplicate payments are fraud cases, but 

we have talked to the task force in Louisiana, Mr. Dugas in Justice, and we believe that these cases are worthy of referring to 

them for further investigation. 

Senator COLEMAN. I want to focus again on at least the system 

that appears to be established and in place regarding identity 

verification. One of the concerns that you raised was they used Social Security numbers, and people used Social Security numbers 

that were not their own to get disaster assistance. Do you have any 

sense of whether this system would be able to identify folks using 

improper Social Security numbers or whether this system would 

identify someone who is not a U.S. citizen, the parameters of 

whether this problem would be addressed under the system in 

place right now? 

Mr. KUTZ. The ChoicePoint system could have identified if one 

person tried to get in with bad information in most cases. There 

are exceptions to that. I think the foreign students could have gotten through if they had Social Security numbers. There is no way 

to tell that they were ineligible foreign students. 

16

1The poster appears in the Appendix on page 51. 

One of the other problems was if people were using the same Social Security number 20 times, they were also able to get through. 

So hopefully they have put in something, even after ChoicePoint 

says that is a real Social Security number, that someone is making 

sure that they are not registering 20 times with the same Social 

Security number. 

Senator COLEMAN. I would hope that you would do what needs 

to be done to figure out ways to ensure that—or maybe that is our 

responsibility that this system is tested and that it is checked. I 

would hate to have to come back after the next disaster with similar problems and the response was, well, we thought it worked but 

we did not know, and in the end it did not work. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. Thank you, Madam Chairman. 

Could you ask someone to put up the very first poster that was 

up?1

Just tell us again what we have here, starting from the left. It 

looks like $1 billion was the GAO estimate of improper payments, 

as of what? 

Mr. KUTZ. February 2006. And that was based upon a statistical 

sample we did of every payment and registration that was made. 

Senator CARPER. And as of about a month ago, it looks like 

FEMA had identified roughly 30 percent——

Mr. KUTZ. As improper payments, yes, that is their identification 

of improper payments. 

Senator CARPER. And they have gone out and collected $7 million. 

Mr. KUTZ. Right. 

Senator CARPER. Which is about 2 to 3 percent of the amount. 

Would you say the $7 million or the 2 or 3 percent is about what 

you would expect? Is that a bit low? I cannot imagine it is a bit 

high. But how would you characterize that? 

Mr. KUTZ. I would expect a couple pennies on the dollar. I do not 

expect a lot more. Maybe over time they will get more. I mean, that 

gets into the other issue, and I think Senator Collins mentioned it, 

that FEMA also has maybe $8 million of receivables now, so now 

FEMA is becoming a debt collection agency. And that is not really 

the purpose you want FEMA doing. 

But certainly they could potentially get more, but it is not going 

to be much at the end of the day. 

Senator CARPER. Are there others, other entities, public or private, to whom they could dispatch or turn over the responsibility 

for debt collection? Maybe they have already done that. I do not 

know. 

Mr. KUTZ. The way this is supposed to work, once they have 

issued the letters—I think they sent letters out for the $290 million, so they have sent letters saying, ‘‘You owe us this money 

back,’’ etc. After a certain period of time, the way the government 

process works, they are supposed to refer that to the Treasury Department, who has an offset program, and ultimately this will end 

17

1The poster appears in the Appendix on page 50. 

up with collection agents, possibly, and they may actually offset it 

against things like refunds, tax refunds, or other things. 

So there is a certain process that FEMA should be following that, 

after a certain age, it goes to Treasury and then collection agents, 

and they offset against other government disbursements. 

Senator CARPER. Are you aware of anything that we should be 

doing on this Committee or in Congress to increase that number 

from $7 million to something higher than that, to make that $290 

million that FEMA identified closer to the $1 billion that you had 

identified in your earlier work? 

Mr. KUTZ. Well, they have not showed us this yet, but we understand they have shared with some of the Committee staff that 

there are hundreds of millions more of recoupments that will make 

that $290 million grow. So they are going to continue to be sending 

more letters out. The question is how effective can you be collecting 

that from people. If they are fraudsters, they are gone. They have 

disappeared. You are never going to find them. If it is people who 

just got an improper payment that might not be fraudulent, you 

have got a chance to get the money. And I will use the students 

as an example. A lot of the students apparently had spent the 

money, and now they were saying to our people when we interviewed them, ‘‘We are going to have a hard time paying that money 

back.’’

Again, if you have spent the money, it is kind of hard to pay it 

back sometimes. So it is going to be—again, I think good management, they can get several percent, but it is going to be hard to 

imagine them getting a lot. But what you can do, I think, is provide oversight of FEMA to try to hold them accountable, make sure 

they are at least following the right processes, because, again, the 

more effective way is fraud prevention. But now that you are here 

where you are, we do want to see that people recover as much as 

possible. 

Senator CARPER. OK. I think what you just said there is really 

critical. The important thing is for us to do the job at the front end 

and for FEMA to do the right job at the front end because when 

the money is out, for the most part it looks like it is gone, it is out 

of here. 

Could we look at the second poster that you had up there, 

please? Explain this one again for us, if you would, just briefly.1

Mr. KUTZ. Yes, this is individuals that are staying at FEMA-provided housing, and in this particular case, it is mobile homes and 

trailers. It could be a hotel. The hotels have the same issue. Apartments have the same issue. They are entitled to free housing under 

the program if they are legitimate victims. What the problem is 

here is at the same time they got free housing, FEMA sent them 

a check reimbursing them for rental that they were not incurring. 

So the government basically paid twice for these individuals’ housing. 

Now, again, whether this is fraud or not, it depends on certain 

cases. Some of it might just be people who said, ‘‘Hey, I got a check 

from FEMA for rental assistance even though I am staying at a 

free FEMA hotel,’’ or in this case a mobile home or trailer. So that 

18

1The poster appears in the Appendix on page 49. 

is what that represents. Again, you are paying twice for the same 

thing. 

Senator CARPER. The courts recently ruled, a Federal district 

court recently ruled that FEMA needed to continue providing housing assistance for a number of people who have been displaced. 

How does that fit into this situation? Or does it? 

Mr. KUTZ. It may. I think one of the issues is: Is FEMA making 

sure people are alerted as to what they are supposed to spend the 

money on? It gets back to the same thing we found with the debit 

cards. FEMA was not telling people how they were supposed to 

spend the money, so that got into certain issues. But I am not sure 

exactly how it relates to this. There may be some overlap with this 

issue. 

Senator CARPER. What kind of assurances can you give us, looking ahead to the next disaster, the next hurricane, the next flood, 

that FEMA has learned lessons so that we will not replicate these 

problems in the future? Because as you pointed out, once the 

money is gone, it is gone. 

Mr. KUTZ. Well, one of the frustrating parts of where we sit is 

we cannot actually do it. We can only recommend it. But certainly 

we have given them what we think are practical, implementable 

recommendations that, again, do not necessarily harm legitimate 

victims but help us to reduce fraud, waste, and abuse. So certainly 

our follow-up and maybe this Committee’s follow-up would be useful in holding FEMA’s feet to the fire and making sure that they 

do better next time. We certainly would be willing to work with the 

Committee on that point. 

Senator CARPER. Good. That is one that our Subcommittee may 

want to take a look at in the next year as well. Our thanks to both 

of you for your continued service. 

Chairman COLLINS. Thank you. 

I would like to return to the posterboard of the disaster assistance check received by GAO.1 Mr. Ryan, first, explain to me how 

someone from GAO received this? 

Mr. RYAN. We tested the system to see if the up-front controls 

were in place to stop a person like myself and the agents that sit 

behind me from stealing the money. We created identities. We used 

Social Security numbers that were not linked to those identities. 

We went online first to try to register. We were not successful because the online verification process stopped us because it identified us as not real people. 

However, the system said, ‘‘If you don’t get through, call us.’’ 

Well, we called, used the same information, and we were able to 

register. We provided documentation, which we counterfeited, manufactured. They accepted it and in the process proceeded to send 

us this check along with other checks. 

Chairman COLLINS. Isn’t it pretty easy to verify an identity and 

a Social Security number to make sure that they match? Wouldn’t 

it be pretty easy to prevent this kind of blatant fraud? 

Mr. RYAN. I think that FEMA, in using the Internet system, had 

the right idea. I think it was a great start. But the problem was 

that you went down two different paths and they did not follow the 

19

same process. If you are going to do it on the left, you should do 

it on the right. And there is where the vulnerability existed. 

Mr. KUTZ. We tried to get in through the Internet, through the 

Web, and we got kicked back. So we went to the phone calls, and 

the very same people who got kicked out—so they did not even 

keep track of who got kicked out either to make sure that if they 

called, they would say, ‘‘Yes, you already tried, and we rejected 

you.’’ They did not even have that in place. 

Chairman COLLINS. And while there were controls if you applied 

via the Internet, those same controls did not exist if you called up 

and applied, which is why you were successful when you used the 

telephone application process, correct? 

Mr. RYAN. Correct. 

Chairman COLLINS. What is stunning about this is it is not a 

very sophisticated fraud to make up an identity and a Social Security number, and yet it was successful. But you first testified about 

doing this back in February, if memory serves me correctly. So this 

raises another interesting question. Has FEMA tried to recoup this 

money? 

Mr. RYAN. We have not received a recoupment letter, and we 

have not cashed the checks, which is kind of a clue that maybe you 

need to be looking at who is spending the money. 

Mr. KUTZ. We are probably the only people that have not cashed 

the checks, Senator. [Laughter.] 

Chairman COLLINS. That I would guess. 

Mr. Kutz, based on the review and investigations you have done, 

what do you think the real likelihood is of FEMA being able to recover a substantial amount of the improper or fraudulent payments, let’s say 50 percent? 

Mr. KUTZ. Almost zero percent chance. 

Chairman COLLINS. Because in many cases, as you have pointed 

out, if someone deliberately committed fraud, they are not going to 

stick around to be caught. 

Mr. KUTZ. Right. 

Chairman COLLINS. But, second, if someone received a check and 

thought, ‘‘Gee, what good fortune that I got this payment,’’ or 

‘‘Maybe I am allowed to collect twice because it was two different 

hurricanes,’’ isn’t it very likely that money is long gone? 

Mr. KUTZ. Yes, and, again, they have spent it. Again, like our recent examples of the students, many of them had spent the money 

already. What they spent it on we did not follow up on. But, yes, 

they are going to have a hard time paying it back now. 

Chairman COLLINS. Mr. Ryan, I understand that you investigated the case of the crab house where the 25 temporary workers 

received over $150,000 in assistance, despite the fact that they 

were clearly ineligible. Should FEMA have known that the workers 

should not receive this assistance? Did you find any evidence that 

FEMA had documents that should have raised red flags about the 

eligibility? 

Mr. RYAN. In this particular case, the individuals were here on 

work visas. They were working at the crab house. When the hurricane came, the owner took the employees and went to Florida. 

While they were in Florida, the owner of the business made sure 

that they had all their working visas, took them down to FEMA 

20

and provided the visas—provided the location for the worker to go 

to and the evidence that they had a working visa. It was presented 

to FEMA. Some of that documentation was recorded in the database. And when we reviewed it, we found it. 

What I would like to bring out is that in the application process, 

the question is asked: Are you a legal alien? And in these particular cases, without a further explanation or an understanding by 

the FEMA employee, these people were legal aliens. They were 

here on proper work visas. 

What needs to be done is that if you are going to ask that question, you need to have either a dropdown screen or you need to ask 

the appropriate follow-up question: Are you here on a student visa? 

Are you here on an H–1 or H–2 type visa? So that there is a better 

understanding of the person who is presenting the information so 

they can determine whether or not they are entitled or not entitled. 

So in this particular case, I will say that these 25 people who got 

money, I cannot tell you if they were legal or not legal. I cannot 

tell you if the visas were valid or invalid. I cannot tell you if they 

should have gotten benefits or they shouldn’t. However, I will tell 

you that we referred it to the task force, and we believe that these 

people ought to be interviewed and a criminal case started against 

them. 

Mr. KUTZ. Well, some of them provided fictitious information, 

and so some of them are suspicious fraud cases. The ones that had 

the visas scanned into the system were all from Mexico, and the 

other ones, there was nothing in the system basically. And when 

we checked their Social Security numbers, there were problems 

with a number of them. Some had never been issued before. So, 

again, some of these could be fraud cases. 

Chairman COLLINS. And I think that is an important point because in some of these cases what you are finding is outright 

fraud—manufactured Social Security numbers, false identities, 

other indicators of deliberate fraud. But in some of these cases, the 

individuals—I suspect the international students may be examples 

of this—presented legitimate documentation to FEMA that should 

have led FEMA to say you are not eligible for assistance, and there 

was not fraud on behalf of the claimant in some of these cases, but 

FEMA, through sloppy procedures, issued checks even though they 

had information that should have led them to disqualify the individual. Is that fair? 

Mr. KUTZ. Yes. And, in fact, representatives from the four universities said that FEMA representatives told the students to apply 

even knowing that they were not eligible. We could not validate all 

of that, but certainly we had multiple sources of evidence that the 

FEMA people knew these people were not eligible and that they let 

them apply anyway—or they encouraged them to apply. And so, 

again, like you said, in the FEMA system there appears to be valid 

student visas in the system, and even right next to that is a copy 

in the system of the FEMA flier saying foreign students are not eligible. They got money anyway. 

Chairman COLLINS. This shows me that, in addition to having 

better internal controls that are consistently applied and not suspended just because there is a large volume of applicants, we also 

need better training, better systems for ensuring that FEMA workVerDate 0ct 09 2002 12:26 Jul 06, 2007 Jkt 032356 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 C:\DOCS\32356.TXT SAFFAIRS PsN: PAT
21

ers understand the eligibility rules, which was Senator Lieberman’s 

point as well. 

I just have one final question for you, and it has to do with 

FEMA’s attempts to recoup this money. Mr. Ryan, you made a very 

good point that FEMA is not a collection agency. This is not an 

area where FEMA has expertise, and, clearly, resources are being 

diverted to collecting on these cases. And FEMA really does not 

have that as its mission. 

To me, the lesson from that is you have to have good controls up 

front to prevent this fraud in the first place. But what is your general assessment—I would like to hear from both of you on this 

issue—of FEMA’s system for triggering recoupment, going after obviously improper or fraudulent payments? Mr. Ryan, we will start 

with you. 

Mr. RYAN. My experience is that when the money gets out the 

door, it is gone, and you are chasing it down the street trying to 

find it. We are wasting almost as much money chasing it as what 

we are trying to recover. 

I cannot really give you my opinion because I really did not work 

on the recoupment process that they have. But I can tell you that 

based on testifying four times, five times in regard to FEMA, we 

really at your direction, the Committee’s direction and some of the 

other committees in Congress, looked at what really fraud is. How 

does fraud exist in these programs? In the past, we were told it 

was 1 or 2 percent. When we are identifying from a statistical sample 16 percent fraud, it appears that you have to do a better job 

up front because I do not know if you are going to be able to recover the money in the back. 

I cannot really comment as to the process that they are using for 

recoupment because I have not looked at it. Maybe Mr. Kutz has 

and the staff has. I have not. 

Mr. KUTZ. No, we have not systematically looked at it, but the 

interesting thing is that they have characterized recoupments or 

the $290 million as the fraud rate or the fraudulent or improper 

rate. Well, as you know, that does not make any sense. And they 

tried to compare that to the way we did a random statistical sample of the entire population. 

So it just almost seemed like they didn’t really understand what 

fraud, waste, and abuse is, and that kind of was a bit discouraging. 

But, again, the fact that they are identifying hundreds of millions 

of dollars is not a bad thing; if they can try to collect it, it is good. 

But you are right. If we get bogged down in FEMA doing debt collection and another disaster hits, that is not a good thing. 

Chairman COLLINS. I guess what is most disturbing to me, as I 

mentioned in my opening comments, is this is money that is desperately needed by the real victims to rebuild devastated communities and to rebuild their lives. The American people are very generous, but there is a limit to their generosity if they believe that 

substantial amounts of money are being lost to waste, fraud, and 

abuse. And that is clearly what happened in this case. 

It is particularly frustrating to me because in 2004 this Committee held oversight hearings looking at waste, fraud, and abuse 

in the wake of the Florida hurricanes, and we identified some of 

the exact same problems that you have testified about today. At 

22

1FEMA/DHS response appears in the Appendix on page 54. 

that time, I remember telling Michael Brown that he had to ensure 

that controls were in place before the next major disaster hit. Regrettably, he did not do so, and when a disaster of the magnitude 

of Hurricane Katrina hit, the magnitude of the waste, fraud, and 

abuse was that much greater. 

We cannot wait for yet another disaster to hit and for yet another round of investigations and hearings to spotlight once again 

the lack of basic safeguards and internal controls that any agency 

that is providing public assistance should have as a matter of 

course. This is not rocket science. It is not something where it requires technology that has not yet been developed. It is basic 

verification of eligibility, identity, address, and damage. And I for 

one am going to continue to push FEMA and the Department of 

Homeland Security to prove that they have those systems in place. 

The FEMA reform legislation that this Committee advanced and 

which was signed into law as part of the appropriations bill requires the development of those standards. It is not something, 

frankly, that we should have had to put in law to ensure that it 

was going to happen. It is basic management. But I hope that you 

will continue to work with us to probe and test the system to ensure that true progress has been made. 

We have asked DHS to respond to your testimony and to these 

latest findings and recommendations. They are still working on 

their response, and I look forward to seeing their response to these 

very troubling findings. 

We all know that lessons can be learned and applied in the wake 

of a disaster, and we have seen some progress being made in other 

parts of FEMA. And I realize there is a lot of progress that needs 

to be made. But the American people are not going to be willing 

to keep writing checks for disaster relief and assistance unless they 

are assured that the money is being wisely spent to benefit the 

true victims. And your work is vitally important in helping us 

achieve that goal. 

I very much appreciate all of your assistance to the Committee. 

It has been a great pleasure to work with you. I am certain that 

this Committee’s fight against wasteful spending will continue, and 

I look forward to working with you further. 

I also want to thank my staff for their diligent work on this hearing and, indeed, on all of the Hurricane Katrina investigation. It 

was the most extensive investigation ever undertaken by this Committee. I believe that this is our 25th Hurricane Katrina hearing, 

and I think we have learned a lot. We have issued a major report. 

We have enacted legislation. But it is clear that continued oversight will be necessary. So I want to thank the staff for their good 

work as well. 

The hearing record will remain open for 15 days to receive questions for the record, other materials, and I hope DHS’s written formal response.1

Thank you again for your good work. 

This hearing is now adjourned. 

[Whereupon, at 11:17 a.m., the Committee was adjourned.] 

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