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HEARING TO REVIEW RECENT

INVESTIGATIONS AND AUDITS CONDUCTED 

BY THE USDA INSPECTOR GENERAL

HEARING

BEFORE THE

SUBCOMMITTEE ON DEPARTMENT OPERATIONS, 

OVERSIGHT, AND CREDIT

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

JUNE 2, 2011

Serial No. 112–18

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

FRANK D. LUCAS, Oklahoma, Chairman 

BOB GOODLATTE, Virginia, 

Vice Chairman 

TIMOTHY V. JOHNSON, Illinois 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

GLENN THOMPSON, Pennsylvania 

THOMAS J. ROONEY, Florida 

MARLIN A. STUTZMAN, Indiana 

BOB GIBBS, Ohio 

AUSTIN SCOTT, Georgia 

SCOTT R. TIPTON, Colorado 

STEVE SOUTHERLAND II, Florida 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

MARTHA ROBY, Alabama 

TIM HUELSKAMP, Kansas 

SCOTT DESJARLAIS, Tennessee 

RENEE L. ELLMERS, North Carolina 

CHRISTOPHER P. GIBSON, New York 

RANDY HULTGREN, Illinois 

VICKY HARTZLER, Missouri 

ROBERT T. SCHILLING, Illinois 

REID J. RIBBLE, Wisconsin 

———

COLLIN C. PETERSON, Minnesota, Ranking 

Minority Member 

TIM HOLDEN, Pennsylvania 

MIKE MCINTYRE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

HENRY CUELLAR, Texas 

JIM COSTA, California 

TIMOTHY J. WALZ, Minnesota 

KURT SCHRADER, Oregon 

LARRY KISSELL, North Carolina 

WILLIAM L. OWENS, New York 

CHELLIE PINGREE, Maine 

JOE COURTNEY, Connecticut 

PETER WELCH, Vermont 

MARCIA L. FUDGE, Ohio 

GREGORIO KILILI CAMACHO SABLAN, 

Northern Mariana Islands 

TERRI A. SEWELL, Alabama 

JAMES P. MCGOVERN, Massachusetts 

PROFESSIONAL STAFF

NICOLE SCOTT, Staff Director 

KEVIN J. KRAMP, Chief Counsel 

TAMARA HINTON, Communications Director 

ROBERT L. LAREW, Minority Staff Director 

SUBCOMMITTEE ON DEPARTMENT OPERATIONS, OVERSIGHT, AND CREDIT

JEFF FORTENBERRY, Nebraska, Chairman 

TIMOTHY V. JOHNSON, Illinois 

STEVE KING, Iowa 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

———

MARCIA L. FUDGE, Ohio, Ranking Minority 

Member 

JAMES P. MCGOVERN, Massachusetts 

JOE BACA, California 

BRANDON LIPPS, Subcommittee Staff Director

(II) 

(III)

C O N T E N T S 

Page 

Fortenberry, Hon. Jeff, a Representative in Congress from Nebraska, opening 

statement .............................................................................................................. 1

Prepared statement .......................................................................................... 2

Fudge, Hon. Marcia L., a Representative in Congress from Ohio, opening 

statement .............................................................................................................. 2

WITNESS

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

Washington, D.C.; accompanied by Karen Ellis, Assistant Inspector General 

for Investigations, OIG, USDA; Steven Rickrode, Deputy Assistant Inspector General for Audit, OIG, USDA; Robert Young, Special Assistant to 

the Inspector General on the Recovery Act, OIG, USDA ................................. 3

Prepared statement .......................................................................................... 6

Supplementary material .................................................................................. 27

(1)

HEARING TO REVIEW RECENT

INVESTIGATIONS AND AUDITS CONDUCTED 

BY THE USDA INSPECTOR GENERAL 

THURSDAY, JUNE 2, 2011

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON DEPARTMENT OPERATIONS, 

OVERSIGHT, AND CREDIT, 

COMMITTEE ON AGRICULTURE, 

Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:05 a.m., in Room 

1300 of the Longworth House Office Building, Hon. Jeff 

Fortenberry [Chairman of the Subcommittee] presiding. 

Members present: Representatives Fortenberry, Crawford, 

Fudge, McGovern, and Peterson (ex officio). 

Staff present: Tamara Hinton, John Konya, Brandon Lipps, Pam 

Miller, John Porter, Debbie Smith, Heather Vaughan, Suzanne 

Watson, Liz Friedlander, Lisa Shelton, and Jamie Mitchell. 

OPENING STATEMENT OF HON. JEFF FORTENBERRY, A 

REPRESENTATIVE IN CONGRESS FROM NEBRASKA 

The CHAIRMAN. Good morning. The hearing of the Subcommittee 

on Department Operations, Oversight, and Credit to review recent 

investigations and audits conducted by the USDA’s Inspector General will now come to order. 

Thank you all for coming. I would like to thank Ms. Fong for 

joining us to discuss the work being done by the Department of Agriculture’s Office of the Inspector General. The Office of the Inspector General was established in 1978 to serve as an independent 

and objective body to audit and investigate departmental programs 

and operations. Through these audits and investigations, the Office 

of the Inspector General should ensure that taxpayer funds are 

being used properly. Further, these audits and investigations help 

Congress ensure that programs are being delivered as the law intended. 

As the Subcommittee tasked with the oversight of the Department’s operations, we have responsibility to monitor the activity of 

the Office of the Inspector General and to examine the results of 

its audits and investigations. Fundamentally, today’s hearing is 

about good government. We want to be sure that the Agriculture 

Department’s programs are being delivered effectively and efficiently to the citizens of the United States. 

To that end, we want to learn more about the recent audits and 

investigations conducted by you as well as the Department’s reVerDate 0ct 09 2002 11:38 Jul 08, 2011 Jkt 041481 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 I:\DOCS\112-18\67063.TXT. BRIAN
2

sponses to your conclusions. In addition to reviewing the recommendations, the hearing is also intended to assess the operations of your office itself, the Office of the Inspector General. We 

want to ensure that your office is performing the tasks for which 

it was created and making good use of taxpayer money to determine which programs should be prioritized for auditing. 

Ms. Fong, again, I thank you and your staff for being here today. 

We look forward to learning more about your recent audits and investigations. 

[The prepared statement of Mr. Fortenberry follows:]

PREPARED STATEMENT OF HON. JEFF FORTENBERRY, A REPRESENTATIVE IN

CONGRESS FROM NEBRASKA

Good morning. I’d like to thank Ms. Fong for joining us today to discuss the work 

being done by the Department of Agriculture’s Office of the Inspector General. 

The Office of the Inspector General was established in 1978 to serve as an independent and objective body to audit and investigate departmental programs and operations. 

Through these audits and investigations, the Office of the Inspector General 

should ensure that taxpayer funds are being used properly. Further, these audits 

and investigations should help Congress ensure that programs are being delivered 

as intended. 

As the Subcommittee tasked with oversight of the Department of Agriculture’s operations, we have a responsibility to monitor the activity of the Office of the Inspector General and to examine the results of its audits and investigations. 

Today’s hearing is about good government. We want to be sure that the Department of Agriculture’s programs are being delivered effectively and efficiently to our 

constituents. To that end, we want to learn more about the recent audits and investigations conducted by the Office of the Inspector General, as well as the Department’s responses to your conclusions. 

In addition to reviewing your recommendations to the Department, this hearing 

is also intended to assess the operations of the Office of the Inspector General itself. 

We want to be sure that the Office of the Inspector General is performing the tasks 

for which it was created, and making good use of taxpayer money in determining 

which programs to audit. 

Ms. Fong, I thank you and your staff once again for being here today, and I look 

forward to learning more about your recent audits and investigations.

The CHAIRMAN. With that, I would like to turn to our Ranking 

Member, Ms. Fudge from Ohio, for her statement. 

OPENING STATEMENT OF HON. MARCIA L. FUDGE, A 

REPRESENTATIVE IN CONGRESS FROM OHIO 

Ms. FUDGE. Thank you, Mr. Chairman. Before I begin my remarks, I want to say thank you to our full Committee Ranking 

Member for joining us today. He is an ex officio Member of the Subcommittee and it is a pleasure to see him. 

Mr. Chairman, I thank you for holding this hearing on USDA’s 

Office of Inspector General. This is a very important step in my understanding as to how USDA operates, and I look forward to hearing from Inspector General Fong to learn how their office functions, 

particularly her efforts to eliminate fraud and abuse in the SNAP 

program and ongoing oversight of civil rights issues. 

Ohio’s 11th district, like other urban areas, has suffered disproportionately from the recession. As a result, in Cuyahoga County, which I represent, we have seen a 25 percent increase in SNAP 

recipients in the past few years. This is significant for any county 

but especially in a state like Ohio, that has seen a sustained high 

rate of food insecurity. 

3

With all the pressure on Federal funding today, plus the importance of providing a safety net to those in great need in my district, 

I am committed to making sure that every penny of Federal money 

is going where it should. There is no room in the budget for abuse, 

for fraud or wasteful spending. I am interested to learn how the 

Office of the Inspector General is working toward this very necessary goal and how we in Congress can be helpful to you. 

I thank the witness for her testimony. I look forward to learning 

from you today. Welcome. 

Thank you. I yield back. 

The CHAIRMAN. Thank you, Ms. Fudge. I would also like to recognize our full Committee Ranking Member, Mr. Peterson from Minnesota, and see if you have an opening statement. Thank you, sir, 

for joining us today. 

The chair would request that Members submit their statements 

for the record so the witness may begin her testimony and to ensure that there is ample time for questioning. 

First I would like to welcome our first panel to the table. The 

Honorable Phyllis Fong is the Inspector General of the United 

States Department of Agriculture. She is accompanied by Ms. 

Karen Ellis, who is an Assistant Inspector General, Mr. Steven 

Rickrode, who is the Deputy Assistant Inspector General for Audit, 

and Mr. Robert Young, who is a Special Assistant to the Inspector 

General on the Recovery Act. Ms. Fong, please begin your testimony. 

STATEMENT OF HON. PHYLLIS K. FONG, INSPECTOR

GENERAL, U.S. DEPARTMENT OF AGRICULTURE,

WASHINGTON, D.C.; ACCOMPANIED BY KAREN ELLIS,

ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS, 

OIG, USDA; STEVEN RICKRODE, DEPUTY ASSISTANT

INSPECTOR GENERAL FOR AUDIT, OIG, USDA; ROBERT 

YOUNG, SPECIAL ASSISTANT TO THE INSPECTOR GENERAL 

ON THE RECOVERY ACT, OIG, USDA 

Ms. FONG. Thank you. Good morning, Mr. Chairman, Ranking 

Member Fudge, and all the Members of the Subcommittee. We 

really appreciate the opportunity to be here today to talk about our 

oversight work at USDA and we look forward to working with both 

of you in your oversight and leadership roles on this Subcommittee, 

we welcome the chance to address the interests of all the Members 

of the Subcommittee. You introduced my colleagues, so I just want 

to tell you that they are experts in their fields of responsibility, and 

they will handle all the tough questions today. 

You have my full written statement for the record, so I want to 

just offer a few brief comments this morning about the nature of 

our work and three key areas where we have been focusing a lot 

of our time over the past year: oversight of the Recovery Act funding within USDA, our work to strengthen food safety, and our work 

to address improper payments across the board in USDA programs. 

So let me start out with a few remarks about our mission and 

what we do. Simply stated, our job is to help USDA deliver programs as effectively as possible. As you know, we perform audits 

to see if programs are functioning effectively, if payments are going 

to the right people, and if funds are achieving their intended purVerDate 0ct 09 2002 11:38 Jul 08, 2011 Jkt 041481 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 I:\DOCS\112-18\67063.TXT. BRIAN
4

pose, their intended Congressional purpose. When we find problems, we make recommendations to USDA to help the agencies better fulfill their missions, but it is up to the agencies themselves to 

take actions to correct any issues that we find. We do not have the 

authority or the role to implement our own recommendations. 

We also conduct investigations, as you know, of people who abuse 

USDA programs, and these investigations can result in criminal 

prosecutions, fines, imprisonment for those who are convicted, and 

disciplinary action for USDA employees who may have engaged in 

misconduct. Over the last 18 months, our audit and investigative 

work led to potential monetary results of about $256 million. We 

issued about 89 audit reports and our investigations led to 740+ 

criminal convictions. 

So let me spend a little time talking about our Recovery Act work. As you know, the Department received $28 billion in a range 

of programs, including nutritional assistance, SNAP, in particular. 

The Recovery Act also charged our office with overseeing the expenditures of those funds and so to implement our responsibilities, 

we have looked and are looking and will look at every USDA program that received Recovery money. Currently, we are evaluating 

program delivery, namely whether USDA programs have given the 

money to participants who are eligible, whether the funds are 

being used for their intended purposes. We finished our work on 

internal controls in the programs. Next year, we will be looking at 

the effectiveness of the Recovery Act money, whether the program 

performance measures that USDA agencies established have been 

met, whether the jobs have been created, and the money has truly 

gone back into the economy. 

Some of our most significant Recovery Act work this year has addressed the Single Family Housing Guaranteed Loan program, in 

Rural Development, and in some of our initial work, we found that 

of a sample of 100 loans, 28 were made to ineligible borrowers. We 

are in the process of finalizing that audit. 

In the Supplemental Nutrition Assistance Program, we looked at 

the quality control process and found that FNS was not effectively 

reviewing and using state fraud detection units, and that report is 

out as well. 

Let me turn next to our work on food safety. That remains a top 

priority for us in both audits and investigations, and our goal there 

is to improve the USDA programs that safeguard the food supply. 

One example of our work in this area deals with the situation that 

arose last year with the multi-state egg recall. Because of that situation, we started an audit of USDA’s system for detecting Salmonella in shell eggs and we are looking at the effectiveness of 

USDA’s coordination with FDA to make sure that the whole process is working as effectively as it should. We have already issued 

one interim audit report to the Department because we found that 

over 270,000 of the 288,000 shell eggs that were recalled had been 

stamped with an official USDA grade mark, even though they had 

been considered adulterated with Salmonella. This happened because the egg producers are not required to notify AMS when there 

are indications of contamination that might make the eggs unfit for 

human consumption. We are still working with that audit and we 

anticipate having a full report on that later this year. 

5

Finally, I want to talk a little bit about our work on improper 

payments. Our work in this area is intended to save taxpayers 

money by ensuring that USDA programs deliver the correct benefits in the right amounts to eligible people. We issued a series of 

reports over the past year looking at improper payments from a variety of perspectives. We audited USDA’s suspension and debarment program and basically found that the Department should better protect its programs by debarring individuals and entities that 

abuse them. Although the Department has the ability to exclude 

people who commit crimes against these programs, we have found 

that in many cases convicted program violators were rarely suspended or debarred. 

In another area, we have done a lot of work on the Biomass Crop 

Assistance Program. We have an ongoing audit there. Part of our 

audit work resulted in an interim audit report that found that 

BCAP, as it is known, suffers from hasty implementation. The program agency was very concerned with getting the money out quickly and did not take the time, in our opinion, to include management controls adequate to prevent erroneous work and potentially 

improper payments. We are continuing our work on that program. 

Finally, in the SNAP program, which is of course one of USDA’s 

largest programs, we spend a lot of our time looking at and investigating fraud that is committed by retailers. We found that the 

most prevalent crime in the SNAP program involves benefits trafficking which occurs when a recipient exchanges his or her benefits 

for less than face value with a retailer, the retailer pays the recipient a certain amount of money which is less than the face value 

of the benefit, and then the retailer goes back to FNS to claim reimbursement for the full amount of the benefit. 

We have a large number of cases in our investigative inventory 

involving these kinds of frauds. The money can be very significant. 

For example, in the last year we looked at two Florida stores involving retailers and it resulted in a criminal prosecution for approximately $6.2 million in trafficking by owners of those stores 

and their co-conspirators. We are actually seeing those kinds of 

frauds across the country, it is not confined to any one geographical 

area. 

Finally, we are doing work in SNAP and the school lunch program to review FNS’s efforts to reduce the level of improper payments. Under the Improper Payment Information Act of 2002, we 

have to do a number of audits each year, and USDA has reported, 

as you know, that the level of improper payments in those programs has been going down. Our initial audit work has found that 

FNS has correctly reported that trend and has been making significant progress in reducing improper payments. We do recommend 

that FNS work aggressively to continue to reduce the rate of improper payments, which is currently around four percent in the 

SNAP program, and we think that FNS should continue to be aggressive about this. We are continuing our work as well in this 

area. 

So in conclusion, the Office of Inspector General remains committed to providing effective oversight to the Department and its 

programs. We are involved in the full range of USDA activities and 

6

1Pub. L. No. 111–5, 123 Stat. 115. 

2 5 U.S.C. app. 3, §§ 1–13. 3 Audit monetary impacts derive from funds put to better use and questioned/unsupported 

costs as established by Congress in the IG Act, 5 U.S.C. app. 3 § 5. Investigation monetary impacts come from recoveries, court-ordered fines, restitutions, administrative penalties, and asset 

forfeitures. 

we look forward to working with this Subcommittee to answer your 

questions and to explore areas of mutual interest. So thank you. 

[The prepared statement of Ms. Fong follows:]

PREPARED STATEMENT OF HON. PHYLLIS K. FONG, INSPECTOR GENERAL, U.S. 

DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C. 

Good morning, Chairman Fortenberry, Ranking Member Fudge, and Members of 

the Subcommittee. Thank you for the opportunity to testify about the Office of Inspector General’s (OIG) recent oversight activities concerning Department of Agriculture (USDA) programs. 

I will begin my testimony with a brief overview of OIG’s mission and the work 

we do. Next, I will summarize our efforts to assess and improve the Department’s 

programs and operations under the American Recovery and Reinvestment Act of 

2009 (Recovery Act).1 Then I will summarize, according to our major strategic goals, 

a number of the most important oversight projects and investigations we performed 

in Fiscal Years (FY) 2010 and 2011 to date. 

OIG’s Mission 

As you know, OIG’s mission is to promote the efficiency and effectiveness of 

USDA programs by performing audits and investigations to reduce fraud, waste, 

and abuse. The Inspector General (IG) Act established a dual reporting responsibility, whereby IGs report both to the head of their respective agencies and to Congress.2 This unique relationship provides the legislative safety net that protects 

OIGs’ independence and objectivity while carrying out our oversight responsibilities. 

We perform audits designed to ascertain if a program is functioning as intended, 

if program payments are reaching those they are intended to reach, and if funds 

are achieving the purpose they were intended to accomplish. When we find problems 

with the programs we oversee, we make recommendations we believe will help the 

agency better fulfill its mission. The agencies are responsible for implementing the 

recommended corrective actions. We also conduct investigations of individuals who 

abuse USDA programs—these investigations can result in fines and imprisonment 

for those convicted of wrongdoing, or agency disciplinary actions for USDA employees who are found to have engaged in misconduct. 

In FY 2010 through June 1, 2011, our audit and investigative work obtained po- tential monetary results totaling nearly $256 million.3 We issued 89 audit reports to strengthen the Department’s programs and operations, which produced over $46 

million in potential results when program officials agreed with our recommendations. During the same period, OIG investigations led to 743 convictions, with potential results totaling almost $210 million. 

OIG Oversight of USDA’s Recovery Act Work 

As part of the Recovery Act, USDA received $28 billion in additional funding for 

areas including rural development, farm loans, and nutrition assistance. The Recovery Act also provided OIG with $22.5 million over 5 years to oversee programs funded by the Act and administered by USDA. 

In response, OIG initiated a number of short- and long-term actions to provide 

timely and effective oversight of the Department’s expenditure of Recovery Act 

funds. As of June 1, 2011, we have issued 29 audit and 11 investigative Recovery 

Act reports. Since providing timely information is a priority, we are also issuing 

short turnaround reports, known as Fast Reports, so USDA program managers can 

take corrective action as soon as we identify problems. As of June 1, 2011, we have 

issued 53 Fast Reports covering issues such as loan and grant program administration, conservation work, and Forest Service (FS) capital improvement and maintenance projects. We will incorporate these into formal audit reports once we complete 

our work. 

Our audit division is approaching its review of Recovery Act-funded programs in 

three phases. In the first phase, which we have nearly completed, we are reviewing 

USDA agencies’ documented internal control procedures relating to Recovery Act 

programs. In the second phase, which is in progress, we are evaluating program delivery, reviewing participant eligibility, and ensuring that Recovery Act funds are 

7

4 04703–0002–Ch(1), Rural Development Guaranteed Single-Family Housing Loans Made by 

Lenders to Ineligible Borrowers, Dec. 2010. 5We chose a sample size of 100 because we expected a moderate error rate and wanted the 

ability to report findings with a Ò10 percent precision (confidence interval) at a 95 percent confidence level. 6SNAP, 7 U.S.C. § 2011 et seq., is still known as the ‘‘food stamp program’’ to many in the 

public, although it was officially renamed in 2008. 7The SNAP Recovery Act work summarized here can be found in: 27703–2–HY(1), State 

Fraud Detection Efforts for the Supplemental Nutrition Assistance Program, Jul. 2010; and 

27703–2–HY(2), State Fraud Detection Efforts for the Supplemental Nutrition Assistance Program—Use of EBT Management Reports, Sep. 2010. 8 24601–6–AT, Food Emergency Response Network, Mar. 2011. 

being used for their intended purposes. To accomplish this, we are using statistical 

sampling where possible and cost effective. In the third phase, which will start in 

FY 2012, we will evaluate program performance measures, and accomplishments 

and results reporting. 

Examples of our findings to date involving Recovery Act-funded programs include: 

Eligibility Determinations for Single Family Housing (SFH) Guaranteed Loans 

The Recovery Act included $133 million to finance over $10 billion in SFH loan 

guarantees in rural areas. Our statistical sample of 100 loans identified 28 loans 

where lenders had not fully complied with Federal regulations or Recovery Act directives in determining borrower eligibility.4 We found borrowers who were ineligible for a variety of reasons such as having annual incomes that exceeded program 

limits or being able to secure credit without a government loan guarantee. By guaranteeing loans for ineligible borrowers, other eligible borrowers may not have received guarantees that could have better achieved the goals of the Recovery Act. 

Based on the interim results of our statistical analysis, we estimate that 27,206 

loans were ineligible for the program (over 33 percent of the portfolio)—with a projected total value of $4 billion.5

States’ Supplemental Nutrition Assistance Program (SNAP) Fraud Detection 

USDA’s Food and Nutrition Service (FNS) administers SNAP through state agencies, which are primarily responsible for monitoring recipients’ compliance with 

SNAP requirements along with investigating cases of alleged intentional program 

violation.6 We evaluated FNS’ state-level controls to mitigate SNAP fraud, an area 

related to FNS’ increased Recovery Act funding.7 We determined that although FNS 

performed reviews to evaluate how states manage SNAP, the agency’s reviews did 

not target state fraud detection units. FNS indicated that such reviews were unnecessary because state annual activity reports were adequate to oversee state fraud 

detection; however, we found that these reports contained unreliable and unverified 

data. We also found that while FNS and state agency officials relied on hotline complaints and outside referrals to identify SNAP fraud, they did not make use of reports from electronic benefit processors that track participant and retailer activity 

to show potential fraud and misuse. FNS generally agreed with our findings and 

recommendations for those states we reviewed, but disagreed that they applied nationally. However, the agency did agree to review the electronic benefit reports and 

to encourage states to use them to identify SNAP fraud. 

Our investigation division is also working to ensure the integrity of Recovery Act 

programs by taking up potential cases of fraud, pursuing prosecution where warranted, and investigating whistleblower allegations. As of June 1, 2011, OIG investigations staff have received 29 referrals relating to USDA Recovery Act contract 

awards and 54 hotline complaints. 

OIG’s Major Strategic Goals 

Goal 1: Strengthen USDA’s Safety and Security Measures for Public Health 

One of OIG’s most important goals is strengthening USDA’s ability to protect public health and provide wholesome food for consumers. To achieve this objective, our 

audit and investigative work in FYs 2010 and 2011 to date has focused on helping 

to improve the programs that safeguard our food. 

For example, we audited FSIS’ Food Emergency Response Network (FERN), 

which integrates the nation’s food-testing laboratories into a network that can respond to food contamination emergencies.8 We concluded that FSIS has made 

progress with FERN, including establishing standardized diagnostic protocols, but 

needs to take more steps to implement the program fully. We recommended that 

FSIS ensure that there are enough laboratories to handle large-scale emergencies 

and that the agency use targeted surveillance to improve FERN’s readiness to reVerDate 0ct 09 2002 11:38 Jul 08, 2011 Jkt 041481 PO 00000 Frm 00011 Fmt 6633 Sfmt 6621 I:\DOCS\112-18\67063.TXT. BRIAN
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9 USDA and the Food and Drug Administration are responsible for ensuring the wholesomeness of shell eggs and egg products. 10 50601–1–23, Agricultural Marketing Service Needs Stronger Controls To Ensure the Wholesomeness of Shell Eggs Bearing USDA’s Grademark, Feb. 2011. 11 50601–14–AT, Effectiveness and Enforcement of Suspension and Debarment Regulations in 

the U.S. Department of Agriculture, Aug. 2010. 12 03601–28–KC(1), Recommendations for Improving Basic CHST Program Administration, 

Biomass Crop Assistance Program Controls over Collection, Harvest, Storage, and Transportation 

Matching Payments Program, Dec. 2010; and 03601–28–KC(2), Recommendations for Preventing 

or Detecting Schemes or Devices, Biomass Crop Assistance Program Controls over Collection, 

Harvest, Storage, and Transportation Matching Payments Program, Feb. 2011. 13The Food, Conservation, and Energy Act of 2008, Pub. L. No. 110–234, 122 Stat. 923; also 

known as the 2008 Farm Bill. 

spond to threats to the nation’s food supply. FSIS agreed with our recommendations. 

As a result of the nationwide recall of over 500 million shell eggs in August 2010, 

we are assessing the controls USDA has in place to inspect them. Officials with the 

Agricultural Marketing Service (AMS, which shares inspection responsibilities) informed us during our review that over 270,000 adulterated shell eggs included in 

a November 2010 recall were granted an official USDA grademark by the agency.9

The producer had mistakenly shipped the eggs to another state’s packing plant 

where an AMS official graded them without knowing they were under recall. In February 2011, we issued a Fast Report which recommended that the agency issue a 

notice to shell egg producers requiring them to inform AMS grading officials at their 

establishments when there are indications of contaminated eggs.10 AMS agreed with 

our recommendations. 

Since knowing where food comes from and what it contains is critical to ensuring 

its safety, our investigations have addressed cases where companies resorted to a 

variety of schemes to mislead the public and the government about the origin of 

marketed food. For example, we determined that one California company falsely 

claimed its products—chili peppers—were grown in the United States in order to obtain Federal clean health certificates from USDA. In fact, the peppers were imported from India and China, which would have made them subject to more stringent USDA inspections to ensure they did not carry foreign pests or diseases that 

could harm native species. In July 2010, a court fined the company $50,000 and ordered 3 years’ probation for making false statements. 

Goal 2: Strengthening Program Integrity and Improving Benefit Delivery 

OIG’s work in this area is intended to save taxpayers’ money by helping USDA 

programs deliver the correct benefits in the right amounts to eligible participants. 

Our efforts in achieving this objective range from advocating that USDA take vigorous enforcement action against those who abuse its programs to evaluating how 

effectively agencies are reducing improper payments. 

For example, in our audit of USDA’s suspension and debarment program, we determined that the Department should better protect its programs by debarring those 

individuals and entities that abuse them.11 Although the Department has authority 

to exclude those who commit crimes against its programs from doing business with 

the government, we found that convicted program violators were rarely suspended 

or debarred. Between FYs 2004 and 2007, only 38 of 1,073 individuals convicted of 

crimes against USDA programs were debarred—less than four percent. Since 

debarred individuals or entities are prohibited from participating in Federal programs outside USDA, vigorous and appropriate use of suspension and debarment 

provides for program integrity government-wide. USDA officials agree that suspension and debarment should be considered for convicted program abusers. Accordingly, we continue to work with the Department and its agencies to reach agreement on the corrective actions needed to employ suspension and debarment more 

effectively. 

Our ongoing assessment of a recently implemented program, the Biomass Crop 

Assistance Program (BCAP), indicates that it suffered from hasty implementation 

that did not include management controls adequate to prevent abuses particular to 

the program.12 The 2008 Farm Bill authorized BCAP, administered by the Farm 

Service Agency (FSA), to support renewable crops that can be used to produce energy.13 Despite spending over $243 million to implement the handling aspects of the 

program, such as collecting and transporting biomass, FSA did not institute a suitable system to provide oversight and ensure program integrity. 

We found wide-ranging problems with BCAP, including inequitable treatment of 

program participants and improper payments. These issues occurred largely because 

FSA, in an effort to implement the program quickly, did not develop tools specific 

9

14 APHIS made the unreported payments between FYs 2001 and 2007. (50099–45–AT, USDA 

Payments for 2005 Citrus Canker Tree Losses, Mar. 2011.) 

to the program’s needs, such as specialized guidance. Instead, FSA attempted to use 

guidance and oversight mechanisms designed for other programs, which left BCAP 

vulnerable. For example, we found three cases where biomass suppliers and conversion facilities circumvented poorly written agreements to obtain payments to which 

they were not entitled. FSA has taken corrective action in response to our recommendations to develop program-specific guidance and to specify prohibited practices in its BCAP agreements. 

Our audit work can also have ramifications outside USDA. For example, we determined that the Animal and Plant Health Inspection Service (APHIS) did not inform 

the Internal Revenue Service of nearly $291 million in payments it made over several years to producers whose groves were contaminated by citrus canker, a plant 

disease that infects orange and other citrus trees.14 As a result, the government 

lacks assurance that producers reported the payments, which may be taxable. In 

calculating payments, APHIS also did not fully account for insurance indemnities 

that producers may have received from the Risk Management Agency (RMA) for the 

same losses. Instead of verifying the indemnities with RMA, APHIS relied on producers who sometimes supplied incorrect information, which led APHIS to make 

over $1 million in erroneous citrus-canker payments. APHIS agreed with our findings and recommendations and has begun to take corrective action. 

OIG is also working to help USDA respond efficiently to future disasters by reviewing the adequacy of RMA’s management controls over indemnity payments 

made to citrus growers in the wake of Hurricane Wilma. We have focused our work 

on how insurance providers processed the growers’ claims and calculated the indemnity payments. Our work with the agency should offer an opportunity to strengthen 

how private insurance providers work with USDA to ensure accurate indemnity 

payments. 

Additionally, several noteworthy OIG investigations involving USDA benefit programs resulted in significant sentences in FY 2010. OIG’s investigations into fraudulent activities involving RMA and FSA are some of our most complex investigations because they often involve large monetary amounts and voluminous documentation. In FY 2010, for both agencies combined, we opened 76 cases and issued 

49 investigative reports, which led to 35 convictions and over $45 million in monetary results. In a particularly complex FSA case, we determined that a woman who 

owned a grain trucking and marketing company in Missouri defrauded over 180 

farmers out of at least $27 million. Between 2002 and 2009, she marketed and sold 

grain for farmers above market prices. As a result, she quickly became one of the 

largest grain dealers in her state. However, we uncovered evidence to prove that she 

was operating what is known as a ‘‘Ponzi Scheme’’—essentially, she was using the 

money from later sales to cover her previous above market prices. She eventually 

ran out of money and left her later customers unpaid. Due to our investigation, she 

pled guilty to fraud and transporting stolen property across state lines among other 

crimes. In February 2010, she was sentenced to serve 108 months in Federal prison 

followed by 36 months’ supervised release, and ordered to pay $27.4 million in restitution. 

Unfortunately, there are also individuals who seek to defraud USDA programs designed to provide basic nutrition assistance to those most in need, such as the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and 

the Child and Adult Care Food Program (CACFP), which are both administered by 

FNS. In FY 2010, we opened 26 investigations in these areas and issued nine investigative reports. This work led to 28 convictions and almost $3 million in monetary 

results. 

Since these programs work by reimbursing individuals or entities who provide 

benefits, one common abuse involves submitting inflated claims. For example, one 

investigation disclosed that an Oklahoma CACFP day care sponsor systematically 

claimed reimbursement for more meals than were served. The court ordered $1.6 

million in restitution and sentenced the sponsor to 41 months’ incarceration. 

OIG investigations of criminal activity into another food program, FNS’ SNAP, re- sulted in 212 convictions and approximately $36 million in monetary results in FY 

2010. SNAP is USDA’s largest program, both in terms of the dollars spent and the 

number of participants. In FY 2010, recipients redeemed close to $65 billion in benefits. The latest available data show that in February 2011 more than 40 million people received almost $6 billion in SNAP benefits. SNAP is also an important part of 

the food safety net for Americans, especially during times of economic hardship. 

During the recent recession, SNAP participation increased by about 20,000 persons 

daily—the program helped feed one in eight Americans and one in four children. 

10

15 Exec. Order No. 13,520, 74 Fed. Reg. 62101 (Nov. 20, 2009). 16 USDA’s FY 2010 Performance and Accountability Report. 17 Chief Financial Officers Act of 1990, 101 Pub. L. No. 576; 104 Stat. 2838. 18 50401–70–FM, Department of Agriculture’s Consolidated Financial Statements for Fiscal 

Years 2010 and 2009, Nov. 2010. 19We issued the following financial statement audits in November 2010: 85401–18–FM, Rural 

Development’s Financial Statements for Fiscal Years 2010 and 2009; 06401–25–FM, Commodity 

Credit Corporation’s Financial Statements for Fiscal Years 2010 and 2009; 08401–11–FM, Forest 

Service’s Financial Statements for Fiscal Years 2010 and 2009; 27401–35–Hy, Food and Nutrition Service’s Financial Statements for Fiscal Years 2010 and 2009; and 05401–19–FM, Federal 

Crop Insurance Corporation/Risk Management Agency’s Financial Statements for Fiscal Years 

2010 and 2009 (RMA operates and manages the Corporation, so they are included as a single 

entity for financial statement audits). 20 10401–4–FM, Natural Resources Conservation Service’s Financial Statements for Fiscal Year 

2010, Nov. 2010. 21 44 U.S.C. § 3541 et seq. 22 50501–02–IT, U.S. Department of Agriculture, Office of the Chief Information Officer, Fiscal 

Year 2010 Federal Information Security Management Act, Nov. 2010.

Given the considerable participation and funds involved, OIG devoted about 40 

percent of its investigative resources in FY 2010 to SNAP-related criminal investigations—this was our largest allocation of investigative resources. Our main focus is 

on fraud committed by retailers, primarily because FNS directly reimburses retailers while states are responsible for ensuring that recipients are eligible. With few 

exceptions, our investigations yield tangible and direct benefits to the government, 

including criminal prosecution, significant fines and penalties, and restitution. 

The most prevalent crime against SNAP is benefits trafficking, which involves a 

recipient exchanging benefits for less than face value with someone who then claims 

reimbursement for the full amount. The money involved in this type of SNAP fraud 

can be significant. For example, our analysis of two Florida stores’ SNAP transactions identified approximately $6.2 million in trafficking by their owners and 

other co-conspirators. Between March and May 2010, four defendants pled guilty to 

wire fraud and SNAP fraud, and were sentenced to prison terms ranging from 8 to 

48 months along with restitution orders ranging from about $350,000 to $2.2 million. 

In providing oversight to SNAP, OIG audit staff conducts reviews designed to improve FNS’ overall management controls for this program and others. For example, 

after the President issued an executive order in 2009 to reduce improper payments 

in Federal programs, we evaluated FNS’ compliance with reporting requirements as 

they relate to SNAP and the National School Lunch Program (NSLP).15 According 

to the Department, improper payments for these programs in FY 2009 cost taxpayers nearly $2.2 billion for SNAP and $1.5 billion for NSLP.16 In general, we concluded that FNS reported its improper payments correctly and has made significant 

progress in reducing them. For example, the agency has improved its controls over 

eligibility and payments in both programs to better ensure that qualified participants receive the correct benefits. We recommended that FNS continue to set aggressive reduction targets and work to refine the precision of its model for determining NSLP’s improper payment rate. The agency agreed with our findings and 

recommendations for both programs. 

Goal 3: OIG Work in Support of Management Improvement Initiatives 

OIG continuously monitors risks to USDA programs in order to help the Department address programmatic concerns, and to improve overall Department management. For example, OIG is required to annually audit USDA and some of its agencies’ financial statements as well as USDA’s information technology system security.

• Pursuant to the Chief Financial Officers Act of 1990 17 and guidance from the 

Office of Management and Budget, Federal OIGs are responsible for annual audits of Departmental and agency financial statements in order to provide reasonable assurance that the financial statements are free of material 

misstatements. USDA’s FYs 2009 and 2010 consolidated financial statements 

received an unqualified opinion,18 as did the financial statements for five of six 

other USDA entities that are required to undergo a financial statement audit.19

The sixth lacked sufficient support for transactions and account balances, and 

so received a disclaimer on its financial statements because an audit opinion 

could not be given.20

• As required by the Federal Information Security Management Act,21 OIG examined the security of USDA’s information technology in FY 2010.22 We found that 

improvements have been made, but weaknesses remain. For example, the Department has not established a program to secure remote access to USDA inforVerDate 0ct 09 2002 11:38 Jul 08, 2011 Jkt 041481 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 I:\DOCS\112-18\67063.TXT. BRIAN
11

23 31 U.S.C. §§ 3729–3733. 24 08601–7–AT, Forest Service Invasive Species Program, Sep. 2010. 25 08601–54–SF, Forest Service’s Firefighting Succession Planning Process, Mar. 2010. 26See 7 U.S.C. § 2270b. 

mation systems, or to oversee systems operated on USDA’s behalf by contractors 

and other entities. In order to mitigate continuing material weaknesses, we recommended, and USDA agreed, that the Department rethink its policy of attempting to achieve numerous goals at the same time in short timeframes. Instead, USDA and its agencies should accomplish one or two critical objectives 

before moving on to the next set of priorities. 

The Secretary of Agriculture also requested that we examine the Department’s 

civil rights program. Accordingly, we recently initiated an audit of USDA’s progress 

in addressing civil rights complaints related to alleged discrimination in its programs. Specifically, we will assess USDA’s decision-making process for settling with 

complainants who allege discrimination. We will also follow-up on our prior recommendations to improve USDA’s civil rights process. 

In addition, OIG investigates potential criminal activity and allegations of employee misconduct. In FY 2010, our investigations included the following cases involving USDA employees and entities working with the Department.

• Our investigations uncovered a scheme by a Nebraska FSA employee to embezzle funds. The employee entered false repayment rates and backdated repayment dates when servicing FSA loans made to her and her husband. In total, 

she defrauded the agency of more than $44,000, which she agreed to repay as 

part of a plea agreement. In June 2010, she was sentenced to 8 months of house 

arrest and 36 months of probation. FSA no longer employs her.

• Working with other Federal investigators, OIG determined that a Massachusetts corporation collected millions of dollars from several government agencies 

for services it never provided. The corporation offered training on computer software and other information technology. Using a pre-paid voucher system, several USDA agencies paid up front for training that the company never delivered. In April 2010, the corporation agreed in a settlement to return a total of 

$4.5 million to the government.

• In a joint investigation with other law enforcement units, we disclosed that, 

since 2001, a major shipping company had been miscoding its reasons for making late deliveries to USDA and several other Federal agencies in order to avoid 

penalty fees. The company falsely claimed that the delays were due to security 

measures. In April 2011, the company agreed to pay the United States $8 million to resolve its alleged violations of the Federal False Claims Act.23

Goal 4: Improving USDA’s Stewardship of Natural Resources 

USDA provides leadership to help America’s private landowners and managers 

conserve soil, water, and other natural resources. Our goal in auditing these activities is to increase the efficiency and effectiveness of USDA stewardship over natural 

resources. 

For example, FS is responsible for preventing the introduction of invasive species 

into the lands it manages and combating those that are already there. Though this 

affects hundreds of millions of acres, OIG determined that FS’ invasive species program lacks many of the internal controls ordinarily associated with the effective 

stewardship of Federal resources, such as an overall risk assessment.24 FS agreed 

with OIG’s recommendation to establish a sound internal control structure. In addition, over the last decade, FS has dealt with increasingly severe fire seasons and 

its firefighting costs have more than doubled, rising over $1 billion in FY 2009. 

Thus, OIG has conducted a number of reviews intended to help FS better combat 

these natural disasters. In one audit, OIG assessed FS’ succession plans for critical 

fire management positions, such as fire incident commanders.25 In 2009, approximately 26 percent of these critical personnel were eligible to retire; in 5 years, 64 

percent will be eligible; and in 10 years, 86 percent. We found that FS has not developed an adequate plan and training program to replace these critical personnel. 

We recommended that FS develop a national workforce plan that would proactively 

address openings in the agency’s firefighting ranks. FS generally concurred. 

OIG is also required to investigate the deaths of FS employees resulting from 

wildfire entrapment or burnover.26 Our most recent investigation in this area addressed the deaths of five firefighters during the Esperanza Fire in California. Our 

report—published in December 2009—found no issues related to potential misconduct or unauthorized actions by FS personnel. 

12

Conclusion 

In summary, OIG’s work ranges from overseeing Recovery Act funds to helping 

USDA promote public health and safety, strengthen programs, save taxpayer dollars, improve management, and conserve natural resources. Our audits and investigations illustrate OIG’s continuing commitment to work collaboratively with the 

Department to improve program effectiveness and integrity. We focus our work to 

meet our mandated mission of promoting economy, efficiency, and effectiveness in 

USDA by preventing fraud, waste, and abuse. 

This concludes my testimony. Thank you again for inviting me to testify before 

the Subcommittee. We would be pleased to address any questions you may have.

The CHAIRMAN. Thank you again for appearing today and for 

your testimony. I will begin with questions. 

Let us go to the SNAP program and the improper payment issue 

and in Fiscal Year 2009, I have information that $2.2 billion in improper payments were made. Of course, as you mentioned, this is 

the largest USDA program approximately last year spent about 

$65 billion. You have spent a significant amount of resources on 

looking at this problem of benefits trafficking at the retail end. At 

the conclusion of your testimony, you were admonishing the Food 

& Nutrition Service to look at improper payments, I assume you 

mean to individuals who may not be eligible or who may have some 

potentially fraudulent claim for eligibility. Why the emphasis primarily on the retailer? Which, don’t get me wrong, that is important, but given that the largest areas for potential fraud may be 

in terms of eligibility requirement, why not focus a significant 

amount of resources there as well? 

Ms. FONG. Well, that is a very good and interesting question, and 

I am going to ask Karen to comment in a second. Let me just start 

out by noting that, as you recognized, fraud can occur at two levels, 

both the retailer level and at the individual recipient level. The 

way the program is structured is that the states have responsibility 

primarily for ensuring——

The CHAIRMAN. Let me go back to something you said. You said 

the FNS is not effectively using state data in terms of its own investigations into fraud, and I assume you mean in regards to eligibility requirements of individuals. 

Ms. FONG. Exactly, yes, what our audit concluded was that FNS 

should be working more effectively and ensuring that states use 

this data to really make sure that individual recipients are eligible, 

and that is the safeguard in the system, in the structure. 

The CHAIRMAN. Should some of your emphasis in your office shift 

to that aspect of investigation? 

Ms. ELLIS. What we focus on in the criminal investigation side 

is building a criminal case and working with the Department of 

Justice to make an impact in the trafficking aspects. In trafficking, 

we concentrate on the retailers because those are the folks that are 

authorized by FNS to legally take food stamps and SNAP benefits. 

The CHAIRMAN. My intention is not to under-emphasize the importance of that work. I was simply asking how you determine the 

balance as to where you are applying your efforts in looking at improper expenditures in the entire system. Retail trafficking is an 

important part of it, and frankly I would like to go there in perhaps 

a second round of questioning as to how a person actually commits 

fraud and how we can do a better job ensuring that at the retail 

level, but to my other question where clearly there is some level 

13

of gap, in your own testimony, by saying that we are not effectively 

using the state data to determine, perhaps, the ineligibility in 

these programs, and that is one area of fraud. I just want to understand clearly, that was only a sentence that you had saying we 

need the Food & Nutrition Service to better use state data. 

Ms. FONG. And let me just add something. We have actually this 

past year initiated our own work to start looking at eligibility of 

individual recipients, and we have——

The CHAIRMAN. Okay, now this is——I think we are to the point. 

Ms. FONG. Yes, and let me see if I can elaborate on this. We have 

created a unit in our audit group that analyzes data to see if there 

are perhaps indications at the state level of people who may be getting duplicative payments from more than one state, or who may 

have erroneous payments. We are in the process right now of looking at four or five different states, comparing their data and trying 

to find out where the erroneous or improper payments may have 

occurred. 

The CHAIRMAN. What is the reason that you picked those states 

is another question that I have. Is there a concentration of problems in the system, any particular region or state or is it simply 

just widespread abuse that is a subset for analysis? 

Ms. FONG. We had five states, and I think there is a geographical 

spread. We can find out why we picked those five, but we have 

been working with both FNS and the state government entities 

that oversee the SNAP programs, and we are starting to find some 

results. 

The CHAIRMAN. In the interest of letting other Members speak, 

I will probably return to this line of questioning after we hear from 

other Members. I will now turn to our Ranking Member, Ms. 

Fudge. 

Ms. FUDGE. Thank you, Mr. Chairman. I will now yield to our 

full Committee Ranking Member, Mr. Peterson. 

Mr. PETERSON. I thank the gentlelady for yielding. I want to follow up on this. 

What I hear about is retailers, as you mentioned in your testimony, and what I want to understand is that some are ringing up 

the sale and charging it against the card but there is actually not 

a sale and then they take the cash and they split it between the 

retailer and the recipient. I hear about it a lot in my district. We 

just have a problem where we have these stamps where people will 

sell them outside the grocery store. The question I have is, how do 

they do this? Do they actually ring up the groceries and then don’t 

give them to the customer, how do they access this money on the 

card if they don’t actually ring up purchases? If they ring up phony 

purchases, how does that fit within their books? I mean, that can’t 

work. Can you explain to me how they do this? 

Ms. ELLIS. Yes, I am happy to explain that to you. It is pretty 

similar to what happened with the coupons, and what happens is, 

you have the recipients selling the benefits to store owners at a 

lower amount. So say the EBT card has $100 of benefits on it. They 

may sell it to an authorized grocery store for half of that, $50——

Mr. PETERSON. And how can they do that? 

Ms. ELLIS. Well, what they do is, they give the card as well as 

the PIN number to the store owner and then the store owner slides 

14

it through. They slide it through just like a credit card transaction 

and they get the full amount, the full $100 back, the store owner 

does. 

Mr. PETERSON. So in order to access these benefits, you don’t actually have to ring up the groceries? 

Ms. ELLIS. No. 

Mr. PETERSON. Well, why not? I mean, every one of these stores 

has electronic capabilities, and records when each item is scanned. 

Why don’t you require that you cannot access this money unless 

you actually access it like a regular credit card? Why would you 

allow this if they have a PIN number to access the benefits? I 

mean, I think you have left a hole in this thing unless it is more 

complicated than I understand. 

Mr. YOUNG. Well, in answer to that question, what happens, the 

problems aren’t with your big supermarkets. 

Mr. PETERSON. No, I understand it is with the mom and pops. 

Mr. YOUNG. And these small little stores when they ring up 

things, they don’t have the sophisticated computer systems to identify what was sold. 

Mr. PETERSON. So the fraud isn’t happening in the big stores 

that are electronically capable? 

Mr. YOUNG. Right. So what happens is, you just have a total 

amount. I mean, they might take an adding machine and add that 

up of what groceries you have, then they input $50, $75, whatever 

the sale might be. 

Mr. PETERSON. Well, why do we allow that? 

Mr. RICKRODE. It is tough to catch. I mean——

Mr. PETERSON. To be honest with you, you go in these convenience stores and buy your groceries, you are getting ripped off. You 

are paying two or three times as much as you should. I sometimes 

wonder why we even let people use these in convenience stores. If 

you eliminated small stores, it may force people to go in the grocery 

store. I know we have some places that don’t have good access to 

food centers and so forth, but it just seems like we have found another hole in this thing. 

Mr. YOUNG. Well, the same question you are asking is the question that we have asked over the years. The problem is that a lot 

of food stamp recipients or SNAP recipients, they don’t have transportation, they don’t have any way to get to a big supermarket. Oftentimes in rural areas, there is not a larger supermarket for miles 

so they go to these small convenience stores to buy their groceries. 

Then as a result, some of these stores, don’t have the sophisticated 

accounting systems to be able to track purchases. There are many 

stores like that that are very honest and do a good job, but there 

are those few that aren’t that are causing problems. 

Mr. PETERSON. Most convenience stores in my area have the 

same kind of electronic system that the big grocery stores have. 

But, it is a problem and I hear about this in my district. I think 

we ought to look at if there is some way of cutting down on fraud 

to less than five percent. My understanding it is four percent. Is 

it climbing back up again? 

Ms. FONG. I believe four percent is the latest reported. 

Mr. PETERSON. That is the lowest it has ever been? 

Ms. FONG. Excuse me? 

15

Mr. PETERSON. That is the lowest it has ever been? 

Ms. FONG. It is, I believe. 

Mr. PETERSON. Well, we need to zero in on this a little bit and 

make sure that people are doing the right thing. 

The CHAIRMAN. I thank the Ranking Member for his comments. 

I will turn to the gentleman from Arkansas, Mr. Crawford. 

Mr. CRAWFORD. Thank you, Mr. Chairman. 

I want to continue along the line that the Ranking Member—

down the road he was going. First I would like to clarify how the 

states administer the benefits. Are they—do you defer to the states 

to determine eligibility requirements and so on? 

Ms. FONG. That is the role that a state plays under any program. 

That is the way the program is structured. USDA and FNS provide 

the funding for each state, and the state implements the funding 

by verifying eligibility of individual applicants, so they run the application and certification process. 

Mr. CRAWFORD. Along the lines of what the Ranking Member 

was saying, we are issued credit cards for travel purposes that only 

recognizes purchases for travel. I can buy an airplane ticket, I can 

buy a train ticket or a bus ticket or whatever. But, it only works 

for travel. Could there not be a similar measure on these SNAP 

cards that only recognizes purchases of approved food, number one? 

Number two, does someone who is eligible for these benefits, do 

they have to go every month and renew and reapply and restate 

their eligibility, and would that not be an effective way to help 

manage some of that potential fraud? 

Ms. FONG. Well, I think you have a very good idea there about 

whether the card system itself could be structured so that it only 

recognizes certain transactions. That would certainly be an idea 

worth exploring with FNS. That has some merit to it. 

In terms of eligibility, I don’t believe that applicants are recertified every month but I think there is a regular process to make 

sure that the applicants continue to be eligible. 

Mr. YOUNG. I think it is every 6 weeks they have to go back, it 

is less than a year, I am not sure of the exact amount of time. They 

are approved for SNAP and then after a period of time they have 

to go back and recertify. 

Mr. CRAWFORD. Okay, and as I understand it, they issue a SNAP 

card. There is a PIN number associated with that card. Is that individual card reloaded every month? Do you have to go back and 

reload that individual card? 

Mr. YOUNG. Yes. 

Mr. CRAWFORD. I would suggest that a PIN number is not sufficient for security purposes, and that can be compromised as the 

Ranking Member indicated. It can be easily compromised and lend 

itself to fraudulent activity at virtually every level, whether it be 

on the street or whether it be through the retailer. So I am hoping 

that we can work on a solution to streamline security measures 

that are implemented with the SNAP program. 

I want to switch gears real quick on to BCAP. The provision was 

created in the 2008 Farm Bill to encourage producers to establish 

new dedicated cellulosic and biomass crops by way of President 

Obama in May 2009, Department of Agriculture began eating into 

the BCAP program contracts before establishing program rules. As 

16

you noted, this resulted in excessive and improper spending as a 

result there were no new biomass crops to show for the $1⁄4 billion 

that was spent first. I understand the Department of Agriculture 

is taking corrective actions to better administer the Biomass Crop 

Assistance Program, but there are still many concerns. Will the Office of Inspector General be following up with the administration 

of BCAP now that the program is operating under new rules. 

Mr. RICKRODE. Yes, we will be following up on that, and we have 

performed audit work on BCAP, as you mentioned. That work is 

concluding currently. We did issue one report about what we found, 

and as we go forth, we will complete the work we are doing and 

then issue a final report. 

Mr. CRAWFORD. Okay. Are there any other cases where the Office 

of Inspector General has found an agency moving forward without 

program rules? 

Ms. FONG. In general? 

Mr. CRAWFORD. In general. 

Ms. FONG. I am not recalling anything off the bat, but, periodically, as you know, when you pass a law that creates new programs, frequently there are requirements that agencies implement 

in a certain amount of time. So agencies have to move very, very 

expeditiously to do that. Sometimes the rulemaking process can 

take longer than implementation schedules, and so that always creates a challenge for agencies. 

Mr. PETERSON. Will the gentleman yield? 

Mr. CRAWFORD. Sure. 

Mr. PETERSON. You know, I think I am somewhat responsible for 

this fiasco, and what happened. The timber industry saw an opportunity here. They were in trouble and they needed to make money 

and so they saw opportunity here to supplement their income, and 

I was under a lot of pressure to open this up to the timber and 

pulp industry. So, that is where the money went. These people that 

added it wrote it, to support the forest economy. The rules were so 

specific that they didn’t have the right rules because it said exactly 

what they had to do so they implemented it, and then of course, 

everybody was sitting there waiting for that. Then things got out 

of control. But, the reason that was given to me by FSA was because the language was so specific that their lawyer said that we 

need to follow the law. Hopefully they won’t do anything like that 

again. The BCAP program was designed to create new crops, and 

it hasn’t done that at all. It is really worthless, and frankly, at this 

point, I don’t support extending it. I’m not sure it is ever going to 

work. 

Mr. CRAWFORD. I have some issues in my district with the BCAP 

project where we are running into problems with, so I thank you 

for your——

The CHAIRMAN. I thank the gentleman from Arkansas, and I 

want to thank Ranking Member Peterson for his frankness. I don’t 

think these words have ever been uttered in the halls of Congress, 

‘‘I think I’m responsible for this fiasco.’’ Then he mitigated his culpability by saying the Senate forced it upon me. 

Let me turn now to the gentleman from Massachusetts, Mr. 

McGovern. 

Mr. MCGOVERN. Thank you very much. 

17

When you talk about a four percent error rate in the SNAP program, does that also include underpayments or is that just fraud? 

Ms. FONG. I believe the four percent rate is for any kind of improper payment including under, and over——

Mr. MCGOVERN. So an improper payment could be somebody who 

is eligible for a particular amount and is paid less? 

Ms. FONG. Exactly. 

Mr. MCGOVERN. Just doesn’t get what he or she deserves. 

Ms. FONG. Exactly. 

Mr. MCGOVERN. So it is not just somebody taking advantage of 

the system. Based on your oversight, would it be accurate to say 

that the SNAP program is in general run well and effective, or 

would you have a different characterization? 

Ms. FONG. My sense, and we have been doing oversight for many 

years, is that overall the program is a well-run program. 

Mr. MCGOVERN. Do you have any idea of how many people who 

are eligible for SNAP currently but are not taking advantage of it? 

Ms. FONG. I don’t believe we have done any work in that area. 

Mr. MCGOVERN. My understanding is that there are a considerable number of people who are eligible for the benefits but don’t 

know they are eligible for the benefits, don’t know they can take 

advantage of it, including a lot of working families who are struggling in this economy, who are trying to get by. You know, I have 

to put this in a little bit of perspective. I agree with what everybody said here in terms of cracking down on fraud, and I believe 

in finding more effective ways to do it and you said it is related 

to small stores. I mean, I am not sure how practical it is to require 

all the small stores to put in the storewide electronic equipment to 

be able to—so that we could do better oversight—that is a cost in 

and of itself. But what happens if you found out a small store 

abuses the system? Do they lose their ability to serve people with 

food stamps, or what happens? 

Ms. ELLIS. What happens is, when we are finished with our 

criminal investigation, we refer them back to the agency to FNS 

and have them take administrative action, and what we generally 

find is that FNS does disqualify the store. 

Mr. MCGOVERN. I will go back to what was mentioned before. 

For a lot of people, food deserts are a reality, they don’t have a 

choice to go to big supermarkets. They have their choice of small 

stores because they are limited by transportation or because of—

where they happen to be, unfortunately they rely on convenience 

stores as opposed to the supermarket. I am new on this Committee, 

so how do you determine what to prioritize and what to investigate? How do you determine what to look at? 

Ms. FONG. Well, as you know, we do both audits and investigations so we have a priority-setting process on each side of the 

house. On the audit side, first of all, we look at our mandatory 

work, and that is the work that Congress has required us to perform. That includes things like the annual financial statement audits, IT security audits, some other statutorily required audits in 

the farm bill, for example. Then after that, we start looking based 

on our experience, where we believe the vulnerabilities exist and 

we look at high dollar amounts that could be a risk. We ask agency 

program managers, the Secretary, and Members on the Hill for 

18

input as to where you think we should be focusing our priorities. 

We put all that into the hopper and we look at our past work 

where we believe that there are areas that need further follow-up. 

Then we develop a list of planned audits, which we publish on our 

website. 

Mr. MCGOVERN. Last question here. The reason why I asked that 

is because one of the things I am very concerned about is the increasing hunger in the United States, and to be able to deal with 

that issue effectively obviously relies on the effectiveness of programs like SNAP but a whole bunch of other programs, many of 

which are within the USDA. The President has now said he wants 

to eliminate child hunger in America by 2015. I am not convinced 

we are going to get there, based on what we are doing right now. 

But I think it would be helpful to me, for example, to know the 

overall effectiveness of some of our anti-hunger programs. I worry 

that during this time of difficult budgets that it is convenient to 

look at the SNAP program as a way to save money because we 

point to examples of abuse, yet the bigger problem is hunger and 

food insecurity. In some cases we may need to expand some of 

these programs as to the effectiveness of the food nutrition programs within the Department of Agriculture to see whether or not 

we are making progress on the President’s goal of eliminating 

childhood hunger by 2015. 

Ms. FONG. Okay. We will factor that into our planning process. 

Mr. MCGOVERN. Thank you very much. 

The CHAIRMAN. I thank the gentleman. I will turn now to our 

Ranking Member, Ms. Fudge. 

Ms. FUDGE. Thank you, Mr. Chairman. I just want to make a 

couple comments. I mean, certainly, the problem is not just in the 

SNAP program. In neighborhoods like mine, we talk about earned 

income tax credit. I know people who take other kids’ Social Security Numbers, and others who take farm subsidies. I am trying to 

track down this one farmer who literally called my office, and indicated that his family had a farm and it went belly-up. Shortly after 

that he started receiving farm subsidies from the Federal Government and then shortly after that he heard from his state saying we 

want you to grow this crop. Of course, he is scared to death. He 

doesn’t know what to do. So I am trying to get him to calm down. 

But I mean, it is everywhere. It is everywhere. We have to continue 

to try to catch as many of those as we can, and I think punish 

them more than we have in some instances because I think that 

becomes a real deterrent. If you are in a neighborhood and you go 

into these stores and the store owner goes to jail for 5 years, the 

next store owner that comes behind him might not be willing to 

take that same risk. 

Under the Inspector General Act, Ms. Fong, you clearly do have 

statutory authority to initiate investigations independent of the 

Secretary asking you to do it. So with this in mind, could you 

please explain to me why the Secretary had to request your office 

to conduct an investigation of the operation of civil rights procedures and why you didn’t take the initiative on your own? 

Ms. FONG. Okay. Let me just talk a little bit about our work in 

civil rights programs over the last 5 or 10 years. We have always 

viewed the civil rights programs as a priority within USDA, and 

19

we have done a wide range of audits in both Title VI and Title VII 

arenas. I believe we issued the baseline set of audits 10 years ago. 

Since then, we have been keeping very close track of the Department’s progress. We issued another report about 3 or 4 years ago, 

and then the new Administration came in and took office with a 

new Assistant Secretary for Civil Rights. At that time the Assistant Secretary and the Secretary both announced initiatives to address some of the longstanding issues that we had been finding in 

terms of the long amount of time it takes to address complaints in 

both Title VI and Title VII areas. We had initially considered starting work in 2009 and 2010 but after evaluating that, evaluating 

the need for the agency to have enough time to implement some 

of those initiatives, we decided to hold some of our work until this 

year. 

Now, you mentioned that the Secretary made a request to us to 

initiate that. He did, and we are very supportive of that. If he had 

not asked us to initiate it, we had planned to initiate it, and so it 

was a situation where both of us were recognizing the need for that 

work. As you also know, we have responsibilities under the Pigford

provisions of the Claims Resolution Act of 2010 and we will be carrying out those responsibilities. Under the last farm bill, we had 

a mandate to do a review of socially disadvantaged farmers and 

whether the loan programs were being delivered effectively and we 

issued that report a year or so ago. I found that there was no statistically significant issue or problem there, that the USDA actually treated those farmers in a fair way and so we——

Ms. FUDGE. I don’t want to interrupt, but I think I got my answer. 

I want to ask you one other question before my time is up. The 

2005 audit clearly reports some very disturbing findings; chief 

among them was that the audit liaison at the Office of the Assistant Secretary for Civil Rights, ‘‘was not responsible for monitoring 

corrective actions or reporting [the status of those actions.]’’ Currently, the OIG is performing another audit of the Office of the Assistant Secretary for Civil Rights. Has there been any appreciable 

improvement from the last audit both in terms of employment discrimination and administration of Federal programs that you are 

aware of? 

Ms. FONG. We are in the beginning stages of our current audit 

and so I don’t believe we have reached any conclusions yet, and I 

am looking to my colleagues just to verify that. 

Ms. FUDGE. Certainly, tell me how the Assistant Secretary for 

Civil Rights cannot be held responsible for monitoring corrective 

actions you suggested. I don’t understand that. 

Ms. FONG. Well, I think we probably need to discuss what happens when we issue an audit recommendation. The program manager looks at that recommendation, to either agree or disagree, and 

in this case, I believe the Civil Rights Office did agree with our recommendations. At this point, it is up to them to implement the action to correct the problem. The reason we are going in now is because we want to see whether or not they actually implemented 

their actions, and whether or not it has been effective, so that is 

the issue we are looking at. 

Ms. FUDGE. Thank you, Mr. Chairman. 

20

The CHAIRMAN. Thank you, Ms. Fudge. 

Let me turn to the second round of questions now but let me 

make a brief comment. I don’t want this to appear to be an inordinate focus on the poor among us or those with reduced capacities 

who are receiving SNAP benefits. This is an important social safety 

net program in the United States. We made a decision to help people who may have difficulty for a variety of reasons with one of the 

most basic human needs, and that is food supply. The reason we 

are starting out with a focus on the SNAP program in terms of improper payment and retail store trafficking is, it is our biggest area 

of expenditure in the USDA and in tight budgetary times, when we 

are looking at potential savings or opportunities to shift monies 

properly to those who are eligible, but are potentially being robbed 

by those who may be getting them improperly, I think it is important to focus here. Fraud is fraud, improper payments are improper 

payments whether that is the SNAP program or to a grain farmer 

with thousand of acres. I just wanted to get that on the record. 

Going back to the SNAP program, to the question that we didn’t 

get a full answer to earlier, you said we are not effectively using 

the state fraud data, Food & Nutrition Service is not effectively 

using that data. Then you said we are opening up a new investigative arm to look into that issue. Would you unpack your statement 

a little further please? 

Ms. FONG. Thank you. My staff has given me some additional information here. As I mentioned, we are starting to test the databases in 11 states, actually 11, not five, to see whether there are 

potentially improper payments being made. We are looking to see, 

for example, if people who are dead are receiving payments—there 

has been that issue—whether people are receiving payments from 

more than one state, whether there are invalid Social Security 

Numbers, or perhaps the date of birth may not be the correct date 

of birth. Now, we selected those 11 states—I will just run through 

that for you. We started out looking at Florida and Texas because 

of a large amount of SNAP dollars in those programs, and then we 

added the surrounding States of Louisiana, Mississippi, and Alabama because we were looking at potential dual payments for participants who may cross state lines. 

The CHAIRMAN. So that is not necessarily an indicator of a higher 

level of fraud there, it is just——

Ms. FONG. Yes. 

The CHAIRMAN.—a subset. 

Ms. FONG. It is just the proximity, the geographical proximity. 

Then after we started doing those tests we decided to look at New 

York, New Jersey, Pennsylvania and Connecticut. Again, those 

states have large dollar amounts in that program. Depending on 

what we find out, we may go to other states. 

The CHAIRMAN. When do you anticipate some data back from this 

investigation? 

Ms. FONG. I would say early fall. We are really making good 

progress on this. 

The CHAIRMAN. Why don’t you think about following up on that 

and maybe at the same time, Mr. Peterson, as well as the gentleman from Arkansas, raised some important points about why 

don’t you think about some policy recommendations to ensure that 

21

this retail trafficking issue or retail fraud issue, how difficult that 

may be to enforce on stores that don’t have electronic accounting 

system. I think we should think about that and look forward to any 

recommendations you could provide there as well. 

Ms. FONG. We will give some thought to that, and also discuss 

that with FNS. 

The CHAIRMAN. I would appreciate that. I think it is important 

to point out that the improper payment rate in the SNAP program 

has fallen significantly. Now, four percent of $65 billion is still a 

lot of money and the more we can do to ensure that there isn’t 

fraud, underpayment, overpayment, make it as tight as possible. 

That saves a lot of taxpayer money and it also takes pressures off 

of programs that—if you want to create a public relations problem—if there is a large pool of dead people who are receiving SNAP 

payments, that creates a real nightmare for USDA, for you and for 

us. We want to ensure that audit mechanisms are in place and are 

as tight as possible to maintain the integrity of the program, we 

should point out that this has fallen dramatically, significantly, let 

me put it that way, particularly since the implementation of the 

electronic benefit card. It got rid of basically a black market in the 

trading of food stamps. This retail issue is important to focus on—

but in terms of potential savings also shifting some of the emphasis, which appears that you are already doing to the improper payment issue and ensuring the Food & Nutrition Service is actively 

engaged in that process, I think would be very helpful. 

Ms. FONG. Thank you. 

The CHAIRMAN. Mr. Peterson. 

Mr. PETERSON. Thank you, Mr. Chairman. 

I have a couple of questions. This Eastern Livestock situation, 

have you done any investigation of that or do you intend to? Do you 

have any authority to do that? 

Ms. ELLIS. I am happy to brief you when it is done but right 

after that became public my agents were involved. We are working 

very closely with the United States Attorney’s Office, the FBI and 

U.S. Postal Inspection Service and it is a very active investigation. 

Mr. PETERSON. As I understand it—this might not be appropriate—but apparently there is no requirement for these kind of 

outfits to have bonding, or the Department doesn’t have the authority to require that they have bonding, so that if something goes 

wrong that the people that do business with them will get their 

money? Are you looking into that, or not? 

Ms. ELLIS. I am sure that will be part of what we look at, but 

right now we just want to build the criminal case, and I couldn’t 

answer with regard to the bonding as I don’t know. 

Mr. PETERSON. Well, I guess I would be interested as you go 

through this process. We get so focused on criminalizing everything, sometimes we miss the policy changes that need to be made. 

What got us into this in the first place? If you have recommendations, I would appreciate it. And when is this going to get done? 

Ms. ELLIS. We don’t have a time frame. We just started the investigations. We initiated it right away but where we are right now 

is going through a lot of records review. We are going through a 

number of bank records and other documents. 

22

Mr. PETERSON. I understand it, you were able to give an audit 

opinion on all the USDA components with the exception of NRCS, 

that you weren’t able to give a clean opinion on NRCS. What is the 

problem there? They don’t have adequate records? 

Ms. FONG. You are talking about the financial statement audit? 

Mr. PETERSON. Yes. 

Ms. FONG. We were able to issue a clean opinion on all of the 

agencies that we looked at with the exception of NRCS, which we 

had to disclaim because the records were not in a shape that we 

could even render an audit opinion. 

Mr. PETERSON. And what do you mean? What kind of shape were 

they in? What was the problem? I am a CPA so I am interested. 

Ms. FONG. Oh, we have a list. 

Mr. PETERSON. Is it because they were all on paper or they are 

not computerized, or what is the problem? 

Mr. RICKRODE. I think the key problem was the level of documentation and the state of those records. 

Mr. PETERSON. What? 

Mr. RICKRODE. The key problem was the state of those records 

and the amount of preparation done for those reconciliations. Making sure that information was pulled together in a correct and a 

supportable process to meet the intent of creating the financial 

statements, and having the records for us to review them in proper 

format. 

Mr. PETERSON. Is part of the problem that we made these conservation programs so complicated that there is no way to pull 

them together so you can actually audit them? 

Mr. RICKRODE. No, I——

Mr. PETERSON. Like the CSP program. They have 30 different 

practices and you view three of them different on every farm. Is 

that what the problem is? 

Mr. RICKRODE. I wouldn’t say that is the problem because we 

have other entities who receive a financial audit who have conservation programs along those lines. A lot of the situation too is 

NRCS was required in the past few years to have a financial statement audit; and just to come in and do the audit and for the agency to go through the rigor and discipline of creating financial statements takes a period of time. Most of the Federal agencies did not 

come out their first year and have a clean opinion, and that is the 

same with this entity. It is going to take a little while. But also 

too, there has been turnover in key management positions, and 

that inconsistency will also not facilitate getting financial statements that we can render a clean opinion on. 

Mr. PETERSON. Do you do those audits here in USDA or are you 

actually going out in the field and auditing NRCS county or district 

offices? 

Mr. RICKRODE. It is both. They are full scope audits, and we look 

at the required areas. We have to consider materiality and that 

will include looking at operations at the department level, as well 

as the actual programs as they are working in the state agencies 

and the field offices. 

Mr. PETERSON. But you do go out to county offices? 

Mr. RICKRODE. Yes. 

Mr. PETERSON. How many do you do? 

23

Mr. RICKRODE. How many offices do we go out to? 

Mr. PETERSON. Yes, how many offices do you audit? 

Mr. RICKRODE. For the past audit and what we have been working on this year, it is about a dozen. 

Mr. PETERSON. A dozen? Out of what? Thousands? 

Mr. RICKRODE. We have been testing controls and what is going 

on in the accounting records, and we select based an adequate 

amount that gives us a cross-section to be able to say these are 

how many controls have been applied, and from there, the individual transactions that support the amounts provided to us with 

the financial statements. That is a process based on different risk 

factors and characteristics in our selection. 

Mr. PETERSON. So you go into a county office, you check their internal controls and depending on that, do you do sample tests of 

different transactions based on those internal controls and so forth? 

Mr. RICKRODE. Yes, based on internal controls and based on materiality of that dollar amount to the total financial statements. 

Mr. PETERSON. But, it is only twelve. 

Mr. RICKRODE. There is only——

Mr. PETERSON. You only go to twelve county offices. 

Mr. RICKRODE. Much more——

Mr. PETERSON. So it seems pretty thin. 

Ms. FONG. Well, we also sample from the headquarters perspective and we make sure that the sample that we take is indicative 

of the full scale of the statement. 

Mr. PETERSON. So when do you think you will be able to give an 

opinion, will the have things in order to give an opinion next year? 

Mr. RICKRODE. Well, a lot of this depends on NRCS. It depends——

Mr. PETERSON. I think the Chief is focused on trying to get this 

in order but I am just trying to get an understanding of the magnitude of the job we have to get this straightened out. 

Ms. FONG. I think if you compare it to the Forest Service, we believe that NRCS is where the Forest Service was about 5 or 6 years 

ago. It took a concentrated effort by both the Department CFO and 

the Forest Service; a lot of resources and the hiring of the right 

staff with the right skills, and a CFO who would remain in place 

for a length of time. That took the Forest Service about 5 years to 

get from where they were to a clean opinion, and we see the same 

process for NRCS. 

Mr. PETERSON. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Ms. Fudge is recognized. 

Ms. FUDGE. Thank you, Mr. Chairman. 

Ms. Fong, your testimony refers to potential monetary results of 

about $256 million over the past year. Help me just get a sense of 

where that—those resources, where that money comes from looking 

at whether it is a result of SNAP, or if it is commodity programs 

or conservation programs. Give us some idea of what that $256 

million encompasses. 

Ms. FONG. That is a good question. As you mentioned $256 mil- lion. Forty-six million dollars was the result of audits and $210 

million is the result of criminal investigations, and I would say 

that generally speaking, both sides of the house, that would be 

from a range of programs in USDA. It is not in one program. 

24

In our testimony, if you look through it, are examples that you 

might see on the audit side, we issued a report on the citrus canker 

program in Florida when we found that APHIS made a million dollars in payments that perhaps were erroneous because they didn’t 

take into account the fact that RMA had already made payments. 

That would be an example of a million dollars of that $46 million 

on the audit side. 

On the investigation side, there are a couple of examples in our 

testimony. There is a case of a Missouri woman in the Farm Services Administration program area who had a Ponzi scheme and a 

criminal conviction led to $27 million in ordered restitution. Then 

there are of course the SNAP cases, which involve trafficking. So 

that gives you a sense of the spread and range of our work. 

Ms. FUDGE. Is it possible for someone on your staff send to me 

at some point a breakdown just in general categories? Because I 

think there is some belief that most of the fraud does in fact come 

from SNAP. I would like to show what those broad categories show. 

Ms. FONG. I would be happy to do that. 

[The information referred to is located on p. 27.] 

Ms. FUDGE. To go back to when you find whether it be at a grocery store or a convenience store or a farm or whatever it is, if you 

find someone who you bring criminal prosecutions against and 

those persons are convicted, are those persons forever barred from 

doing business with the Federal Government again? Not just in 

that particular program, but, so often in the government, the right 

hand doesn’t know what the left hand is doing, so you may get convicted of fraud for being a mom-and-pop store, then get millions of 

dollars to do something else. How does that work? 

Mr. RICKRODE. That is a good question, and the specific answer 

is based on work that we did on suspension or debarment. It varies. Basically, some agencies at USDA are real proficient with suspension debarment. They use it as a deterrence tool as well as a 

tool to restrict other recipients from getting entitlements or benefits or whatever the action is. Whereas other parts of USDA are 

not. From our perspective, we have done prior work in this area 

and our prior work found that at the time USDA did not implement an adequate system of suspension or debarment. We have 

come back and done more work, and at this point we have found 

that they still have not fully implemented a suspension or debarment program for the full Department. The other issue we found 

is that some agencies had reasons for certain programs not being 

subject to suspension or debarment and some of those reasons were 

maybe not as justified as they need to be. We asked for additional 

justification. So it kind of depends on the agency. 

Ms. FUDGE. So the answer to my question is no? 

Mr. RICKRODE. No. 

Ms. FUDGE. Okay. Thank you. 

Ms. Fong, just looking at your background, I know that you were 

Inspector General for the SBA as well, so you know why agencies 

in general, why do agencies not communicate these kinds of things? 

I don’t understand. 

Ms. FONG. Communicate in terms of suspension or debarment? 

Ms. FUDGE. Yes. 

25

Ms. FONG. This is an issue that the whole IG community is involved in. It is an issue that cuts across many departments, and 

what we frequently hear from the IG perspective is that if somebody is convicted, say, a bank or a retailer, the agency depends on 

that bank or retailer to deliver its programs. Agencies really don’t 

want to lose those entities because they worked hard to develop a 

relationship. They feel that those entities understand how to deliver the programs so there is a real reluctance to push them out 

of the program. We are, in many different departments, having this 

challenge of trying to work with the agencies to say, yes, we understand that that is a challenge for program delivery but you also 

need to take into consideration the integrity of the programs. It is 

a tough one. 

Ms. FUDGE. Thank you, Mr. Chairman. Thank you, Ms. Fong. 

The CHAIRMAN. Thank you. 

Let me turn briefly as well to another area regarding the implementation of information technology. We spent a significant 

amount of money and had oversight hearings on the Department’s 

efforts to implement new information technologies. Can you comment on their efforts to update information technology, and if it 

has resulted in better delivery of programs to the citizens of the 

country? 

Ms. FONG. Well, I think IT poses a lot of challenges for all of us. 

Every agency is so dependent on good IT systems to deliver benefits, and as you know from your work, there have been challenges 

at USDA, particularly in the farm program arena. There have been 

situations in the past few years where that whole system had gone 

down for a month or so and benefits were not getting out as they 

needed to get out. In response, Congress appropriated some funds 

to FSA to address that. We are currently in the middle of auditing 

that situation to see if the funds that were provided have been 

used effectively. I don’t think we have any preliminary findings but 

based on my briefings from staff, we understand that the Department has invested the money. The question is whether that investment has been effective, and that is what we are looking at. 

The CHAIRMAN. When will you have that information? 

Ms. FONG. We are looking at the fall of this year for a final report. 

The CHAIRMAN. I think we are going to have you back in, in fall. 

You talked about the fall as we were talking, so——

Ms. FONG. I look forward to that. 

The CHAIRMAN. The other issue I would like to raise with you is, 

I would like for you to give an honest assessment of your own efforts. A question was raised earlier about how you go about 

prioritizing what you audit and what you investigate if you could 

elaborate on that a little further. I assume this type of hearing is 

helpful to you in terms of feedback as to what policymakers believe 

is a priority. Clearly, you have your own limitations in terms of 

staff and you have to prioritize, so I would like to hear an assessment of your own internal office workings. 

Ms. FONG. Well, I think you have made some very good points 

in your question. We do very much appreciate hearing from Members as to what programs and issues are on your minds because it 

helps us to look at a bigger context and find out where we believe 

26

the risks are. We also do our own risk assessment every year, and 

we depend on staff who are very expert in a lot of the programs 

to say we have done recommendations on this program, we need 

to really go back and see if that is working. 

My sense is that we do a good job. We could always do better, 

which is why this hearing has been so useful to me. I think you 

raised some very interesting issues about how we can better target 

our SNAP work. We are facing a potential decrease in our resources in the coming years, as is every other USDA program, and 

so we are going to have to get even better at prioritizing and trying 

to figure out ways to carry out our mandatory work so it doesn’t 

take over our efforts. We were just talking yesterday about the 

mandatory portfolio: financial statement audits, IT security, and 

some of the other requirements we have. Currently, that uses up 

about 20 percent of our resources, which is a fairly significant portion, and so we have to ask ourselves if we continue to do this 

work, can we do it in a better way or streamline. 

The CHAIRMAN. You can also communicate with us and the mandatory requirements are decades old and no longer fit particular 

dynamics of administering new public policies that recommended 

changes to us could also be helpful so that you could better 

prioritize your limited resources. 

Ms. FONG. Thank you. The other thought that occurs to me is 

that as we do some of the work in SNAP and we are looking at 

whether improper payments are being made, we need to work with 

state governments, perhaps with other Federal agencies, to match 

up databases so we can use technology more effectively and be 

more efficient. I think a tool that would be very useful to us would 

be to see if IGs as a whole can get that authority to match databases without going through a months-long process to get that. 

There are some legislative proposals pending on the Hill, and to 

the extent that you are interested in hearing about those, we would 

be happy to share those with you. 

The CHAIRMAN. Well, I think we are under very tight constraints. 

We want to assure every dollar is well used, and also that you 

don’t exclude persons who are actually in need of particular assistance because the dollars are limited and maybe are going to people 

who are receiving them improperly. There are two sides to this. So 

that would be helpful if you could forward that information. 

Ms. FONG. I would be happy to. 

[The information referred to is located on p. 31.] 

The CHAIRMAN. I would like to thank you all for coming today. 

This concludes our hearing. 

Under the rules of the Committee, the record of today’s hearing 

will remain open for 10 calendar days to receive additional material and supplementary written responses from the witness to any 

questions posed by a Member. 

This hearing of the Subcommittee on Department Operations, 

Oversight, and Credit is adjourned. 

[Whereupon, at 11:15 a.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

27

SUPPLEMENTARY MATERIAL SUBMITTED BY HON. PHYLLIS K. FONG, INSPECTOR

GENERAL, U.S. DEPARTMENT OF AGRICULTURE

During the June 2, 2011 hearing entitled, Hearing To Review Recent Investigations and Audits Conducted by the USDA Inspector General, requests for information were made to the USDA OIG. The following are their information submissions 

for the record. 

Insert 1

Ms. FUDGE. Thank you, Mr. Chairman. 

Ms. Fong, your testimony refers to potential monetary results of about $256 

million over the past year. Help me just get a sense of where that—those resources, where that money comes from looking at whether it is a result of 

SNAP, or if it is commodity programs or conservation programs. Give us some 

idea of what that $256 million encompasses. 

Ms. FONG. That is a good question. As you mentioned $256 million. Forty-six 

million dollars was the result of audits and $210 million is the result of criminal 

investigations, and I would say that generally speaking, both sides of the house, 

that would be from a range of programs in USDA. It is not in one program. 

In our testimony, if you look through it, are examples that you might see on 

the audit side, we issued a report on the citrus canker program in Florida when 

we found that APHIS made a million dollars in payments that perhaps were 

erroneous because they didn’t take into account the fact that RMA had already 

made payments. That would be an example of a million dollars of that $46 million on the audit side. 

On the investigation side, there are a couple of examples in our testimony. 

There is a case of a Missouri woman in the Farm Services Administration program area who had a Ponzi scheme and a criminal conviction led to $27 million 

in ordered restitution. Then there are of course the SNAP cases, which involve 

trafficking. So that gives you a sense of the spread and range of our work. 

Ms. FUDGE. Is it possible for someone on your staff send to me at some point 

a breakdown just in general categories? Because I think there is some belief 

that most of the fraud does in fact come from SNAP. I would like to show what 

those broad categories show. 

Ms. FONG. I would be happy to do that.

The table immediately below summarizes the $46.4 million in potential monetary 

results agreed to by auditee agencies at the time of management decision for the 

period of October 1, 2010 through June 1, 2011. A detailed breakout of the 16 audits 

that contained monetary results follows.

Summary of Audit Activities—October 1, 2010–June 1, 2011

Management Decisions Made: 

Number of Reports including both monetary findings and program improvements 63

Number of Reports with reportable monetary findings 16

Number of Recommendations including both monetary findings and program 

improvements 452

Number of Recommendations with reportable monetary findings 113

Dollar Impact (Millions) of Management-Decided Reports: 

Questioned Costs/Recommended for Recovery (1)

 * $11.8

Questioned Costs/Recovery Waived (2)

 * $0.6

Funds To Be Put to Better Use (3)

 $34.0

Total Dollar Impact (Millions) of Management-Decided Reports $46.4

* Auditees agreed to the amount at the time of management decision. The recoveries realized could change 

as the auditees implement the agreed upon corrective action plan and seek recovery of amounts recorded as 

debts due the Department. (1) Questioned Costs—Included in this category are questioned cost amounts that the auditee has expended 

when OIG recommends recovery and expects a claim to be established. This also includes questioned loan 

amounts or guaranteed amounts that the auditee has disbursed or guaranteed for which OIG recommends recovery. (2) Recovery Waived—Included in this category are monetary amounts that the auditee has expended when 

a recommendation to recover the funds is not feasible and/or appropriate. For example, amounts questioned 

due to improper agency action may, in some cases, be unrecoverable. (3) Funds to be Put to Better Use—Included in this category are recommendations by OIG that funds 

could be used more efficiently if the auditee took actions to implement and complete the recommendation. 

Monetary amounts recorded represent future savings from cost reductions, revenue increases, improved receivable collections, or more efficient fund usage. 

28

Audits Issued with Monetary Management Decisions (FY 2010–2011) through June 1, 2011

Audit

Number Audit Title Program Name Total No. of Recs Mgmt. Decision Date 

Questioned 

Costs/Recovery 

Recommended (1)

Questioned 

Costs/Recovery 

Waived (2)

Funds to be 

Put to Better 

Use (3)

106010001AT Rehabilitation of Flood Control 

Dams 

Watershed Rehabilitation Program 13 12/16/09 $15,208,002

036010013SF Emergency Loan Reductions 

Emergency Loan Program Noninsured Crop Disaster Assistance Program 

Crop Disaster Program 2 12/15/09 a $29,092 

046010020CH Rural Rental Housing Program—

Midwest Management Company 

Rural Rental Housing Program 5 05/19/11 $152,970

046010019CH Controls Over Rural Housing 

Service Disaster Assistance Payments 

Single Family Housing and Rural 

Rental Housing Programs 

5 02/07/11 $452,449

106010006KC Natural Resources Conservation 

Service—Emergency Disaster Assistance: Emergency Watershed Protection Program 

Emergency Watershed Protection 

Program 

2 03/30/11 $29,777

506010015AT Hurricane Indemnity Program—

Integrity of Data Provided by the Risk Management Agency (RMA) 

Farm Service Agency’s Hurricane 

Indemnity Program 

7 03/23/11 $774,325 $41,287

130110003AT Tribal Land Grant Institutions Tribal College Endowment Fund 

Program 

Tribal College Educational Equity 

Grant Program 

Tribal College Research Grant 

Program 

Tribal College Extension Service 

Grant Program 

Grant Program Tribal College Extension Service 

Grant Program 

8 10/15/09 b $76,359 $619,354

037020001TE Emergency Disaster Assistance for 

the 2008 Natural Disasters: Emergency Conservation Program 

Emergency Conservation Program 4 11/23/10 $22,578 $264,524

340990011TE Review of Lender with Business 

and Industry (B&I) Guaranteed Loan in Louisiana 

Business and Industry Guaranteed Program 2 03/04/11 $4,019,657

29

340990009TE Review of Lender with B&I Guaranteed Loan in Maryland Business and Industry Guaran- teed Program 1 06/24/10 $544,000086010054SF Forest Service Firefighting Succession Plans Wildland Fire Management 20 08/03/10 $11,800,000330020004SF Animal and Plant Health Inspection Service, Animal Care Program—Inspections of Problematic Dealers Animal Care Program 14 06/30/10 $177,980090990002SF Rural Utilities Service (RUS) 

Rural or Native Alaskan Village Grants 

Water and Waste Disposal Grants 8 03/31/11 $84,730 $4,593,991

040990211TE Request Audit of Colorado Rural 

Rental Housing Management Company 

Rural Rental Housing Program 15 11/19/09 $83,373

050990027AT Evaluation of RMA Indemnity 

Payments for 2004 Florida Hurricanes 

Citrus Crop Insurance Program 1 05/10/10 $6,667,707

096010001AT RUS Controls over Water and 

Waste Disposal Loan and Grant Program 

Water and Waste Disposal Direct 

and Guaranteed Loans Program 

6 02/24/11 $800,000

113 $11,804,840 $607,865 $34,029,450

Total Monetary Results $46,442,155

(1) Questioned Costs—Included in this category are questioned cost amounts that the auditee has expended when OIG recommends recovery and expects a claim 

to be established. This also includes questioned loan amounts or guaranteed amounts that the auditee has disbursed or guaranteed for which OIG recommends recovery. (2) Recovery Waived—Included in this category are monetary amounts that the auditee has expended when a recommendation to recover the funds is not feasible 

and/or appropriate. For example, amounts questioned due to improper agency action may, in some cases, be unrecoverable. (3) Funds to be Put to Better Use—Included in this category are recommendations by OIG that funds could be used more efficiently if the auditee took actions to 

implement and complete the recommendation. Monetary amounts recorded represent future savings from cost reductions, revenue increases, improved receivable collections, or more efficient fund usage. aQuestioned funds were from the Emergency Loan Program. 

bQuestioned funds were from the Tribal College Educational Equity Grant Program. 

30

The table below summarizes the monetary impact of USDA OIG investigative activities, by program/activity, from October 1, 2010 through June 1, 2011.

Summary of Monetary Impact of Investigative Activities 

October 1, 2010–June 1, 2011

USDA Agency Program/Activity Investigated 

Total

Monetary

Results 

Agricultural Marketing Service Employee Misconduct $17,000

Marketing Orders $5,125

Other * $525,892

Agricultural Research Service Employee Misconduct $260

Other $4,534,231

Farm Service Agency Employee Misconduct $3,130,274

Exceeding Maximum Payment Limits $3,695,816

Commodity Credit Corporation Loan & Purchase Programs $1,435,115

Farm-Stored Commodity Loan Program $29,739,114

Emergency & Disaster Programs $345,316

Indemnity Payment Program $376,783

Farmer Program Borrower $3,977,530

Other $3,389,252

Rural Housing Service Employee Misconduct $1,025

Workplace Violence $350

Single Family Housing Loans $5,496,788

Rural Rental Housing Project Manager $101,133

Other $18,389

Risk Management Agency Reinsurance Program $21,901,294

Foreign Agricultural Service Other Foreign Commodity Donation Program $136,073

Forest Service Employee Misconduct ** $44,647,057

Assaults $520

Other $69,075

Rural Utilities Service Rural Telephone and Community Antenna 

Television Programs 

$2,916,342

Natural Resources Conservation Service Employee Misconduct $960

Soil Conservation Programs $8,025

Soil Water Conservation Program $254,760

Other $837,604

National Food and Agriculture Institute Other $100,500

Food Safety and Inspection Employee Misconduct $3,938

Assaults $1,200

Anti-Tampering $64,431

Federal Meat Inspection Program $652,525

Meat & Poultry Import Inspection Program $1,100

Other $135,181

Food and Nutrition Service Employee Misconduct $2,633

Supplemental Nutrition Assistance Program 

(SNAP) 

$47,132,957

National School Lunch Program $1,419,995

Child Care Food Program $4,587,051

Special Supplemental Food Program for 

Women, Infants & Children 

$699,004

Summer Food Service Program $79,484

Other Child Nutrition Programs $195,815

Other $271,471

Grain Inspection Packers and Stockyards 

Administration 

Other $1,110

Animal and Plant Health Inspection Service 

(APHIS) 

Employee Misconduct $24,121

Assaults $235

Animal Welfare Act $851,571

Dog and Cock Fighting $539,779

Quarantine Programs—Animals $38,385

Quarantine Programs—Plants $101,900

Other $17,372,899

Office of Inspector General Assaults $300

Multi Agency Procurement Fraud $8,000,000

31

Summary of Monetary Impact of Investigative Activities—Continued

October 1, 2010–June 1, 2011

USDA Agency Program/Activity Investigated 

Total

Monetary

Results 

Total Monetary Results $209,838,688

* Due to the numerous programs within USDA which provide assistance to the public, OIG created program categories for tracking our investigative work in the larger programs such as 

SNAP. To ensure that all of our investigative work is captured we created a code called ‘‘Other.’’ 

The ‘‘Other’’ category encompasses all investigations that involve fraud against a USDA agency 

that is not associated with a specific program operated by the agency, or for which a separate investigative program category has not been identified or established at the time the investigation 

is initiated. Typically they involve false claims or false statements made to obtain monies from 

USDA agencies (e.g., one APHIS ‘‘other’’ investigation that resulted in approximately $15 million 

in monetary results involved false exportation certificates for the shipment of food out of the 

United States.) 

** Note: The monetary results listed for the Forest Service reflect the court-ordered restitution 

awarded in an investigation involving a former Forest Service employee who was convicted of 

arson several years ago. The amount of restitution had been under appeal in the court system for 

several years and a final decision was issued on this matter in 2010. 

Insert 2

The CHAIRMAN. You can also communicate with us and the mandatory requirements are decades old and no longer fit particular dynamics of administering new public policies that recommended changes to us could also be helpful so that you could better prioritize your limited resources. 

Ms. FONG. Thank you. The other thought that occurs to me is that as we do 

some of the work in SNAP and we are looking at whether improper payments 

are being made, we need to work with state governments, perhaps with other 

Federal agencies, to match up databases so we can use technology more effectively and be more efficient. I think a tool that would be very useful to us would 

be to see if IGs as a whole can get that authority to match databases without 

going through a months-long process to get that. There are some legislative proposals pending on the Hill, and to the extent that you are interested in hearing 

about those, we would be happy to share those with you. 

The CHAIRMAN. Well, I think we are under very tight constraints. We want 

to assure every dollar is well used, and also that you don’t exclude persons who 

are actually in need of particular assistance because the dollars are limited and 

maybe are going to people who are receiving them improperly. There are two 

sides to this. So that would be helpful if you could forward that information. 

Ms. FONG. I would be happy to. 

Proposed Legislation for Enhanced IG Authority for Computer Matching 

Proposed Language 

Section 6(a) of the Inspector General Act of 1978 (5 U.S.C. App.) is amended—

(1) in paragraph (8), by striking ‘‘and’’; 

(2) by redesignating paragraph (9) as paragraph (10); and 

(3) by inserting after paragraph (8) the following new paragraph:

‘‘(9) notwithstanding subsections (o), (p), (q), (r), and (u) of section 552a 

of title 5, United States Code, to compare, through a matching program (as 

defined in such section), any Federal records with other Federal or non-Federal records, while conducting an audit, investigation, inspection, evaluation, or other review authorized under this Act to identify weaknesses that 

may lead to fraud, waste, or abuse and to detect improper payments and 

fraud; and’’.

On June 13, 2011, Chairman Issa submitted the proposed language in H.R. 2146, 

the ‘‘Digital Accountability and Transparency Act of 2011.’’ There are currently 8 

cosponsors of the legislation. The proposed language is based on an earlier version 

submitted by the Council of Inspectors General for Integrity and Efficiency to the 

House Oversight and Government Reform Committee during the 111th Congress. 

The IG community is strongly supportive of this proposal and has sought enhanced 

IG authority for computer matching for many years.

Explanation/Justification:

The Computer Matching and Privacy Protection Act of 1988 (P.L. 100-503) (Computer Matching Act), as amended, revised the Privacy Act to add procedural requireVerDate 0ct 09 2002 11:38 Jul 08, 2011 Jkt 041481 PO 00000 Frm 00035 Fmt 6621 Sfmt 6621 I:\DOCS\112-18\67063.TXT. BRIAN
32

ments that agencies must follow when matching electronic databases, including 

those of non-Federal agencies (i.e., State and local governments, as defined by the 

Computer Matching Act). The requirements include formal matching agreements between agencies, notice in the Federal Register of the agreement before matching 

may occur, and review of the agreements by Data Integrity Boards at both agencies. 

While the Computer Matching Act provides an exemption for law enforcement investigative matches from these administrative requirements, the exemption applies 

only when a specific target of an investigation has been identified. Moreover, the 

Government Accountability Office, as an arm of the Legislative Branch, is not subject to the Computer Matching Act. 

The legislative history of the Computer Matching Act identifies Inspectors General as among the earliest users of computer matching as an audit tool to detect 

fraud, error, or abuse in Federal benefit programs. Interagency sharing of information about individuals can be an important tool in improving the integrity and efficiency of government programs. By sharing data, agencies can often reduce errors, 

improve program efficiency, identify and prevent fraud and improper payments, 

evaluate program performance, and reduce the information collection burden on the 

public by using information already within government databases. Because many 

federally funded programs are administered at the State and local level, such as unemployment compensation, food and nutrition assistance, and public housing, the 

ability to match data with State and local governments is as important as the ability to match with other Federal agencies. Computer matching between Federal 

agencies and State or local governments is governed by the Computer Matching Act. 

The work of the Inspectors General in identifying control weaknesses within agency programs, identifying and preventing improper payments, and detecting and preventing fraud would be facilitated by expanding the current law enforcement exemption to permit an Inspector General, as part of audits or inspections, not only targeted investigations, to match computer databases of Federal and non-Federal 

records. Because the Inspector General rarely controls the databases to be matched, 

much effort and time is involved now in encouraging the agency system managers 

to understand that matching is appropriate and necessary and to cooperate with the 

Office of Inspector General (OIG) to fulfill the Computer Matching Act administrative requirements. This allows agencies to delay, and even obstruct, legitimate OIG 

oversight because the OIG is dependent on the cooperation of the agencies to meet 

the Computer Matching Act requirements. 

Even though the Inspectors General at the Department of Homeland Security, Department of Agriculture, Department of Housing and Urban Development (HUD), 

and the Small Business Administration pursued computer matching agreements in 

the aftermath of Hurricane Katrina to facilitate audits and investigations, there 

were long delays before agreements could be finalized. For example, the first computer matching agreement to be executed was between HUD and the Federal Emergency Management Administration and it was not finalized until June 2006, almost 

10 months after Hurricane Katrina struck. The absence of computer matching 

agreements forced the Hurricane Katrina Fraud Task Force to rely on manual 

record comparisons to detect improper payments and fraud. The authority to conduct data matching would have greatly enhanced the ability of the Inspectors General to quickly begin review of hurricane victim assistance programs to detect internal control weaknesses and fraud before benefits were issued. 

This change would not authorize greater access to records than Inspectors General have under existing law. It would, instead, allow computerized comparison of 

records, which would be less time consuming than manual analysis and impose 

fewer administrative burdens. For example, section 6103 of the Internal Revenue 

Code provides that tax returns and return information are confidential and not subject to access or disclosure, except in limited circumstances delineated in the Internal Revenue Code. This change to the Computer Matching Act would not provide 

Inspectors General with greater access to tax returns or return information, but 

would, if the Inspectors General are authorized to have access to such records, allow 

Inspectors General to perform computerized matches of the data. 

Lastly, the requested authority would not diminish any of the due process rights 

accorded recipients of Federal benefits. The Computer Matching Act presently provides that government agencies will not take adverse action against any citizen 

based on a computer match without independent verification of the information, and 

giving the individual involved an opportunity to contest an adverse finding. See 5 

U.S.C. § 552a(p).

Æ