<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:32722.wais] 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 Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 32-722 PDF WASHINGTON DC: 2007 --------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800 DC area (202)512-1800 Fax: (202) 512-2250 Mail Stop SSOP, Washington, DC 20402-0001 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. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Kutz appears in the Appendix on page 27. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \1\ The posters referenced by Mr. Kutz appear in the Appendix on pages 69-71 respectively. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \1\ Department of Homeland Security ``Headquarters, Purchase Card Manual'' appears in the Appendix on page 77. --------------------------------------------------------------------------- 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. 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