<DOC>
[109 Senate Hearings]
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S. Hrg. 109-889
DEPARTMENT OF HOMELAND SECURITY
PURCHASE CARDS: CREDIT WITHOUT
ACCOUNTABILITY
=======================================================================
HEARING
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JULY 19, 2006
__________
Available via http://www.access.gpo.gov/congress/senate
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Committee on Homeland Security and Governmental Affairs
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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
Michael D. Bopp, Staff Director and Chief Counsel
Amy L. Hall, Professional Staff Member
Jay W. Maroney, Counsel
Michael L. Alexander, Minority Staff Director
Troy H. Cribb, 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
WITNESSES
Wednesday, July 19, 2006
Gregory D. Kutz, Managing Director, Forensic Audits and Special
Investigations, U.S. Government Accountability Office,
accompanied by John J. Ryan, Assistant Director, Forensic
Audits and Special Investigations, U.S. Government
Accountability Office.......................................... 6
David L. Norquist, Chief Financial Officer, U.S. Department of
Homeland Security.............................................. 18
Alphabetical List of Witnesses
Kutz, Gregory D.:
Testimony.................................................... 6
Prepared statement with attachments.......................... 27
Norquist, David L.;
Testimony.................................................... 18
Prepared statement........................................... 73
APPENDIX
Department of Homeland Security ``Headquarters, Purchase Card
Manual''....................................................... 77
DEPARTMENT OF HOMELAND SECURITY
PURCHASE CARDS: CREDIT WITHOUT
ACCOUNTABILITY
----------
WEDNESDAY, JULY 19, 2006
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m., in room
SD-342, Dirksen Senate Office Building, Hon. Susan M. Collins,
Chairman of the Committee, presiding.
Present: Senators Collins, Coleman, and Lieberman.
OPENING STATEMENT OF CHAIRMAN COLLINS
Chairman Collins. The Committee will come to order. Good
morning. Today, the Committee will examine the results of the
joint investigation conducted by the Government Accountability
Office and the Department of Homeland Security's Office of
Inspector General into wasteful and potentially fraudulent uses
of DHS' purchase cards. Government purchase cards are similar
to the personal credit cards that many of us carry, but with a
notable difference: The American taxpayer pays the bill.
The government is responsible for paying all charges by
purchase cardholders regardless of what was purchased or
whether the buyer got a fair price. When used properly,
purchase cards allow agencies to streamline the acquisition
process and reduce costs when buying goods and services or
paying government contractors. When used improperly, purchase
cards enable wasteful and even fraudulent transactions.
The American people expect the Federal Government to spend
their tax dollars wisely, especially in this time of great
fiscal pressures and a large budget deficit. That is why this
Committee has undertaken so many investigations to expose and
eliminate wasteful spending. Indeed, this is not our first
hearing into the misuse of purchase cards. In 2004, this
Committee investigated the purchase card program used by the
Department of Defense. We heard from the same witnesses who are
here before us today about a lack of oversight and internal
controls at DOD. It is disturbing that we will hear again today
about a similar lack of oversight and internal controls at the
Department of Homeland Security.
Today's hearing will focus on spending associated with DHS
purchase cards in the months both immediately preceding and
following Hurricanes Katrina and Rita when DHS was given
expanded authority for using purchase cards. I opposed raising
the micropurchase threshold to $250,000, fearing that hurried
and wasteful spending might occur. GAO's investigation
indicates that my fears were warranted.
The use of government purchase cards has soared from less
than $1 billion in fiscal year 1994 to more than $17 billion in
fiscal year 2004. In fiscal year 2005, DHS spent $430 million
through the use of purchase cards issued to more than 9,000
cardholders. It is critical that agencies establish and enforce
adequate internal controls to ensure that cardholders are using
their purchase cards responsibly and are held accountable if
they misuse them. This becomes more urgent as purchase cards
increasingly are used not only for what are known as
micropurchases--under $2,500--but also for making contract
payments for much greater amounts, as happened in the aftermath
of Hurricane Katrina.
DHS, however, failed to implement the basic controls and
safeguards across the Department to prevent the misuse of
purchase cards. Government purchase cards are to be used only
for official purposes, and they are to be used responsibly. But
the GAO and the IG discovered numerous instances in which
cardholders entered into questionable and wasteful transactions
on the taxpayers' dime.
For example, investigators found that FEMA purchased 200
laptop computers for the New Orleans Police Department. These
were meant to be on loan to the police department while its own
equipment was unusable. But when GAO and the DHS IG attempted
to locate these computers, they could not find more than half
of the computers, 22 printers, and two GPS units, translating
into approximately $170,000 of lost property.
Another example involved the unwarranted purchase of eight
high-definition televisions, including a 63-inch plasma TV
purchased at a cost of nearly $8,000 at the end of the fiscal
year. One cannot help but wonder if this was an example of
hurry-up spending to deplete a budget at the close of the
fiscal year. Until GAO inquired, these televisions had not been
entered into the agency's inventory records. The GAO
investigators were able to locate these televisions, but the
plasma TV had not even been removed from its box 6 months after
it had been purchased. Clearly, this was not a necessary
purchase. The GAO also found other cases involving excessive
prices, duplicative payments, and wasteful purchases.
I do want to note that at 7:52 this morning, DHS informed
the Committee that it had miraculously found the missing boats
and some of the missing computers, although they are ``in the
process of locating the printers.'' To me, this is just a
further indictment of a lack of systems at the Department to
account for property, and it shows a chaotic and completely
unacceptable system when items worth hundreds of thousands of
dollars are missing one day, found the next, and perhaps to be
found in the future.
In addition to testimony from GAO, we will hear this
morning from the Chief Financial Officer of DHS, David
Norquist. The CFO's office is responsible for administering
DHS' purchase card program. Now, Mr. Norquist has been in his
new position for just under 2 months, so I do want to make
clear that he was not responsible for the poor management of
DHS' purchase card program during the time period that was the
subject of this investigation. But, nevertheless, he is the
official responsible for ensuring better management and
accountability in the future, and I hope it will not take a
congressional hearing to prompt DHS to make the necessary
reforms or to find missing equipment, which seems to have
happened in this case.
Providing assurance to the American people that the Federal
Government is shopping responsibly and honestly is absolutely
essential. That is why several Members of this Committee--
Senators Lieberman, Coleman, Levin, and Akaka--joined Senator
Feingold and me in introducing the Purchase Card Waste
Elimination Act last year in the wake of our DOD investigation.
This legislation finally passed the Senate last month, and I
cannot help but think if it had been signed into law last year,
this audit may have produced different results.
The bill requires the Office of Management and Budget to
issue guidelines to assist agencies in improving the management
of purchase card programs. It requires the General Services
Administration to identify additional opportunities to achieve
savings. And it mandates that OMB report annually to Congress
on the progress agencies are making on both of these fronts.
My hope is that this investigation, the latest GAO report,
and our hearing will encourage prompt passage in the House of
Representatives and enactment of this important bill.
I welcome all of our witnesses here today. We have worked
very closely with this outstanding team of GAO investigators in
the past. I look forward to hearing their views and the views
of the Department as well as their recommendations to address
waste, fraud, and abuse in DHS' purchase card program.
Senator Lieberman.
OPENING STATEMENT OF SENATOR LIEBERMAN
Senator Lieberman. Thanks, Chairman Collins, for convening
today's hearing to examine DHS' record on using government
purchase cards.
Thanks to Mr. Kutz and Mr. Ryan for another first-rate job
of investigation and analysis on behalf of Congress and the
taxpayers. Your investigation has uncovered, what I would call,
a number of inexcusable abuses of purchase cards, which are
symptomatic of larger problems the Department has with
management controls in financial oversight.
In the interest not just of our responsibility to the
taxpayers, but in this case, in the interest of homeland
security, these problems have to be fixed. Purchase cards
obviously can save money for the taxpayer by streamlining
acquisitions and reducing administrative costs, especially for
small procurements. But absent agency controls, the
flexibilities allowed by the use of purchase cards leave our
government and taxpayers vulnerable to waste and abuse.
The GAO's findings make clear that such waste, abuse, and
fraud have occurred and that better controls are urgently
necessary. With over 10,000 purchase cardholders at the
Department of Homeland Security, the potential for waste,
fraud, and abuse is enormous. One question I want to ask is
whether all 10 thousand purchase cardholders really ought to be
issued purchase cards. That is a very large number.
GAO found that in some instances purchase cards encouraged
hasty and sloppy spending in the response to Hurricane Katrina.
Senator Collins has mentioned some of them. A few others: A
FEMA purchase cardholder bought over 5,000 cases of MREs,
meals-ready-to-eat, for Katrina relief from a vendor over the
Internet at a cost of over $460,000. GAO reaches what certainly
seems to be an immanently sensible conclusion that FEMA could
have procured the MREs at far lower cost through the Defense
Logistics Agency or an existing GSA vendor rather than going
over the Internet.
Another example: FEMA entered into a $178,000 contract with
a broker for the purchase of 20 boats at a cost that was 100
percent above retail price. The broker then used the card
number to purchase boats and also made additional unauthorized
purchases totaling $30,000 using the purchase card. That was
done by the broker, not by the DHS employee. The FBI is
actually investigating the vendor.
And then there were instances where DHS employees purchased
items that, shall I say respectfully, seem unlikely to have had
a legitimate government purpose, such as iPods. And an employee
of the Coast Guard Academy apparently used a purchase card to
pay $227 for a home brew beer kit to make beer for academy
functions.
Overall, GAO finds, based on the statistical sample, that
45 percent of DHS' purchase card transactions were not properly
authorized. Clearly, the Department needs to do a lot of work
quickly to establish adequate procedures for keeping track of
goods purchased with these cards. The Department has no formal
guidance in place to instruct employees on proper card use,
although, perhaps not coincidentally, yesterday evening DHS
notified the Committee that it has finally finalized exactly
such guidance.
We are going to hear today from the new Chief Financial
Officer at DHS, David Norquist, and I hope that he will tell us
about his plans to improve the tracking and control of
purchased goods with these cards. Typically, the cards are used
for purchases under $2,500, but as the GAO testimony will tell
us, employees of the Department have used the cards for
significantly larger transactions, including that $178,000 I
talked about for the boat broker.
Because of the possibility of waste and abuse in the use of
cards for larger purchases, I strongly opposed a provision
added to one of the Katrina supplemental spending bills that
would have increased from $2,500 to $250,000 the amount that
could be charged to a Federal purchase card. Chairman Collins
also strongly opposed that, and she and I successfully reported
out a bill from this Committee that would have repealed the
provision. Eventually, in fact, it was repealed through a
separate amendment to a Transportation-Treasury appropriations
bill.
DHS officials have assured us that while the $250,000 limit
was in effect, the Department never implemented that special
authority, but clearly, some of the Department's personnel
relied on other procurement authorities to make large
purchases, and we want to ask today how that happened.
In sum, government purchase cards can, in some
circumstances and with adequate controls, bring speed and
effectiveness to the procurement process, but they also raise
special management challenges. The ease with which the cards
may be used can also encourage Federal employees to purchase
unnecessary items or to rush into spending decisions without
spending enough time to get the best price for the taxpayers.
Goods acquired with purchase cards escape the more rigorous
inventory controls that accompany paper-based transactions that
go through more levels of approval. And, of course, a card
number in the hands of a dishonest vendor can result in
fraudulent charges against the account. As our April 2004
hearing, which Chairman Collins has referred to, on purchase
cards showed, inevitably a few Federal employees have fallen to
temptation and have used the purchase cards to purchase
personal items.
So our task now is to ensure that the Department of
Homeland Security implements procedures to prevent the abuse of
these cards and takes appropriate disciplinary or legal action
against those who abuse the cards or use them fraudulently. The
reputation of the Department and the confidence of Congress and
the taxpayers in the Department depend on such action.
With that in mind, I look forward to the hearing. Again, I
thank the GAO and you, Madam Chairman.
Chairman Collins. Thank you. Senator Coleman.
OPENING STATEMENT OF SENATOR COLEMAN
Senator Coleman. Thank you, Madam Chairman. I want to thank
you and the Ranking Member for holding this important hearing.
I am Chairman of the Permanent Subcommittee on Investigations.
This issue of the use of purchase cards has been of great
concern. We have looked at the DOD. We looked at Federal
travel, premium class travel, a lot of which was done by
purchase cards and was not authorized, and, again, working with
a fabulous team here, we found that over $90 million in premium
class travel was not authorized. So this has been a big issue.
With the Chairman's leadership, we have recently passed the
Purchase Card Waste Elimination Act of 2006, of which I was
proud to be a cosponsor. So there is more accountability, but
so much more work has to be done.
My issue or concern is not the number of cards in the
system, but the question is the accountability, the training,
and the controls in place. So it is not the number. My
frustration at times is the government does not work as fast as
the private sector. When we had our Hurricane Katrina hearings
and were looking at trying to find lost inventory that was
``lost in the pipeline,'' my question was: Why don't you call
FedEx? I mean, people today expect government to work in a way
in which in their lives they see it work, when they use their
ATM cards, when they audit things, and there is a tracking
system. To me, it is absolutely stunning that we sit here and
we have what I called these 11th-hour epiphanies of now we have
found lost goods. To me, one of the problems here has been the
lack of a system, not having a basic implementation of a manual
by which you would train people to say this is how you do it,
this is how you do not do it.
My fear is that because of the abuse, we are going to make
government slower, we are going to make it less responsive. We
are going to put in place all sorts of controls that in the end
may then hinder the ability to do the important work that has
to be done, but in part because we have not had a system in
place of control. Literally, in my opening statement, I was
going to rail about the lack of a manual. I am not going to
rail about that because that has now apparently been put in
place yesterday.
We simply need to do better. The Chairman used the phrase--
and I wrote this down--``chaotic and completely unacceptable.''
And I second that. I think that is really what we looked at. We
have to do better. We have a new team in place, but what we
have seen has been unacceptable, and we have to take the steps
to make sure that the agency is responsible without losing the
ability for government to move quickly and to do the things
that people expect it to do.
So that is our challenge, and, again, I want to thank the
Chairman and the Ranking Member for their focus on this issue.
Chairman Collins. Thank you very much.
I am very pleased to welcome our first witnesses today to
this Committee. They really need no introduction. Greg Kutz is
the Managing Director of the Forensic Audits and Special
Investigations Unit of the Government Accountability Office. He
has been with GAO since 1991 and assumed his position as
Managing Director in 2005. He is accompanied by Special Agent
John Ryan, Assistant Director of the unit. So we are very
pleased to have you return to the Committee, and I congratulate
you for once again doing outstanding work.
Mr. Kutz, we will start with you.
TESTIMONY OF GREGORY D. KUTZ,\1\ MANAGING DIRECTOR, FORENSIC
AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE, ACCOMPANIED BY JOHN J. RYAN, ASSISTANT
DIRECTOR, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Kutz. Chairman Collins, Senator Lieberman, and Senator
Coleman, thank you for the opportunity to discuss the
Department of Homeland Security's purchase card program. DHS
has about 9,000 cardholders and spent over $400 million using
purchase cards in 2005. I also want to thank Inspector General
Skinner and his staff, who, as you mentioned, Chairman Collins,
worked with us jointly on this audit effort.
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\1\ The prepared statement of Mr. Kutz appears in the Appendix on
page 27.
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The bottom line of my testimony today is that weak internal
controls leave DHS vulnerable to fraud, waste, and abuse in its
purchase card program. My testimony has two parts: First,
internal control weaknesses and second, examples of fraud,
waste, and abuse.
First, we found a weak control environment related to the
purchase card program. However, many of the problems that we
identified are not strictly related to the purchase card
program. We also found symptoms and other issues related to
property accountability and procurement. With respect to the
purchase card program and control environment, the first issue
we found was the lack of leadership. As was mentioned here,
evidence of that was that the DHS purchase card policies and
procedures manual had been in draft for over 2 years. Although
these draft policies generally contain effective controls, we
found inconsistent usage of them across the Department. Other
control problems include inadequate staffing, monitoring, and
training.
Our statistical sampling also revealed serious breakdowns
in transaction-based controls. For example, an estimated 45
percent of transactions did not have written authorization.
Further, 63 percent of transactions did not have documentation
of independent receipt of goods and services. This contributed
in part to the substantial problems with missing and stolen
property.
Moving on to my second point, given the weak internal
controls, it is not surprising that DHS is vulnerable to fraud,
waste, and abuse. Our work was not designed to estimate the
magnitude of fraud and abuse. However, we found, as you
mentioned, numerous examples of fraud, waste, and abuse. Let me
discuss several of these.
The first issue, as I mentioned, is property
accountability. For example, 154 out of 433, or 36 percent, of
the property that was bought with the purchase card was missing
or stolen. For example, the posterboard shows a hotel
conference room in the French Quarter where several hundred
computers, printers, and GPS units were supposed to be.\1\
However, when FEMA staff took us to this location in March 2006
where they thought the property was, we found this empty
conference room. Ultimately, FEMA could not find 107 of the
laptops, 22 of the printers, and two GPS units--although you
said that they miraculously found them, I understand.
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\1\ The posters referenced by Mr. Kutz appear in the Appendix on
pages 69-71 respectively.
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FEMA also could not account for the location of 20 flat-
bottomed boats and motors that were purchased for body recovery
operations in New Orleans. FEMA paid $208,000 for these boats,
which was twice the retail price. The vendor who had purchased
these from several retailers failed to pay for over half of the
boats, which one of the retailers has reported are stolen. This
vendor is under investigation by local law enforcement and the
FBI.
One example of waste is FEMA's $68,000 purchase of 2,000
sets of canine boots. These boots were purchased by mistake for
Hurricanes Katrina and Rita operations and were not used and
are now in storage.
The posterboard shows a 63-inch Samsung plasma television
that you mentioned,\1\ Chairman Collins, that FEMA purchased in
September 2005, costing about $8,000. This, too, was a waste of
taxpayer dollars since auditors found the television unused in
the original box 6 months after it was purchased.
The Meal-Ready-to-Eat (MRE) poster that I have in my hand
is another example of waste. To support CBP's response to
Hurricanes Katrina and Rita, they purchased MREs from an
Internet vendor. However, we identified at least tens of
thousands of these that are sitting in storage, unused, in El
Paso, Texas.
And, finally, a Coast Guard purchase card was used to buy a
beer-brewing kit and a Brewers' Bible. The posterboard shows
some of the bottles of the Coast Guard's own home-brewed
beer.\1\ We considered this to be an abusive transaction and
question the use of Homeland Security personnel and resources
to brew its own beer.
In conclusion, the purchase card is a valuable tool that
provides the government great flexibility and reduced
transaction processing costs. The examples of fraud and abuse
related to Hurricanes Katrina and Rita show that the government
is particularly vulnerable when using purchase cards in times
of disaster. Mr. Norquist appears to be taking a proactive
approach to the challenges that I have described for you today.
I look forward to working with him, the IG, and this Committee
to see that DHS realizes the full benefits of using the
purchase card.
Chairman Collins, that ends my statement. Special Agent
Ryan and I look forward to your questions.
Chairman Collins. Thank you very much, for an excellent
statement.
You have listed several egregious examples of purchases
that were clearly wasteful, some outright fraud, and poor
buying decisions that cost the taxpayers a great deal of money.
Did you also find that there was a lack of care to make sure
that the government was not being billed twice? For example,
did you find examples of duplicative billing and a lack of
reconciliation with the payments to make sure the property has
been received?
What prompts me to ask that is when we all receive our
personal credit card bills, we go through them very carefully
to make sure that the charges are correct. If they are not, we
act immediately. But as I understand the results of your audit,
since it is somebody else's money, that same kind of care does
not seem to be taken.
Mr. Kutz. Yes, we found duplicate payments. There was one
$153,000 charge, I believe, that the government first of all
paid with the purchase card, and they paid in advance, which is
not in accordance with policies at the Department; and then
they paid them again using an EFT payment. And the Department
was unaware it was a duplicate payment until we informed them
of it, and then they were able to get a credit back from the
vendor 6 or 8 months after the purchase was made. So that was
an example of a duplicate payment.
We found a lot of evidence that people are not reviewing
the monthly statement, and let me just explain how they do it
at DHS. Normally, you and I would get our credit card bill and
pay it monthly after reviewing the transactions. What DHS does
is they pay every day, so they have a daily--it is called ``pay
and confirm,'' or in a bad scenario, it is ``pay and chase.''
But what they do is they pay every day, and then they are
supposed to take the monthly bill and go back and make sure
that all the charges are correct. And that can work as long as
the reconciliation is done timely because you have 60 days to
file a dispute with the bank for charges that are not yours.
But we found, again, breakdowns in the dispute process. We
found people were not reviewing their monthly bill. And I will
use the boats as an example. The individual that was the
cardholder that purchased the boats, there were charges going
through for purchases that the cardholder did not make that the
government paid, and that is why you have the boats costing
$208,000. The agreed-to price was $178,000, but $30,000 or so
of those charges are for the vendor, who basically stole the
government's account number and used it to buy the boats that
he then sold back to FEMA.
Chairman Collins. And in that case, are there indications
that the FEMA employee gave the middleman the account number to
use?
Mr. Kutz. They gave them the account number to use in that
case because they were going to have prepaid the purchase of
the boats for $178,000. So, yes, they gave them the account
number, but they did not authorize them to use the account
number themselves to buy additional goods and services.
Chairman Collins. The purchase card program is intended to
save money for the government and for the taxpayers ultimately,
yet you found examples where government agencies within DHS
actually paid more for goods and services than they should
have. You gave several examples of that in your report.
Is competitive bidding curtailed when there is a purchase
card transaction? How do we ensure we are getting the best
price if we are using purchase cards?
Mr. Kutz. Well, the hearing we had before your Committee
here in 2004, we estimated hundreds of millions of dollars
could be saved with better acquisition methods using the
purchase card, and we found symptoms of some of the very same
issues at DHS that we spoke to you about in 2004. And there is
significant evidence here that they could have gotten millions
of dollars of savings using their purchase card with better
acquisition processes. So I believe that is another issue that
Mr. Norquist needs to take a look at.
Chairman Collins. Mr. Ryan, were you surprised that DHS all
of a sudden on the morning of the hearing was able to find a
lot of the missing equipment, 74 out of the 107 missing
computers?
Mr. Ryan. I think in this particular case, I am a little
taken aback, quite honestly, because we have been working on
this job for a while. They were aware that there were missing
computers from the ballroom in New Orleans. They were aware
that there was a problem with the boats. And I guess what I
would ask is that if they are going to say they found these
items, that they maybe cross-reference them against the serial
numbers that we have that we are saying are missing and confirm
that what we have is what they found. I think that would be the
first step, and then obviously, as long as it is not a paper
verification--because there is a problem with paper
verifications as we had in other cases that we looked at.
Numbers are put on a piece of paper, but no one touches the
item. So I would ask them to touch the item and make sure that
they are really testing the serial number that we have to what
they found.
Mr. Kutz. Senator, could I add something to that?
Chairman Collins. Mr. Kutz.
Mr. Kutz. One issue is that if you do not put the property
in the property book right after you buy it, and the serial
number or a bar code, it is never going to be missing in the
first place. And so a lot of what we found were things that
they would have never found missing in the first place because
it never actually made it to the property book.
Chairman Collins. Well, that is exactly what my follow-up
question to you was going to be. If the Department told you
that they could not find 12 of the boats and there were a
hurricane tomorrow that required boats, it seems to me what is
going to happen is the Department goes out and purchases what
it already has but does not realize that it has.
Mr. Kutz. You are exactly right. Waste is going to happen
because they do not know what they have, they do not know where
it is, and so they are going to say that they need more, and
they are going to come back and ask you for more money.
Chairman Collins. Exactly. Senator Lieberman.
Senator Lieberman. Thanks again, Madam Chairman.
Gentlemen, thank you. Let me ask a couple of the questions
that I raised in my opening statement. The first is, although I
know this is a large Department--my first reaction to there
being 10,000 government credit cards out there in the hands of
DHS employees is that is a large number. Did you reach a
judgment on that in your work?
Mr. Kutz. Yes, let me give you some other information that
would help you with that. There were 2,468 cards that had no
activity for 1 year, so right there I can make a pretty strong
argument that you could reduce 2,500 of the cards.
Senator Lieberman. Right.
Mr. Kutz. So there is strong indications that they have too
many cards.
Senator Lieberman. OK. That is direct and helpful.
Second, as I mentioned, there is the question of the $2,500
limit as opposed to the $250,000. We repealed that limit by
statute on an appropriations bill, but then the officials at
the Department of Homeland Security assured us that even while
the quarter of a million dollar limit was in effect, the
Department never implemented the special authority. But,
clearly, some of the personnel of the Department made purchases
well beyond the $2,500, as we have documented, over $200,000
for the boats and other purchases as well.
How did that happen? Did they rely on some other
procurement authority beyond the one we are talking about to
make such large purchases by credit card?
Mr. Kutz. Yes, they used what they called the ``unusual and
compelling urgency'' provision of the Federal Acquisition
Regulations (FAR) to make those purchases in emergency
situations. And so that was what they represented was the
reason.
Also, there are certain contracting officers that have the
ability to use the purchase card as a payment card for ongoing
contract payments during the year. So there are two things. But
for most of the transactions you are speaking to, Senator, it
was the unusual and compelling urgency provision, and it was
mostly FEMA related.
Senator Lieberman. So what about that? Is that a reasonable
provision?
Mr. Kutz. If well controlled. Again, this is all about
management and controls.
Senator Lieberman. Right.
Mr. Kutz. It is not as if the situation is such that it
cannot be done correctly. It is just a matter of a little bit
of oversight, monitoring, and management. It is not as if they
should not have that flexibility. I think as you said earlier,
it probably makes perfect sense if controlled properly.
Senator Lieberman. Yes. Let me build on that answer and put
it in this context. That these abuses occurred in the aftermath
of Hurricane Katrina is in one sense even more remarkable
considering that GAO has produced a long line of reports and
testimony over the last few years detailing what I would call
ridiculous purchases made with government purchase cards. And
in that sense, one would have hoped that DHS would have been on
notice of the risks of waste and abuse.
So I want to ask you, as you continue your important work
here, how do you explain why it is taking Federal agencies so
long to get the message that these purchase cards, while
necessary and cost-effective in many cases, also can be misused
and that the agencies need to implement better oversight
procedures?
Mr. Kutz. Well, here I think it was kind of a little bit of
a match between acquisition and CFO as to who was actually in
charge, and it appeared no one was actually in charge the last
several years, or you would have had policies sent out from the
Secretary level that this is what people are supposed to do in
the Department of Homeland Security. And you did not have that
so you effectively had no real operating program office.
The actual policies and procedures as they are written--I
read them in detail; Special Agent Ryan read them in detail--
are actually pretty good, and if people had followed them, most
of the issues that I talked about in my opening statement and
that you have mentioned as examples could have been avoided.
Senator Lieberman. Yes. Do you have plans, or does the DHS
Inspector General, to do systematic reviews through audits and
investigations to follow up on the findings that you have made
in the report that you presented today?
Mr. Kutz. We always do follow-up on our findings to make
sure that recommendations are implemented, and they usually
send us a response within 60 days as to how they are going to
deal with things. But we are going to issue a subsequent report
to this testimony that has a series of recommendations, and I
will jointly sign that with either Rick Skinner or Matt Jadacki
from the IG's office.
Senator Lieberman. OK. That is excellent. Maybe the next
question gets a little bit ahead of us, but if you are
prepared, I was going to ask you what kind of oversight you
think the Department should put in place to discourage the
wasteful and unnecessary spending by government purchase cards
that you have documented in this report?
Mr. Kutz. The policies and procedures they have call for
periodic audits of a random sample of transactions, and I think
that would be effective if they did it. And I don't know how
effectively that has been done. It also calls for periodic
review by the Chief Financial Officer's staff of the entire
program. So if they did some of those things from a management
perspective, again, I believe they would be able to find the
very same things that we had found here and try to curtail
those abuses and pricing issues and other things like that.
Senator Lieberman. A related and final question. What is
the exact cause, to the best of your knowledge, of the poor
inventory controls that you have identified for goods procured
with purchase cards?
Mr. Kutz. Oftentimes with purchase cards, we have found
that there is less control over property. Sometimes you are
buying one and two or a dozen rather than a bigger procurement
of computers that is done through the IT part of an
organization. And so these are shipped--again, you mentioned
9,000 or 10,000 cardholders. If they are buying property, they
may not be trained how to put a bar code on. They may not call
the property people and get bar codes or serial numbers in. And
I think the decentralized nature of using the purchase card
subjects the property to less accountability, and that is what
we found across the government.
Senator Lieberman. Very good. Good work. Thank you.
Chairman Collins. Senator Coleman.
Senator Coleman. Thank you, Madam Chairman.
I want to second the comment about good work. You have done
tremendous work, both on this and in other areas, and we really
appreciate it.
Let me follow up on--when you walked into the hotel room,
the conference room, and the computers were not there, what did
the FEMA staff say, the folks you were with?
Mr. Ryan. The agent and the auditor who went there, when
they opened up the door, the FEMA employee was surprised that
they were not there and, quite honestly, said, ``I don't know
where they are at,'' and kind of like left. If it was not for
the agent and the auditor, I am not so sure we would have found
the 107.
Senator Coleman. My kind of just a human reaction, you walk
in, you cannot find something that you are supposed to find, I
would suspect that common sense would have said, OK, well, now
let's go find it. And I am stunned that even as we sit here
today, Madam Chairman, we have just found them this morning.
Mr. Kutz. Well, there were supposed to be 200 items we
tried to find. We actually, working with the Department, found
93 of them, and there were 100-some we could not find. So we
worked proactively with them on it, and I guess subsequent to
when we stopped looking, they continued and right up until this
morning have found many of them, they are saying.
Senator Coleman. Talk a little bit about the system because
I want to keep coming back to that system and review. Again, if
you had a system of reviews of purchase card compliance, I
would suspect you could at least on an annual basis kind of
update--I think the figures you gave, about 20 percent of the
purchase cards have not been used in a year. You would think
that would raise a signal as to whether then those are needed.
Is there any kind of review system in place to look at purchase
card compliance within DHS?
Mr. Kutz. On paper, there has been. In reality, it appears
no.
Senator Coleman. And explain the difference between the
paper and the reality. When you say paper, is there a manual or
is there kind of a directive?
Mr. Kutz. Yes, the draft manual I talked about had a lot of
the provisions you are talking about. It just was not being
exercised efficiently. And just because they say they are going
to implement it as of today does not mean they are going to
actually follow it. There still needs to be oversight and
follow-up because there were certain components of the
Department that were supposedly following this manual during
our audit, and they had some of the very same problems. So that
gets into actual implementation versus just the design of the
program.
Senator Coleman. So what kind of system needs to be in
place to ensure that you have adherence to policy, that you
have reviews of controls in place and in effect? Is there an
internal component to this and an external component?
Mr. Kutz. Yes, mostly it would be an internal--again, I
think this is a management function, not an auditor function.
You want the auditors to check periodically to see that
management is doing their job. But from a management
perspective, I think systematic testing of controls on a sample
basis, which is what the policies say that they are doing,
along with some data mining for some of the unusual
transactions we have talked about and some follow-up
investigation would be the kind of oversight I would do.
Senator Coleman. Can I just briefly go to the vendor who
did the boat deal and, in effect, used the purchase card to get
some of the boats? This is fraud then by a vendor rather than a
Federal employee.
Mr. Ryan. At this stage of the game, yes. We are referring
to the Department the purchase cardholder.
Senator Coleman. I am trying to understand how the vendor
got the number. Did the purchase cardholder actually give the
number to the vendor with the assumption that the vendor would
use the purchase card?
Mr. Ryan. Yes, someone told the cardholder to use this
vendor. We have not been able to determine why. The vendor had
no boats. He had no inventory. He took the card number from the
cardholder, ran two transactions through a family member's
night club, had--and, again, I might emphasize that the manual
had a restricted Merchant Category Code (MCC). If that would
have been in place, the transaction would not have taken place.
So we paid for boats that the vendor did not have, and we paid
for them before we even got them.
Senator Coleman. I presume there are titles to boats. Did
you get titles to the boats?
Mr. Ryan. No. The government does not have titles to these
boats simply because, one, the vendor who did take possession
of some of the boats never transferred titles. With another
vendor, he failed to pay that vendor. Since that vendor did not
get paid, he went to the local police department and filed a
stolen property report.
Senator Coleman. Was there a point in time before you
looked at this where somebody in FEMA said we have boats to
which we have no titles? And was that ever reported to anyone
at a level above the employee involved in the transaction?
Mr. Ryan. I really do not know. The only thing I can tell
you is that when I started to look at this transaction, I was
told this was a civil matter. And, quite honestly, because the
cardholder failed to review his own card transactions, we
discovered three additional transactions as unauthorized
transactions because the cardholder never gave permission.
Senator Coleman. If the manual that is now apparently in
place, was followed, if the procedures laid out in that manual
were followed, would these kind of problems be avoided?
Mr. Ryan. I think a lot of the recommendations in the
manual that talk about MCC codes, if they were put in place, I
don't think you would be seeing two $80,000, $90,000
transactions running through a night club.
Senator Coleman. Thank you. Thank you, Madam Chairman.
Chairman Collins. Thank you, Senator Coleman.
Mr. Kutz, let me follow up on Senator Coleman's questions
about the manual. You testified that there had been a draft
manual for 2 years. Were you able to discover why that manual
was not completed and issued as official policy?
Mr. Kutz. We were told that it was a dispute between
Acquisition and Chief Financial Officer, and Mr. Norquist can
hopefully shed more light on that. But it appeared to be an
internal dispute, and I do not really know what they were
disputing because the policies and procedures actually were
pretty good.
Chairman Collins. And they seemed to be the standard
procedures that have been recommended by GAO in the past and by
OMB. Is that correct?
Mr. Kutz. Yes. There were a couple things that I think we
would have added to them, but overall, they were well thought
out and someone had spent some considerable time putting them
together.
Chairman Collins. Well, that is why I conclude, as you do,
that there was a failure of leadership here because whatever
disputes there were should have been resolved at some point
long before Hurricanes Katrina and Rita hit.
I want to go back to the issue of prior authorization for
major purchases. It is my understanding that at least for
purchases above a certain amount--and I would think that would
have covered the $8,000 plasma TV--the cardholder is supposed
to get prior authorization. Is that correct?
Mr. Kutz. Yes. The draft manual requires prior
authorization in writing, and it can be something as simple as
an e-mail.
Chairman Collins. Is there any indication that the
individual who purchased the television sets, including that
particularly large and expensive one, received prior
authorization?
Mr. Kutz. They may have received it, but I do not believe
it was in writing. And let me tell you what happens with that.
Then we end up getting a lot of these interesting cases where
there is no prior written authorization, and then what we get
is a written authorization that happens 4 months after the
transaction, where they are trying to rationalize why they
spent taxpayer resources in a certain way. The iPods are an
example of that. I think that some of the usage of conferences
at some of these resort hotels, there was no documentation
showing what they did, why they did it. If they had compared
different alternatives that they had, they could have saved the
government tens of thousands of dollars. So the authorizations
are a very important control here.
Chairman Collins. And you did not come across any kind of
justification for those expensive television sets?
Mr. Kutz. No.
Chairman Collins. And I think the facts speak for
themselves, that the 63-inch TV was still in the box when GAO
discovered it.
Mr. Kutz. Yes, the Inspector General's staff actually
visited Mount Weather. That is where these were. And the one
63-inch was in storage. The seven 40-inchers were mounted, and
they were being used to watch ``CNN Headline News.'' And so,
again, we do not know--we did not even go after that issue as
to why did you need them in the first place. We were looking to
see, first of all, if they had accountability, and that is
another issue. They were not in the accountability records
until the Inspector General's staff showed up at Mount Weather.
So these had not been recorded in accountable property books
either.
Chairman Collins. Did you find any indication of counseling
or disciplinary action taken against employees who engaged in
these wasteful transactions?
Mr. Kutz. No, because management was not aware of any of
our findings until we did it, so they had not found any of this
as part of their own internal control systems. Now, Mr.
Norquist has represented that he wants to take a look at
administrative actions for the people who misused the card, and
we are going to refer them to him for consideration.
Chairman Collins. But, indeed, if I were representing those
employees, I would say there was no final manual for me to
follow.
Mr. Kutz. You could, yes. And, again, you may recall on the
DOD we had thousands and thousands of cases of referral,
whether it be for improper travel or misuse of purchase cards.
We are not aware of two things: Any disciplinary action against
any people, or anybody ever paying the money back. So there is
no accountability in this kind of situation. Hopefully at the
Department of Homeland Security, they will establish a system
of accountability for people here.
Chairman Collins. Thank you. Senator Lieberman.
Senator Lieberman. Thanks, Madam Chairman. Let me just pick
up on that a bit.
As we mentioned, the new guidelines arrived yesterday at
the Committee, and am I correct that GAO normally takes a look
at the guidelines as they are being prepared so you have some
general awareness of what is in them?
Mr. Kutz. Sometimes agencies will ask us to look at drafts
while they are being prepared, other times afterwards, but both
Special Agent Ryan and I have read them cover to cover.
Senator Lieberman. You have looked at them.
Mr. Kutz. Absolutely.
Senator Lieberman. OK, good. I will give you an opportunity
first to say if you have not said everything you want already
about what kind of job you think DHS has been doing in
disciplining employees who abuse the cards. But the real
question then is: Do you think the new guidelines, as you have
looked at them, will improve the process for taking
disciplinary actions?
Mr. Kutz. Well, it is hard to discipline people when you do
not know that they are committing abuse. They were not aware of
any of the cases that we came across, so there was, thus, no
discipline of any of the people. There are general references
in the draft policies, I believe, to disciplinary action for
misuse of the cards, and how those will be actually applied
would be a good question for the witness on the next panel.
Senator Lieberman. Right. But your point is a good one,
that the first necessity is to find out that abuse is occurring
before you can discipline.
Mr. Kutz. Yes.
Senator Lieberman. OK. The second question about the
guidelines: They will limit each approving official at the
Department to overseeing only seven cardholders or 300
transactions per month. I wonder whether those ratios sound
right to you and if you know how they compare to ratios at
other Federal Government departments.
Mr. Kutz. The 7:1 ratio is something OMB has supported. The
Department of Defense, after we did all those audits and
investigations there, uses the 7:1 as a maximum. And, again,
that was something in our findings we had. The Coast Guard, I
believe, had 170 approving officials that had greater than a
7:1 ratio, and that opens up the opportunity for cardholders
sometimes that are unscrupulous to take advantage of that, and
that is what we have seen in the past. So that is very
important.
Senator Lieberman. So 7:1 is a good ratio?
Mr. Kutz. It is reasonable, yes.
Senator Lieberman. And also the 300 transactions per month?
Mr. Kutz. I am not sure. In what context are the 300
transactions?
Senator Lieberman. Each approving official at the
Department will be limited to overseeing seven cardholders
maximum and 300 transactions per month.
Mr. Kutz. I don't remember seeing that in the policies,
but, again, assuming the person has enough time to do that--
that is probably a several-hour-a-month job--that would be
reasonable also.
Senator Lieberman. OK. Thanks. No further questions.
Chairman Collins. Senator Coleman.
Senator Coleman. In regard to the cards that were unused
for long periods of time, how do other agencies handle
termination of cards, kind of culling back on cards? Are there
procedures in place at other agencies that would provide
guidance to DHS?
Mr. Kutz. Yes, there are. I mean, there has to be
justification of the card, and I will go back to the Defense
Department. After we started taking a look at their use of the
purchase card, they canceled over 100,000 cards. But when they
went back and looked, do they have a real business need for 10
people in one unit to have purchase cards, they found that they
did not. So they were able to cancel a large number. Senator
Coleman, I think your point is probably the fewer cards, the
better trained the people can be, and the better it is from an
oversight standpoint to have a program.
Senator Coleman. And what about performance of trying to
get procedures in place--I have not had a chance to look at the
manual, but does it deal with monitoring--I presume it deals
with employee performance. What about monitoring performance of
the contract, the remedies for non-performance, this issue
about whether anything has ever been paid back?
Mr. Kutz. I don't recall anything on that in the manual.
Senator Coleman. Are there procedures commonly used in
other agencies to monitor performance that are particularly
effective?
Mr. Kutz. They may have other contractor oversight and
performance guidance. I don't know.
Senator Coleman. But you are not sure what DHS does in this
area?
Mr. Kutz. No, we are not sure. There is nothing in the
manual on that that we are aware of.
Senator Coleman. I would be interested in that, and perhaps
we will follow up with the next witness on that. Again, thank
you for your incredible work.
Thank you, Madam Chairman.
Chairman Collins. Thank you. Just one final question for
you, Mr. Ryan. I was struck by the fact that the MREs that you
cited were purchased on the Internet. Now, it seems to me that
MREs are an example of a commodity that FEMA and the Department
should already have purchased in advance of disasters, have a
certain amount in storage. Could you tell us more about that
particular transaction?
Mr. Ryan. In this particular case, FEMA had already a
contract with DLA to provide MREs during Hurricanes Rita and
Katrina. This transaction was specific to CBP.
What it was supposed to do was to provide MREs to their
employees who were detailed to the area. Well, what happened
was the cardholder failed to ask the necessary question: What
are the requirements of an MRE for my employee?
This is considered a civilian MRE, which is different than
a military MRE. We were told by people down in El Paso that for
the Border Patrol people that were going out to do the work,
these civilian MREs did not contain sufficient calories, that
they would need to carry twice as many to be able to get the
calories to do the job. So in thinking of that, what you have
is a cardholder who purchased MREs that did not meet the
requirements of their own employees; second of all, paid and
purchased over the Internet, failed to check with DLA, and
there was another civilian MRE contractor that was on the GSA
schedule that they could have gotten a cheaper price and we
would not have had to pay for shipping. And what we have are
MREs sitting in El Paso, over 20,000 that I have been told,
that just showed up and told them to store them. So the people
in El Paso have basically tried to do something with them. I
give them a lot of credit. They have told me that they have
sent these civilian MREs to special units around the country so
that when Border Patrol actually detains or arrests illegals,
they can give these to them to feed them.
These MREs were bought with Hurricanes Rita and Katrina
money. Now they are being used to feed the illegal aliens
coming into the country. I mean, it is a good use. They are not
sitting there going to waste.
Mr. Kutz. Well, presumably they would have gotten money in
their budget to do the other anyway. So it raises other
questions, Senator.
Chairman Collins. Thank you. I wanted to end with that
example because it is such an egregious and wasteful one. The
agency failed to establish what was really needed. The agency
paid excessively for the product. And there was a lack of
coordination within the Department, not to mention the funding
issues about whether the whole purchase was inappropriate.
It also is stunning to me that an individual in charge of
procuring the MREs would not realize that there is a
prescreened vendor for civilian MREs on the GSA schedule. That
is just extraordinary.
Mr. Ryan. Yes.
Mr. Kutz. It is symptomatic of stovepiped operations
because FEMA was working with DLA and, as you may recall, at
the time, DOD has a huge reserve stock of meals-ready-to-eat,
and many of those were then used, redeployed to support the
National Guard troops and to feed victims of Hurricane Katrina.
So they had that going. This CBP group was operating kind of in
a separate silo, was not aware of that, apparently, and went
out and just did their own thing on the Internet.
Chairman Collins. It is a perfect example of a lack of
coordination, training, knowledge, judgment, and preparation
that wastes a great deal of taxpayer dollars. Actually, these
civilian MREs would have been much more useful to feed people
in the Superdome or in shelters. It is just another example of
poor planning and wasteful spending.
Again, I want to thank you very much for your audit and
your work. We really appreciate the great work that you do, and
I hope the Department will also. It is important that the
Department learn from your findings and recommendations. I am
convinced that the boats and the computers would still be lost
were it not for your investigation. So I thank you for your
work.
Senator Coleman, do you have anything else?
Senator Coleman. No, thank you, Madam Chairman.
Chairman Collins. Thank you.
I would now like to call forward our second witness today.
David Norquist was confirmed by the Senate on May 26 of this
year as the Chief Financial Officer of the Department of
Homeland Security. This is his first appearance before the
Committee since he was confirmed for this position. I truly
mean it when I say that I wish it were under better
circumstances. And I do want to reiterate what I said in my
opening remarks, that Mr. Norquist was not at the Department,
he was not the Chief Financial Officer during the time in
question. But he is the person that we are looking to for
solutions to the problems that the GAO and the IG have
identified.
So, Mr. Norquist, please proceed with your testimony.
TESTIMONY OF DAVID L. NORQUIST,\1\ CHIEF FINANCIAL OFFICER,
U.S. DEPARTMENT OF HOMELAND SECURITY
Mr. Norquist. Thank you very much. Good morning, Chairman
Collins and Senator Coleman. Thank you for allowing me this
opportunity to testify before you regarding the Department of
Homeland Security's Government Purchase Card program. My name
is David Norquist, and I was sworn in as the Chief Financial
Officer of the Department of Homeland Security on June 5, 2006.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Norquist appears in the Appendix
on page 73.
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DHS uses purchase cards as its preferred method for making
small-dollar purchases, particularly those under $2,500. Using
a purchase card saves the taxpayer's money because it provides
a streamlined and automated purchasing and payment process that
reduces administrative costs, and it provides refunds for the
government, which saves money.
Another advantage of the purchase card program is that it
provides the means for holding individuals accountable for
their transactions. Purchases made with this card can be traced
to a specific card assigned to a specific person used on a
specific day at a specific store. If a cardholder misuses a
purchase card, they can be held accountable, to include
administrative action, being compelled to reimburse the
government, or, when appropriate, criminal prosecution.
During its initial years of operation, the Department
issued a policy directing all the components with existing
purchase card programs to continue to use their established
procedures. That policy is still in effect.
The testimony presented by the Government Accountability
Office identified weaknesses in both the policies and the
implementation of those policies by the various components in
the Department. The Department shares those concerns.
In fact, prior to the GAO audit, the Department had drafted
a Purchase Card Manual that would strengthen and standardize
the internal controls and procedures for this program. It has
been adopted by DHS headquarters.\1\ That is the copy you have.
We will be implementing it department-wide.
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\1\ Department of Homeland Security ``Headquarters, Purchase Card
Manual'' appears in the Appendix on page 77.
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The manual makes a number of changes, but let me just
highlight a few of the improvements. In addition to the GSA
online training currently required before someone is given a
card, it will require additional DHS training and annual
refresher training. We will also require that records of that
training be kept. One of GAO's concerns was they could not know
whether or not people had had the training. The manual also
will require written authorization before making a purchase,
and it limits each approving official to overseeing only seven
cardholders or no more than 300 transactions per month to
ensure there is an adequate opportunity to do review.
GAO has reviewed this draft manual as part of its study.
With the addition of requiring independent validation of
receipt and acceptance of goods, which we intend to do, GAO has
stated that when implemented department-wide, this manual will
address the problems identified in their review. It is DHS'
intention to issue this policy manual as soon as possible after
making any additional changes in light of GAO's findings.
I was first briefed on the specific cases of GAO's findings
last Thursday, so I have not had time to explore and resolve
these issues. But I want you to understand that we take this
issue very seriously. After GAO's briefing last week, I asked
each of the components to look into these cases. In the few
days that have passed, FEMA's field office reports that they
have located 80 percent of the equipment that was reported
missing by GAO. This includes 74 of the missing computers and
all 12 of the missing boats.
But let me flag an important point because I completely
agree with the GAO representative on this. Next week,
Headquarters FEMA will be physically verifying that equipment,
and we will use the serial numbers that GAO is talking about
because verify, verify, verify.
GAO has committed to providing me the additional
information, both in a case like this and in the other cases,
to allow me to fully examine these issues. As we do with ones
that arise during the course of our own internal reviews, we
will examine these on a case-by-case basis to determine what
administrative, disciplinary, or other actions are appropriate.
I am committed to strengthening the purchase card program
at DHS as part of a broader effort to improve all internal
controls across the Department.
Thank you for your leadership and your continued support of
the Department of Homeland Security and its management
programs. I look forward to working with the Committee on this
issue, and I would be happy to answer any questions you may
have.
Chairman Collins. Thank you, Mr. Norquist.
GAO noted in its testimony that the purchase card manual
was in draft form and had been in draft form for 2 years due to
disputes internally within the Department. When did you approve
the manual?
Mr. Norquist. Let me be clear because I think there was
some confusion when we transferred the manual to you. We had
adopted this manual at the headquarters. It has not yet been
fielded to the components as a requirement. They are still
operating under the existing procedure, which says if you had a
purchase card program with a set of controls, use that when you
have merged with DHS. And so that is what you are seeing that
the audit was of.
One of your staff during a meeting late last week asked for
a copy of it, and so what I did was I made sure that we
provided that to you as the manual used by the headquarters. It
is the basis upon which we will implement it department-wide.
But one of the things I want to make sure we do is GAO had one
or two additional recommendations, particularly related to
independent receipt and validation, which ties to the issue of
inventory control. And before we issue this as a department-
wide standard, I want to build those extra ones in. I mean,
this is not a rush to get it done in 2 days. This is a rush to
get this done correctly over the next period of time so we have
this to the right standard.
Chairman Collins. Well, it is not 2 days. It is 2 years.
And I realize that preceded your time in the Department. How
long is it going to take to make sure that we have controls in
place that apply to every agency within the Department that
applies to every transaction?
Mr. Norquist. Well, I think the important thing here is
that there are going to be several stages to this. We talked
about this is not just a manual. This is the whole
implementation. For example, the first step is going to be
adopting the manual as a department-wide policy.
Chairman Collins. Right, but when is that going to happen?
Mr. Norquist. I talked with the chief procurement officer,
and I have told my staff to put in the changes GAO recommended.
If the chief procurement officer is OK with it, we will send it
out for a very short internal coordination to make sure we did
not miss anything. It is my intent that before GAO's report
becomes final with their recommendations, it will be able to
talk about the things we have done, the implementation we have
done, and not the things we intend to do.
Chairman Collins. I would like to ask you to give the
Committee a timeline for implementation of the manual for
training people, for fully implementing the kinds of internal
controls that have been so lacking.
Do you have any insights of why it has taken so long for
DHS to resolve this issue? Other departments have government-
wide procedures for purchase cards. This is not an example
where DHS has to come up with something new. The best practices
are pretty widely available.
Mr. Norquist. DHS has a small number of people in my office
who are responsible for financial management policies across a
number of areas. They also have additional oversight
responsibilities. So part of this was, prior to my getting
there, simply a volume of work for them, and I know the
Committee has been supportive on trying to help us address
those concerns.
When I came in, my view on policy is that it is the basis
upon which you train people; it is the standards by which you
hold them accountable; it is the building block that will let
you attack the roots of the problem rather than just the
symptoms of the individual cases. So I told them early in the
last 6 weeks that this was a priority for me. I asked them to
give me a short list of the most urgent policies we need to
move, even before the GAO folks had come to talk to me. This
was on our short list, and there will be others as well, where
I believe we need to break free enough people in time to move
these policies into implementation so that we can do the
training and the accountability that follows from having the
stronger controls.
Chairman Collins. I want to follow up on that. Are you
saying that prior to your finding out about the GAO report, you
had already targeted this area for review and implementation of
the draft manual?
Mr. Norquist. Absolutely.
Chairman Collins. Were you aware that the Department had
serious problems in its purchase card program prior to the GAO
and IG's work?
Mr. Norquist. I was aware that there were a number of areas
where our policies were either simply the legacy policy of the
components we had inherited or ones that were drafted in the
early stages. And so while I was indirectly aware of the
purchase card being one of them, my concern was the broader
topic of the internal controls, which is why I pointed out to
my staff that we need to start here. Other departments have
entire manuals for financial regulations that people can
reference. We have got individual policies. We need to start
grouping them, finalizing them, and building this out because,
fundamentally, that is how you stop the root cause of a lot of
these problems rather than simply chasing the incidents of
them.
Chairman Collins. GAO pointed out that the Department was
completely unaware of the missing property prior to its
investigation. And I do want to point out in the interest of
the record that there is still missing property. I mean, some
of the computers have been found, but some have not been.
Correct?
Mr. Norquist. That is correct. And I do not know to what
extent the components were aware of this before GAO came by,
and I do not know to what extent they had done follow-up. I
know when they got the outbriefing last Friday, my guidance to
them was you need to investigate each of these because I am
going to come by later on and talk about accountability. And
so, whether they had been doing this already or whether they
acted on it at that point, and so different components have
been going through these, looking into them, and trying to give
us the feedback on the underlying issue.
Chairman Collins. But I think Senator Coleman established
in his questions that when the IG and GAO team went into the
conference room expecting to see over 100 computers, printers,
other equipment, they instead found a room that had been set up
for a banquet. Yet the reaction seemed to be, by the FEMA
people, Gee, what a surprise, wonder where that is, but that is
it. There did not seem to be follow-up.
Does that disturb you?
Mr. Norquist. Well, I would be very concerned if, when
anyone is presented with one of these findings, they do not
take action to investigate and follow up. I mean, that was my
initial reaction to each of these: Well, give me as many facts
as you can, give me the background information, and let me dive
into them.
I think in this case you have two potential issues. The
first one was: Was there fraud? Did somebody buy them, steal
them, and walk out the door? I am happy every time I learn when
that is not a case, and I will be happier if I can see it
verified physically with serial numbers. That does not address
the fact that there is an inventory control issue, which is,
Can you quickly identify what you have in inventory? And while
that is not directly under the purchase card program, as GAO
pointed out, it is one of those issues that comes up when you
purchase things, put them into inventory, or they do not get
properly logged into inventory. And that is an issue that needs
to be addressed as well.
Chairman Collins. It certainly does. Our Hurricane Katrina
investigation over the past 8 months showed clearly that a
major problem with the Department was that it did not know what
assets or what commodities it had.
Senator Coleman.
Senator Coleman. Just following up on the Chairman's last
line of questioning, I would maintain, Mr. Norquist, that there
are three issues regarding using the conference room and the
absent equipment. One is fraud, whether it was committed, and
clearly if you find all the material, that has not taken place.
Second is inventory control. But I think what the Chairman was
getting to and at least what concerned me is that there is an
attitude problem here. The third issue is: Is there a
commitment to fix something when you see that it is broken?
And, is it a sense, well, it is not my money? I mean, we give
cards to folks, and ultimately the responsible party is not the
cardholder, but it is the government. That is who is
responsible. The cardholder does not have responsibility. What
is it that has to be done to have an attitude that says when we
identify that something is wrong, that something is out of
place, that we are going to fix it, that we care about it?
Mr. Norquist. That is certainly something that people need
to have. If you go into this profession, you should have the
commitment to get the mission done and to protect the
taxpayers' dollars. I do not know about this particular FEMA
case, but on a cardholder, they are personally accountable. If
your purchase card is used to make a purchase, you are
accountable for reviewing those transactions to make sure it is
not misused. If you bought it and brought it home, we are going
after that individual for that misuse.
So I can force that level of accountability and focus that
attention with the individual. The challenge becomes, as you
pointed out, when it is inventory. And, at this point, I sort
of defer to the procurement officers and others as to what they
do there. But, in any case, someone who is presented with that
challenge, their reaction should be to find the items.
Senator Coleman. In cases of improper use--because you
talked about cardholders being accountable, including criminal
prosecution, in regard to Hurricane Katrina, can you tell me
about the actions that have been taken against individuals who
improperly used cards, perhaps criminally used cards? What kind
of disciplinary actions have been taken?
Mr. Norquist. Well, I do not have too many specifics, but
in the first 6 months of this year, for example, the purchase
card program, we used approximately 70 administrative and
disciplinary actions. The No. 1 one there was suspending cards
of people who are failing to maintain adequate documentation
and do their review. That is one of the problems. If people do
not do that, it complicates everything else.
I did not have a chance to gather the specifics below that,
but certainly, as you pointed out, the purchase card is
valuable because it is efficient. What we do not want to do is
bog it down with layers of bureaucracy. I would rather focus on
the accountability of the people involved because in the end
some of these are just about good judgment on the individual
with the card. And to the extent that you can address the
problem there, it is a more efficient way of doing it.
Senator Coleman. Your testimony today is that the manual
still has not been adopted. I was not clear about that. So we
have a manual, but it has not yet been adopted.
Mr. Norquist. The manual is in use by the headquarters
because the headquarters did not have a pre-existing manual. It
adopted it. Components that had a pre-existing manual when they
were merged with DHS had the choice to stay on the old manual
or to go to the new. We are going to make it mandatory for
everyone to switch to the new after we adjust it to incorporate
GAO's recommendations.
Senator Coleman. Do you agree with the GAO that there is a
lack of adequate resources managing the program?
Mr. Norquist. There are challenges in terms of managing it,
and I have raised that with some of the components whose ratio
of management to staff was not to the standard. For example, in
this request that is before the Congress on the President's
budget, there are additional personnel requested for my office,
some of which are related to internal control improvement,
including folks for this. So I think there are resource
challenges. There are plans in place to address those. But,
again, this is one of those things where you cannot always wait
on the additional resources. You have to keep moving with
improving the fixes and then bring those additional resources
on board when they come.
Senator Coleman. In your testimony, I think you used the
figure of seven cardholders, each approving official would
approve seven cardholders, 300 transactions a month. Would this
require DHS to hire more approving officials?
Mr. Norquist. No. I would think that this would be a matter
of designating others in--what you are trying to do is get a
segregation of responsibility. You want somebody else in the
office who has the time to look over those transactions and can
say, yes, those were legitimate, those are the ones the
government needed. Part of this is complicating fraud. If
somebody does something odd, the fact that somebody else is
going to look at that document and review it discourages,
deters, and helps you detect. What you need to do is ensure the
volume of transactions is not so high that the reviewing
official's review is cursory and not thorough. And so this is
designed to focus that. I do not know if that would necessarily
require additional people. It might at the program coordinator
level where the person oversees the entire department's or in
this case the Coast Guard or the FEMA program, and they are
wanting to do individual investigations and random sampling. In
that office you would want dedicated staff just to this
mission, not doing it as a secondary duty.
Senator Coleman. And just finally, as you sit here today,
are you satisfied that DHS is today sending a clear message
about improper use of purchase cards will not be tolerated,
violating DHS policy will be dealt with? Do you believe that
the message today, as we sit here, has clearly been delivered
to folks in DHS?
Mr. Norquist. It is being delivered. It is something I
foot-stomp in these forums. This is a matter of our credibility
and our use of taxpayer dollars, and that is what we are here
to protect. And so I will continue to make that message clear.
Senator Coleman. My only comment would be I hope that--we
need you to do that. The testimony of the folks from GAO at
least leaves me with the sense that, even as we sit here up
until recently, that is not the case. So I hope you take that
into consideration as you move forward.
Thank you, Madam Chairman.
Chairman Collins. Thank you, Senator.
Mr. Norquist, I want to be very precise on the
implementation of the manual, which both Senator Coleman and I
have asked you about. You have stated that the manual now is in
effect at headquarters. But headquarters is a relatively small
part of the Department's operations, is it not?
Mr. Norquist. It is a relatively small part. Basically it
is in effect to any organization that did not exist prior to
DHS being formed. The others have the choice to switch over.
Chairman Collins. Right. But then what you are saying is
the Coast Guard, Customs and Border Protection, ICE, other
agencies within the Department, with thousands of employees
making thousands of transactions with purchase cards are not
yet under the uniform stronger new manual. Is that correct?
Mr. Norquist. That is correct. They are under the standard
that they brought with them, which includes some----
Chairman Collins. Right, but that standard has been shown
to be flawed and to not protect the taxpayers.
Mr. Norquist. That is correct. That is why I want to make
sure that this manual becomes the standard across the
Department. That is absolutely right.
Chairman Collins. But as of today, those agencies, which
comprise the majority of DHS' employees, assets, and budget,
are not covered by the new manual. Is that correct?
Mr. Norquist. That is correct.
Chairman Collins. OK. Again, I am going to repeat my
request for a timeline for having implemented the manual across
the Department. And I have to conclude with just one final
statement. I am convinced that had the GAO not done its
investigation and had this Committee not held this hearing, the
manual would still be floating around unresolved, property
would still be missing, duplicative payments still would not
have been caught, and excessive payments would still be going
on, and that really disturbs me. It should not take an audit by
the GAO nor a congressional hearing to prompt the Department,
which has such a vital mission, to have strong financial
controls. And I am seeking from you today a strong commitment
to be a better steward of the taxpayers' purse.
This Department has a budget of some $38 billion. It is
vital to our security. And people in this country are rapidly
losing confidence in the ability of the Department to carry out
its mission and to do so in a way that safeguards the
taxpayers' dollars.
The American people are generous. They want to help victims
of natural disasters. They want to provide the money necessary
to guard against future terrorist attacks. They are willing to
pay those taxes. But they are not willing to pay that money to
have it frittered away, and that appears to have happened in
this case.
Mr. Norquist. As I have said before, I am committed to
strengthen the internal controls, not just of this program but
of others as well. As you pointed out, it should not take a
hearing to get these things addressed, and it is not my intent
to wait for you to call them on the other programs. My intent
is to get those manuals done and then let you know about them
in advance.
Chairman Collins. Thank you. We look forward to working
very closely with you.
Senator Coleman, any final comments?
Senator Coleman. My only final comment, Madam Chairman, is
to fully associate myself with your last statement. Thank you.
Chairman Collins. Thank you, and thank you so much for your
participation today. I know you have done a great deal of work
in this area as well.
Thank you, Mr. Norquist, for appearing. We look forward to
following up with you on these issues, and I can assure you we
will follow up with you on these issues.
I want to thank all of our witnesses for their testimony
today. I think we have exposed serious flaws in the safeguards
that are needed to ensure wise use of taxpayer dollars.
Chairman Collins. The hearing record will remain open for
15 days for the submission of any additional questions or
materials.
This hearing is now adjourned.
[Whereupon, at 11:24 a.m., the Committee was adjourned.]
A P P E N D I X
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