<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:32356.wais] S. Hrg. 109-930 HURRICANE KATRINA: STOPPING THE FLOOD OF FRAUD, WASTE, AND ABUSE ======================================================================= HEARING before the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS SECOND SESSION __________ DECEMBER 6, 2006 __________ Available via http://www.access.gpo.gov/congress/senate Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 32-356 WASHINGTON : 2007 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS SUSAN M. COLLINS, Maine, Chairman TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Brandon L. Milhorn, Staff Director Amy L. Hall, Professional Staff Member Jay W. Maroney, Counsel Michael L. Alexander, Minority Staff Director Troy H. Cribb, Minority Counsel Mary Beth Schultz, Minority Counsel Trina Driessnack Tyrer, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Collins.............................................. 1 Senator Lieberman............................................ 3 Senator Coleman.............................................. 5 Senator Pryor................................................ 6 Senator Carper............................................... 6 WITNESS Wednesday, December 6, 2006 Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office, accompanied by John J. Ryan, Special Agent, Forensic Audits and Special Investigations, U.S. Government Accountability Office: Testimony.................................................... 8 Prepared statement with attachments.......................... 23 Responses to post-hearing questions for the Record........... 52 APPENDIX Federal Emergency Management Agency/Department of Homeland Security prepared statement for the record..................... 54 HURRICANE KATRINA: STOPPING THE FLOOD OF FRAUD, WASTE, AND ABUSE ---------- WEDNESDAY, DECEMBER 6, 2006 U.S. Senate, Committee on Homeland Security and Governmental Affairs, Washington, DC. The Committee met, pursuant to notice, at 10:01 a.m., in room SD-342, Dirksen Senate Office Building, Hon. Susan M. Collins, Chairman of the Committee, presiding. Present: Senators Collins, Coleman, Lieberman, Carper, and Pryor. OPENING STATEMENT OF CHAIRMAN COLLINS Chairman Collins. The Committee will come to order. Today the Committee holds its fourth hearing investigating the loss of taxpayer dollars to waste, fraud, and abuse in the wake of Hurricane Katrina. I would like to begin by thanking our two witnesses, Greg Kutz and John Ryan of GAO's Forensic Audits and Special Investigations Unit, for their dedicated work, and I welcome them back to the Committee. It has now been more than 15 months since Hurricane Katrina devastated our Gulf Coast and since this Committee launched an investigation into the failures at all levels of government that came to light in that disaster. Hurricane Katrina revealed how unprepared the Nation was for a natural disaster that was long predicted and specifically forecast and raised serious concerns about our ability to respond effectively to a terrorist attack. Although the initial focus of our investigation was to identify ways to expedite relief to the stricken region, most of our work examined the many flaws in our Nation's emergency preparedness and response structure. No flaw has been more persistent and more damaging to effective relief for disaster victims and to public confidence in their government than the rampant waste, fraud, and abuse that have plagued Federal relief and recovery programs. To be sure, the majority of the billions of dollars of assistance provided to more than 2.6 million applicants in the wake of Hurricanes Katrina and Rita was necessary and warranted. But FEMA has yet to strike a proper balance between expedited assistance and good stewardship of taxpayer funds. Current practices invite and enable fraud, harming the very people these programs are designed to help. Today's hearing provides a follow-up to three previous hearings: Our February hearing that focused on FEMA's Individuals and Households Program, known as IHP; the field hearing held in April at the request of Senator Pryor, examining FEMA's purchase of thousands of manufactured homes that sat unused in Hope, Arkansas; and the July hearing investigating the Department of Homeland Security's use of purchase cards. At these hearings, our GAO witnesses testified that weak or non-existent controls left the IHP program vulnerable to widespread misuse. They testified further that fraudulent or improper payments could total more than $1 billion. Just think of the additional relief and reconstruction and rebuilding that could have been accomplished with that $1 billion that was lost to fraud, mismanagement, and poor decisionmaking. Today our witnesses will discuss their continuing investigation, and their findings are truly alarming. I will cite a few. Nearly $20 million in potentially improper or fraudulent disaster assistance payments went to some 7,000 individuals who appear to have registered the same damaged property for compensation under both Hurricane Katrina and Hurricane Rita. FEMA paid nearly $3 million to more than 500 ineligible foreign students. In several cases, payments were made even after the students informed FEMA of their international student status and, thus, their ineligibility for aid. Our witnesses will also testify that FEMA has collected only about $7 million of the estimated $1 billion in fraudulent and improper payments. FEMA has informed me that it has repayment plans in place to collect another $8 million. While FEMA is attempting to recover assistance obtained by some ineligible individuals, even if you add what is in the pipeline, the recovery still amounts to only pennies on the dollar and is happening far too slowly. The fact is that once the money is out the door, it is very difficult for FEMA to recover it. In our July hearing, the GAO also found excessive prices, duplicative payments, wasteful purchases, and substantial missing property. Equipment was simply not tracked effectively and may have been stolen or lost. My Committee colleagues may remember that barely 2 hours before our hearing convened on July 19, we received an e-mail from DHS telling us that they had located some 80 percent of the missing purchases identified by the GAO, ranging from electronics to flat-bottomed boats. They disputed the GAO testimony before it could be delivered. At that time, Special Agent Ryan told the Committee that he was skeptical of DHS's claims. We now have concrete evidence that the skepticism was warranted. We will hear today that 48 items that the Department claimed it had located in that early morning pre-hearing announcement are, in fact, still missing. The GAO witnesses will describe their efforts to verify the location of items purchased by DHS for hurricane relief. I remember Mr. Ryan telling us that he wanted to actually go touch the property. Well, the fact is that I understand that 34 percent of the items that they tried to locate are still missing, whether they are lost or stolen. I should add that one of those infamous flat-bottomed boats reported missing in July has, in fact, been located--but not by DHS personnel, rather by GAO investigators. I will be interested to hear why DHS was not able to locate this boat and where GAO investigators found it. This Committee performed an extensive investigation in response to the Hurricane Katrina debacle. Our work has gone beyond merely uncovering problems and has extended to crafting remedies. Our legislation to rebuild FEMA into a more effective entity and, indeed, to strengthen our entire national emergency management structure provides a clear road map to improvement, but this Committee must remain committed to see that it is followed and that administrative and other reforms are, in fact, implemented. Throughout our Hurricane Katrina investigation, I was concerned that another major natural or manmade catastrophe would strike while a structure that has so utterly failed was still in place. In some sense we got lucky. The 2006 hurricane season has passed without another major storm coming ashore, and we have been spared other disasters as well. We have been given the luxury of time to get this right. We must use that time wisely. The American people are generous and willing to open their hearts and their wallets to the victims of disasters. But they expect that their tax dollars will be spent carefully to help storm victims, not be lost in a hurricane of waste, fraud, and abuse. [Lights failed for a few moments.] Senator Lieberman, there are those who say that this Committee often operates in the dark. [Laughter.] Senator Lieberman. You may be interested to know I have been informed that the power is out in the whole building, so we have to operate the emergency system. Chairman Collins. Please proceed. OPENING STATEMENT OF SENATOR LIEBERMAN Senator Lieberman. Madam Chairman, it is good to know that under your leadership, which I will aspire humbly to emulate, not even a power outage could stop this Committee from going forward. Madam Chairman, I thank you for convening today's hearing on the GAO's ongoing efforts to identify waste, mismanagement, and fraud in FEMA's administration of the Individuals and Households Program (IHP), as well as DHS's use of purchase cards for goods and services during the responses to both Hurricane Katrina and Hurricane Rita. I think we are back on. Welcome. Nice to see the outside, too. [Laughter.] The record will note that neither of the witnesses nor anyone else in the room moved during the power outage, and we thank you for that. [Laughter.] Testimony we will hear from the GAO's Forensic Audits and Special Investigations Unit on this Individuals and Households Program I would describe as not only powerful but maddening to me personally. The GAO's investigations over the past year, as well as FEMA's own data on overpayments, show that the agency squandered hundreds of millions of dollars in improper payments to individuals and households that our government may never recover. Some people who were not eligible for assistance abused the process, and FEMA had no effective mechanisms to stop them. And some ineligible people who had no intent of gaming the government but thought they might be eligible for assistance were granted payments, even though FEMA should have known that they were not eligible and should have explained to them that they were not eligible. On the other hand, as is well known, last week we heard that a Federal judge ruled that FEMA wrongfully cut off housing assistance to thousands of Hurricane Katrina and Hurricane Rita evacuees without properly documenting why, making it difficult for applicants to appeal FEMA's decision. So we have this bizarre situation where FEMA apparently doled out millions of dollars to people who did not deserve it, but denied assistance to many people with potentially legitimate needs without using proper procedures. During our Committee's investigation of Hurricane Katrina earlier this year, the GAO provided an extensive look into flaws in FEMA's processing of these Individuals and Households Program applications. The GAO's investigation revealed significant breakdowns in the IHP registration system that resulted in payments to individuals and households who were not qualified for assistance or who received duplicate payments. Today's testimony further confirms the gross inadequacies of FEMA's control systems. Chairman Collins has documented some of the specifics. I will not repeat them. FEMA's low success rate in recovering payments also makes abundantly clear the need to implement proper controls up front. FEMA has collected only $7 million in improper payments out of the $290 million of such payments that FEMA itself has identified. The GAO estimates FEMA's total improper payments, as the Chairman said, to be $1 billion through February 2006. We do not know yet what FEMA's plans are for recouping this money or the extent to which it can recover the money. Clearly, the better solution for the future is not to chase after improper payments once they are made but to prevent those improper payments from being made in the first place. GAO's testimony on this program to this Committee in February, as well as more detailed reports issued in June and September, I hope you know, Mr. Kutz and Mr. Ryan, provided the basis for a series of corrective actions that Senator Collins and I proposed and that were included in the FEMA reform package that passed into law as part of the fiscal year 2007 DHS Appropriations Act. This law mandates that FEMA institute verification procedures that minimize the risk of unauthorized and duplicative payments under the IHP program, while providing an expedited review and appeals process for individuals or households who believe that their applications were wrongfully denied. Having conducted a major investigation of the immediate response to Hurricane Katrina and having enacted significant reform legislation, our Committee's task now is to continue our oversight and to ensure that the reforms are fully implemented. Today we are also going to hear testimony from the GAO on the efforts of DHS to locate missing items, and I will look forward with anticipated exasperation to hearing that result. In a November 27 letter to Senator Collins and me, the DHS Chief Financial Officer conceded that the Department is still having difficulty tracking down those assets, and Mr. Kutz, I hope you will share with the Committee your assessment of the efforts of the Department of Homeland Security to improve its property management. So, bottom line, the record here is clear and disconcerting. The fact is that, going forward, FEMA has a lot of work to do before we can be confident and the taxpayers can be confident that FEMA is providing assistance to those who are eligible and who need it, while denying it to those who do not. The reforms that we have adopted should make a difference, and Senator Collins and I are committed to being especially vigilant in the months ahead to make sure that they do. Thank you very much. Chairman Collins. Thank you. Senator Coleman. OPENING STATEMENT OF SENATOR COLEMAN Senator Coleman. Thank you, Madam Chairman. Before I touch on this hearing, first I want to thank you and the distinguished Ranking Member for having this hearing. I also just want to take the time to thank you for your leadership. Chairman Collins. Thank you. Senator Coleman. I think you have provided extraordinary leadership. We have passed major legislation: Intelligence reform, chemical security, lobbying reform, port security, postal reform, FEMA reform, and enhancement of homeland security grants. I think we have accomplished an incredible amount of important work not just for the Senate, but for the Nation. I just want to personally express my appreciation for the kind of leadership that you have offered. We talk a lot today about bipartisanship. I don't know if there is a better operating Committee in the Senate in terms of working together. As I look at my colleagues who are seated here today, people for whom I have the most respect for, just the most respect for, from the Ranking Member, and a former local official, governor, Senator Pryor and I have worked together, the prayer breakfast. This is an extraordinary group of people, but your leadership has really pulled it together, and I just want to personally at this moment--probably our last time that we will get together with the gavel in your hand--say thank you and tell you what a pleasure it has been for me to be part of this Committee. I look forward to working with you and the new Chairman in the same tone and attitude and hopefully measure of accomplishment. Chairman Collins. Thank you so much. Senator Coleman. Let me just turn to the matter before us today. First, I want to thank the dynamic duo, Mr. Kutz and Mr. Ryan. We have worked together on this Committee and our Subcommittee. Thank you for your work. It is important. It makes a difference. What we see here today are unauthorized payments, improper and fraudulent payments, duplicate payments, inadequate recoupment. We still have work to do. We have work to do with FEMA, and I think it is important to bring it to the table. It is important for us to look at it and say that this is unfair to American taxpayers, it is not the way government should operate, and we are going to clean it up. And I think we have the opportunity. This is part of a process. It is an ongoing process. You gentlemen have done extraordinary work. We have our work to do, and this is the kind of oversight that we need to be doing. And I am certainly proud to be part of it. So I look forward to the testimony, look forward to discussing what new measures we need to implement, look forward to making sure that we are doing a better job for American taxpayers. Thank you, Madam Chairman. Chairman Collins. Thank you so much, and I very much appreciate your kind comments. Senator Pryor. OPENING STATEMENT OF SENATOR PRYOR Senator Pryor. Thank you, Madam Chairman. I would like to echo Senator Coleman's comments about your leadership here. Your competence is just overwhelming. You have been able to get so many things done in a very bipartisan way, and you have really been a great role model for newer Senators to see how the Senate can work and should work. In fact, a lot of times when I go back to Arkansas, people say, ``What is wrong with you people in Washington? Why do you just not get along? Why are you always at each other's throats?'' And I tell folks, ``Well, there is hope. There is the Homeland Security and Governmental Affairs Committee, and if you look at how that Committee works, it really works the way it should work.'' As you well know, if there has ever been a question about which committee some bill should go to, I always argue for Homeland Security because it has just been a great Committee with your leadership. And I know Senator Lieberman and you have an extraordinarily good working relationship. Like I said, it has really been a role model for all of us. Chairman Collins. Thank you. Senator Pryor. So I thank you for being such a great Chairman, and I really don't have any further comments. I look forward to hearing from our witnesses today, but I did want to thank you for your leadership. Chairman Collins. Thank you so much. Senator Carper. OPENING STATEMENT OF SENATOR CARPER Senator Carper. Thank you, Madam Chairman. I was not going to say anything, but I am moved to say something. [Laughter.] Chairman Collins. You mean you have no choice. [Laughter.] Senator Carper. It is what we affectionately call in Delaware ``piling on.'' We were putting together orientation for new Senators a couple of weeks ago, and we were looking for a couple of Committee Chairs and Ranking Members to invite to come and speak to our new Senators about bridging the partisan divide. And the very first recommendation that I made was that, Madam Chairman, you and Senator Lieberman be invited to attend. I think because of scheduling problems you were not able to come, but I think the relationship that the two of you enjoy is just an example for the rest of us in the Congress, in the Senate, and in the House, and I think in the Administration as well. Our friend Senator Pryor is from Arkansas, and they actually have a place there, I am told, called Hope. And I think he mentioned the word in his remarks. When I think of a place called Hope, I don't think of Arkansas. I think of the kind of relationship that you have had and the way that it has sort of permeated this Committee, the trust that you enjoy and the way that it has inspired the rest of us to work on a whole host of issues that Senator Coleman has mentioned. And my hope is that before we leave here at the end of this week, we can add one more to that list, and that would be good not just for this Committee, but I think that would be very good for our country. And I applaud both of you for your efforts in that regard. And welcome to our love fest here this morning. [Laughter.] Chairman Collins. Thank you. Senator Lieberman. Madam Chairman, if I may, if I remain silent in the midst of this spontaneous eruption of appreciation for you, people may wonder about how good our relationship is. [Laughter.] I had been thinking I would do this later, but I appreciate that my colleagues did it. It has been an extraordinary honor and pleasure to work with you on this Committee, and it really is what I think all of us came to the Senate to do, and somehow we have been able to do it. But you have been the Chair, so you have set the tone. The record of accomplishment in your chairmanship has been extraordinary, and I don't know how I am going to build on it. But we are going to do it together. That is the important thing. I said to Senator Collins when we talked about the transition that will occur that, as far as I am concerned, the only thing that is going to change is our titles because we are going to have the same partnership that we have had over the years here. And it has worked just so well. The bottom line is that we have common goals and I have total trust in Senator Collins in ways that I will document at some point in a book that will not sell any copies but really will be worth reading. [Laughter.] It is the trust that reaches across the not unimportant but ultimately not most important party identifications that we hold, to the values that we hold in common, and our shared interest in making our government work better and our country be better. So you are the best. Thank you. Chairman Collins. Thank you very much. While I would love to continue with further tributes to myself, I do believe we should turn to our panel. [Laughter.] But let me just thank you all for your very kind comments. This Committee does have a wonderful tradition of bipartisan accomplishment, and I do think that is what the American people want. And I am confident that it will continue under your leadership, Senator Lieberman, and I look forward to being your partner. Senator Lieberman. Thank you. Chairman Collins. I hope the only difference will be instead of bills being Collins-Lieberman, they will now be Lieberman-Collins. But it would not be possible without the Members of the Committee who have taken exactly that same constructive approach. Senator Lieberman. That is true. Chairman Collins. So I very much appreciate the opportunity to work with all of you, and remember, I may be back in 2 years. [Laughter.] I would now like to welcome our witnesses today: Greg Kutz, who is accompanied by Special Agent John Ryan. They have appeared before us many times, so I am not going to go through a lengthy introduction other than to thank you both for continuing your exceptionally good work. Mr. Kutz, we will start with you. Thank you. TESTIMONY OF GREGORY D. KUTZ,\1\ MANAGING DIRECTOR, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, ACCOMPANIED BY JOHN J. RYAN, SPECIAL AGENT, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. Kutz. Chairman Collins and Members of the Committee, thank you for the opportunity to discuss fraud, waste, and abuse related to Hurricanes Katrina and Rita. Our testimony relates to the completion of our work on individual assistance and the use of government purchase cards. Previously, I testified that $1 billion, or 16 percent, of individual assistance payments were fraudulent and improper. I also testified that weak controls resulted in lost or stolen government property, bought using government purchase cards. The bottom line of my testimony today is that our work shows additional fraud, waste, and abuse related to Hurricanes Katrina and Rita. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Kutz appears in the Appendix on page 23. --------------------------------------------------------------------------- My testimony relates to FEMA and has two parts: First, individual assistance payments; and, second, lost or stolen property bought with credit cards. First, our work across the government has shown that fraud prevention, as you mentioned, is the most efficient and effective means to minimize fraud, waste, and abuse. Our $1 billion estimate of fraudulent and improper payments related to individual assistance clearly shows the consequences of the lack of an effective fraud prevention program. The posterboard supports my point. Next to the $1 billion estimate, you can see that through November, FEMA has detected $290 million of improper payments. However, only $7 million of this $290 million has actually been collected. Absent effective fraud prevention, once money is improperly disbursed, the government can only hope to collect a few pennies on the dollar.\1\ --------------------------------------------------------------------------- \2\ The poster appears in the Appendix on page 51. --------------------------------------------------------------------------- It is important to note that our $1 billion estimate is likely understated because it related only to the application process and disbursements through February 2006. Today's testimony supports that point, as we found at least tens of millions of dollars of additional fraudulent and improper payments. These problems result from FEMA's lack of an effective fraud prevention program. For example, FEMA made $17 million of rental assistance payments to individuals staying in trailers and mobile homes, also paid for by FEMA. The posterboard shows that for these individuals the government paid twice for their lodging--first by providing them free housing and second by sending them rental assistance money.\1\ --------------------------------------------------------------------------- \1\ The poster appears in the Appendix on page 50. --------------------------------------------------------------------------- FEMA also improperly paid rental assistance to individuals staying in apartments paid for by FEMA. For example, FEMA paid $46,000 to 10 individuals staying in a FEMA-paid apartment complex in Plano, Texas. Many of these are fraud cases, as seven of these individuals represented to FEMA that they were entitled to rental assistance. We cannot estimate fraud and abuse in this area because of limitations in FEMA's data. FEMA also made $20 million of improper payments to thousands of individuals who used the same address to get benefits for both Hurricane Katrina and Hurricane Rita. FEMA policy is that victims of both disasters are generally entitled to only one set of payments for the same damaged address. It appears that some of these individuals were paid twice for the same television, refrigerator, washer, and dryer. Finally, FEMA made millions of dollars of improper payments to non-qualified aliens. Non-qualified aliens include foreign students and temporary workers. For example, FEMA paid $3 million to over 500 students at four universities. This substantially understates the magnitude of this problem because there are many colleges and universities in the region. FEMA also paid $156,000 to 25 individuals claiming to be foreign workers on temporary visas. We believe these 25 individuals worked at a crab house in Louisiana. We also identified several illegal aliens who received disaster assistance in Texas. Total payments to non-qualified legal and illegal aliens could be substantial. Moving on to my second point, FEMA has substantial problems accounting for property bought with government credit cards. For example, 85 of 246 items that we investigated, or 34 percent, are lost or stolen. The posterboard shows one of these missing items: A flat-bottom boat. As the posterboard shows, this boat is actually in possession of the original owner in a shed in Texas.\2\ --------------------------------------------------------------------------- \2\ The poster appears in the Appendix on page 48. --------------------------------------------------------------------------- In conclusion, our work shows that for individual assistance payments, at least tens of thousands of individuals took advantage of the opportunity to commit fraud. That is right--tens of thousands. I am hopeful that FEMA has learned from these costly lessons and will make fraud prevention a focus for future disasters. With respect to lost property, there is no valid reason for FEMA's inability to account for over a third of the property bought with government credit cards. I think the posterboard on my right says it all. We have enjoyed the opportunity to work with this Committee on fraud, waste, and abuse related to Hurricanes Katrina and Rita. Our work has resulted in 25 recommendations for FEMA with which they generally concur. My hope, Special Agent Ryan's hope, and all of our staff's hope is that our work will bear fruit in future disasters. And, Chairman Collins, I will just say, too, we have really enjoyed working with you and your leadership on this Committee. It goes back quite a long ways, even to PSI, Senators Coleman and Levin, and we look forward to working with the Committee going forward under both of your leadership. Thank you. Chairman Collins. Thank you very much. Mr. Ryan, do you have anything you would like to add now? Mr. Ryan. I would just add that it was a real pleasure working with Senator Lieberman's staff and your staff, very professional. Mr. Bopp was a great leader of yours and pushed your work, and we really enjoyed working with the staff and with all the members here. Thank you. Chairman Collins. Thank you. Mr. Kutz, whenever I bring concerns about the alarming and widespread fraud and improper payments plaguing FEMA's assistance programs, I hear the response that it is a choice between getting out assistance quickly to the victims or carefully safeguarding taxpayer dollars. Isn't that a false choice? Isn't it possible for FEMA to deliver assistance to the right people quickly without compromising the integrity of these programs? Mr. Kutz. Yes, we agree it is not a choice. We believe that you can do both and that the technology and the processes exist that they could have done a substantially better job here. For example, they had ChoicePoint under contract, who has some of the technology necessary to deny invalid applications. They just did not effectively use the tools that were available for these two disasters. Chairman Collins. And, in fact, did you find any examples where FEMA actually disabled software that would have allowed duplicative payments to be caught? Mr. Kutz. Yes, in many cases there were hundreds of millions of dollars, I believe, that their systems had flagged as questionable, duplicative, improper--whatever the right word--and they sent the money out, for whatever reason. I think there was a rush to get the money out. And we do not disagree with getting money quickly to legitimate victims. That is the primary focus of FEMA. But, again, I believe that if they had field tested their controls ahead of time and were ready for these disasters, which is what our recommendations have been going forward, to take whatever controls you are going to implement, field test them, make sure you have a safety net for legitimate people who get kicked out when you tighten up the fraud prevention controls, we believe that they can be much more successful, not only getting money quickly to people, but preventing fraud, waste, and abuse. Chairman Collins. Because, in fact, every dollar that is lost to fraud or frittered away in wasteful purchases is a dollar lost that could have been directed to helping the victims rebuild their lives and communities. That to me is the true tragedy of this. The needs are so great. And when we hear your testimony that more than $1 billion has been lost to waste, fraud, and abuse, to poor decisions, wasteful purchases, outright fraud, it is just an outrage given that the needs are so great. I realize we are dealing with a large volume of claims--but is this a case where the internal controls simply are too sophisticated or too difficult to implement to prevent this massive fraud? Mr. Kutz. No. I have called it Fraud Prevention 101. Basic building blocks of an application are: Does the person exist? Does the property exist? Did that person live at the property at the time of the disaster? Those are things that the technology is there to determine almost instantaneously, and they did not use that effectively. And that is just one of many things that they can do. So it is basic fraud prevention, and, again, we are very hopeful that they will do a better job for future disasters. At this point, the horse is out of the barn right now. The money has been spent. You are going to get maybe a couple pennies back on the dollar, so the taxpayers have become the new victims here. The issue is, going forward, can we actually put effective fraud prevention in place, and we believe the technology is there, and with your oversight and some good management, they can get it done. Chairman Collins. Mr. Ryan, tell me more about this flat- bottom boat? How was it found? Did FEMA have title to the boat? Did FEMA or DHS officials find it? Tell us a little more about the boat that was found in possession of the original seller? Mr. Ryan. This boat is one of 20 boats that FEMA purchased. When we initiated our---- Chairman Collins. At an exorbitant price, if I recall. Mr. Ryan. It was $208,000. They paid for 20 boats. Mr. Kutz. Twice retail price, yes. Mr. Ryan. This boat, as part of our work that we did on the property in July, was missing. We did an investigation, and we determined that the security director at the New Orleans Convention Center actually had the boat. It took him some time, but he researched it and found that the boat was titled to an individual in Texas. He contacted that individual, and he said, ``Hey, I sold that boat to FEMA. It was a used boat.'' They said, ``Well, you are still the titled owner, so you need to come and get it.'' So the individual went to New Orleans, got the boat, had to buy new tires for the trailer because the tires were gone, and he carted it back, and he put it in his shed in Texas. As part of an ongoing investigation that we had with the Hurricane Katrina Task Force, the FBI, and local law enforcement, they were able to determine that the boat was parked in the shed of the original owner, and they took a photograph of it. None of the 20 boats as of October are titled to the government. There is still an ongoing investigation in which the owner of 11 of the boats has filed a complaint indicating that the boats were stolen, so the government does not have title to any of the 20 boats. Chairman Collins. So let me get this straight. The government paid twice what the market price should have been for these 20 boats and yet does not have legal title to a single one of the boats, and at least one of the boats is not even in possession of FEMA. Is that correct? Mr. Ryan. That is correct. And I will add that there is another boat still missing, and no one really knows where that is at. So we know that they have--based on going down, touching, and looking, we know they have 18 boats. Chairman Collins. Thank you. Senator Lieberman. Senator Lieberman. Thanks, Madam Chairman. Mr. Kutz, one of the examples in your testimony that is maddening is the duplicate payments for 10 residents of an apartment complex. According to your report, these 10 residents were receiving rental assistance, and at the same time, FEMA was providing rent-free housing at the apartment in Plano, Texas. The report states that over $46,000 in duplicate payments were made. How could that have happened? Mr. Kutz. I believe it happened because you have stovepiped programs within FEMA. You have the individual payment program, and you have different people managing the apartment program. They have different databases. All they would have had to do-- and, again, the data was limited there. Senator Lieberman. Right. Mr. Kutz. But at least if they had talked and coordinated, they could have done a better job of getting information on who the actual people living in the apartments were and determining whether or not those people had received these apartments before they sent them rental assistance. So, again, I think it is a matter of coordinating two programs. We found the same thing for the hotel program, the trailer program, the mobile home program. They are all stovepiped programs within FEMA, and these people do not appear to talk very well. Senator Lieberman. So this is a pretty simple thing to coordinate, isn't it? Mr. Kutz. Yes. Senator Lieberman. With modern information technology. Mr. Kutz. Yes, and that is how we came up with our estimates, for example, for the trailers, the mobile homes, and prior work for the hotels is because we just took the two sets of data and matched them together and did some analysis. Senator Lieberman. Every time we hear from you, it builds on the conclusion that we reached in our overall investigation of the government's response to Hurricane Katrina, which was that we were a Nation unprepared. In this case, this was an agency unprepared in the most fundamental ways, almost simplistic ways, to deal with basic distribution of assistance payments that did not waste taxpayer money. Let me ask you, it is my understanding that FEMA has generally, if not fully, concurred with your recommendations. Do you believe that they have begun to make the necessary adjustments, for instance, in breaking the stovepipes that you have just described? Mr. Kutz. They have represented that they have. We have not actually tested it in a live environment, nor do we know if they have actually tested it doing a desktop or some sort of a practice test, because one of the recommendations we have with all of these improved fraud prevention program processes is to test them before a major disaster. Because once a disaster hits, if you have not tested them, you could deny legitimate victims assistance, and none of us wants to see that either. So we are hopeful they have agreed with most of our recommendations. They have stated they have taken progress. We have not been able to follow up on all of them yet, and some of them we will have to actually test in a live environment and see if they work. Senator Lieberman. Right. But in the normal course of your work, you will follow up on those? Mr. Kutz. Yes. Senator Lieberman. All right. Have you performed any investigations or analysis of FEMA payments in disasters that have happened since Hurricanes Katrina and Rita? Mr. Kutz. No. Senator Lieberman. So there is at this point no comparison. Mr. Kutz. And the reason we have not is because there has not been many individual assistance payments. There have not been that many larger disasters to test, so there has not been that much to test. Senator Lieberman. I want to go back to the foreign students applying for aid and the findings that FEMA's files actually contained documentation showing that the students were not qualified. Were you able, again, to determine in your investigation how FEMA could, having seen that in the file, gone ahead and made the payments to self-evidently unqualified aliens? And if you would, I want to ask the broader question about whether FEMA has a problem with training their employees or contractors in the simple processing of these applications. Mr. Kutz. It certainly appears that, whether it was FEMA employees or contractors--and it is probably some of both--they either did not understand or they did not care, one of the two. Because if you look in the files, there are pictures of the student visas and there are even FEMA fliers that say foreign students are not eligible for these benefits. Senator Lieberman. Right. Mr. Kutz. Right in the same file. It is scanned into the FEMA databases saying this, yet they paid them anyway. Again, training is a very important point here. I think because there are so many contractors--FEMA has to staff up to do these major disasters, and it appears that the training was not effective in this case. Senator Lieberman. Let me ask you about this in a somewhat different way because we all know that in the first days after Hurricane Katrina hit, when we all watched the suffering of the people in New Orleans in particular, there was a lot of embarrassment, and FEMA came under great pressure. Mr. Brown resigned. Did you find any evidence that part of the problem here might have been that somebody high up in FEMA said, in response to the public and congressional, political anger at FEMA's actions, ``Get out the checks. If there is a mistake, we will come and deal with it later, but let's not get criticized for not making payments''? Mr. Kutz. It is very possible. We did not see any documented evidence of that, but it is very possible because, again, when they first started making the disbursements, they identified hundreds of millions of dollars of potential duplicate and improper payments, and someone somewhere--we cannot tell exactly where--made a decision to let them go. And, again, I think some of it was manpower. They were overwhelmed by the sheer volume of the edits that had identified these improper payments, and so they would have had to hold up those payments for potentially months. And so the choice at that point was--again, because you had not pre-tested your controls--shoot the money out the door and try to come back and collect it later. Senator Lieberman. OK. Thanks very much. Again, the two of you have really done an important public service here. Thank you. Chairman Collins. Thank you. Senator Coleman. Senator Coleman. Thank you, Madam Chairman. I want to follow up on the system checks here, the National Emergency Management Information System. They have an edit check system that was kind of a first line of defense. Is there any data, any information as to what the delay might have been? And, again, what I understand, we have been told that the National Emergency Management Information System edit check system was disabled apparently to facilitate a more expeditious processing of some of these claims and some of this money. But do we have any information on, if the system had been kept running, what the delay would have been? Mr. Kutz. It would have been many months. Again, I seem to remember it was about $900 million that had been flagged at some point in time, which would have been a substantial number of applications, and they just did not have the people to work those cases. So I anticipate it would have been many months to get that money out. Senator Coleman. Had there ever been another instance that you are aware of in which the National Emergency Management Information System edit check had been disabled? Mr. Kutz. We are not aware of any. Senator Coleman. No experience with it? Mr. Kutz. No experience with it, so we do not know. Senator Coleman. At a press conference on November 30, FEMA Director Paulison stated that they had established an identity verification system to confirm displaced residents who are who they say they are and where they have lived. His indication was that it would cut down on waste, fraud, and abuse. Have you had a chance to review the system at this point in time? Mr. Kutz. We have met with ChoicePoint. I believe they are using ChoicePoint still, and so we are aware--ChoicePoint has a whole menu, Senator, of various fraud prevention controls that they can put in place. Again, FEMA did not effectively use ChoicePoint the first time. So if they better use ChoicePoint-- I am not saying they can eliminate fraud, but they can make a significant dent in fraud, waste, and abuse by implementing many of those controls that FEMA or the other ones that do what ChoicePoint does implementing those controls. Senator Coleman. Mr. Ryan. Mr. Ryan. Senator, I still go back to the point that you can talk about controls, you can write them down on a piece of paper, but somebody needs to test these controls because, quite honestly, it is like everything else. You can say you found the property, but until you touch it, you really don't know if you have it. In this particular case, you can talk about the controls, but I really do think there has to be some type of an agreement where someone will actually come in and test what you are actually putting on a piece of paper. And until that is done, I am not real happy that it is going to be satisfactory. Senator Coleman. What I am hearing then is that until you have really had a chance to review this, you are not in a position to say whether it meets the kind of specification, the standards that you want to see to prevent further waste, fraud, and abuse. Mr. Kutz. You really have to test it in a live environment to know. Mr. Ryan. Yes, not only review it, but you have to test it. There are going to be so many different circumstances that come up, we have so many different citizens that needed assistance that they are going to have different stories and different situations. You have to be able to test your program, find out where you are going to have an overflow of problems, and make sure that you can plan for your manpower so that you can handle those situations to make sure that the people that need the assistance get it as quickly as they possibly can. Mr. Kutz. Senator, can I just add, we did test--with this disaster we tested, and that is one of the results of the test is them sending us money. I mean, because we went in with bogus information, we tested the system various ways to see if we could beat it, and that is one of the results. We did it right down the hall from our offices. Senator Coleman. In terms of testing, some of the scenarios, let's say there were two back-to-back disasters. Do we have a sense of how the system would operate under those circumstances? Mr. Ryan. Well, they have an edit that can actually identify people making claims for both disasters. In this particular case, based on the work that we did, we found out that they turned that edit off. Senator Coleman. Right. Mr. Ryan. Therefore, if the edit was in place, they would have been able to identify potential targets. We are not saying that all of the individuals who got duplicate payments are fraud cases, but we have talked to the task force in Louisiana, Mr. Dugas in Justice, and we believe that these cases are worthy of referring to them for further investigation. Senator Coleman. I want to focus again on at least the system that appears to be established and in place regarding identity verification. One of the concerns that you raised was they used Social Security numbers, and people used Social Security numbers that were not their own to get disaster assistance. Do you have any sense of whether this system would be able to identify folks using improper Social Security numbers or whether this system would identify someone who is not a U.S. citizen, the parameters of whether this problem would be addressed under the system in place right now? Mr. Kutz. The ChoicePoint system could have identified if one person tried to get in with bad information in most cases. There are exceptions to that. I think the foreign students could have gotten through if they had Social Security numbers. There is no way to tell that they were ineligible foreign students. One of the other problems was if people were using the same Social Security number 20 times, they were also able to get through. So hopefully they have put in something, even after ChoicePoint says that is a real Social Security number, that someone is making sure that they are not registering 20 times with the same Social Security number. Senator Coleman. I would hope that you would do what needs to be done to figure out ways to ensure that--or maybe that is our responsibility that this system is tested and that it is checked. I would hate to have to come back after the next disaster with similar problems and the response was, well, we thought it worked but we did not know, and in the end it did not work. Thank you, Madam Chairman. Chairman Collins. Thank you. Senator Carper. Senator Carper. Thank you, Madam Chairman. Could you ask someone to put up the very first poster that was up?\1\ --------------------------------------------------------------------------- \1\ The poster appears in the Appendix on page 51. --------------------------------------------------------------------------- Just tell us again what we have here, starting from the left. It looks like $1 billion was the GAO estimate of improper payments, as of what? Mr. Kutz. February 2006. And that was based upon a statistical sample we did of every payment and registration that was made. Senator Carper. And as of about a month ago, it looks like FEMA had identified roughly 30 percent---- Mr. Kutz. As improper payments, yes, that is their identification of improper payments. Senator Carper. And they have gone out and collected $7 million. Mr. Kutz. Right. Senator Carper. Which is about 2 to 3 percent of the amount. Would you say the $7 million or the 2 or 3 percent is about what you would expect? Is that a bit low? I cannot imagine it is a bit high. But how would you characterize that? Mr. Kutz. I would expect a couple pennies on the dollar. I do not expect a lot more. Maybe over time they will get more. I mean, that gets into the other issue, and I think Senator Collins mentioned it, that FEMA also has maybe $8 million of receivables now, so now FEMA is becoming a debt collection agency. And that is not really the purpose you want FEMA doing. But certainly they could potentially get more, but it is not going to be much at the end of the day. Senator Carper. Are there others, other entities, public or private, to whom they could dispatch or turn over the responsibility for debt collection? Maybe they have already done that. I do not know. Mr. Kutz. The way this is supposed to work, once they have issued the letters--I think they sent letters out for the $290 million, so they have sent letters saying, ``You owe us this money back,'' etc. After a certain period of time, the way the government process works, they are supposed to refer that to the Treasury Department, who has an offset program, and ultimately this will end up with collection agents, possibly, and they may actually offset it against things like refunds, tax refunds, or other things. So there is a certain process that FEMA should be following that, after a certain age, it goes to Treasury and then collection agents, and they offset against other government disbursements. Senator Carper. Are you aware of anything that we should be doing on this Committee or in Congress to increase that number from $7 million to something higher than that, to make that $290 million that FEMA identified closer to the $1 billion that you had identified in your earlier work? Mr. Kutz. Well, they have not showed us this yet, but we understand they have shared with some of the Committee staff that there are hundreds of millions more of recoupments that will make that $290 million grow. So they are going to continue to be sending more letters out. The question is how effective can you be collecting that from people. If they are fraudsters, they are gone. They have disappeared. You are never going to find them. If it is people who just got an improper payment that might not be fraudulent, you have got a chance to get the money. And I will use the students as an example. A lot of the students apparently had spent the money, and now they were saying to our people when we interviewed them, ``We are going to have a hard time paying that money back.'' Again, if you have spent the money, it is kind of hard to pay it back sometimes. So it is going to be--again, I think good management, they can get several percent, but it is going to be hard to imagine them getting a lot. But what you can do, I think, is provide oversight of FEMA to try to hold them accountable, make sure they are at least following the right processes, because, again, the more effective way is fraud prevention. But now that you are here where you are, we do want to see that people recover as much as possible. Senator Carper. OK. I think what you just said there is really critical. The important thing is for us to do the job at the front end and for FEMA to do the right job at the front end because when the money is out, for the most part it looks like it is gone, it is out of here. Could we look at the second poster that you had up there, please? Explain this one again for us, if you would, just briefly.\1\ --------------------------------------------------------------------------- \1\ The poster appears in the Appendix on page 50. --------------------------------------------------------------------------- Mr. Kutz. Yes, this is individuals that are staying at FEMA-provided housing, and in this particular case, it is mobile homes and trailers. It could be a hotel. The hotels have the same issue. Apartments have the same issue. They are entitled to free housing under the program if they are legitimate victims. What the problem is here is at the same time they got free housing, FEMA sent them a check reimbursing them for rental that they were not incurring. So the government basically paid twice for these individuals' housing. Now, again, whether this is fraud or not, it depends on certain cases. Some of it might just be people who said, ``Hey, I got a check from FEMA for rental assistance even though I am staying at a free FEMA hotel,'' or in this case a mobile home or trailer. So that is what that represents. Again, you are paying twice for the same thing. Senator Carper. The courts recently ruled, a Federal district court recently ruled that FEMA needed to continue providing housing assistance for a number of people who have been displaced. How does that fit into this situation? Or does it? Mr. Kutz. It may. I think one of the issues is: Is FEMA making sure people are alerted as to what they are supposed to spend the money on? It gets back to the same thing we found with the debit cards. FEMA was not telling people how they were supposed to spend the money, so that got into certain issues. But I am not sure exactly how it relates to this. There may be some overlap with this issue. Senator Carper. What kind of assurances can you give us, looking ahead to the next disaster, the next hurricane, the next flood, that FEMA has learned lessons so that we will not replicate these problems in the future? Because as you pointed out, once the money is gone, it is gone. Mr. Kutz. Well, one of the frustrating parts of where we sit is we cannot actually do it. We can only recommend it. But certainly we have given them what we think are practical, implementable recommendations that, again, do not necessarily harm legitimate victims but help us to reduce fraud, waste, and abuse. So certainly our follow-up and maybe this Committee's follow-up would be useful in holding FEMA's feet to the fire and making sure that they do better next time. We certainly would be willing to work with the Committee on that point. Senator Carper. Good. That is one that our Subcommittee may want to take a look at in the next year as well. Our thanks to both of you for your continued service. Chairman Collins. Thank you. I would like to return to the posterboard of the disaster assistance check received by GAO.\1\ Mr. Ryan, first, explain to me how someone from GAO received this? --------------------------------------------------------------------------- \1\ The poster appears in the Appendix on page 49. --------------------------------------------------------------------------- Mr. Ryan. We tested the system to see if the up-front controls were in place to stop a person like myself and the agents that sit behind me from stealing the money. We created identities. We used Social Security numbers that were not linked to those identities. We went online first to try to register. We were not successful because the online verification process stopped us because it identified us as not real people. However, the system said, ``If you don't get through, call us.'' Well, we called, used the same information, and we were able to register. We provided documentation, which we counterfeited, manufactured. They accepted it and in the process proceeded to send us this check along with other checks. Chairman Collins. Isn't it pretty easy to verify an identity and a Social Security number to make sure that they match? Wouldn't it be pretty easy to prevent this kind of blatant fraud? Mr. Ryan. I think that FEMA, in using the Internet system, had the right idea. I think it was a great start. But the problem was that you went down two different paths and they did not follow the same process. If you are going to do it on the left, you should do it on the right. And there is where the vulnerability existed. Mr. Kutz. We tried to get in through the Internet, through the Web, and we got kicked back. So we went to the phone calls, and the very same people who got kicked out--so they did not even keep track of who got kicked out either to make sure that if they called, they would say, ``Yes, you already tried, and we rejected you.'' They did not even have that in place. Chairman Collins. And while there were controls if you applied via the Internet, those same controls did not exist if you called up and applied, which is why you were successful when you used the telephone application process, correct? Mr. Ryan. Correct. Chairman Collins. What is stunning about this is it is not a very sophisticated fraud to make up an identity and a Social Security number, and yet it was successful. But you first testified about doing this back in February, if memory serves me correctly. So this raises another interesting question. Has FEMA tried to recoup this money? Mr. Ryan. We have not received a recoupment letter, and we have not cashed the checks, which is kind of a clue that maybe you need to be looking at who is spending the money. Mr. Kutz. We are probably the only people that have not cashed the checks, Senator. [Laughter.] Chairman Collins. That I would guess. Mr. Kutz, based on the review and investigations you have done, what do you think the real likelihood is of FEMA being able to recover a substantial amount of the improper or fraudulent payments, let's say 50 percent? Mr. Kutz. Almost zero percent chance. Chairman Collins. Because in many cases, as you have pointed out, if someone deliberately committed fraud, they are not going to stick around to be caught. Mr. Kutz. Right. Chairman Collins. But, second, if someone received a check and thought, ``Gee, what good fortune that I got this payment,'' or ``Maybe I am allowed to collect twice because it was two different hurricanes,'' isn't it very likely that money is long gone? Mr. Kutz. Yes, and, again, they have spent it. Again, like our recent examples of the students, many of them had spent the money already. What they spent it on we did not follow up on. But, yes, they are going to have a hard time paying it back now. Chairman Collins. Mr. Ryan, I understand that you investigated the case of the crab house where the 25 temporary workers received over $150,000 in assistance, despite the fact that they were clearly ineligible. Should FEMA have known that the workers should not receive this assistance? Did you find any evidence that FEMA had documents that should have raised red flags about the eligibility? Mr. Ryan. In this particular case, the individuals were here on work visas. They were working at the crab house. When the hurricane came, the owner took the employees and went to Florida. While they were in Florida, the owner of the business made sure that they had all their working visas, took them down to FEMA and provided the visas--provided the location for the worker to go to and the evidence that they had a working visa. It was presented to FEMA. Some of that documentation was recorded in the database. And when we reviewed it, we found it. What I would like to bring out is that in the application process, the question is asked: Are you a legal alien? And in these particular cases, without a further explanation or an understanding by the FEMA employee, these people were legal aliens. They were here on proper work visas. What needs to be done is that if you are going to ask that question, you need to have either a dropdown screen or you need to ask the appropriate follow-up question: Are you here on a student visa? Are you here on an H-1 or H-2 type visa? So that there is a better understanding of the person who is presenting the information so they can determine whether or not they are entitled or not entitled. So in this particular case, I will say that these 25 people who got money, I cannot tell you if they were legal or not legal. I cannot tell you if the visas were valid or invalid. I cannot tell you if they should have gotten benefits or they shouldn't. However, I will tell you that we referred it to the task force, and we believe that these people ought to be interviewed and a criminal case started against them. Mr. Kutz. Well, some of them provided fictitious information, and so some of them are suspicious fraud cases. The ones that had the visas scanned into the system were all from Mexico, and the other ones, there was nothing in the system basically. And when we checked their Social Security numbers, there were problems with a number of them. Some had never been issued before. So, again, some of these could be fraud cases. Chairman Collins. And I think that is an important point because in some of these cases what you are finding is outright fraud--manufactured Social Security numbers, false identities, other indicators of deliberate fraud. But in some of these cases, the individuals--I suspect the international students may be examples of this--presented legitimate documentation to FEMA that should have led FEMA to say you are not eligible for assistance, and there was not fraud on behalf of the claimant in some of these cases, but FEMA, through sloppy procedures, issued checks even though they had information that should have led them to disqualify the individual. Is that fair? Mr. Kutz. Yes. And, in fact, representatives from the four universities said that FEMA representatives told the students to apply even knowing that they were not eligible. We could not validate all of that, but certainly we had multiple sources of evidence that the FEMA people knew these people were not eligible and that they let them apply anyway--or they encouraged them to apply. And so, again, like you said, in the FEMA system there appears to be valid student visas in the system, and even right next to that is a copy in the system of the FEMA flier saying foreign students are not eligible. They got money anyway. Chairman Collins. This shows me that, in addition to having better internal controls that are consistently applied and not suspended just because there is a large volume of applicants, we also need better training, better systems for ensuring that FEMA workers understand the eligibility rules, which was Senator Lieberman's point as well. I just have one final question for you, and it has to do with FEMA's attempts to recoup this money. Mr. Ryan, you made a very good point that FEMA is not a collection agency. This is not an area where FEMA has expertise, and, clearly, resources are being diverted to collecting on these cases. And FEMA really does not have that as its mission. To me, the lesson from that is you have to have good controls up front to prevent this fraud in the first place. But what is your general assessment--I would like to hear from both of you on this issue--of FEMA's system for triggering recoupment, going after obviously improper or fraudulent payments? Mr. Ryan, we will start with you. Mr. Ryan. My experience is that when the money gets out the door, it is gone, and you are chasing it down the street trying to find it. We are wasting almost as much money chasing it as what we are trying to recover. I cannot really give you my opinion because I really did not work on the recoupment process that they have. But I can tell you that based on testifying four times, five times in regard to FEMA, we really at your direction, the Committee's direction and some of the other committees in Congress, looked at what really fraud is. How does fraud exist in these programs? In the past, we were told it was 1 or 2 percent. When we are identifying from a statistical sample 16 percent fraud, it appears that you have to do a better job up front because I do not know if you are going to be able to recover the money in the back. I cannot really comment as to the process that they are using for recoupment because I have not looked at it. Maybe Mr. Kutz has and the staff has. I have not. Mr. Kutz. No, we have not systematically looked at it, but the interesting thing is that they have characterized recoupments or the $290 million as the fraud rate or the fraudulent or improper rate. Well, as you know, that does not make any sense. And they tried to compare that to the way we did a random statistical sample of the entire population. So it just almost seemed like they didn't really understand what fraud, waste, and abuse is, and that kind of was a bit discouraging. But, again, the fact that they are identifying hundreds of millions of dollars is not a bad thing; if they can try to collect it, it is good. But you are right. If we get bogged down in FEMA doing debt collection and another disaster hits, that is not a good thing. Chairman Collins. I guess what is most disturbing to me, as I mentioned in my opening comments, is this is money that is desperately needed by the real victims to rebuild devastated communities and to rebuild their lives. The American people are very generous, but there is a limit to their generosity if they believe that substantial amounts of money are being lost to waste, fraud, and abuse. And that is clearly what happened in this case. It is particularly frustrating to me because in 2004 this Committee held oversight hearings looking at waste, fraud, and abuse in the wake of the Florida hurricanes, and we identified some of the exact same problems that you have testified about today. At that time, I remember telling Michael Brown that he had to ensure that controls were in place before the next major disaster hit. Regrettably, he did not do so, and when a disaster of the magnitude of Hurricane Katrina hit, the magnitude of the waste, fraud, and abuse was that much greater. We cannot wait for yet another disaster to hit and for yet another round of investigations and hearings to spotlight once again the lack of basic safeguards and internal controls that any agency that is providing public assistance should have as a matter of course. This is not rocket science. It is not something where it requires technology that has not yet been developed. It is basic verification of eligibility, identity, address, and damage. And I for one am going to continue to push FEMA and the Department of Homeland Security to prove that they have those systems in place. The FEMA reform legislation that this Committee advanced and which was signed into law as part of the appropriations bill requires the development of those standards. It is not something, frankly, that we should have had to put in law to ensure that it was going to happen. It is basic management. But I hope that you will continue to work with us to probe and test the system to ensure that true progress has been made. We have asked DHS to respond to your testimony and to these latest findings and recommendations. They are still working on their response, and I look forward to seeing their response to these very troubling findings. We all know that lessons can be learned and applied in the wake of a disaster, and we have seen some progress being made in other parts of FEMA. And I realize there is a lot of progress that needs to be made. But the American people are not going to be willing to keep writing checks for disaster relief and assistance unless they are assured that the money is being wisely spent to benefit the true victims. And your work is vitally important in helping us achieve that goal. I very much appreciate all of your assistance to the Committee. It has been a great pleasure to work with you. I am certain that this Committee's fight against wasteful spending will continue, and I look forward to working with you further. I also want to thank my staff for their diligent work on this hearing and, indeed, on all of the Hurricane Katrina investigation. It was the most extensive investigation ever undertaken by this Committee. I believe that this is our 25th Hurricane Katrina hearing, and I think we have learned a lot. We have issued a major report. We have enacted legislation. But it is clear that continued oversight will be necessary. So I want to thank the staff for their good work as well. The hearing record will remain open for 15 days to receive questions for the record, other materials, and I hope DHS's written formal response.\1\ --------------------------------------------------------------------------- \1\ FEMA/DHS response appears in the Appendix on page 54. --------------------------------------------------------------------------- Thank you again for your good work. This hearing is now adjourned. 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