[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
         WASTE AND FRAUD IN THE AFTERMATH OF HURRICANE KATRINA

=======================================================================



                                HEARING

                               before the

                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                     COMMITTEE ON HOMELAND SECURITY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 14, 2006

                               __________

                           Serial No. 109-82

                               __________

       Printed for the use of the Committee on Homeland Security
                                     
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                     Committee on Homeland Security



                   Peter T. King, New York, Chairman

Don Young, Alaska                    Bennie G. Thompson, Mississippi
Lamar S. Smith, Texas                Loretta Sanchez, California
Curt Weldon, Pennsylvania            Edward J. Markey, Massachusetts
Christopher Shays, Connecticut       Norman D. Dicks, Washington
John Linder, Georgia                 Jane Harman, California
Mark E. Souder, Indiana              Peter A. DeFazio, Oregon
Tom Davis, Virginia                  Nita M. Lowey, New York
Daniel E. Lungren, California        Eleanor Holmes Norton, District of 
Jim Gibbons, Nevada                  Columbia
Rob Simmons, Connecticut             Zoe Lofgren, California
Mike Rogers, Alabama                 Sheila Jackson-Lee, Texas
Stevan Pearce, New Mexico            Bill Pascrell, Jr., New Jersey
Katherine Harris, Florida            Donna M. Christensen, U.S. Virgin 
Bobby Jindal, Louisiana              Islands
Dave G. Reichert, Washington         Bob Etheridge, North Carolina
Michael McCaul, Texas                James R. Langevin, Rhode Island
Charlie Dent, Pennsylvania           Kendrick B. Meek, Florida
Ginny Brown-Waite, Florida

                                 ______

                     SUBCOMMITTEE ON INVESTIGATIONS

                   Michael T. McCaul, Texas, Chairman

Christopher Shays, Connecticut       Bob Etheridge, North Carolina
Daniel E. Lungren, California        Bill Pascrell, Jr., New Jersey
Dave G. Reichert, Washington         Donna M. Christensen, U.S. Virgin 
Ginny Brown-Waite, Florida           Islands
Peter T. King, New York (Ex          Bennie G. Thompson, Mississippi 
Officio)                             (Ex Officio)

                                  (II)


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               STATEMENTS

The Honorable Michael T. McCaul, a Representative in Congress 
  From the State of Texas, and Chairman, Subcommittee on 
  Investigations.................................................     1
The Honorable Bob Etheridge, a Representative in Congress From 
  the State of North Carolina, and Ranking Member, Subcommittee 
  on Investigations..............................................     3
The Honorable Bennie G. Thompson, a Representative in Congress 
  From the State of Mississippi, and Ranking Member, Committee on 
  Homeland.......................................................     5
The Honorable Charlie Dent, a Representative in Congress From the 
  State of Pennsylvania..........................................    85
The Honoralbe Sheila Jackson-Lee, a Representative in Congress 
  From the State of Texas........................................    78
The Honorable Bill Pascrell, Jr., a Representative in Congress 
  From the State of New Jersey...................................    74
The Honorable Stevan Pearce, a Representative in Congress From 
  New Mexico.....................................................    81
The Honorable Christopher Shays, a Representative in Congress 
  From the State of Connecticut..................................    75
The Honorable Gene Taylor, a Representative in Congress From the 
  State of Mississippi...........................................    83
The Honorable Ginny Brown-Waite, a Representative in Congress 
  From the State of Florida......................................    71

                               Witnesses

Mr. Joseph Becker, Senior Vice President for Preparedness and 
  Response, The American National Red Cross:
  Oral Statement.................................................    52
  Prepared Statment..............................................    55
Ms. Donna M. Dannels, Acting Deputy Director of Recovery, Federal 
  Emergency Management Agency, Department of Homeland Security:
  Oral Statement.................................................    47
  Prepared Statement.............................................    49
Mr. Gregory D. Kutz, Managing Director, Forensic Audits and 
  Special Investigations, Government Accountability Office:
  Oral Statement.................................................     6
  Prepared Statement.............................................     8

Accompanied by:
Special Agent John J. Ryan, Assistant Director, Forensic Audits 
  and Special Investigations, Government Accountability Office...    62

                                Appendix
                             For the Record

Responses From Ms. Donna M. Dannels..............................    89


                         WASTE AND FRAUD IN THE



                     AFTERMATH OF HURRICANE KATRINA

                              ----------                              


                        Wednesday, June 14, 2006

             U.S. House of Representatives,
                    Committee on Homeland Security,
                            Subcommittee on Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 11:19 a.m., in 
Room 311, Cannon House Office Building, Hon. Michael T. McCaul 
[chairman of the subcommittee] presiding.
    Present: Representatives McCaul, Shays, Reichert, Brown-
Waite, Etheridge, Pacrell, Christensen, Thompson (Ex Officio), 
Pearce, Dent, Jackson-Lee and Taylor.
    Mr. McCaul. The Homeland Security subcommittee on 
investigations will come to order. With the concurrence of the 
ranking minority member, pursuant to committee rule 2(d)1, I 
ask unanimous consent to waive the notice requirement for the 
announcement of this hearing. Hearing no objection, so ordered.
    I also ask unanimous consent that Congressman Pearce, who 
sits on the full committee, be permitted to sit and question 
during the hearing today. Hearing no objection, so ordered.
    Good morning. I want to thank all of you for being here 
today for this important Homeland Security Investigations 
Subcommittee hearing. The purpose of today's hearing is to 
examine the fraud, waste and abuse in the Federal disaster 
assistance programs administered by FEMA in the aftermath of 
Hurricanes Katrina and Rita.
    The Government Accountability Office is conducting an 
ongoing investigation into these crimes and the Individual and 
Household Program. The GAO first testified before the Senate in 
February of this year where they stated that the full extent of 
the fraud was unknown but may reach tens to hundreds of 
millions of dollars.
    The GAO testified that this disaster assistance money was 
used to purchase items such as a $450 tattoo, $400 massages, a 
$1,100 engagement ring, a $1,300 handgun, $150 of products at 
Condoms To Go, gambling, bail bond services and adult 
entertainment, just to name a few.
    The GAO also testified that FEMA paid for hotel rooms for 
$438 per night in New York City and $375 per day for beachfront 
accommodations in Panama City, Florida.
    I have spent the last six months working with Federal 
investigators through this subcommittee to uncover waste, fraud 
and abuse at the Federal level. As part of this investigation, 
the GAO conducted undercover tests on FEMA's disaster 
assistance application systems to determine the adequacy of 
their fraud prevention controls. The GAO found no meaningful 
controls to detect or prevent fraud.
    What is most troubling is that this lack of protection has 
exposed the FEMA programs to substantial waste, fraud and 
abuse. The GAO's investigation determined there was little if 
any verification of the names, addresses or Social Security 
numbers of applicants registering for Federal assistance. This 
resulted in thousands of benefit checks being issued to 
applicants with duplicate or false information.
    Today the GAO will testify that 173 Federal prisoners 
received expedited and rental assistance in payments that 
totaled $800,000, and that more than a thousand State prisoners 
received expedited and rental assistance payments that totaled 
$10 million; $5.5 million was paid on applications using a P.O. 
box as the damaged address. Benefits were paid on an 
application where a cemetery was used as a damaged address.
    As the GAO dug further, investigators continued to find 
purchases which were far from essential to disaster assistance. 
Such purchases included a $200 bottle of Dom Perignon purchased 
at a Hooters restaurant, adult entertainment, tax payments, a 
$2,000 Caribbean vacation, $5,000 for a divorce attorney, 
season tickets for the New Orleans Saints and a down payment on 
a house in Georgia.
    Furthermore, the GAO uncovered and found that FEMA 
continued to pay for deluxe accommodations and rental 
assistance totaling $20,000 for resort accommodations in Hawaii 
and Orlando.
    Applicants registered for the Federal disaster assistance 
and used damaged property addresses which did not exist, 
including addresses where they did not live at the time of the 
hurricanes. Likewise, Social Security numbers were used which 
were never issued or belonged to deceased individuals.
    Yet FEMA's fraud detection and prevention controls were so 
weak or nonexistent that these fraudulent applications were 
never detected, let alone prevented. Unfortunately, the 
situation has gotten worse. The GAO now estimates that the 
extent of the fraud in the Individual and Household Program 
exceeds $1 billion, not the original estimate of tens to 
hundreds of millions. The bad news continues as we realize 
investigators are only in the beginning stages of their ongoing 
comprehensive investigation.
    This is an affront to the American taxpayer who has been 
fleeced by the actions of these criminals and by lack of FEMA 
fraud prevention. It is my intention today to make sure that 
this never happens again, particularly as we enter into another 
hurricane season.
    While I appreciate Acting Deputy Director Dannels being 
here, I invited FEMA Director Paulison to testify before this 
committee, yet he is not here today. Given the lack of 
management controls at FEMA and the obvious need for reform, it 
is unfortunate that he is not here to help us fix this problem. 
He is the leader of this agency and the only one with the power 
to mandate the changes needed which can end this obscene 
squandering of the taxpayers' money.
    I pledge to continue to hold FEMA accountable for this 
unacceptable mismanagement of taxpayer funds and to continue to 
conduct hearings into this waste, fraud and abuse until FEMA 
has adequate fraud prevention and detection controls in place.
    To date, as a result of this investigation conducted by 
these Federal investigators and this subcommittee, more than 
7,000 cases have been referred to the Justice Department for 
prosecution, and I expect this number to increase as these 
investigations continue.
    Furthermore, this hearing is a clear message to potential 
criminals and fraudsters looking to exploit any future natural 
disaster and steal from the American taxpayers. Several Federal 
investigative agencies will be watching you closely. Criminals 
will be detected, they will be prosecuted and punished to the 
full extent of the law.
    As a former Federal prosecutor, I will not stand by and 
allow this situation to persist. I am currently working on 
legislation from this committee to address these egregious 
flaws in the FEMA disaster assistance registration process and 
plan to introduce legislation to make sure that these mistakes 
never happen again.
    The Chair now recognizes the ranking minority member of the 
committee, the gentleman from North Carolina, Mr. Etheridge, 
for any statement he may have.
    Mr. Etheridge. Thank you, Mr. Chairman. Let me thank the 
witnesses for being here today. Even as we have the first 
tropical storm of the season approaching or actually on the 
east coast right now and probably pounding my home State of 
North Carolina, the people of my State of North Carolina as 
well as those in the southeast in the gulf coast await each 
year the hurricane season with a mixture of trepidation and 
resolve. They have been through it before. We know that one or 
more storms will affect our State sometime during the 6-month 
period of hurricane season. We know that one or more of these 
storms will cause storm surge, flooding, beach erosion and wind 
damage. And we know that, as individuals and families, we must 
be protected or be prepared to protect our families, our homes 
and our property as best we can.
    Unfortunately, after witnessing the horrors of Hurricane 
Katrina as it wrought its damage on the Gulf Coast and FEMA's 
bungling response which accelerated the danger and misery of 
storm victims, the people of my State and the rest of the 
country do not know if this Federal Government will be ready to 
provide the support and resources our States may need in the 
event of a bad storm this year.
    Every hurricane, natural disaster or terrorist attack 
provides an often tragic lesson to local, State and Federal 
emergency responders, and we rely on them to learn from those 
experiences. In North Carolina, Hurricane Hugo, Fran, Floyd and 
others taught us that storms don't always stop at the beach's 
edge, but they quickly come inland and wreak havoc on towns and 
villages hundreds of miles inland.
    Hurricane Floyd is an example. It provided a stark reminder 
that the majority of the casualties and the damages and deaths 
from a hurricane are wrought hundreds of miles inland, and this 
is true across the gulf coast. Last year, we saw that even in a 
minor hurricane like Ophelia in North Carolina that wrecked 
homes and destroyed businesses.
    In North Carolina our State department of emergency 
management uses every storm to identify weaknesses, and they 
use every storm to further improve their preparedness and their 
response capabilities. However, despite years of experiences 
and many storms, it appears that FEMA never learns and at least 
can't remember what they do one year from the next.
    Today we are going to focus on the waste, fraud and abuse 
that occurred in the aftermath of Hurricane Katrina and Rita. I 
fully understand that it was a chaotic time and the storms 
effects and scopes were unprecedented in American history. I 
also understand that FEMA, the Red Cross and other support 
organizations were under tremendous pressure to register storm 
victims as quickly as possible so that they could receive 
assistance. However, that is no excuse for the lack of 
preparation, the lack of internal controls and the lack of 
decisive and professional leadership at all levels of the 
Federal Government.
    Between 1991 and 2004, 23 hurricanes struck the United 
States mainland, including the top 11 most costly storms in the 
history of this country that affected millions of people. Last 
May, the Department of Homeland Security Inspector General 
released an audit report of FEMA individuals and household 
programs problems in Florida after Hurricane Francis.
    Let me just show what that report said. That report 
outlined a number of problems with fraud and abuse that 
permeated the Federal assistance programs. Specifically, on 
page 4 of that report, it reported, and I quote, funds provided 
for repair and replacements of household items were not based 
on actual disaster related damages or loss.
    We are revisiting it again today.
    A south Florida newspaper, Sun Sentinel, reported that FEMA 
paid $31 million in Hurricane Francis aid to residents of Miami 
even though Francis never hit south Florida.
    This past week, we received the GAO report on FEMA's 
control problems with the expedited assistance program that has 
cost taxpayers now we are learning hundreds of millions of 
dollars. Let me just quote from that report. The Office of 
Inspector General for the Department of Homeland Security in 
regard to DHS's fiscal 2005 financial statements, and I quote, 
unfortunately, the Department made little or no progress in 
improving its overall financial reporting during fiscal year 
2005. JPMT, the audit firm, was unable to provide an opinion on 
the Department's balance sheet. The taxpayers of America are 
appalled and should be when a Federal agency can't have their 
report audited.
    Unfortunately, these are the people who take advantage of 
catastrophic events to exploit FEMA's weaknesses and internal 
controls to steal funds that should rightfully go to true 
disaster victims as we have talked about. Some of these people 
fraudulently registered for individual assistance and other 
fraudulent things that affected the taxpayers of America. We 
need to find out all--who all these thieves and prosecute them 
to the full extent of the law.
    But, more importantly, FEMA and the other assistance groups 
need to learn from these experiences and institute robust 
internal controls, verification systems that dissuade would-be 
criminals and ensure that legitimate victims receive assistance 
as quickly as possible and the taxpayers' funds are protected.
    I hope our witnesses will be able to show that we have 
learned something from these past disasters and all the 
mistakes. I also ask the Chairman that we continue this line of 
questioning with more hearings that focus on the larger, more 
expansive problems of fraud, waste and abuse as it relates to 
contracting. I hope, Mr. Chairman, that will be the subject of 
another hearing because it is a critical hearing that we need 
to get into.
    I hope I never see Americans trapped, hungry and fearing 
for their lives in the aftermath of a disaster because local, 
State and Federal officials did not learn from past mistakes, 
and they have to suffer.
    Thank you and I yield back.
    Mr. McCaul. Let me say, we do intend to have hearings in 
the future on this issue.
    The Chair now recognizes the ranking member of the full 
committee, the gentleman from Mississippi, Mr. Thompson, for 
any statement he may have.
    Mr. Thompson. Thank you very much, Mr. Chairman. I 
appreciate the opportunity to participate in these hearings.
    I thank the ranking member for also making the hearings 
happen.
    We are here today to talk about fraud, waste and abuse. 
After every disaster, there are some who seek to turn a 
national catastrophe into personal gain. Katrina was no 
different. Some of these people wore jeans and sneakers and 
cheated the government out of thousands of dollars, and some of 
these people wore suits and dress shoes and cheated the 
government out of millions of dollars.
    Mr. McCaul was dead on when he said that this kind of fraud 
is an assault on the American taxpayer, which is why I am glad 
we are here today. That is why it is important that we 
understand that our work is not done today because the fraud in 
the individual assistance program pales in comparison to FEMA's 
contracting follies.
    It is important that we realize that what happened after 
Katrina was not itself a disease. Instead, the frauds we will 
talk about were symptoms of a much larger illness. The lack of 
controls that allowed some individuals to fraudulently receive 
individual assistance was just a symptom. The hundreds of 
millions of dollars of trailers that FEMA bought and cannot use 
was just a symptom. The layered contracts where subcontractor 
upon subcontractor takes a cut while the men and women who do 
the actual work on the ground got paid less than $0.07 on the 
dollar was just a symptom. The rush to rent massive cruise 
ships that ultimately went largely unused by actual hurricane 
victims was just a symptom.
    We are going to talk about symptoms, but I want to talk 
about the diseases, too. The disease is an agency that for 5 
years was weakened by poor leaders, leaders who were chosen 
based on who they knew and not what they knew. The disease is 
an agency that had only 36 employees in its procurement office 
while senior leadership at the Department of Homeland Security 
knew that the office needed as many as 125 to carry the 
workload.
    The disease is an agency that issues sole source contracts 
to politically connected companies instead of using competition 
to get the best deals and the best products. The disease is an 
agency that for years could not get the administration to fund 
a Hurricane Pam exercise and then only got part of it funded.
    In short, the disease is an administration that for years 
short-changed FEMA and short-changed catastrophic planning. So 
while I want to talk about the things that happened after 
Katrina, I also want to talk about why they happened. I don't 
want to do too much over the symptoms without looking to the 
disease.
    But, Mr. Chairman, before I yield back, I want to take a 
moment to thank the countless first responders, emergency 
managers, line level FEMA employees and volunteers on the 
ground who worked tirelessly and often on their own to help 
Katrina's victims.
    I want to make clear that my comments should in no way be 
taken to disparage their efforts; that they performed 
heroically in the face of leadership vacuums at all levels in 
Washington is a testament to their dedication and 
professionalism.
    Some of these people made tough decisions during an 
impossibly tough time. We do not want to second guess tough 
decisions made on the ground, chest deep in water, with 
thousands in need and in the face of unprecedented devastation.
    Today we will hear some harsh truths about their leaders 
and the policies of the administration, but we should never 
forget or diminish their efforts. Nothing we say here today 
should stop them from making the tough decisions necessary when 
the next disaster happens.
    Mr. Chairman, I also want to say I was happy to hear you 
say that we will have additional hearings broadening the scope 
of this review. This is just the beginning, and I look forward 
to this hearing, and I yield back the balance of the time.
    Mr. McCaul. The ranking member is recognized.
    Mr. Etheridge. I ask unanimous consent Ms. Jackson-Lee be 
able to sit in. She is a member of the full committee.
    Mr. McCaul. Without objection, so ordered.
    Let me remind members that under our committee rules, 
opening statements are limited to the Chair and ranking 
members. However, all members are entitled to submit written 
opening remarks for the record, and due to our time constraints 
today, we will need to move immediately to the testimony from 
our witnesses.
    Mr. McCaul. The chair now recognize Mr. Greg Kutz, Managing 
Director, Forensic Audits and Special Investigations for the 
GAO to testify. Mr. Kutz is accompanied by Special Agent John 
Ryan, Forensic Audits and Special Investigations, Government 
Accounting Office.
    Mr. Kutz.

                  STATEMENT OF GREGORY D. KUTZ

    Mr. Kutz. Mr. Chairman and members of the subcommittee, 
thank you for the opportunity to discuss fraud and abuse 
related to Hurricanes Katrina and Rita. In February, I 
testified that weak or nonexistent controls left the government 
vulnerable to substantial fraud and abuse for individual 
assistance payments. At that hearing and subsequently, I 
frequently have been asked, how big is this problem? My 
testimony is intended to answer that question.
    The bottom line of my testimony today is that we estimate 
$1 billion of fraudulent and improper payments related to 
Hurricanes Katrina and Rita.
    My testimony has three parts: first, our estimate of fraud 
and abuse; second, examples of fraud and abuse; and third, 
usage of debit cards.
    First, we estimate that 16 percent or $1 billion of 
individual assistance payments were fraudulent and improper. 
Our estimate is based on a statistical sample of the 2.6 
million payments made totaling $6.3 billion through February of 
2006. A statistical sample means that we randomly selected 247 
payments from this population of 2.6 million payments.
    We believe our estimate understates the magnitude of the 
problem because it includes only issues related to the 
application process.
    Out of 247 sample items, at least 39 represent invalid 
claims. Any cases that were not clearly invalid, we gave the 
benefit of the doubt. For each sample item, we used all of the 
audit and investigative tools that we had available. Our work 
included visiting damaged property addresses, speaking to the 
neighbors, visiting the post office and reviewing credit 
reports.
    The 39 sample failures related to the following four 
problems: first, use of invalid Social Security numbers; 
second, bogus damaged property addresses; third, invalid 
primary residence, meaning the individual did not live there at 
the time of the hurricane; and fourth, duplicate registrations.
    As my second point, I would like to highlight examples of 
the fraud and abuse starting with our own undercover operation. 
In prior testimony, I highlighted the $2,000 expedited 
assistance checks we received for applications using false 
identities and bogus property addresses. We have continued to 
test the system.
    The poster board to my left shows the $2,358 rental 
assistance payment that we received. The next poster board 
shows the bogus damaged property address that we used to 
receive this check. It also shows a letter from FEMA saying 
that their inspection showed damage to our home and personal 
property. However, the picture clearly shows this is a vacant 
lot.
    Other people were more creative than we were. The next 
poster board shows an example of this. As you can see, FEMA 
paid this fraudster from West Virginia for an address that was 
actually an above-ground cemetery in New Orleans.
    FEMA also paid millions of dollars to prisoners 
incarcerated at the times of Hurricane Katrina and Rita. Given 
that State and Federal Governments are already paying for these 
prisoners' housing, the $4 million paid to them for expedited 
and rental assistance is clearly improper.
    The poster board shows one of the inmates who was willing 
to pose for this picture. We blurred the picture to protect his 
identity. Notice that he is holding in his hands his $2,000 
expedited assistance check and his $2,358 rental assistance 
check.
    FEMA also made rental assistance payments to individuals 
staying at hotels paid for by FEMA. Similar to paying for the 
inmates twice, the government paid twice for these individuals' 
lodging, first, by paying for their hotel and, second, by 
sending them rental assistance money. This happened because 
FEMA did not collect registration information for people 
staying at these hotels. Thus, FEMA dispersed rental assistance 
without first checking to see who was staying at the FEMA-paid 
hotels.
    Let me give you a few examples of what we found. One 
individual stayed at a vacation resort in Orlando from 
September 05 to November of 05. The total cost to FEMA was 
$12,000 or up to $249 per night. This individual also received 
rental assistance of over $4,000.
    Another individual stayed at a hotel in Honolulu, Hawaii, 
from October to December of 05. The total cost to FEMA was 
$8,000 or up to $115 per night. This individual also received 
over $5,000 of rental assistance. Another indication of fraud 
for this case is that the individual appears to have actually 
lived in North Carolina at the time of the hurricane.
    Moving on to my third point, thousands of debit cards were 
handed out for disaster assistance at three relief centers in 
Texas. I have one of these debit cards in my hand that was used 
by FEMA for these hurricanes. The poster board also shows you 
an example of what these debit cards look like.
    Most of the debit card money was withdrawn at ATM machines, 
and thus we cannot tell you how it was spent. The remainder was 
used primarily for food, clothing and personal necessary items. 
However, we continue to find purchases that are clearly not 
essential to meet serious disaster needs. Examples include an 
all-inclusive vacation trip to a Caribbean beach resort in 
July--that is next month--of 2006; five New Orleans Saints 2006 
season tickets; a $200 bottle of Dom Perignon champagne 
purchased at Hooters Restaurant; and Girls Gone Wild videos.
    In conclusion, the good news is that the vast majority of 
individual assistance money did go to qualified individuals. 
However, our testimony shows that a substantial number of 
individuals took advantage of the opportunity to commit fraud. 
Their victim, the American taxpayer.
    We believe that FEMA should have an effective fraud 
prevention program that protects all taxpayers at the same time 
that it provides assistance quickly to those that are truly in 
need.
    Mr. Chairman, this ends my statement. Special Agent Ryan 
and I are happy to answer your questions.
    [The statement of Mr. Kutz follows:]
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    Mr. McCaul. Thank you, Mr. Kutz.
    The Chair now recognizes Ms. Donna Dannels, Acting Deputy 
Director, Office of Recovery for FEMA.

                 STATEMENT OF DONNA M. DANNELS

    Ms. Dannels. Good morning, Chairman McCaul, Ranking Member 
Etheridge, and committee members. My name is Donna Marie 
Dannels, and I am the acting deputy director of recovery at 
FEMA. I am here representing Secretary Chertoff and Director 
Paulison.
    It is an honor to appear before this subcommittee to 
discuss our individual assistance program and FEMA's efforts to 
provide assistance to individuals and families affected by 
Hurricanes Katrina and Rita.
    Before I begin, may I request that my entire statement be 
added to the record?
    Mr. McCaul. Without objection, so ordered.
    Ms. Dannels. FEMA appreciates the opportunity presented by 
this subcommittee to discuss the changes which FEMA has already 
implemented in delivering grant assistance. Like the 
suggestions of the Inspector General, our own reviews and those 
which came out of a similar hearing 4 months ago in the Senate, 
several issues have been raised which should be addressed to 
strengthen the individual assistance program.
    FEMA identified many of these issues soon after the 
implementation of expedited assistance and has already taken 
steps to correct them. While the Government Accountability 
Office is just releasing its final report on expedited 
assistance, the issues are not new. FEMA, as the program owner, 
is extremely concerned about the issues in providing expedited 
assistance which is why we have initiated and are currently 
carrying out a number of improvements.
    Katrina and Rita tested our programs and processes as never 
before. Yet these same programs and processes have provided 
nearly $7.3 billion to over 3 million victims of the 2005 
hurricane season.
    Even as we prepare for the upcoming hurricane season and 
respond to the over 40 declared major disasters that have 
impacted the country since last September, FEMA continues to 
fund and facilitate an aggressive recovery strategy and work 
with our partners to rebuild the gulf coast.
    FEMA appreciates the efforts of the Inspector General and 
GAO to help us identify control weaknesses so that we can 
continue to improve delivery of our programs while remaining 
effective stewards of taxpayer funds. While we welcome having 
this dialog, it is important that we remember the situation we 
faced in the days immediately following landfall.
    In the immediate aftermath of Hurricane Katrina, hundreds 
of thousands of people were displaced from their homes. Family 
members were separated or missing, and an entire metropolitan 
area had suffered from one of the greatest natural disasters in 
the history of the United States.
    It was in this environment that FEMA was faced with 
providing assistance to individuals to meet their basic 
emergency needs for lodging, clothing, medication and fuel, 
while at the same time working with our Federal, tribal, State 
and local private sector partners to meet longer-term needs.
    In Katrina, we were presented with a population that had in 
a matter of hours lost nearly everything. People were being 
rescued from rooftops and showing up in shelters sometimes 
without even a shirt on their back and without identification 
of any kind.
    In Rita, we were presented with a geographic area that had 
just suffered through two massive hurricanes.
    The primary focus of GAO's report is expedited assistance 
or EA. EA is an accelerated method of dispersing initial 
individual and household disaster assistance programs to meet 
immediate emergency needs. EA has previously only been used in 
a very limited number of disaster situations, primarily where 
the need for immediate assistance surpassed the capabilities to 
provide that assistance and when it was clear victims could not 
return to their homes immediately following the disaster.
    One of FEMA's top priorities is the quick and efficient 
delivery of assistance to as many eligible victims as possible. 
However, in meeting that goal, we realize that some individuals 
may receive assistance in error or, unfortunately, because they 
have intentionally tried to defraud the American people.
    As part of our recruitment process, FEMA and in this case 
the Inspector General review grant awards. FEMA makes every 
effort to recover overpayments, and if fraud is suspected, FEMA 
refers the case to the appropriate authorities for prosecution.
    In reviewing the GAO report on EA, it is significant to 
note that many of GAO's findings were already uncovered by 
FEMA's internal review and our review at the Office of 
Inspector General. FEMA in fact has gone to great lengths to 
ensure that it is a good steward of the taxpayers' dollars by 
deterring fraud while still allowing applicants who are in 
serious need of assistance to receive it quickly and 
appropriately. That is the balance we have to strike.
    Our efforts of proper stewardship of public funds continue 
this day. FEMA has already made significant improvements in our 
delivery processes to prevent fraud, waste and abuse and is 
well into the recruitment phase for the improper payments made 
to Hurricanes Katrina and Rita victims. Because of the 
immediacy of the crisis caused by Katrina and Rita, time was of 
the essence in getting emergency assistance to victims. For all 
other payments, however, FEMA took more time to ensure that 
eligibility requirements were made, including verifying 
occupancy of the damaged dwelling at the time of the disaster. 
Any additional IHP assistance was then provided only after an 
in-person inspection was performed and an actual address or the 
applicant's occupancy was verified by a data verification 
contractor and additional documents were verified by FEMA and 
signed by the applicant.
    Even though these measures were intended to minimize 
overpayments due to fraud and errors, we are aware they were 
not successful in every case. We continue to evaluate the 
systems and processes put in place for the very first time in 
this unprecedented event in order to make further improvements.
    The GAO report references isolated incidents where EA debit 
cards were used to purchase goods and services that did not 
appear to meet serious disaster-related needs. While we are 
similarly concerned by the inappropriate use of these funds, 
these purchases represent a fraction of the overall assistance 
provided.
    These questionable purchases in GAO's review total just 
under $8,000 or two one-hundredths of a percent of nearly $39 
million in debit card transactions.
    Through effective planning, enhanced internal controls and 
a more systematic use of technology, FEMA can limit waste, 
fraud and abuse. FEMA recognizes that even with the controls in 
place, there is room for improvement.
    During the 2005 hurricane season, FEMA was proactively 
implementing more stringent controls concerning fraud and 
identity verification. With these new processes in place, we 
still need to take into consideration those families and 
individuals that may not have traditional means of identity and 
occupancy verification. For those applicants that required 
additional review and resolution, there were significant delays 
in FEMA providing any assistance. Such delays of course can 
seriously impact victims who have lost all possessions.
    FEMA's challenge is again to find the appropriate balance 
of providing timely assistance while taking the necessary 
precautions to ensure against fraud, waste and abuse.
    We appreciate the time and the effort that GAO staff has 
put into this report. The investigative research they conducted 
and the resulting suggestions not only serve as a guide to us 
to continue to improve our processes but have also helped to 
highlight the value and types of assistance FEMA provides to 
applicants following disasters.
    FEMA remains committed to ensuring fiscal integrity and 
will do all we can to ensure the effective and efficient use of 
the taxpayers' dollars and protect against fraud while 
performing our agency's critical missions to our citizens at 
their time of need. Thank you again for opportunity to appear. 
I am prepared to answer any questions you might have.
    [The statement of Ms. Dannels follows:]

                 Prepared Statement of Donna M. Dannels

    Good morning Chairman McCaul, Ranking Member Etherege, and 
Committee Members.
    My name is Donna Marie Dannels, and I am the Acting Deputy Director 
of Recovery at FEMA. I am here representing Secretary Chertoff and 
Director Paulison. It is an honor to appear before this subcommittee to 
discuss our individual assistance program and FEMA's efforts to provide 
assistance to individuals and families affected by Hurricanes Katrina 
and Rita.
    FEMA appreciates the opportunity presented by this subcommittee to 
discuss the changes which FEMA has already implemented in delivering 
grant assistance. Like the suggestions of the Inspector General, our 
own reviews, and those which came out of a similar hearing four months 
ago in the Senate, several issues have been raised which should be 
addressed to strengthen the Individual Assistance program.
    FEMA identified many of these issues soon after the implementation 
of expedited assistance, and has already taken steps to correct them. 
While the Government Accountability Office (GAO) is just releasing its 
final report on Expedited Assistance, the issues are not new. FEMA, as 
the program owner, is extremely concerned about the issues in providing 
expedited assistance, which is why we have initiated and are currently 
carrying out a number of improvements. These include the implementation 
of identity verification for phone registrations, a reduction of the 
dollar amount of expedited assistance, and an elimination of the use of 
debit cards.
    Katrina and Rita tested our programs and processes as never before. 
Yet, these same programs and processes have provided nearly $7.3 
billion to over 3 million victims of the 2005 hurricane season. Even as 
we prepare for the upcoming hurricane season and respond to the over 40 
declared major disasters that have impacted the country since last 
September, FEMA continues to fund and facilitate an aggressive recovery 
strategy and work with our partners to rebuild the Gulf Coast.
    FEMA consistently strives to assess and improve its performance and 
delivery of assistance in disasters. We appreciate the efforts of the 
Inspector General and GAO to help us identify control weaknesses, so 
that we can continue to improve delivery of our programs, while 
remaining effective stewards of taxpayer funds.
    While we welcome having this dialogue it is important that we 
remember the situation we faced in the days immediately following 
landfall. In the immediate aftermath of Hurricane Katrina, hundreds of 
thousands of people were displaced from their homes, family members 
were separated or missing and an entire metropolitan area had suffered 
from one of the greatest natural disasters in the history of the United 
States.
    It was in this environment that FEMA was faced with providing 
assistance to individuals to meet their basic emergency needs for 
lodging, clothing, medication, and fuel, while at the same time, 
working with our Federal, tribal, State, local and private sector 
partners to meet longer-term needs. In Katrina, we were presented with 
a population that had, in a matter of hours, lost nearly everything. 
People were being rescued from rooftops and showing up in congregate 
shelters, sometimes without even a shirt on their back, and without 
identification of any kind. In Rita, we were presented with a 
geographic area that had just suffered through two massive hurricanes 
that overwhelmed our nation's disaster response system.
    As was the case with these hurricanes, when the magnitude of a 
disaster is so severe that normal recovery processes cannot immediately 
get underway, FEMA can activate a policy under the Individual and 
Households Program (IHP) to provide emergency assistance to accelerate 
the disbursement of disaster assistance for immediate sheltering and 
emergency needs.
    Expedited assistance provided under the IHP is made available only 
for a short period of time following the disaster to meet immediate 
needs. This emergency assistance allows for a pre-inspection 
disbursement of funds to an individual household, based on information 
gathered from the applicant during the registration process that meets 
the following criteria:
         the registration must be for the primary residence 
        only;
         the registrant must be displaced due to the disaster; 
        and
         the registrant is in need of shelter.
    If these criteria are met, emergency assistance is provided when 
the magnitude of the event demands it. It is normally not implemented 
under the Individual and Households Program. Hurricanes Katrina and 
Rita, however, were catastrophic events that prompted FEMA to authorize 
$2,000 in assistance to eligible households to be used for emergency 
purchases until normal recovery programs became operable. This amount 
of assistance was authorized for all eligible households that met the 
criteria within the declared states where EA was implemented. For 
Hurricane Katrina, EA was activated in the States of Louisiana on 
September 7, 2005, Mississippi on September 8, 2005, and Alabama on 
September 9, 2005. It was deactivated in all states on September 26, 
2005. As of June 9, 2006, 47 percent of Hurricane Katrina registered 
households received EA. Following Hurricane Rita, EA was activated in 
the States of Louisiana and Texas on September 27, 2005, and 
deactivated on October 21, 2005. As of June 9, 2006, 42 percent of the 
registered Hurricane Rita households received EA. Applicants receiving 
EA in Hurricane Katrina were ineligible for EA in Hurricane Rita. In 
total, 45 percent of the Hurricane Katrina and Rita applicants received 
expedited assistance.
    EA is an accelerated method of dispersing initial IHP disaster 
assistance to meet immediate emergency needs. When an individual or 
household receives EA funding, it counts against the maximum IHP cap of 
$26,200 that they may receive.
    EA has previously only been used in a very limited number of 
disaster situations, where the need for immediate assistance surpassed 
the in-place and surge capabilities to provide assistance, and when it 
was clear victims could not return to their homes immediately following 
the disaster. It was first used in 1992 in response to Hurricane Andrew 
and was also implemented during the 1994 Northridge earthquake, which, 
prior to the hurricanes of 2004, had been FEMA's largest disaster in 
terms of the number of applicants.
    One of FEMA's top priorities is the quick and efficient delivery of 
assistance to as many eligible victims as possible. However, in meeting 
that goal, we realize that some individuals may receive assistance in 
error, or unfortunately, because they have intentionally tried to 
defraud the American people. As a part of our ``recoupment'' process, 
FEMA, and in this case, the Inspector General review grants awards. 
FEMA makes every effort to recover overpayments and if fraud is 
suspected FEMA refers the case to the appropriate authorities for 
prosecution.
    At this point, excluding prosecutions carried out by the Department 
of Justice, FEMA has determined that 6,110 Katrina and Rita 
applications are undergoing recoupment actions, although not all of 
these are based on fraud. Additionally there are another nearly 40,000 
cases under review for potential recoupment. In reviewing the GAO 
report on EA, it is significant to note that many of GAO's findings 
were already uncovered by FEMA's internal review and our review with 
the Office of Inspector General. FEMA, in fact, has gone to great 
lengths to ensure that it is a good steward of the taxpayers' dollar by 
deterring fraud, while still allowing applicants who are in serious 
need of assistance to receive it quickly and appropriately. Our efforts 
at proper stewardship of public funds continue to this day. FEMA has 
already made significant improvements in our delivery processes to 
prevent fraud, waste and abuse and is well into the recoupment phase 
for the improper payments made to Hurricanes Katrina and Rita victims.
    In addition, to put GAO's report on Expedited Assistance into 
context, the committee must understand that GAO utilized a non-random 
sample of 248 registrations from applicants with duplicate 
registrations and those that received multiple payments. Since the vast 
majority of our applicants were not duplicates, GAO's sample is not 
representative of the implementation of the IHP or the EA program. It 
is also worth noting that for Hurricane Katrina and Rita, FEMA took 
more than 2.5 million registrations; therefore, GAO's sample of 248 is 
only .01 percent of the total applications received. Further, what may 
appear to GAO as duplicative payments under IHP, may in fact be 
authorized payments under the ``separated households'' policy for 
Hurricanes Katrina and Rita. Because of the widespread dispersion of 
individuals and families across many states, FEMA instituted the 
separated household policy where more than one member of the household 
could receive expedited and or rental assistance to meet their needs 
while they were separated. In our view, this was a more humane way of 
treating these victims and ensuring that individuals who had lost 
everything were not penalized simply because they could not be 
geographically situated with their immediate family members.
    The GAO report indicates that all applicants eligible for the 
$2,000 in EA are also eligible for up to $26,200 under IHP. GAO 
describes expedited assistance as a ``gateway to further IHP 
payments''. This is an overstatement.
    Applicants for EA had to provide answers to specific questions 
concerning their disaster-related needs, as well as state that their 
damaged residence was located in the disaster area and damaged by the 
disasters in accordance with State and Federal laws. Because of the 
immediacy of the crisis caused by Katrina and Rita, time was of the 
essence in getting emergency assistance to the victims. For all other 
payments, however, including the $2,358 transitional housing payments, 
geospatial payments, and traditional IHP payments, FEMA took more time 
to ensure that eligibility requirements were met including verifying 
occupancy of the damaged dwelling at the time of the disaster. Any 
additional IHP assistance was then provided only after an in-person 
inspection was performed at an actual address or the applicant's 
occupancy was verified by a data verification contractor, and 
additional documents were verified by FEMA and signed by the applicant. 
Even though these measures were intended to minimize overpayment due to 
fraud and errors, we are aware they were not successful in every case. 
We continue to evaluate the systems and processes put in place for the 
first time in this unprecedented event in order to make further 
improvements.
    The GAO report references ``isolated incidents'' where EA debit 
cards were used to purchase goods and services that did not appear to 
meet serious disaster-related needs. While we are similarly concerned 
by the inappropriate use of these funds, these purchases represent a 
fraction of the overall assistance provided. These questionable 
purchases in the GAO review total just under $8,000, or 0.02%, of 
nearly $39 million in transactions processed by one bank. These 
purchases represent questionable judgment on the part of the recipient; 
however, by highlighting those limited expenditures, GAO suggests flaws 
in FEMA's controls in providing expedited assistance. In fact, FEMA 
continues to develop guidance and control measures to prevent the 
inappropriate use of all of its funds, including expedited assistance. 
Efforts to completely prevent misuse should be properly balanced 
against the need to provided assistance to the truly needy.
    Through effective planning, enhanced internal controls and a more 
systematic use of technology, FEMA can limit waste, fraud, and abuse. 
FEMA recognizes that even with the controls in place, there is room for 
improvement. During the 2005 hurricane season, FEMA was proactively 
implementing more stringent controls concerning fraud and identity 
verification, including:
         in October 2005, launching a new internet registration 
        application that disallows any duplicate registrations;
         in February 2006, adding identity proofing to the call 
        center registration application that will insure that all IHP
        registrations are subjected to the same criteria as the online 
        application. This includes social security number verification.
         amending systems to ensure no automated payments are 
        sent to applicants who failed the identity proofing process;
         sending all applications taken over the phone, from 
        August 2005 until February 2006 to FEMA's data contractor for 
        identity proofing and reviewing those that failed for possible 
        recoupment or referral to the Office of the Inspector General;
         data-marking any applications in NEMIS that fail 
        identity proofing so they may be flagged for review and denied 
        automated payment;
         introducing real-time interaction between the FEMA 
        service representative and the applicant during registration to 
        ensure that the data are entered correctly before accepting the 
        application.
    With these new processes in place, we still need to take into 
consideration those families and individuals that may not have 
traditional means of identity and occupancy verification. For those 
registrations sent to a ``duplicate investigation queue'' for 
additional review and resolution, there were significant delays in FEMA 
providing expedited assistance. Such delays, of course, can seriously 
impact victims who have lost all possessions. FEMA strives to find the 
appropriate balance of providing timely assistance while taking the 
necessary precautions to ensure against fraud, waste, and abuse.
    Additional changes were and continue to be made to the NEMIS 
software, that include:
         not allowing any registration to be accepted when a 
        registrant has the same social security number as another 
        registrant in the same disaster, and
         in addition to identity verification, verifying 
        ownership and occupancy through FEMA's data during the 
        registration process.
    We appreciate the time and effort the GAO staff has put into this 
report. The investigative research they have conducted and the 
resulting suggestions not only serves as a guide for us to continue to 
improve our processes, but have also helped to highlight the value and 
the types of assistance FEMA provides to applicants following 
disasters. FEMA remains committed to ensuring fiscal integrity and will 
do all we can to ensure the effective and efficient use of the 
taxpayer's dollar and protect against fraud, while performing our 
agency's critical missions to our citizens at their time of need.
    Thank you again for the opportunity to appear before you. I am 
prepared to answer any questions you may have.

    Mr. McCaul. Thank you, Ms. Dannels.
    The chair now recognizes Mr. Joseph Becker, senior vice 
president for preparedness and response, American Red Cross.

                   STATEMENT OF JOSEPH BECKER

    Mr. Becker. My name is Joe Becker, and I lead the American 
Red Cross's disaster relief. I thank you for the invitation to 
be here. I appreciate the chance to share with you some of our 
experience of Hurricane Katrina.
    I was asked to speak on three topics: to provide an 
overview of what we do for victims of disasters; to share what 
we did during Hurricane Katrina, what problems we encountered 
and what we learned from that experience; and to discuss what 
improvements we have put in place going forward.
    My written testimony submitted for the record outlines 
these topics in detail. I will speak to each of these three 
briefly now.
    What does the Red Cross do in times of disaster? We serve 
victims of disaster every day, about 70,000 a year, from a 
house fire to today and yesterday's flooding, from Alberto to 
the largest disasters. We meet people's immediate emergency 
needs. We shelter, that is giving people a place to stay out of 
danger. We feed. We partner with a lot of other organizations 
to feed people with fixed sites, and we drive meals through 
neighborhoods. We distribute. We give out the supplies that 
people need; water, toiletries, things to clean up their 
houses. We provide a small amount of financial assistance to 
help people with things, with needs that are better met with 
cash instead of things, that next set of clothes or a pair of 
shoes, gas for the car. We provide mental health counseling, 
and we help families with information to unite them with lost 
family members.
    Your focus today is on one part of what I just described, 
our providing financial assistance. We have provided this 
assistance in one form or another since our earliest days. Mr. 
Etheridge spoke about the Florida storms, the four storms that 
hit Florida in 2004. That was the largest natural disaster the 
Red Cross had ever responded to. We fed millions, sheltered 
hundreds of thousands, but we gave that financial assistance to 
about 73,000 families, one at a time, with a volunteer 
typically in a high school gym serving the family.
    After the storms of 2004, we then tested our systems to a 
capacity of a 100,000 families. We wanted to make sure we were 
ready for something even bigger. And then Katrina hit. In the 
days after the storm, we knew we didn't have 73,000; we knew we 
didn't have 100,000. Our earliest data said that we could have 
a million families that would require Red Cross assistance. We 
knew our current systems would not work. If we had volunteers 
in high school gyms providing financial assistance, we would be 
there for months trying to meet immediate emergency needs. So 
we created new ways to provide that financial assistance as we 
went.
    We created call centers for financial assistance. We used a 
software company. When the client called the call center, they 
were asked a series of questions that the call agent new the 
answer to: Where did you live before this? What's your rent 
payment? And if they answered the questions correctly, then we 
knew that they were who they said they were.
    We used Western Union. We thought, who could move money 
around the country on a scale like nobody else, and we worked 
with them to partner where people would call the call center 
and then go to their local Western Union with an ID number to 
receive funds.
    We used a lot of other methods. We used Wal-Mart gift 
cards, preloaded debit cards. But the system that we were 
putting that data into was a common system to keep track of who 
we gave what to.
    We had a tough choice in those earliest days of the 
disaster: Do we delay helping people until we can build 
entirely new ways to do this to a scale where we could take 
care of everybody, or do we proceed with what we had and serve 
people and build it as we went?
    We chose to serve quickly. Yes, we had long lines. We had 
very long waits on the phone. Our biggest problem, frankly, was 
that our IT system couldn't handle the volume that we were 
dealing with. After about a 100,000 or 120,000 cases, our IT 
system started to bog down. At that point, we knew that people 
could game our system. They could go to more than one place to 
receive financial assistance, and they might be able to get it. 
But we knew that we could find out who they were. It might take 
us weeks, might take us months, but we would find out who they 
were.
    Mr. Becker. We ended up serving about 1.4 million families 
with financial assistance at an average of about $1,000 a 
family. It cost us about $1.5 billion.
    Before Katrina, we had developed good technology, but 
Katrina was about 20 times the number of families that we had 
served in our biggest disaster. We failed to think big enough 
with our systems. As I said, we had a tension at the beginning. 
Do we wait until the systems are built, or do we move quickly? 
And we decided to move quickly.
    I mentioned that people could game the system if they 
figured out that there was a lag time between when we gave them 
assistance and when we entered their case into our data files, 
but we also knew that we could find out who they were, and that 
is what we have done since last fall.
    We have had a team of paralegals and investigators 
dedicated to uncovering fraud in our financial assistance. They 
have gone through case by case, and where appropriate, they 
worked with law enforcement to prosecute the folks who did 
wrong. They look at all the allegations. They have also studied 
the data. The addresses that we served, all the different ways 
you could give your name to the Red Cross. To quantify it, we 
have about 7,100 cases that might be fraud out of our 1.4 
million families we served. If they all end up being fraud, 
that is about $9.5 million. As of May, we have received back 
about $2.3 million from people who took advantage of us, and 
where necessary, we are referring those matters to law 
enforcement for prosecution, and we have had great cooperation 
from law enforcement to prosecute even though the dollars 
involved are below their thresholds to prosecute.
    So what we have put in place going forward, we have a long 
list of projects completed or nearing completion, covering a 
lot of aspects of how we respond to disasters. But to this 
specific issue, we have rebuilt our IT systems that are now 
able to handle 2 million families. A year from now, it may be 
able to handle 10 million families. And we will know if we have 
served you before we talk to you. We have over a million debit 
cards in stock and ready to go, and we have call centers ready 
to go that can handle a 100,000 families a day or serve a 
million families over 10 days.
    And we are moving very quickly to have all of our chapters 
adopt this technology. By July 1, we will have almost all of 
our chapters there. We only anticipate using these call centers 
in the very catastrophic disasters. We still want our primary 
way of serving to be a volunteer in a community building, not 
just bringing money to a client but all the other services, the 
mental health services, our nurses with health services. We 
bring other nonprofits together to make sure we are all there 
offering our assistance to the client.
    We will not be perfect this fall. The system will continue 
to develop, but we will have a much greater capacity to serve, 
and we will have even higher level of controls around the 
service. Unscrupulous people will always take advantage of 
disasters. Our job is to have the best systems in place and to 
keep a vigilant eye out for those who might do wrong. We 
learned a lot last fall. We saw again that our volunteers can 
do amazing work. This year we are ready to support them with 
systems on a scale that Katrina taught us that we need. We 
don't want to fail to think big enough again. Thank you very 
much.
    [The statement of Mr. Becker follows:]

                 Prepared Statement of Joseph C. Becker

    Good morning Mr. Chairman, Members and staff of the Committee. The 
topic of this hearing--waste, fraud and abuse--is a very serious topic 
for the American Red Cross and for those who support our charitable 
mission. We appreciate the opportunity to share our story with you this 
morning.
    It is appropriate to begin by giving you some background of our 
individual assistance efforts over the last years, including the recent 
evolution of our client assistance program.
    After that, I can speak to our most recent experiences in the 2004 
Florida hurricanes and the important lessons that guide our 
improvements after the 2005 season.
    I will conclude by sharing the latest news on the controls and 
procedures that we have already implemented that will assist us in 
guarding against waste, fraud and abuse as we move deeper into the 2006 
hurricane season.
    But before I start, on behalf of my colleagues and friends at the 
American Red Cross, allow me to begin by saying this:
    The American Red Cross is ready for the 2006 hurricane season. Over 
the past six months, we have reviewed the things we did well in the 
2004 and 2005 seasons and improved upon those successes. We have also 
taken a hard look at those areas where we must improve our response and 
we've addressed our shortcomings.
    The American people can continue to rely upon the Red Cross to 
deliver our promise of neighbor helping neighbor. Our legendary corps 
of volunteers is ready. We are working closer today with our colleagues 
in the nonprofit, charitable and faith-based communities to improve our 
reach. We are better coordinating with Federal, state and local 
officials. And, we are pre-positioning more supplies and building 
greater capacity in key states before the storms hit.
    I am very pleased to share with you today our plans for the coming 
season as we address our goals. For as we all know, the next disaster 
may not show up with advance warning on our weather radar screens. We 
do not simply wait for June 1 to be ready for disaster response. For 
the American Red Cross, we respond each day, every day.

The Red Cross and Individual Assistance: A Background
    First and foremost, it is important to understand the elements of 
Red Cross assistance and how they work together to serve our clients as 
well as integrate with the assistance of state and federal programs. 
Our first priority is to ensure that those affected by disaster have a 
safe shelter and are provided with the basic necessities of life. In 
addition to shelter, we strive to provide first aid and nursing 
support, food, toiletries, bedding and other essential items of health 
and welfare.
    The next priority is to then assist families to take the first 
steps toward recovery. This is the purpose and concern that individual 
client assistance is designed to serve. It has long been the case that 
while shelter, feeding and the distribution of critical items are 
sufficient to stabilize individuals and families, it is not sufficient 
to meet all short term emergency needs necessary for disaster victims 
to begin their individual road to recovery. Critical items of 
assistance such as resources for food, changes of clothing and bedding 
bridge the gap between mass care activities and the receipt of state 
and federal recovery assistance. This allows a family a modicum of 
independence and a flexible resource for the types of essential items 
mentioned above. Ultimately, within the framework of disaster 
assistance provided by other agencies, as well as state and federal 
programs, individual client assistance helps bridge the gap between 
mass care activities and loans, temporary housing, and other needs 
assistance.
    To properly understand the challenges and successes of individual 
client assistance, it may be necessary to review a bit of the 
background.
    Individual assistance to disaster victims is one of the 
cornerstones of the American Red Cross Disaster Services program, 
beginning with Clara Barton at the Michigan Forest Fires of 1881. 
Throughout history, individual assistance has evolved to meet the ever 
changing needs of those affected by disaster events. The fundamental 
drivers of change in this program have been consistent over time and 
include the needs of victims, the existence of or changes to state and 
federal programs, and the evolving nature of disaster (such as 
terrorism and mass casualty events). However, certain principles have 
remained consistent--that disaster relief is based on verified need; 
that such assistance should mitigate suffering; that similar needs 
should be met with similar resources; and that clients are ultimately 
responsible for their own recovery. Red Cross programs are 
fundamentally based on these principles.
    Historically, Red Cross individual assistance consisted of items to 
repair homes, furniture, clothes, etc. Prior to the advent of 
governmental programs, the Red Cross often dealt with the entire range 
of response and recovery needs--food, clothing, and other essential 
items to home repair, occupational supplies, medical needs, and income-
related support such as cloth, sewing machines, seed, and livestock.
    The ongoing need for flexibility to adapt continues. More recently, 
the Oklahoma City Bombing and Terrorist Attacks of 9/11 found victim's 
verified needs related to loss of loved ones and economic survival 
pending receipt of benefits, not loss of their personal possessions. 
Individual assistance was quickly adjusted to ensure survivors 
emotional needs were met with extensive mental health support and 
continued financial assistance, in order to enable them to maintain 
their homes pending receipt of government and personal assistance.
    While individual needs change over the years or by the type of 
disaster, standardization of assistance to meet the verified basic 
needs of disaster victims remains constant. In essence, similar needs 
are addressed with similar assistance. This application of the intent 
of the policy and charter are applied daily, disaster by disaster. 
Assistance has continually been updated to avoid duplication as 
government assistance and assistance from partner agencies and 
organizations has increased. In fact, referral to the programs of other 
organizations and assistance in connecting with these providers is a 
fundamental part of the Red Cross program.
    Assistance has been provided in multiple ways, depending on what is 
needed and available in the area of the disaster event. Individual 
assistance for essential items was originally provided in cash or a 
credit with a store. This was followed by checks, and then by 
disbursing orders (which are similar to purchase orders). Today, 
financial assistance is most often provided with debit cards. Other 
vehicles such as gift cards, disbursing orders, and checks, are used as 
back up mechanisms or when power is out for extensive periods of time. 
How the individual assistance is actually provided is based on the 
infrastructure in the disaster area and the conditions of merchants and 
stores. If electricity is not available, debit cards are not a viable 
option.
    To enhance the dignity of our clients, reduce administrative costs 
occurred by the organization, and provide for greater oversight, debit 
cards are now used as the primary form of assiststance. These cards are 
easy to use, can be replenished, carry no stigma, and make disaster 
clients indistinguishable from other consumers. These cards are 
intended for food, clothing, bedding and other essential items, and 
they allow clients to take responsibility for their recovery.
    While our fundamental commitment to meeting the emergency needs of 
disaster victims remains constant, the range of events to which we 
respond demands that we have more than a single model of service 
delivery. Given that our organization has now experienced the differing 
demands of terrorist / mass casualty type events (9/11) as well as 
catastrophic natural disasters (Katrina) and is currently challenged by 
the possibility of pandemic disaster (Avian Flu), it is clear that a 
single service delivery model or program is no longer sufficient to 
meet the demands and risks of our current environment. A large part of 
the Red Cross success in Katrina was the ability to adapt and adjust 
our assistance to meet individual and basic needs immediately. Moving 
forward, the American Red Cross will continue to develop a small number 
of standard models for use in our most likely scenarios, and will 
prepare ourselves to execute the model or models most appropriate to 
the event.

Katrina: Lessons Learned
    Mr. Chairman, the Red Cross provided aid and comfort to over 1.4 
million families after the storms of last year.
    Thanks to the generosity of the American people, we provided an 
average $1019.00 per family in emergency financial assistance. This is 
not money provided to replace all that was lost--but to address urgent 
need.
    We provided shelter to nearly 500,000 hurricane survivors (3.4 
million shelter nights) in nearly 1,100 shelters in 27 states and the 
District of Columbia. And we served 68 million meals and snacks.
    A Herculean challenge was getting financial assistance as quickly 
as possible to an unprecedented number of people who left their homes 
with little or nothing and in many cases would have no homes to which 
they could return. As stated previously, the largest number of families 
to which the Red Cross had ever provided assistance was approximately 
73,000--those served during the four back-to-back hurricanes in 2004. 
By contrast, demographic and census information from the area affected 
by Katrina led us to estimate that more than one million families, most 
of whom were bereft of all of their traditional social support systems, 
would need financial assistance.
    The challenge of raising enough money to provide assistance to an 
estimated one million families was, frankly, daunting. Initial disaster 
assessments and demographic information led us to estimate that, with 
average assistance of about $1,000 per family, we were facing financial 
assistance expenses of approximately $1 billion. We had to make the 
difficult determination whether we would--or could--provide this 
magnitude of financial assistance. Red Cross leadership, together with 
our Board of Governors, rapidly decided that the tremendous needs of 
the evacuees demanded that we act. Soon, it became clear that dollars 
were going out at a fast rate. We had to either suspend our emergency 
financial assistance or borrow funds. We chose to borrow the money--
over $300 million--with the confidence that the American public would 
see our efforts as worthy and support the work we were doing. This has 
proven to be the case.
    The mechanisms for getting the financial assistance to the people 
who needed it without delay posed an additional set of challenges. 
During traditional responses, trained American Red Cross volunteers and 
staff, conduct disaster damage assessments, meet with survivors to 
determine their needs and provide assistance accordingly. We often do 
home visits to confirm damage and determine necessary assistance. This 
type of detailed assessment would clearly be impossible for many months 
after Katrina and Rita. We had to choose between two options: we could 
attempt to verify damage house by house and thereby delay assistance to 
those who so urgently needed it, or we could utilize the best 
information available regarding damaged areas and speed the provision 
of our assistance. By choosing the latter option, we knew that we ran 
the risk of putting assistance in the hands of potentially unscrupulous 
individuals not affected by the hurricanes; we concluded that it was a 
reasonable business risk and mitigated the risks as possible. We 
considered the need to help the vast numbers of families in desperate 
and legitimate need without delay. Using satellite images and fly-over 
photographs, we determined specific ZIP codes where the devastation was 
obvious and began to disburse the maximum assistance to these families 
based on family size. It was our goal to get money in the hands of 
survivors as quickly as possible. The fact that fraudulent claims for 
assistance could occur was to be addressed with an aggressive ``no 
tolerance'' fraud enforcement policy which we discussed with federal 
and state law enforcement authorities.
    Another hurdle was the logistics of getting cash into the hands of 
so many people spread across so many states. Methods used in the past 
would not accommodate the unique aspects of this epic disaster. We set 
up an 800 number and call centers around the country and partnered with 
Western Union to provide immediate cash assistance. A critical moment 
came when we realized that it could take days and weeks to bring these 
systems up to a scale that could accommodate the number of families in 
need of assistance. That left us with another difficult choice: delay 
assistance to every disaster victim until we had the capacity to 
effectively serve them all, or proceed with the capacity we had, 
getting funds into the hands of thousands of families right away and 
working diligently to add to those numbers as quickly as we could scale 
up our systems. We chose to help those whom we could without delay, 
while striving to serve all who needed us. We sincerely regret that 
there were long lines and a lot of busy signals, but we believe that we 
made the right choice. In the six weeks following landfall, the Red 
Cross put over one billion donated dollars into the hands of families 
who desperately needed it without delay.
    As part of our lessons learned process, we are striving to ensure 
that we will eliminate long lines and mitigate fraud and abuse moving 
forward. Our Client Assistance System (CAS) software has been modified 
to provide a single system of record to support the deliver of 
assistance to those in need. Enhancements to CAS and an upgraded 
information technology infrastructure will allow the Red Cross to speed 
emergency assistance to one million affected families within a 10-day 
period, with the capacity to process a total of two million cases over 
the long term. We have pre-stocked one million cash enabled client 
assistance cards (CAC) so that the cards can be efficiently distributed 
to families displaced by large-scale disasters.
    Soon after Katrina's landfall, the Red Cross expanded an existing 
Special Transient Housing Accommodations Program, in cooperation with 
the Federal Emergency Management Agency (FEMA) and Corporate Lodging 
Consultants (CLC). This program covered the cost of storm victims 
requiring emergency assistance staying in motels or hotels where other 
accommodations were not available. Over its duration, this program 
housed more than 700,000 evacuees in every state in the nation. This 
innovation alone provided critical and immediate shelter in addition to 
the hundreds of traditional congregate care shelters established across 
the nation. As agreed at the inception of the program, the Red Cross 
transferred administration of the program to FEMA on October 24, 2005.
    The American public is the client to whom the Red Cross ultimately 
delivers services. The monumental challenge of providing immediate 
relief and initial recovery assistance in the wake of the devastating 
2005 hurricane season tested the spirit, determination and cooperation 
of America. In the face of incredible demands, the American Red Cross 
and the American people rose to the occasion and provided care and 
comfort to millions of people with nowhere else to turn.

Fraud, Waste and Abuse
    The Red Cross treats its obligation to deter and detect fraud or 
abuse with the utmost seriousness and where appropriate seeks 
prosecution of fraudulent activity to the fullest extent of the law. To 
stop those that attempt to cheat the system, the Red Cross participates 
in the Department of Justice's Hurricane Katrina Fraud Task Force, 
which also includes members from the FBI, the United States Secret 
Service, the Federal Trade Commission, the Postal Inspector's Office, 
and the Executive Office of the United States Attorneys, among others. 
The Red Cross is assisting in hundreds of investigations now in 
progress. Every resource, whether in-kind, financial or people, is 
precious to the Red Cross and we are taking every measure to 
aggressively pursue any illegal activity. To date, there have been 76 
indictments and 55 convictions.
    At this time, we are investigating 7,109 cases of suspected and 
actual fraud. These represent a combination of cases turned over to law 
enforcement and cases being investigated internally. We estimate the 
potential of some $9.5 million in cases stemming from this fraud. While 
we recognize that these numbers are very high, it is important that we 
put them into context. While no misuse or waste of donated dollars can 
be tolerated, fraudulent activity will likely be less than one-half of 
one percent (0.5%) of total operational costs. It is important, 
however, that this is put in the appropriate context. To add further 
context, a 2005 report by the Association of Certified Fraud Examiners 
entitled ``National Occupational Fraud and Abuse'' cited the industry 
fraud average at 6% of revenue collected.
    Additionally, there were instances where individuals or families 
received duplicative assistance that was neither fraud nor abuse on 
behalf of our clients, but rather a simple oversight or human error. I 
am pleased to report to this Committee today that as of May 1, 2006, 
the American Red Cross had collected $2.3 million in returned 
assistance from clients who had received duplicate payments.

American Red Cross: Ready for 2006
    To better prepare for the coming season, and to mitigate fraud, 
waste and abuse, we have undertaken a long list of projects. For this 
hurricane season, we have created:
         Client Assistance System (CAS) software and reporting 
        enhancements to provide a single system of record to support 
        the delivery of assistance to those in need. Enhancements to 
        CAS and an upgraded information technology infrastructure will 
        allow the Red Cross to speed emergency assistance to one 
        million affected families within a 10-day period, with the 
        capacity to process a total of two million cases over the long 
        term.
         Cash-enabled client assistance cards (CAC), which can 
        be used as a vehicle for providing emergency assistance. One 
        million National Headquarters CAC cards will be pre-stocked so 
        that the cards can be efficiently distributed to families 
        displaced by large-scale disasters.
         Emergency assistance call centers that can be used 
        during large-scale events to handle a capacity of one million 
        cases in 10 days, or 100,000 completed cases per day.
         A web-based shelter management application based on 
        the Coordinated Assistance Network (CAN), developed in 
        conjunction with FEMA and the Department of Homeland Security. 
        When fully implemented, we will have the ability to track 
        shelter inventory, facility survey data, and population counts 
        of the shelter population nationwide.
         Fourteen dedicated Red Cross staff to coordinate 
        closely with state emergency management agencies in high-risk 
        areas, including the states of Louisiana, California, 
        Mississippi, Alabama, Florida, Tennessee, Georgia, Maryland, 
        Virginia, North Carolina, South Carolina, New York, Arkansas, 
        and Texas.
         Increased stockpiling of supplies (food, cots, 
        blankets, comfort kits, etc.) in key risk states to enable the 
        Red Cross to serve one million meals a day and to shelter 
        500,000 people per day in the initial days after a disaster 
        strikes.
         Improvements to the Disaster Services Human Resources 
        (DSHR) system to track in real-time staff assigned to relief 
        operations and strengthen the process used for registering 
        spontaneous volunteers. The DSHR system software is also being 
        modified to accommodate DSHR ID Smart Card technology. These 
        improvements will provide better information about available 
        resources.
         Addition of six on-staff disaster relief operation 
        directors to provide leadership to major relief operations as 
        well as mentor and coach chapter and multi-chapter relief 
        operation directors. This will improve the skill sets of 
        administrators and managers in the DSHR system.
         Development of national partnerships that chapters can 
        implement on a local level to engage underserved groups in 
        their communities.
         Delivery of ``Introduction to Disaster'' training to 
        over 400 members across six NAACP conferences.
         A ``Disaster Welfare Information'' system for chapters 
        to provide ``safe and well'' status information to the families 
        and loved ones of disaster victims.
         Response Center Network expansion for a group of 
        chapters that staff the 1-866-GET-INFO line. We will have 250 
        simultaneous workers in chapters nationwide supporting the 
        information center's work.
         An enhanced Volunteer Match Portal to help manage 
        expectations of large numbers of spontaneous volunteers and 
        provide updated guidance.
         Improved chapter advance procedures and new monitoring 
        and control processes to support the use of the CAC.
         A national Disaster Field Supply Center warehousing 
        system with increased capacity and more critical supplies. We 
        are greatly expanding our warehouse space from about 300,000 
        square feet to over 1,000,000 square feet (new warehouses are 
        located in Montgomery, AL; Reserve, LA; Charlotte, NC; 
        Pensacola, FL; Reno, NV; Atlanta, GA; Richmond, VA; and 
        Hattiesburg, MS).
         Pre-positioned redundant communications equipment such 
        as phones, computers, radios, and satellite equipment in 21 
        cities in nine coastal states.

Closing Remarks
    In summary, despite the problems that challenged us all last year, 
I am extremely proud of the actions of the more than 225,000 American 
Red Cross workers in responding to the devastating effects of Katrina, 
Rita, and Wilma.
    I am confident that the actions we have taken internally and in 
conjunction with our federal, state, local, other NGO, and private 
sector partners will result in an even better response for the next 
disaster.
    Thank you for your time and attention.

                                   APPENDIX A: High-level Chronology of Events
----------------------------------------------------------------------------------------------------------------
        Year                         Event                                    Outcome/Results
----------------------------------------------------------------------------------------------------------------
           1881                 Michigan Forest Fires          Clara Barton provides food, clothing, medical
                                                                  supplies, and lumber for disaster victims.
----------------------------------------------------------------------------------------------------------------
           1905                 Congressional Charter        Charter recognized the role of the Red Cross in
                                                           disaster relief ``to continue and carry on a system
                                                            of national and international relief in times of
                                                           peace and apply same in mitigating the sufferings
                                                           caused by pestilence, famine, fire, floods, and other
                                                           great national calamities, and to devise and carry on
                                                                         measures for preventing the same.''
----------------------------------------------------------------------------------------------------------------
           1906              San Francisco Earthquake      ARC provides loans to victims. Court decision found
                                                            against the Red Cross stating that loaning money
                                                           which had been donated for relief was ``improper''.
                                                           BoG adopted a policy making only grants, not loans to
                                                                                           disaster victims.
----------------------------------------------------------------------------------------------------------------
      1906-1913                 50 domestic disasters       ARC assisted with emergency needs, repairing and
                                                           rebuilding homes, providing household furniture and
                                                           rehabilitating small businesses. Policies and program
                                                                  guidance continued to evolve and included:
                                                               Whatever is done to meet family needs
                                                           advance the welfare of both the individual and the
                                                                                                  community.
                                                            Relief is proportioned to need, not loss.
                                                            The Red Cross should make greatest possible
                                                                                 use of community resources.
----------------------------------------------------------------------------------------------------------------
           1918                    Influenza Epidemic        ARC adjusted the disaster program and recruited
                                                           18,000 nurses, furnished equipment and supplies for
                                                              hospitals, convalescent homes and convalescent
                                                                                                   kitchens.
----------------------------------------------------------------------------------------------------------------
          1919+                                      Local Disaster preparedness committees formed and program
                                                           expands to chapters providing assistance to local
                                                             calamities. Affected chapters established local
                                                           advisory committees to help ARC carry out its relief
                                                                                                obligations.
----------------------------------------------------------------------------------------------------------------
      1930-1933                            Depression      ARC responds to President's request and participates
                                                           in drought relief by distributing excess government
                                                           foods and supplies and acting as a government agent
                                                           through the signing of the Agency Service Agreement.
----------------------------------------------------------------------------------------------------------------
           1964                    Alaskan Earthquake      First individual government assistance provided to
                                                                                           disaster victims.
----------------------------------------------------------------------------------------------------------------
           1965                       Hurricane Betsy         Government individual assistance expanded. ARC
                                                            chapters authorized to provide relief assistance
                                                                       during civil disorders, if necessary.
----------------------------------------------------------------------------------------------------------------
           1968                       Civil Disorders      NHQ suggested that chapters plan for civil disorders
                                                                 as part of their emergency relief function.
----------------------------------------------------------------------------------------------------------------
           1969                     Hurricane Camille       Disaster Relief Act of 1969 expands the scope of
                                                            federal individual assistance, adds grants, food
                                                                          stamps, unemployment compensation.
----------------------------------------------------------------------------------------------------------------
           1976      E. Mississippi Tornadoes and Typhoon         ARC resumes its additional assistance role
                                               Pamela            (rehabilitation work) as federal individual
                                                                                   assistance is not timely.
                                                           BoG establishes a special Disaster Services program
                                                           review subcommittee to determine if the program was
                                                           adequate for the immediate future and how it would be
                                                                                                   financed.
----------------------------------------------------------------------------------------------------------------
      1982-1983       Unprecedented disaster activity      $33 million exhausts Disaster Services budget and
                                                                                    Disaster Revolving Fund.
----------------------------------------------------------------------------------------------------------------
           1995                 Oklahoma City Bombing      Red Cross response includes creation of a long term
                                                           mental health counseling and referral program for
                                                           victims' families and local residents. In addition,
                                                           we created an off-site mental health recovery zone
                                                                           for workers and first-responders.
----------------------------------------------------------------------------------------------------------------
           2001        September 11 Terrorist Attacks      Provided financial assistance to victims families and
                                                           to those affected economically. Post-event review led
                                                                 to establishment of greater transparency in
                                                           accounting practices and changes in our fundraising
                                                              approach to communicate needs more clearly and
                                                                                  immediately to the public.
----------------------------------------------------------------------------------------------------------------

    Mr. McCaul. Thank you, Mr. Becker.
    The chair now recognizes the ranking member.
    Mr. Etheridge. Mr. Chairman, I ask unanimous consent that 
Mr. Taylor, whose State was hard hit in this, be allowed to sit 
in the panel with us.
    Mr. McCaul. Without objection, so ordered.
    Let me say, first, I recognize the magnitude of the 
challenges these hurricanes presented, and I applaud the good 
work that was done in terms of assistance. My home State of 
Texas was indirectly impacted by Katrina and directly impacted 
by Rita, and I understand the need that was there to respond 
quickly with assistance. Where I have an issue is the 
accountability in the system and the lack of controls.
    I think one of the points of this hearing is, looking 
forward, what can we do to prevent this from happening again as 
we enter into another hurricane season? So I do applaud you for 
what was done, the Red Cross and FEMA.
    At the same time, I want to applaud Mr. Kutz and Special 
Agent Ryan for the work that they did. In working with me and 
the subcommittee, they disclosed and uncovered something that 
may never have been uncovered, and that is a billion dollars, 
possibly more, of these benefits were fraudulently obtained, 
and I think that is important for the American people to know 
that.
    I agree with you, Mr. Kutz, the ultimate victim in this 
case was the taxpayers. At a time where we are cutting Homeland 
Security grants by 50 percent, we can't afford as a Nation to 
have a billion dollars of fraud, and then we don't even know 
how much more, just the magnitude of the fraud that is out 
there. So it is important that we in the Congress fix this 
problem. It is important that FEMA fixes this problem.
    And when I look at, you know, these--this FEMA letter from 
the director and from Governor Blanco saying, inspection was 
done on their home, the inspection showed damage to your home 
and personal property, and I see a vacant lot, and then I see a 
check from my hometown of Austin, Texas, going to the applicant 
for this empty lot--worse yet, when I see a Federal 
prosecutor--a Federal prisoner holding benefit checks that he 
received and applied for while he was in prison at the time of 
Katrina, I am appalled at this. And I want something done about 
it, and I think the American people do as well. And then when I 
look at a cemetery that was used as a damaged property, when 
the person didn't even live in the State of Louisiana, and he 
is receiving money at the taxpayers' expense; I have got to 
tell you, this has to stop. I don't even know where to start 
with all this. I think I have done a fairly succinct job giving 
you an overview of my concerns with this.
    And Ms. Dannels, I want to hear from you directly. First, 
how did this happen? And what are you doing to prevent this 
from happening again? Because if you don't fix it, if FEMA 
doesn't fix it, Congress will.
    And then I would like to hear from the GAO and their 
response.
    Ms. Dannels. Thank you. And I do want to talk about some of 
the specific things that we have done and that were in process 
when Hurricane Katrina struck. First, though, I would like to 
say that every organization, whether it is private industry, 
Federal Government, whether it is producing a product or 
delivering a service, is designed to a particular level of 
capability, and that principle agrees to us as well. There is 
no question that the hurricanes of 2004 tested and in some 
instances overwhelmed our systems and processes and clearly, in 
2005, overwhelmed our processes in many, many, many respects. 
Because of that, we were in a position--and it again goes back 
to my statement of striking a balance of how--between having 
complete accuracy and fraud prevention, and having expediency 
and delivering assistance. We were in the position, I think, as 
Mr. Thompson said, of making some very tough decisions during 
some impossible times, and we were faced with our capabilities, 
our systems and processes, how we traditionally do business, 
not being able to meet the catastrophic event that we 
experienced, and we did in fact put in place never before used 
and untested processes and methodologies that clearly, because 
they were untested, were more subject to error and fraud. We 
are in the process of reviewing them. We welcome the GAO 
reviewing them.
    I would also say that, because we knew what we were facing, 
we had the Office of Inspector General embedded with us from 
nearly day one, looking at these situations with us so that we 
could have the benefit of their advice and expertise in 
determining how best to try to approach the impossible 
situations that we found ourselves in.
    Mr. McCaul. Thank you. If I could just comment, as we in 
the Congress appropriate billions of dollars towards this 
disaster relief assistance, and as we, even this week, look at 
this issue, we and the American taxpayer want to know that it 
is being spent wisely. And I think, anytime you have that kind 
of money thrown out there, there are people who are going to 
milk the system. There are bad actors, but I don't think it has 
to be a choice between fraud prevention and expediting claims. 
I don't think it has to be either/or. I think we can have both, 
and I think that is what the American people deserve, and that 
is what we want to get after this hearing.
    I would like to hear from Special Agent Ryan if that would 
be okay.
    Mr. Ryan. That is fine. Thank you, Mr. Chairman.
    In this particular case, when we started looking at this 
problem, we wanted to know what had been done prior to us 
getting involved. We wanted to know if they did in-depth 
audits, in-depth investigations. We didn't find a lot of that. 
So we decided to test the system. We wanted to see what upfront 
controls were going to be in place to stop us from being able 
to get into the system and have an opportunity to commit fraud. 
Fraud is a crime of opportunity. If given the opportunity and 
the upfront controls aren't in place, you are going to have 
people that are going to take advantage of the situation. And 
that is what we did to test the system. I believe that if you 
are going to go ahead and deal with the taxpayers' money, you 
have to learn from your mistakes. You need to debrief as to 
what went right, what went wrong, and you have to prepare going 
forward. You have to practice what you are going to put into 
place if you don't have something to fall back on, and know 
where the weaknesses are and where you need your manpower if 
you have a problem going forward. And I think that is exactly 
what happened in this situation.
    Mr. McCaul. Mr. Kutz, do you have any comments?
    Mr. Kutz. Yes, I would agree with you on the choice issue. 
I don't think our Nation's fiscal condition allows us a choice 
between allowing a billion or so dollars in fraud and getting 
money out quickly. I think FEMA needs to protect all taxpayers 
at the same time as they take care of disaster victims. We are 
very sympathetic to that issue.
    A couple of points, I don't think Ms. Dannels' opening 
statement addressed anything from my testimony today. Her 
opening statement addresses a report we are issuing related to 
our February testimony before Senator Collins and Lieberman 
related to expedited assistance. I think our testimony today 
shows the problems are much, much broader than what she 
discussed in her opening statement. So I would be interested in 
knowing what they are going to do about the new issues today. I 
think putting in place--she mentioned putting in place untested 
methods, and some of the recommendations we have related to our 
prior work talk about--I think Mr. Ryan alluded to this--is 
that you have to field test these controls and not wait until a 
disaster happens to test them because that is a recipe for 
disaster.
    So whatever fraud prevention controls they put in place for 
this disaster season related to identities and damaged property 
addresses and other types of upfront controls do need to be 
tested before they are implemented to see if they work because 
the other risk here of tightening controls is legitimate 
victims not getting disaster assistance.
    Mr. McCaul. Thank you. And I think what I was most appalled 
with is not only the magnitude of the amount of money, the 
fraud, but where it was spent, and it would be the goal of this 
subcommittee and the full committee to get recommendations as 
to how to fix the system.
    The Chair now recognizes the Ranking Member.
    Mr. Etheridge. Thank you Mr. Chairman. You know, as has 
already been stated, everyone here today is focused on waste, 
fraud and abuse, which, unfortunately, as we have heard today 
is a problem after every disaster. But I want you to know that 
the career employees of FEMA and the Red Cross and the 
thousands of volunteers that help out in every disaster, they 
do a magnificent job. They did a magnificent job with Katrina 
and Rita, and we thank them for that.
    But that being said, that is no excuse for the people who 
steal, whoever they are, whether they wear suits and ties or 
blue jeans. And I think the most tragic aspect of this disaster 
is the effort of the career employees of FEMA and all the 
volunteers of the Red Cross, a lot of their good effort got 
frittered away because of a few political appointees who had no 
experience in disasters. And then they want to pass it down to 
career employees who come before this committee and answer the 
questions.
    I hope, Mr. Chairman, we get the political appointees to 
come before this committee and answer the questions, because I 
think that is important.
    Ms. Dannels, I understand that you are a career employee 
with FEMA, and many of your coworkers praise your experience 
and your dedication, and we thank you for that.
    And as you know, fraud, in the aftermath of this disaster 
or other disasters, is nothing new. However, as I said before, 
there is no excuse for having it. The Department of Homeland 
Security's Inspector General has reported that, as I have said 
earlier, the south Florida residents got millions of dollars, 
and they weren't even in the hurricane's path and weren't 
affected by it. Today you have told us about some of the steps 
FEMA has taken to address those issues for the 2006 hurricane 
season. What I want to know is: steps, number one, taken 
sooner, and was it a leadership issue? Was it a budgetary 
issue? Or was it a staffing issue?
    Ms. Dannels. Thank you. And there are a number of questions 
on the table for me to address, and I will try to get to all of 
them.
    I appreciate your comments about the career employees. In 
fact, I have been with FEMA for 23 years, and I have been 
through several pendulum swings, and I have a great deal of 
history and perspective on what has happened before and what we 
are going through now.
    I would like to also address Mr. Kutz. You are correct, my 
testimony has to do with the expedited assistance which was 
what we were under the impression this hearing was about. We 
received your statement of fact on Thursday afternoon. Our 
testimony was due prior to that, and we, of course, since 
Friday, have been involved with Tropical Storm Alberto. 
However, I am more than happy in my questions and answers to 
address your statement of fact.
    On the Florida situation, 2004, Mr. Etheridge, in fact, we 
have implemented a great number of the recommendations in that 
IG report, and we were in the process of continuing that when 
Hurricane Katrina struck. That report was issued in May 2004--
2005. And we had accomplished a number of those 
recommendations, and they in fact did strengthen a lot of the 
processes that had been identified as weak during the 2004 
hurricane. That does not--and I understand, and in no way do I 
mean to imply that FEMA is asking for a pass on any fraud that 
took place, in no way am I suggesting that. But I think that we 
do have to put this in some sort of context that we have 
systems and resources in place, and I, as a career person, 
can't debate whether they are at the appropriate level, why 
they are, or why they are not, but the fact remains that we 
have a certain level of capability in place. And when that is 
exceeded, as it was this year, we are faced with doing things 
and going back.
    And I also would suggest, Mr. Ryan, that he is saying that 
at the point that they started looking to see if we were doing 
anything about some of those new technologies and processes we 
used, we were operating 24/7 until March; we were--I worked 
seven days a week until May 1. We have been very operational 
with the size of this event, and we are now looking at a great 
number of those things and have been working with EIG in 
looking at these things. Again, we welcome those reviews. We 
find them very valuable, and we will continue to make process 
improvements.
    We have in place now one of the recommendations that the IG 
or that the GAO made back in their earlier expedited assistance 
report. We, in fact, did put in place the identity verification 
not only on their online registration but also on our 1-800 
registration so that many of the things that occurred that they 
have talked about in their report cannot happen now; those 
Social Security numbers that were invalid would be caught.
    We are not doing debit cards this year. We did that in a 
very--I don't want to call it a pilot, but we did it in a very 
confined fashion last year because we knew that we were at risk 
and that it was vulnerable that we had not tested it, and we 
only distributed I believe 10,000 of those cards out of those--
of the number of people who had registered, and we did it on a 
very small scale. We will go back and look at that. We are not 
going to do debit cards this year. We also, on expedited 
assistance, we have used them on six occasions--
    Mr. Etheridge. That is good.
    Ms. Dannels. Six occasions, and it was never at $2,000. It 
had always been at $500. We will go back to a more conservative 
amount. However, again, our systems were overwhelmed. People 
could not get through on our 1-800 number, much of what was 
occurring with Joe Becker and the Red Cross. So we just made 
the calculated decision that we were going to help as many 
people as we could, and that we would have to go back and 
identify those people who we either paid in error or that 
were--defrauded us and deal with that.
    I would also mention, in the 2004 hurricane season, we were 
concerned that some of what we had done, what the IG had 
uncovered, had put us at risk, and we implemented under the 
Improper Payments Act a review and found out that in fact our 
overpayments still fell below that threshold that was 
acceptable. We have already implemented this year a review 
under the Improper Payments Act via a contractor to come in and 
look at all of those payments, identify in our systems where 
were the weaknesses and vulnerabilities, make those 
recommendations so that we can mitigate future risks.
    Mr. Etheridge. Thank you.
    Thank you, Mr. Chairman. I have a follow up if we have 
another round. I just want to get my question in before--
    Mr. McCaul. Chair now recognizes the sherriff from 
Washington State, my colleague, Mr. Reichert.
    Mr. Reichert. Thank you, Mr. Chairman.
    First, I want to talk about what we are going to do. I 
think we are going to try and help you. We are from the Federal 
Government, and we are here to help. Last month, Chairman 
McCaul and I and our friends on the other side of the aisle, 
Mr. Thompson, Mr. Pascrell and Mr. Etheridge, have been working 
on a bill. We passed this bill through the full committee, and 
this legislation deals with waste, fraud and abuse, and some of 
the things that we are going to be helping you with are 
developing and maintaining proper internal management controls, 
mandates that databases collect information from applicants. 
And I understand from today's testimony that that is a process 
that has already started, but now it will be a part of 
legislation.
    We will have the security inspector general review such 
databases and payment systems, evaluate the existence of and 
implementation of internal controls. Directs the Secretary to 
certify annually to Congress that proper internal controls are 
in place and operating. I just wanted to throw that out there. 
This is the National Emergency Management Reform Enhancement 
Act of 2006. It has been passed through the full committee, and 
hopefully, in the next 2 weeks, you will see this on the floor 
of the House of Representatives so that we can be of some help 
to you.
    I want to focus--I was the sheriff of Seattle for 8 years 
and 33 years in law enforcement prevention. I mean, that is 
just the bottom line on anything, prevention and then 
enforcement. Who has the primary--this is my first question. 
Who has the primary responsibility for enforcement in this 
area, investigative authority for waste, fraud and abuse when 
it comes to FEMA?
    Mr. Ran.
    Mr. Ryan. Under the situation that we are presently in 
right now, there was an agreement that they would form a task 
force which the Attorney General was going to head. Alice 
Fisher was put in charge of it. David Dugas, who is the U.S. 
Attorney from Louisiana, is someone that I speak to on a 
regular basis about him heading up the task force.
    There is a multi-agency task force, which we are dealing 
with on a regular basis. I might add that the postal inspectors 
have been absolutely wonderful in regard to pursuing cases. The 
DHSIG is involved, the Social Security IG, and along with a lot 
of other inspector generals. So it is something that Justice 
has recognized. They have identified a zero tolerance policy, 
and also being in law enforcement for 30 years, I understand 
exactly what you are saying, who is going to do what?
    Mr. Reichert. Gets you fired up a little bit; doesn't it?
    Mr. Ryan. It does primarily because law enforcement gets 
blamed for not doing enough at the end when people are stealing 
it. And my problem is, I think there needs to be more done with 
the upfront controls.
    Mr. Reichert. Yes.
    Mr. Ryan. If you take away the opportunity to commit fraud, 
you are going to cut down the number of cases you have to 
refer.
    Mr. Reichert. Right.
    Mr. Ryan. If you talk about the money that's going to 
prosecute somebody for $2,000 when you could have put controls 
in place to stop that, I think we could utilize the law 
enforcement personnel in a different way.
    Mr. Reichert. So we are following up on these cases that 
these crooks ripped off the American public.
    Mr. Ryan. Yes, sir.
    Mr. Reichert. We are also looking at some employees?
    Mr. Ryan. I think that is a question that needs to be 
addressed in regards to being able to get the data on 
employees.
    Mr. Reichert. Okay. I just want to ask another question 
about what--what happened prior to September 11? Did you have 
these sorts of things happening, on a much smaller scale 
obviously, but were these things happening, fraud, abuse and 
waste, before September 11? And the answer is--
    Ms. Dannels. Are you addressing me, sir?
    Mr. Reichert. Yes, ma'am.
    Ms. Dannels. Our fraud rate and, what I would say, our 
overpayment rate is typically very low. We do a review process 
after every single disaster. I would say it ranges between 1 
and 3 percent. That is not just fraud. That is simply 
overpayments.
    Mr. Reichert. But you have experienced the fraud, waste and 
abuse prior to September 11. It happens when you go into an 
area and you try to help people. Some people are there to take 
advantage of the system.
    Ms. Dannels. I think it is inevitable. Our job is to 
minimize it.
    Mr. Reichert. Have you ever experienced bad Social Security 
numbers being presented to your office before? Have you ever 
experienced bogus addresses before? Have you ever experienced 
invalid primary addresses before? Have you ever experienced 
duplicative registrations before? I imagine the answer would be 
yes. I compare this to--and I know this is an extreme, extreme 
situation when you look at Katrina. I was involved in an 
investigation. The largest serial murder investigation in this 
Nation's history. We had things in place before this 
investigation began that we broadened out and used and knew 
could support a larger event. We knew these things might happen 
as we went into this investigation. Did you not know that as 
you went into Katrina, as you went into Rita, that these things 
that you had experienced before--because you talked about, we 
had a choice to make? Did you not know already those things 
were going to happen and you could build that system around 
what you already did pre-September 11?
    Ms. Dannels. Sir, I don't think that we did know that the 
levies would break, and there would be hundreds of thousands of 
people who would be airlifted from rooftops without any 
identification and would be displaced and living all over the 
country and not be able to return to their homes for months at 
a time. That, in fact, had we had the opportunity and the time 
to develop--
    Mr. Reichert. The question that I wanted answered, please, 
was, you had systems in place before September 11, is that not 
true, to address some of the issues that we just talked about? 
Bogus addresses, the Social Security numbers.
    Ms. Dannels. We have those systems in place. They continue 
to be improved upon, and they generally work very well. Again, 
the level of overpayments is 1, 2 or 3 percent in a disaster.
    Mr. Kutz. Congressman, can I clarify something there? 
Because you have a big reconciliation problem. She is saying 1 
to 2 to 3 percent, which is what they have testified before, as 
their fraud rate for this disaster, not prior ones. I am 
talking about this disaster. I have just testified to you that 
the rate is 16 percent. There is a huge reconciliation problem 
we have to explain here. We did a random statistical sample of 
the entire population and projected our sample items to the 
population. So ours is a valid fraud projection. I don't 
believe this is an apples and apples discussion. They are 
talking about recoupment after the fact. Not going out and 
doing systemically--
    Mr. Reichert. Yes.
    Mr. Kutz. So I think we need to clarify the prior fraud 
rates if we are talking about the same things for prior 
disasters. That would not represent a fraud rate for prior 
disasters.
    Mr. Reichert. Mr. Chairman, if I could just follow up very 
quickly.
    Sir, you mentioned call centers and Western Union and new 
innovative ideas and new ways you wanted to help individuals. 
Did you not think, though, as you put these systems in place 
some of the issues that might occur regarding fraud, waste and 
abuse, before you put these systems in place, and begin to work 
on solving those problems before they even occurred?
    Mr. Becker. Yes, sir, we did, and the conversations that we 
had in the earliest days to deliver service, we were focused on 
that issue. And we knew that for us to move as fast as those 
people expected us to move, we had some exposure. Our exposure 
was a little bit different. Our exposure was, you might be able 
to go to multiple places and receive assistance before we 
figured out that you did that, and what we knew at the earliest 
was that was a possibility where people could take advantage of 
us, so we would put a robust system in place to comb the data, 
and we had each client sign, I have only received this 
assistance for the first time; I understand that I received 
assistance to meet these needs. And what we then did was put a 
team together of paralegals and investigators to go back and go 
through all the cases and figure out who actually got 
assistance that shouldn't have, and we have had pretty good 
success with that.
    And we have also had great success working with the task 
force that Mr. Ryan referred to in getting prosecutions where 
people did take advantage of us.
    Mr. Reichert. Thank you.
    Mr. McCaul. Thank you.
    I would say, the submitted 16 percent equals $1 billion or 
more dollars to the taxpayers, 7,000 cases referred for 
prosecution. Out of this investigation, and we are just getting 
started, I submit we could have a more robust system.
    I now would like to recognize the gentleman from 
Mississippi, the Ranking Member, Mr. Thompson.
    Mr. Thompson. Thank you very much, Mr. Chairman.
    Ms. Dannels, I personally think you have been put under the 
bus by being brought here. We absolutely need, at a minimum, 
the FEMA director, and optimally, we need the Secretary to 
answer these questions. They absolutely are the ones who should 
be made accountable for this.
    You made the point that, up until May 1, you worked 7 days 
a week. Last week, I met with the chief human capital officer, 
who, by the way, is gone. And he said that FEMA is still only 
up to 82 percent staffing. How can we adequately respond to the 
issues of waste, fraud and abuse or anything else with only 82 
percent of our staff in place, or do you think we can 
adequately respond to waste, fraud and abuse being short-
staffed?
    Ms. Dannels. I think that we are making great strides on--I 
am sorry. I don't remember who made the comment about lack of 
internal controls. We have had a contract, looking at all of 
our internal controls; again, making recommendations. There is 
a matrix that is developed with follow up where we are 
implementing corrective actions, and so we are taking many 
steps--
    Mr. Thompson. I recognize you are under the bus. So now you 
know--
    Ms. Dannels. So now you are going to drive a little faster. 
I understand.
    Mr. Thompson. Yes. Do you think we can do it with 82 
percent staffing? Yes or no?
    Ms. Dannels. I don't know the answer to that question.
    Mr. Thompson. Well, I am going to have to speed up on the 
bus then.
    Ms. Dannels. You are going to put it in reverse. I can 
tell.
    Mr. Kutz. Congressman, can I make one point on that just--
and I think Ms. Dannels could probably add to this. A lot of 
the fraud prevention efforts are also provided for by 
contracts.
    Mr. Thompson. I am coming to that.
    Mr. Kutz. All right.
    Mr. Thompson. We have a contract. Did you participate in 
the contracting that is presently in force?
    Ms. Dannels. We have a great number of contracts.
    Mr. Thompson. ChoicePoint.
    Ms. Dannels. ChoicePoint, yes.
    Mr. Thompson. You did.
    Ms. Dannels. Yes.
    Mr. Thompson. Any reason that was a sole source contract?
    Ms. Dannels. That was my understanding while I 
participated--
    Mr. Thompson. What was the reaction now for it being a sole 
source contract rather than competitively bid?
    Ms. Dannels. My understanding is we accessed that from a 
schedule where DHS already had that under contract. So we were 
leveraging something that was already in place, and it was not 
a sole source contract, is my understanding, but we can 
certainly get--
    Mr. Thompson. How is it not a sole source contract? Was it 
competitively bid?
    Ms. Dannels. The Department of Homeland Security used a 
schedule that was in place that allows--my understanding is 
that there is qualifying that is done in advance, and it is 
there specifically so that we can make--
    Mr. Thompson. Why did we pick ChoicePoint if--were there 
any other people on the schedule?
    Ms. Dannels. That was already in place in DHS. We simply 
used what was in place. FEMA used what was in place at DHS, so 
I don't know the answer as to how DHS selected ChoicePoint.
    Mr. Thompson. So you see--you are still under the bus. Can 
you tell me if it is in place with this contract that if they 
perform poorly and we identify a 16 percent fraud rate, can we 
recoup our money based on this contract?
    Ms. Dannels. I don't know the answer to that question, but 
the 16 percent doesn't relate back to ChoicePoint either.
    Mr. Thompson. You mean to tell me, if we hire a 
contractor--
    Ms. Dannels. That was not--that contract was not completely 
in place. It was in place only on Internet registrations and 
not those on the 800 number at the time that they had done this 
work.
    Mr. Kutz. Congressman, I think that is an important point 
because ChoicePoint had a menu of options for them to pick that 
included many more comprehensive controls than just the 
Internet validation of identities, and they did not pick all of 
them. Again, I don't know who is responsible for deciding to 
pick one small aspect of a bigger menu, but one of the 
fundamental problems here is they didn't effectively use 
ChoicePoint. So that is one of the key issues.
    Mr. Thompson. Can you tell me why we didn't exercise the 
menu before us, Ms. Dannels?
    Ms. Dannels. I have to ask Mr. Kutz for clarification on 
the menu. Are you referring to not doing it on the 800 number?
    Mr. Kutz. No. Also, they have, address validation is 
another menu item. The identity validation, she is correct; I 
mean, they have hired them to do it just on the Internet, not 
for the call-ins, but they also have services where they have 
postal addresses, information and other things that they 
purchased; they have a database of insurance information so 
they can check for insurance fraud. So there is a whole choice 
of things ChoicePoint actually sells.
    Ms. Dannels. We now have home ownership occupancy with 
ChoicePoint also in place. The reason we did not before is 
because we accomplished that at the point of an onsite 
inspection, and so we felt that we didn't need it. Clearly, we 
have learned that we cannot always do an onsite inspection, as 
was the case with hundreds of thousands of homes in inundated 
areas last year.
    Mr. Thompson. Last question, Mr. Chairman.
    Ms. Dannels, can you tell me how many people have been 
terminated for approving vouchers for payment or anything like 
that consistent with what has been exposed here today?
    Ms. Dannels. Are you talking about Federal employees? 
People terminated--
    Mr. Thompson. Well, if somebody inspected a cemetery and 
said that that cemetery met the criteria for payment, somebody 
should have been fired.
    Ms. Dannels. First of all, I can't address the specific 
situations that are in their statement of fact. Again, we 
received it just Thursday. What I would go back to, again, is 
that the--some of the new processes and technologies we used 
opened us up to this. This may have done--been done through 
geospatial work and satellite imagery that we use where we 
could not go in and inspect. So we identified, those five 
parishes in three counties in Mississippi, those most affected 
areas, identified those addresses. We matched them with the 
registrations that we had, and then we ran them through a 
verification like ChoicePoint to validate their identity. 
Clearly, some of those failed. So this may not be an inspector 
went out and did something wrong.
    Mr. Thompson. Well, the only thing I am saying is, we have 
testimony that somebody certified that an inspection had 
occurred, that approved the payment.
    Ms. Dannels. That may have been done through technology and 
not an inspector onsite, which we do not normally do. That is a 
new technology we used this year, and we are reviewing that, 
looking for improvements.
    Mr. Thompson. And if you would bear with me, Mr. Chairman, 
can the GAO people explain?
    Mr. Kutz. There may not have been a physical inspection of 
that cemetery. I think one of the cemeteries received expedited 
assistance. Another one received rental assistance. So there 
should have been, for rental assistance, some additional 
validation, and obviously, it was not effective.
    Ms. Dannels. We will go back and look at each and every one 
of these cases with them to determine what went wrong and 
improve those processes.
    Mr. Thompson. Thank you, Mr. Chairman.
    Mr. McCaul. Thank you.
    I would also like to indicate to the ranking member that we 
did invite Director Paulison to testify, and he declined.
    As a former career guy, I respect what you are doing, and 
understand the notion of not wanting to be thrown under the 
bus.
    So, having said that, I would like to ask unanimous consent 
that my colleague from Pennsylvania, Mr.Dent be allowed to 
participate in this hearing. Without objection, so ordered.
    Mr. Shays. He has a right to object.
    Mr. McCaul. So ordered.
    The Chair now recognizes the gentlelady from Florida, 
Ms.Ginny Brown-Waite.
    Ms. Brown-Waite. Thank you very much.
    Ms. Dannels, when I first heard your testimony, I was a 
little concerned that maybe your staff hadn't properly briefed 
you on what this meeting was all about. And you certainly have 
a very, very difficult task. But if I read this correctly, you 
are acting deputy. Is that correct?
    Ms. Dannels. That would be of the recovery programs, not 
the agency.
    Ms. Brown-Waite. Okay. Well, this hearing has been noticed 
as a hearing on fraud, waste and abuse in the aftermath of 
Katrina, and my concern is that you really weren't addressing 
that, but rather the February report. I mean, clearly, the GAO 
presentation was about rental assistance and hotel costs and 
repairs. Knowing that the GAO report was out there, it almost 
seems like you were a day late and a dollar short, with all due 
respect. And I keep hearing that we are reviewing that.
    As somebody whose district dodged the bullet again because 
of the hurricane that came onshore yesterday at Cedar Key, I 
have many, many concerns about what is going on in the agency, 
and can you help me to understand why you didn't know this 
hearing was about fraud, waste and abuse?
    Ms. Dannels. Yes. I did know it was about fraud, waste and 
abuse. What was just shared with us on Thursday was the 
statement of fact, GAO statement of fact, which has been the 
basis of their testimony. We did not have that until Thursday 
afternoon. So I was not aware that they had another preliminary 
report of findings they were releasing. They met with us and 
delivered that to us Thursday.
    Ms. Brown-Waite. Did you have a draft of what they were 
doing before that?
    Ms. Dannels. No.
    Ms. Brown-Waite. Well, knowing what--
    Ms. Dannels. However, I am prepared to talk about more of 
what is in that statement of fact. I welcome the opportunity to 
talk about some of their conclusions and concerns on the 
hotels.
    Ms. Brown-Waite. Well, submitted your testimony in advance, 
it just seems to me, as if knowing it is really about fraud, 
waste and abuse, the entire testimony that you had prepared 
could have been submitted to the record, and then you could 
have updated it. And I think the lack of responsiveness to the 
topic of waste, fraud and abuse should be of concern to every 
member here.
    Let me ask a question. When any checks are sent out or 
debit cards, is there any sort of accompanying warning in the 
application process even that, if any sort of fraudulent 
information is submitted, that restitution and/or prosecution 
will be pursued? And I don't care who answers it.
    Ms. Dannels. I will gladly answer that question. Before I 
do, we will gladly update the testimony. Again, we were busy 
with Tropical Storm Alberto this weekend and really didn't have 
the time or opportunity to update it.
    Your question is that, yes, people are told. They are told 
in a number of fashions, and they have to--they are advised of 
that in writing, and they have to sign something to us that 
also states that they have to be truthful and what they are 
saying is correct and use the funds appropriately, and if they 
don't, that we will take action against them. So the answer to 
that is, yes.
    On the debit cards, again, I would say that that was one of 
those things that we did that was not used before. It was 
untested. We had--it was not well developed. I think that we 
will gladly acknowledge that. We are not going to use it this 
year, and it did not work particularly well in some respects. 
Apparently, there was not guidance that was provided to people 
when they received those debit cards.
    However, we don't intend to use them this year, and we do 
think the debit cards are a valuable tool to have in our 
toolbox, but we will not use them until we develop a well 
thought out program that will ensure that we don't have some of 
the errors that we had last year.
    Ms. Brown-Waite. Thank you.
    Mr. Kutz, how long ago did FEMA meet with you about your 
report?
    Mr. Kutz. The final testimony meeting was last week. But we 
have ongoing discussions with them about various aspects of 
what we are doing. They grant us access to their database which 
is where we look for examples on all of the statistical 
samples, so they have known from the beginning we were going to 
do a statistical sample. We didn't have time to get it done by 
February of 2006, so this was the earliest we could actually do 
a comprehensive statistical sample. So, again, we have tried to 
do ongoing briefings, which is the biggest part of this 
testimony that is new, and so they got the final results last 
week.
    Ms. Brown-Waite. But they were aware that it was ongoing?
    Mr. Kutz. I believe they were, yes, and they may have been 
confused about what that was, but yes, we have told them very 
clearly we were going to do a statistical sample, it was 
ongoing, and they did grant us access to the system for us to 
look at all 247 of our sample items.
    Ms. Brown-Waite. Two other quick questions. WhoSec. t those 
checks away from this convicted person in prison?
    Mr. Ryan. Actually, those checks were cashed. Those are 
copies. In order for us to find out exactly where the funds 
went, we needed to go to Financial Management Services Treasury 
to get copies of those checks and then track down where those 
checks were cashed and who signed them. So those are actually 
copies of checks that have already been cashed and negotiated.
    Ms. Brown-Waite. So will the person who is in jail get 
additional jail time for this fraudulent act?
    Mr. Ryan. It will be 1 of 6,000 to 7,000 cases we will be 
referring to the Department of Justice for action, yes.
    Ms. Brown-Waite. My understanding is there was also fraud 
at the call centers where there was collusion between some of 
the employees at the call center and people who were calling 
in. What steps were taken to ensure that that doesn't happen 
again?
    Ms. Dannels. GAO has not shared those findings with us. So 
I am not sure that we can respond specifically to what you have 
an understanding from them on.
    However, last year, as with other systems that were 
overwhelmed, our security background check process was as well. 
We have in place this year requirements on all contracts that 
fingerprints be done through the FBI process and do a full 
background check before anyone has access to a FEMA facility or 
a FEMA information system. Last year, because there was the 
desire to have people available to take registrations, we used 
the--and I am sorry I don't remember what the acronym stands 
for NCIC, national agency--
    Ms. Brown-Waite. NCIS?
    Mr. Ryan. Yes.
    Ms. Dannels. Check first to give them limited access, and 
then after the fingerprint check was adjudicated, we would make 
a final determination. We will not be doing that this year, 
which I am assuming will address some of what they have 
expressed to you. Again, I am not aware of the details. They 
have not discussed it with me.
    Ms. Brown-Waite. Ms. Dannels, please do update your 
response to the GAO report. I yield back the balance of my 
time.
    Mr. McCaul. I would like to make a correction to the record 
that I know personally that FEMA was not blindsided last 
Thursday, but rather, there has been an ongoing dialogue 
between the GAO investigators and FEMA on this issue. And I 
believe that the response is to the February report, not to 
this report that just came out, and I would hope that the 
director would see the magnitude of this issue and the 
importance of it and attend and testify during the next 
hearing.
    With that, I am going to go ahead and yield to the 
gentleman from New Jersey, Mr. Pascrell.
    Mr. Pascrell. Mr. Chairman, from what I have heard so far 
today, reinforces my thoughts about this being a pervasive 
situation not only in FEMA but beyond. There is a pattern here. 
In many instances, we talk about a lack of preparation and a 
lack--we have poor intelligence of what is coming, what is 
happening. And I am thinking of all those people who have been 
hurt down in the gulf area, either because we did not prepare 
properly or I can imagine them listening to this hearing. I can 
picture it. It is clear.
    And Mr. Chairman, you have done a great thing bringing us 
together today. I believe we are going to have to use subpoena 
powers on this issue. We are talking about a lot of money here. 
We are not even talking about contractual fraud yet. Wait until 
we get into that. We contracted out, the Federal Government, if 
I am not mistaken--Mr. Kutz, I mean, I am looking at your 
testimony. These are estimates here. We are dealing with 
individuals. What about all the fraud dealing with the 
contracts that were let by FEMA before and after Katrina hit? 
Am I correct in saying that?
    Mr. Kutz. You are correct.
    Mr. Pascrell. Correct.
    Mr. Kutz. We're not addressing fraud today on the 
contracts.
    Mr. Pascrell. Thank you.
    The GAO reports, your agency, that four of the 24 Federal 
agencies have issued disclaimers on their agency's fiscal year 
2005 financial statements. The Inspector General of the 
Department of Homeland Security, for the Department of Homeland 
Security, in regard to that fiscal year 2005 financial report, 
financial statement, stated this: Unfortunately, the Department 
of Homeland Security made little or no progress to improve its 
overall financial reporting in fiscal year 2005. KPNG, 
contractor, was unable to provide an opinion on the Department 
of Homeland Security's balance sheet, unquote.
    Is that accurate, Mr. Kutz?
    Mr. Kutz. Yes. They are one of the four agencies that have 
disclaimers.
    Mr. Pascrell. We have not only a pervasive mix with the 
entire Department but many other Departments we are not 
discussing today. We are not just talking about FEMA here 
because FEMA is under an umbrella--
    Mr. Kutz. Correct.
    Mr. Pascrell. Put there by yours truly around this table, 
and that is a fact of life. We are talking about the inability 
of the Federal Government to stay on top of those people who 
had the authority to give out checks and to pay other people. 
That is what we are talking about. Not very good in terms of 
accountability here. Who is accountable?
    Ms. Dannels, we know and with all due respect, ``you'' did 
cause this mess, but it is a mess, but it goes far beyond you, 
and it goes far beyond the entire Department of Homeland 
Security. This is not just a FEMA issue. But I have some 
questions to ask you, if I may.
    Fraud in the aftermath of a disaster is deplorable. We saw 
it after the four Florida hurricanes in 2004, and we have seen 
it after other disasters. Yet when Katrina struck, FEMA did not 
have appropriate safeguards in place even to do the most basic 
checks on telephone applicants.
    Today you have told us about some of the steps that FEMA is 
taking for this hurricane season. In fact, you gave me the 
impression that you were making improvements. I must tell you, 
I believe you, but I don't believe there is any improvement. So 
I don't know who is telling you there is improvement.
    First of all, why weren't these steps taken sooner? And was 
it a leadership issue? Was it a budgetary issue? Yes, this is 
like the question, did you stop beating your wife? But I would 
like the response. What is it? Is it a leadership issue? Is it 
a budgetary issue, or is it a staffing issue? I've covered the 
gamut of folks. I have asked you already. Which is it?
    Ms. Dannels. I would say it has now become a fleet of 
buses. I would say that there are a large number of things that 
contribute.
    Mr. Pascrell. Ms. Dannels, which is it, a leadership issue, 
a budgetary issue or a staffing issue?
    Mr. Chairman, the question is clear.
    Ms. Dannels. Sir, I think that is a very difficult question 
to ask a career person.
    Mr. Pascrell. I think you have answered the question. My 
final question, if I may--Mr. Chairman, do I have time?
    Mr. McCaul. Well, you don't, but I will give it to you.
    Mr. Pascrell. Thank you. Very good.
    Mr. McCaul. Keep it short.
    Mr. Pascrell. I want to finish with this point by GAO. I 
like GAO. I like the work you do. We don't follow up because we 
don't really mean what we say. Twenty five billion--billion 
dollars of taxpayer money went unaccounted for in fiscal year 
2004. That would fund the entire Department of Justice. What 
did we do, Mr. Lutz, what did the government do? I know what 
you did. What did the government do to act upon your findings?
    Mr. Kutz. Could you explain the $25 billion? Is that 
related to the financial statements of the Federal Government? 
Is that what you are talking about?
    Mr. Pascrell. Yes.
    Mr. Kutz. Yes, that is a problem with the government not 
being able to reconcile its checkbook, basically. That would be 
an example, if your checkbook was, in fact, out by $25 billion.
    Mr. Pascrell. Minor problem.
    Mr. Kutz. Minor problem, yes. You know, with a budget of 
$1.6 trillion, you could say that is still significant.
    Mr. Pascrell. Well, these things contribute to the $8.3 
trillion debt we have, too.
    Mr. Kutz. True.
    Mr. McCaul. The Chair now recognizes the gentleman from 
Connecticut, Mr. Shays.
    Mr. Shays. Thank you all for being here. In my capacity as 
Chairman of the National Security Subcommittee of Government 
Reform, we have oversight over Defense, State Department and 
the Department of Homeland Security. And this obviously is an 
issue that a lot of committees are looking at. Also, I was on 
the Select Committee to look at FEMA and the Department of 
Homeland Security and the White House--and, and, and--about 
Katrina. We determined that the White House was in a fog as it 
related to Katrina. We determined that DHS, particularly Mr. 
Chertoff, was missing in action. And we determined that Mr. 
Brown was derelict. I mean, that was our conclusion.
    And there is no way that you, Ms. Dannels, should have to 
take the heat for a storm of almost biblical proportions. I 
will tell you, though, where I am getting troubled--and I also 
realize that there is no way that it is fair to ask a career 
employee whether their political appointees have done their 
job. I mean, we can ask it, but it is just not something that 
you can be honest about because you, in fact, have to let us 
come to that conclusion. That is not your conclusion. But what 
troubles me is that I feel like you are--because of this and 
because no one should take the burden of what happened with 
Katrina. I mean, it was an absolute disaster all the way 
around. I am troubled that you haven't readily agreed with 
GAO's report, because it is accurate; that you haven't said, we 
have a huge challenge to deal with. And I feel like there is an 
effort to try to minimize it.
    My understanding is, the GAO continually interacts with the 
Department--that 19 years of seeing them operate, and they warn 
you, and they tell you, this is what we are concluding and so 
on. Was there anything about their report you found shocking or 
surprising?
    Ms. Dannels. First, let me tell you, if I in any way have 
given the impression that I am trying to minimize it or the 
agency is, that is not the case at all. I have said more than 
once, we welcome their involvement. We are.
    Mr. Shays. That is not--welcoming involvement doesn't go 
half the way.
    Ms. Dannels. We are anxious to have their recommendations.
    Mr. Shays. That doesn't cover it either.
    Let me ask you this, do you believe the GAO report is 
accurate?
    Ms. Dannels. While you can say that they have interacted 
with us over a period of months, that may be true, but they 
have also interacted with probably 200 different people.
    Mr. Shays. Finish your sentence. The statement of fact.
    Ms. Dannels. The statement of fact I received on Thursday. 
We have not had an opportunity--
    Mr. Shays. That is not what I am even asking you about.
    Ms. Dannels. I don't know whether 16 percent is reasonable 
not, whether a billion dollars is accurate or not. Any amount 
is unacceptable.
    Mr. Shays. That is true, but that doesn't get at it. My 
view is you would be way up here with me if you basically said 
the report is accurate because it is--secondly, it is accurate 
logically because we don't have any mechanism to prevent the 
fraud, which you don't. We just gave out checks all the way 
around.
    So there is nothing surprising about this report. It is 
just kind of distasteful for us to have to come to grips with 
the amount. You don't have in FEMA the kind of controls that 
would have prevented this.
    Ms. Dannels. I will go back to an earlier statement, that 
some of the untested technologies and processes that we used 
this time because our systems were exceeded absolutely did not 
have those controls in place.
    Mr. Shays. Is that a yes?
    Ms. Dannels. I knowledge that. However, I think it is also 
apparent--and Mr. Kutz himself said that he can't testify that 
that cemetery had an eyes-on inspection, that eyes-on 
inspection and adequate control.
    Mr. Shays. I am giving you an opportunity to not have to 
take the blame for this. All I am asking you is the following: 
You are acknowledging--I don't want you to sound like a 
bureaucrat, and a bureaucrat is I am going to go to my last 
statement and so on. I would feel better and I would be willing 
as a Member of Congress, because I think we take some blame 
here as well, to share in this blame. But, to me, if we haven't 
reached you, who is in charge, then we have further to go than 
we need to.
    The GAO report is pretty basic. It is pretty clear. There 
aren't many refutable facts to it. They are saying it is 
statistical. It could, in fact, be more.
    So it would strike me what you would say is the GAO report 
is alarming but not surprising. We don't have the kinds of 
controls in place to prevent it, and we all know we need to get 
on with it and deal with it. That, to me, would be the most 
comforting thing.
    Is there anything that I just said that you would find 
untrue?
    Ms. Dannels. Absolutely not. We have been completely 
cooperative with them; and, again, we look forward to the 
recommendation so we can make those improvements.
    Mr. Kutz. Congressman, can I say one thing? I think you 
came in after we had the discussion. FEMA has also testified, 
Mr. Paulison, that the actual fraud rate is 2 to 3 percent. 
That is their own numbers, and they represent that onSec. 
    Mr. Shays. I was here.
    Mr. Kutz. I think there is a real problem with them 
digesting and understanding the bigger number, because they 
have always gone out and said it is 2 to 3 percent, and they 
did not do a representative, statistical sample to come to that 
conclusion.
    Mr. Shays. You just gave my summary point. It might have 
been more effective if I had done it, since you are basically 
talking about yourself. I was here when you made the point, and 
I think that is the point I want to leave. I am less 
comfortable than when I came because the report still stands, 
it is valid, but I still see push-back from FEMA, and until we 
stop getting the push-back, then we will start to see that we 
are going to solve this problem.
    Ms. Dannels. Could I just say that I don't know what 
context Director Paulison said the 2 to 3 percent for this 
particular event. In my opinion, we don't yet know what it is. 
And the real indication, initial indication that we have had 
was the statement of fact that we had Thursday as far as the 
magnitude of it.
    From my perspective, I think we absolutely expected it to 
be higher than traditionally it has been because of the 
untested technologies that we did use. So I am not surprised by 
it. I am certainly displeased by it. And we are committed to 
following up, doing our evaluations, working with the IG and 
GAO to take corrective actions.
    Mr. Shays. I am going to conclude by saying that I still 
don't think you are hearing me. The amount of fraud that was 
outlined in this report is pretty, pretty clear. I don't think 
it is refutable. I think that you had been notified before that 
this report had these kinds of numbers, and I would just say 
that what would have been most comforting is to say the report 
stands.
    The issue is how we deal with it, and we will work with GAO 
to make sure that we do our best to prevent it in the future. 
That, to me, is the comment that should be made.
    Thank you.
    Mr. McCaul. To exercise the privilege of the Chair and 
follow up on the gentleman's comments, I think you are 
absolutely on point. The problem I see with this hearing is 
there has been absolutely--FEMA has wholly failed to respond to 
the GAO report that just came out. And last Thursday--your 
testimony about last Thursday, in my view, my personal view, 
based on experiences, that is incorrect, as they had been 
working with FEMA since February on this. Perhaps we need 
another hearing to hear what FEMA's response is to the report.
    With that, I will--the Chair will recognize the gentlelady 
from Texas, Ms. Jackson-Lee.
    Ms. Jackson-Lee. Let me thank the chairman and the ranking 
member, Mr. Etheridge, very much for this hearing and the 
opportunity to participate in this hearing as well.
    To all of the panel, you might recognize that Congress 
tries not to use the words angry and frustrated, but there is a 
great deal of anger and frustration and concern, and, 
obviously, there is also a great deal of recognition of the 
responsibilities of Congress.
    Tomorrow, we will be debating the question of the Iraq war; 
and I frankly think that many will accept the fact that 
Congress in some instances failed there as well. With that in 
mind, it means that there is a heavy burden for Congress to try 
and fix some of these problems.
    I will say to you, Ms. Dannels, that I worked alongside of 
some very dedicated and committed FEMA workers. Most people 
don't realize a lot of these people are, if you will, part-time 
or hurricane by hurricane and leave their families and go to 
places way beyond their home residence to try to be of help. 
Coming from Houston, I saw a lot of that; and I applaud it.
    At the same time, you have to accept the complete outrage 
on a billion dollars, as the GAO has determined. So to give us 
a sense that you are going to get to it is what really causes 
the rising tide.
    I just want to, in addition to the billion dollars, just 
put into the record something that--because I saw the 
desperation. Because in walking through the Reliant Arena, 
where I saw thousands of evacuees, I know that you could argue 
that the bulk of your work treated people who did leave without 
any means of identification and were sincerely devastated. At 
the same time, you seem to be defending ChoicePoint and maybe 
some others that were on the list, and I don't think we need to 
do things the same way when we are in the midst of the crisis.
    I would associate myself with my colleagues to say more so 
than Director Paulison, who was interim for a period of time, 
but Secretary Chertoff was right at the seat of action; and I 
would hope that he would get a message that we need to have the 
Secretary front and center to respond directly to the GAO's 
work. You can't, because policy determines whether or not we 
begin to overhaul the financial structure of FEMA.
    So let me just say that some poor soul was at the Pagoda 
Hotel in Honolulu, Hawaii; and no one could find the fact that 
they were not legitimate from October to December. That is a 
good time to be in Hawaii. I guess my question is, desperate as 
this person is, they were able to get across oceans of water to 
Hawaii, desperate as they were. And not only that, they stayed 
not weeks but months.
    So there is either a basic disregard--and October to 
December, albeit we were still in crisis with dealing with 
people, it was after the immediacy of the moment. So we should 
have been getting our thoughts together and our orderly process 
together.
    Let me just ask Mr. Kutz, what do you think about that? Was 
there a moment that they could have gotten themselves together? 
You realize the hurricane came at the end of August, the levees 
broke. I see my good friend from Mississippi. There is no 
detailing how enormous the disaster was.
    This person lived in North Carolina. Was there a moment 
they could have begun to look toward not only serving but 
making sure that these abuses were not happening?
    Mr. Kutz. There are two things I would say. There was 
probably moments after the immediate crisis, but the real 
effective way to do fraud prevention is before the storm. So I 
think the real issue is, FEMA has been around for a while. Why 
weren't these controls in place in 2004, 2003, 2002? Some of it 
is very, very basic. Making sure that the people that register 
have valid Social Security numbers, that is really, as I said 
in the Senate, that is Fraud Prevention 101. That seems so 
basic, but that is something that they were not doing.
    Same thing with addresses. Is the address in the affected 
area and did the person live there? That is very, very basic.
    So I think there was probably a time after the immediate 
issues they could have done better.
    I will use the hotels as an example, because I think they 
inherited some of the hotel issues from the Red Cross or took 
it over from the Red Cross at some point in time. But they 
could have started requiring people to give Social Security 
numbers or registrations so they could have been able to check 
to make sure that the people that got the free hotels didn't 
also get money for out-of-pocket rental that they weren't 
incurring.
    Ms. Jackson-Lee. My last question, Mr. Chairman.
    Ms. Dannels, would more money have helped you?
    Mr. Becker, could you have used more local people rather 
than what you came and did as a Red Cross, which you know is 
one of the arguments we have made, that the Red Cross did not 
work with the local community as it should have.
    Ms. Dannels, could you have used more money, as Mr. Kutz 
has said, beforehand? Even at your level, could you have used 
more money to put systems in place?
    Ms. Dannels. Systems were not in place.
    Ms. Jackson-Lee. Would that have taken some resources?
    Ms. Dannels. It would have.
    There is something very important, a point to make here, 
and that is the Red Cross--and I am not throwing my good 
friend, Mr. Becker, here under the bus, but the Red Cross did 
in fact place the people in hotels. It did not go through any 
of FEMA systems.
    Then we assumed responsibility for that contract in 
October. We were, in fact, trying to end that program and 
assure we did not duplicate that assistance and identify every 
person that was in every hotel room so that we could get 
exactly to these points when a class action lawsuit was filed 
against the agency and we were compelled by the court to 
suspend all of our activities to, A, identify people in those 
hotels and, B, end any of that assistance.
    Ms. Jackson-Lee. I understand that you said you needed more 
resources, and I understand that it was a contract with Red 
Cross. I have already said to Mr. Becker--one of his issues was 
that he came in on the national level and didn't engage in any 
of the local entities, any of the local organizations, at least 
initially. We now know that you are reassessing what your 
situation is.
    More resources, and I don't know--Mr. Becker, this is my 
last question.
    Mr. Becker. I would agree with your assessment. One of the 
big learnings we had in Hurricane Katrina was partnerships 
can't happen in the middle of a disaster. They need to be 
there, solid and done well in advance.
    One of our big organizational-changing strategies going 
forward is not just partnering but reaching out to the right 
community partners, offering to train, offering to equip, and 
in fact, in time of disaster, offering to financially support 
them if they are feeding and sheltering and doing our work. 
That is what we have been about since last fall, try to, with 
our local chapters, create those partners. People from another 
community serving here don't know the people as well as the 
people right here in the community, and we need to become 
better at that.
    Ms. Jackson-Lee. Mr. Chairman, I hope you will persist, and 
the ranking member, on securing the Secretary of Homeland 
Security if we are to go forward and fix what I think is an 
embarrassment. Not because they haven't tried to serve people, 
not because people in Houston are still suffering and need your 
services, but because we want to do better at this.
    I thank you very much. I yield back.
    Ms. Dannels. May I also just quickly add for the record 
that we do have a process in place now that would prevent that 
from happening again. The people, before they go into a hotel, 
they have to go through us. They have to register with us. We 
have to validate their identity, and the hotel will not be paid 
unless they have that authority from us in advance. So we have 
this in place right now, all of the processes and systems to 
prevent that from happening again.
    Ms. Jackson-Lee. Taking into consideration that some people 
may not have identification because they have been so 
devastated, you do have that part in place as well?
    Ms. Dannels. Yes.
    Ms. Jackson-Lee. Thank you. Thank you very much.
    Mr. McCaul. We may have votes as early as 1:30, so I would 
like to move forward.
    Recognizing the gentleman from New Mexico, Mr. Pearce.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Kutz, FEMA has testified that they think the fraud is 
in the range of 2 to 3 percent. You all are saying basically 16 
percent. Just a yes or no, because I have got a lot of 
questions. Is it a possibility that your method of sampling and 
the attributing of fraud across different classes of payments 
has contributed to an overestimation on y'all's part? Are you 
willing to get in front of the railroad train and lay on the 
tracks based on your 16 percent?
    Mr. Kutz. I have done dozens of samples before. I am pretty 
confident that the statistics are--
    Mr. Pearce. Thank you. You are embedded from day one, GAO. 
That is what Ms. Dannels testified.
    Ms. Dannels. That would have been the OIG, Inspector 
General.
    Mr. Pearce. I am sorry. Did the OIG ever bring to your 
attention, Ms. Dannels, there are things that are happening 
that maybe should not be happening?
    Ms. Dannels. I am sure--we spent hours together. I am sure 
that there were many things brought to our attention.
    Mr. Pearce. They didn't send formal memos?
    Ms. Dannels. I can't guarantee that, because I can't 
guarantee I would have necessarily seen them all. They have 
brought things to our attention, and we have started taking 
action on them, yes. There is an ongoing process with the IG, 
yes.
    Mr. Pearce. So if we looked at a continuum of problems from 
the beginning to the end, that continuum of problems, Mr. Kutz, 
started out huge and decreased down. Or some of the more 
offensive things that you testified today, were they occurring 
deep into the timeline?
    Mr. Kutz. Yes, they were deep in the timeline.
    Mr. Pearce. So, Ms. Dannels, with all due respect, you 
testified that many of your problems came because you were kind 
of overwhelmed with the flood and overwhelmed. At some point, 
the system should begin to catch up. Mr. Kutz is saying that 
the system was not catching up, that the mistakes were just as 
deep right at the end of the measurement period as early on. Is 
that something you would affirm?
    Ms. Dannels. I would say that it does take more time than a 
matter of 1 month, 2 months or 3 months to make some of the 
systems corrections that are required.
    Mr. Pearce. What systems corrections are required, Ms. 
Dannels, for-- doesn't someone have to approve or disapprove 
payments? You have got this--
    Ms. Dannels. A lot of that is done via automated business 
rules. Those are the systems I am talking about. The system 
that is in place had to go through a complete acceptance 
testing process that at that time included general counsel, 
financial folks.
    Mr. Pearce. I understand that, but my question is a little 
bit different. You get someone who has got to key in things for 
the computer to even measure it, for the automation to measure, 
is that right? Somebody has got to key in these requests. For 
that payment for the Dom Perignon at the Hooter's, it has got 
to be keyed in by somebody.
    Mr. Kutz. That was a preloaded card. Once they got the 
card, they could spend the money however they wanted.
    Mr. Pearce. Are there any instances where things are not 
preloaded, where they had to request a payment?
    Mr. Kutz. Yes, everything else. The debit cards were 
preloaded, but all the rental assistance, personal property 
repair--
    Mr. Pearce. So people were keying in rental assistance from 
the guys from prison, and I suspect somebody--
    Ms. Dannels. Actually, I suspect that the rental 
assistance--again, we need to go back and look at these 
specific cases, but the rental assistance for the prisoners and 
I suspect for the people with the cemetery addresses were done 
not with on-site inspections but were done all with technology 
which was the geospacial imagery. I suspect that is what we 
would find. That was a brand-new, untested technology that we 
acknowledged did not have adequate controls; and we are 
addressing that.
    Mr. Pearce. Do you think there is any sloppy work on the 
behalf or have you detected any sloppy work on the behalf of 
people or is it all systems?
    Ms. Dannels. No, I suspect there is sloppy work, also.
    Again, we hired people and put them into doing jobs that 
ideally would have had more training than they would have had 
the opportunity to receive. Again, a matter of our systems and 
resources being overwhelmed; and we are taking corrective 
actions.
    Mr. Ryan. If I could add something to this. We talked about 
these up-front controls. The problem is that they were not 
applied equally. You have a situation in which we attempted to 
use the Internet. Once we couldn't get into the Internet, the 
system told us to go by phone. So we used the same information 
that we were going to put on the Internet, and we used it on 
the phone and got through. As a result, we were able to get EA 
payments. We were able to get rental payments. Even after we 
received a letter from the SBA asking us to apply for a loan, 
in which we filled out the documents, we gave them permission 
to look at our tax records, which we obviously knew they 
weren't going to find any because we never filed, we actually 
got a call from the SBA inspector that says, hey, we can't find 
your property. It doesn't exist.
    Shortly thereafter, we get a letter from FEMA saying that 
they inspected our property and that everything is fine. Got 
not only one rental check but two rental checks.
    So the point is that if you are going to put controls in 
place, they have to apply both ways. You can't have a weakness 
at one end. You talk about up-front controls, these up-front 
controls of Social Security numbers, using P.O. boxes as damage 
addresses, these should be system changes that don't allow to 
you do that. I don't think anything of this was done or thought 
of; and I don't even know, based on the previous audits, if 
they did any--if these things were even taken into 
consideration.
    Mr. Pearce. Thank you, Mr. Chairman. I see my time has 
expired.
    Mr. McCaul. The Chair recognizes the gentleman who knows 
more about this subject matter than any Member, the gentleman 
from Mississippi Mr. Taylor.
    Mr. Taylor. Thank you, Mr. Chairman, for letting me 
participate today.
    I do appreciate the panel. I appreciate the Red Cross's 
generosity. I very much regret that people misused it. I 
appreciate FEMA's generosity and, again, I regret that there 
were some people who misused it, but that includes corporate 
America.
    I was wondering if, in the course of your investigation, 
you looked into the whole FEMA trailer fiasco, where one 
company, Bechtel, was given a noncompete cost plus contract for 
38,000--I am sorry, 35,000 trailers. Every mistake they made, 
the taxpayer paid for; every new cost they wanted to throw in 
there, the taxpayer paid for.
    I am still wondering--I remember one day walking on their 
property and finding 50 what had been brand-new trailers that 
had been cannibalized. You pull a window out of this one to fix 
that one; you leave the trailer open to the elements. You pull 
the air conditioner off, which is rooftop, take it off to stick 
it on another one; you leave that space open. Within a couple 
of rain storms, that particle board floor in the travel trailer 
is now a piece of sponge and that approximately 14 to $19,000 
trailer is a piece of junk.
    The first question is, did you look into that?
    Mr. Kutz. That was Inspector General Skinner, so that was 
the DHS Inspector General.
    Mr. Taylor. I would very much like to see that report, 
because I think we as a Nation were taken for a lot of money on 
that.
    The second one is even bigger fraud, though; and it goes 
back to the National Flood Insurance Program, what is referred 
to as the Write Your Own Insurance. We as a Nation when we 
started the National Flood Insurance Program turned the day-to-
day activities of that over to the private sector. We were 
going to back those claims, but we count on Allstate or State 
Farm and Nationwide to write the policy. But, much more 
foolishly, we count on that same company to adjudicate the 
claim.
    Now let's walk through this. Mr. Dent is not a Member of 
Congress but an upcoming executive with one of these three 
insurance companies, and we sent him out as a claims adjuster. 
He is going to walk into what is now a slab close to 
Mississippi or Louisiana. There is nothing left. And he is in a 
position to say, well, it could be wind damage, which means it 
might not look good on my next promotion. My employee stock 
owner plan will be hit for that claim. The shareholders who pay 
my salary may not be happy with my performance. Or I can say it 
was all flood and stick it to the taxpayer.
    Now two things happen there. In thousands of instances, 
claims adjusters who were shown bits of roof up in trees that 
flew there or bits of roofs a quarter of a mile from a person's 
house that flew there ignored all that evidence and assigned 
all of the claim to flooding. That does a couple of things. For 
the individual, most individuals had a lot more wind insurance 
than flood insurance. You are maxed out at $250,000 on your 
flood insurance. Even if you had a million dollar house, you 
can only insure it up to $250,000. But you can buy all the wind 
insurance you wanted, up to the value have your home.
    So if they blame it all on flooding, they have told the 
individual you are only going to get part of your money back. 
So that hurt the individual. But they stuck it to the taxpayer.
    Mr. Chairman, I truly believe that we as a Nation will have 
let the citizens of this Nation down if we don't have an 
Inspector General of Homeland Security look into that whole 
process of letting a private-sector company decide whether 
their company is going to pay this claim or whether they are 
going to stick it to the taxpayer.
    Mr. Ryan, I am going to quote you a thousand times in the 
next year. When you say fraud is a crime of opportunity, I 
agree entirely. We have created an opportunity where the 
insurance industry can create a fraud of a billion dollar level 
and stick it to the taxpayer, hurt the individual and walk away 
from it. Because, at the moment, it is apparently perfectly 
legal; and we as a Nation don't even bother to look over their 
shoulder. We don't even, as a Nation, look over that claims 
adjuster's shoulder and say, wait a minute, maybe there was 
some wind damage. Maybe half of this ought to be paid by the 
insurance company and half of it by the flood company.
    We assume those guys are shooting straight with us every 
single time, and--correct me if I am wrong--there is no one in 
our Nation that bothers to check to see if even one of those 
claims was wrong. Now something is weird here.
    You have got a U.S. Senator by the name of Trent Lott, five 
Federal judges who are suing their insurers just in south 
Mississippi--I don't even know what is going on in Louisiana--
because they feel like they were abused by their insurance 
industry when they assigned all the blame to water, when we 
know from the Navy Oceanographic Lab there was 6 to 8 hours of 
hurricane-force winds before the water ever got there. But 
because the water destroyed the evidence, they were in a 
position to say it was all water.
    Mr. Chairman, again, you are very kind to even let me sit 
in here. You are particularly kind to let me say my piece. But 
I would really hope if we are sincere--
    I do appreciate these guys going after the people who bilk 
the citizens out of 1,000 or 15,000 or 20,000. That is wrong. 
But if you want to look into the biggest fraud of all in 
Hurricane Katrina, look into that. Because we will find that 
the taxpayers got stuck for not thousands, not hundreds of 
thousands, not millions, my gut tells me the taxpayers were 
stuck for billions of dollars.
    The next couple of weeks we are going to have a vote on the 
House floor to pump about 20 additional billion dollars into 
the National Flood Insurance Program because we had that many 
more claims than what the premiums are going to pay for. And I 
am convinced, having seen what I saw of the insurance industry 
in south Mississippi, that one of the reasons we have to pump 
so much taxpayer money into this is because of claims that 
should have been paid by State Farm, by Allstate, by 
Nationwide, by other companies out there were stuck to the 
taxpayer.
    Thank you very much.
    Mr. McCaul. The Ranking Member and I visited your State on 
a delegation and saw the devastation, which was horrible, and 
the lack of coverage, which ultimately the taxpayer does have 
to pick up the tab. I appreciate your comments; and I would 
like to now recognize the gentleman, from Pennsylvania Mr. 
Dent.
    Mr. Dent. Thank you, Mr. Chairman; and I thank you for 
holding this hearing.
    Sometimes--I have been in the political business now for a 
long time, and it can make you a little cynical, and I thought 
nothing would ever surprise me anymore. But as I was brushing 
my teeth this morning I had the TV on, and I heard on the news 
talk show people talking about somebody had used Katrina relief 
dollars for a sex change operation, for going to Hooters and 
buying--I guess it was--Dom Perignon and things like; and I 
almost swallowed my toothbrush.
    My point is this, these FEMA recovery problems are not new. 
The Tribune did an extensive series on waste, fraud and abuse 
with respect to the aftermath of various hurricanes over the 
past several years and other weather incidents. I recall one up 
in Michigan, in Detroit, where there was all kind of fraud. I 
remember reading stories about communities or counties not 
declared a state of emergency where somehow claims were being 
made.
    So this is not a new problem, and I guess my first question 
to GAO would be that I suspect you had done reports on these 
previous weather incidents in the past, is that true?
    Mr. Kutz. Not with respect to this program. This is the 
first time we have looked at this program.
    Mr. Dent. I guess the question that I have for the GAO is 
that I would like you to discuss the recommendations that I 
believe you will be making very shortly with respect to the 
massive amounts of fraud that has occurred down there. And I 
guess what really bothers me is, when you see somebody like Mr. 
Taylor over here who, along with thousands of his constituents 
who have suffered terribly--that every dollar that is wasted, 
that is spent for something it ought not to be spent on, is one 
less dollar going to somebody who is truly out there in need 
and in dire need of assistance.
    So I guess the question is, could you please discuss those 
recommendations and what do you recommend that we do about this 
problem? Because it is not a new problem, and with Katrina I 
suspect it is a bigger problem because there is more damage and 
more false claims than we have seen in recent years.
    Mr. Kutz. The primary recommendations relate to the up-
front validation process, the identity validation and damaged 
property address validation and a combination of making sure 
that the person actually lived at that address at the time of 
the hurricane. That is what I think Ms. Dannels' has talked 
about. They have taken some action to try to improve that and 
have a broader swath of Internet and telephone coverage and 
damage address coverage.
    I do think, though, that this is going to take some time. 
Because the depth and breadth of the problem is significant, 
and there are a lot of people that are going to get through 
regardless. So they probably have to take a top-to-bottom look 
at all the aspects of control, whether it be inspection 
process, the phone centers or whatever the case may be.
    Our recommendation is primarily identity validation, 
damaged property, looking into arrangements to have data 
sharing with Social Security and the Postal Service. And I 
think they have said they are not going to hand out debit 
cards, but if they do--and, again, I want to clarify I don't 
see anything wrong with the debit card. It is how it was 
managed. The debit card has some effective way to disperse 
money, and they have used it for other things like the census, 
so it has been used effectively before.
    So that is the kind of nature of some of the 
recommendations we have on record.
    Also, she has addressed one of the other ones as part of 
additional recommendations in the future, keep track of who is 
actually checking into the hotels and making sure you don't 
send them rental assistance payments if you are already paying 
for their hotel room. That is something she has talked about 
they are trying to put in place for the next set of disasters.
    Ms. Dannels. We have put in place.
    Mr. Dent. I guess I would like to see what changes we have 
made or are making now in response to Katrina versus what 
changes we made in response to the previous weather incidents. 
I realize that we are using new technologies and methods of 
distributing money that you probably didn't use in previous 
situations, but I think we need to understand that as a 
committee.
    Finally, I don't know what you can say about this, but it 
really irks me. How could somebody pay for a sex change 
operation? There has got to be some kind of control. Can 
anybody comment on that?
    Ms. Dannels. What I would say and one of the reasons we are 
not doing debit cards again this year is we don't have a 
program that has enough adequate controls. When we do roll it 
out, which will be sometime in the future, not in the immediate 
future, we will block certain codes. He tells me MCC codes. We 
will block certain purchases so that people simply can't have 
those things.
    Mr. Dent. Was that purchase made out of housing assistance 
or IHP program?
    Ms. Dannels. That would have been out of IHP. That is 
correct.
    Mr. Dent. That would have been considered a medical 
service, clearly not hotel or some kind of temporary residence. 
I just don't understand how this could have happened.
    Mr. Ryan. When they get these checks, they can spend it for 
whatever they want as long as they cash it. They can use it for 
that. They can use it to go on vacations. They can use it to 
gamble. It is a matter that the Government has dispersed the 
funds. FEMA has determined that they are entitled to the funds. 
They can either get a check or EFT transfer; and, after that, 
there is no visibility what they are doing with the spending of 
the cash.
    In a lot of the cases that we are talking about, in the 
fraud cases, they use multiple names, multiple Social Security 
numbers, multiple damage addresses. But one of the common 
denominators is they all have the money sent to the same place. 
So it was a good start for us to work on these investigations.
    But in interviewing the people or talking to the people on 
the street that are actually doing the investigations, a lot of 
the postal inspectors, the money is spent on almost anything. 
So that is what they are doing.
    Ms. Dannels. Mr. Dent, I would like to also mention to you 
and the rest of the committee that the hearing that we had with 
the GAO before the Senate in February, they had some initial 
findings there. We acted on those and had implemented many of 
the recommendations of their report which was issued in June, 
prior to their report ever having been issued.
    If you go back and look at the IG--you asked if they had 
done other investigations with us, and they have not on natural 
disaster events. The IG has done many. I think if we go back 
and look at those reports and the recommendations you will see 
an excellent track record of FEMA taking those recommendations 
very seriously, following up and implementing them. We are 
committed to this.
    Mr. Dent. Thank you.
    It gets a little depressing. Because, on the one hand, we 
want to be compassionate and help the people like Mr. Taylor 
and his constituents. When you hear these stories, it just 
makes you question what you are doing sometimes.
    Thank you, and I yield back.
    Mr. McCaul. Thank you.
    I want to thank the witnesses for your testimony. We are 
going to keep this hearing open for 10 days, allow the members 
to ask questions in writing.
    I have a request to make as Chairman, that FEMA provide a 
full, fair and honest response to the GAO report.
    I would also like from all the panelists recommendations 
for legislation on the issue of waste, fraud and abuse so this 
will never happen again.
    Thank you so much; and, without objection, the committee 
stands--
    Mr. Etheridge. Mr. Chairman, I think the issue that Mr. 
Taylor raised is important to this committee; and I would hope 
in the near future we invite the IG of Homeland Security here 
so we can talk about that. Because that is a huge transfer of 
dollars from the taxpayer to somebody else, and we ought to at 
least get an answer on it.
    Mr. McCaul. Without objection, the committee stands 
adjourned.
    [Whereupon, at 1:32 p.m., the subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


                             FOR THE RECORD

Questions From the Honorable Michael McCaul For Donna Dannels Responses

    Question: 1. Describe the forensic audits conducted by FEMA in 
order to determine internal control weaknesses in benefit disbursement 
systems.
    In the aftermath of Hurricane Katrina, DHS and FEMA undertook an 
effort to conduct an internal controls assessment related to processes 
surrounding certain areas of the Disaster Relief Fund (DRF) and the 
National Response Plan (NRP) Financial Management Support Annex. The 
purpose was to perform an analysis to determine if the design of the 
stated controls addressed significant risks as well as complied with 
Federal regulations surrounding the Individuals & Households Program 
(IHP). The assessment was conducted by a contractor from November 16, 
2005 to January 19, 2006, in accordance with OMB Circular A-123, 
Management's Responsibility for Internal Controls. As a result of this 
assessment FEMA is implementing corrective action plans designed to fix 
weaknesses in its benefit disbursement systems.

    Question: 2. What process is FEMA using to detect and prevent fraud 
in benefit disbursement systems?
    In order to effectively respond to the unprecedented disaster 
activity and severity of the 2004 and 2005 hurricane seasons, FEMA 
revised its existing disaster assistance processing procedures. The 
importance of verifying applicants? identities outside the traditional 
method of an on-site inspection became a priority.
    Identity Proofing: In June 2005, FEMA implemented Identity Proofing 
for its Internet registration intake application. Identity verification 
is intended to guarantee that the individual applying for assistance is 
a `real' person. FEMA employs the following checks of an individual's 
Social Security Number (SSN) during the identity verification process:
         The submitted SSN is valid based on SSA algorithms.
         The submitted SSN matches the applicant name.
         The submitted SSN does not belong to a deceased 
        individual.
         The submitted SSN is not associated with multiple 
        individuals.
    In February 2006, FEMA implemented identity verification for 
applicants registering via the FEMA call centers, thereby subjecting 
ALL FEMA disaster assistance applicants to the identity verification 
process. Additionally, all applicants from the Hurricane Katrina 
disaster forward who had not previously been subjected to identity 
verification were subsequently verified.
    Owner / Occupancy Verification: Traditional FEMA processing 
involves an inspector visiting an applicant's damaged home or residence 
address and verifying ownership and occupancy first hand. For many 
Katrina and Rita victims, on site inspections were not possible. For 
the 2005 hurricane season, FEMA implemented an interface with an 
outside vendor to verify ownership and occupancy for identified groups 
of applicants whose residences could not be inspected. In June 2006, a 
real time interface with FEMA's identity verification vendor was 
implemented for ALL disaster applicants to confirm owner / occupancy 
status making the information available for any necessary future award 
decisions.
    In addition, FEMA continues to strengthen its internal controls and 
work closely with the DHS Office of Inspector General and other 
Government oversight/investigative elements to limit the risk of fraud 
in its benefit disbursement systems. TThis past spring, FEMA engaged a 
contractor to conduct a formal assessment of the Hurricane Katrina DRF 
IHP payments to identify improper payments, assess the reasons for 
them, and to develop corrective action plans to mitigate the risk of 
future occurrences of erroneous payments. This effort is ongoing and 
includes DRF IHP payments valued at approximately $5.3 billion made 
during the time period September 1, 2005 through March 1, 2006.
    Duplicate Payment Prevention: During hurricanes Katrina and Rita, 
the NEMIS system cross checked for registrations with the same SSN, 
EFT, or Damaged Phone between Katrina and Rita to prevent EA from going 
to the same person for both events. Traditional NEMIS controls to 
prevent duplication within the same disaster check for these same 
matching data points in order to prevent payment without a manual case 
review to determine which person(s) in the household is eligible for 
payment. In October of 2005, the Internet registration application was 
updated so that applications with any duplicate criteria listed above 
would be refused. In June of 2006, FEMA removed the manual override 
feature in the call center application for applicants applying with the 
same SSN, thereby eliminating duplicate applications in the same 
disaster with the same SSN. In August of 2006, the call center 
application was updated to also show the registrar when an applicant 
was using the same damaged address as another applicant in the same 
disaster. The registrar is still able to accept the new application 
based on additional interview questions with the potential applicant.

    Question: 3. What internal controls have historically been in place 
to prevent fraud? What controls have been put in place in the aftermath 
of Katrina and Rita?
    In the past, FEMA controls on fraud included--
         Duplicate application checks (within the same 
        disaster) on applicant social security number, co-registrant 
        social security number, electronic funds transfer information, 
        and damaged dwelling phone number. Duplicate applications 
        identified during the registration process generated advisory 
        popup messages to attempt to guide registrars to not complete 
        exact duplicate applications. Additionally, an application 
        could not be processed for payment until a caseworker reviewed 
        the case and determined that the application was not an exact 
        duplicate with another application and was potentially eligible 
        for payment.
         An automated check against National Flood Insurance 
        Program data to identify insured applicants who did not report 
        flood insurance when they registered.
         Inspector onsite verification of losses including 
        photographic evidence of damage.
         Verification of receipts for reimbursement of disaster 
        related expenses.
         Applicant identity verification on Internet 
        registrations.

    Since Katrina and Rita, the following additional steps have been 
implemented:
         Applicant identity verification is applied to all call 
        center registrants.
         External vendors are used to assist the agency in 
        verifying ownership and occupancy claims of applicants.
         Enhanced checks for duplicate applications have been 
        implemented. Exact duplicates on registrant social security, 
        banking information or phone numbers are now blocked on the 
        Internet (as of October 2005) and call center (as of June 
        2006). Warning ``pop-ups'' during the call center registration 
        process will allow the registrars to prevent more duplicate 
        registrations.

    Question: 4. Does Choice Point capture data on Internet 
registrations that fail?
    No. ChoicePoint stores the inquiry and the input data provided to 
process the transaction. The information is accessed for customer 
service purposes by authorized personnel only according to 
ChoicePoint's information security and privacy policies. This 
information is not stored on the FEMA side for Internet registrations. 
ChoicePoint has indicated that they have the capability to incorporate 
advanced analytics and ``alerts'' to notify FEMA of any fraudulent 
patterns associated with the use of identity information. This 
capability is under consideration.

    Question: 5. What field tests were run or are being run to verify 
the accuracy/efficacy of Choice Point?
    FEMA staff tested the identity verification process by entering 
accurate personal information to confirm whether they were identified 
as valid. Fictional information was also entered to confirm that the 
registration was identified as invalid. Information for deceased 
individuals was also entered to validate that portion of the 
ChoicePoint check. Additionally, field inspectors are instructed to 
confirm the identity of individuals who receive a housing inspection. 
This information then can be compared to ChoicePoint verifications. 
Some analysis has been done to compare the Ownership and Occupancy 
verification rates between the on-site inspectors and FEMA's data 
vendor on those applications that had both verifications performed. The 
overall accuracy rate between the two verification mechanisms exceeds 
90%.

    Question: 6. What data points are used by Choice Point to verify 
identity of applicants for federal disaster assistance?
    FEMA sends ChoicePoint the following applicant information: First 
Name, Last Name; Social Security Number; Phone Number; Address: Street, 
City, State, Zip; Date of Birth (DOB)(month, day, year). ChoicePoint 
uses a broad range of sources to verify identity, including credit 
headers, driver's license records, vehicle registration records, real 
property records, utility records, phone records and others. Credit 
header information is the single most comprehensive source of identity 
verification information. Credit headers do not contain credit 
information. In addition to being used for identity verification and 
authentication, credit headers are used to prevent and detect fraud and 
in law enforcement investigations.

    Question: 7. In the aftermath of Katrina did Choice Point or FEMA 
capture registrations that failed on the internet? Were these failures 
used to reject phone registrations?
    No, this information from online registrations was not able to be 
cross referenced with registrations taken by phone on the 800#. The 
intent was to deploy the identify verification capability to 
registrations taken by phone which would have rendered such a cross 
reference unnecessary. The information technology (IT) development 
resources required to build the cross reference capability into the 
system would have detracted from other high priority system changes. 
Unfortunately, the volume from Hurricanes Katrina and Rita created 
demands on the processing system for several months, which prevented 
the deployment of several system changes (such as ID proofing on the 
800#).
    Identity verification failure is not used to block or reject 
registrations altogether, since individuals who fail identity proofing 
may fail for valid reasons not related to fraud. For example, someone 
who just turned 18 years old and has had very few public records 
created may not have sufficient information available to verify his or 
her identity. Another example is someone who recently married and may 
not have sufficient information available under the new last name. 
Rather than block these types of applications, they are sent for 
inspection and a field inspector performs an ``eyes on'' identity 
verification. Applicants who fail identity verification are not 
eligible for payment without documentation and manual review.

    Question: 8. What was the fraud percentages of applications taken 
through the internet as compared to the fraud experienced with 
applications taken over the phone?
    FEMA receives raw data from the OIG on fraud cases, but has not 
conducted an analysis to determine the percentage of fraud committed 
via internet versus telephone registration. The lack of front-end 
identity verification controls on telephone registrations contributing 
to fraud was apparent. Analysis was not necessary to understand what 
actions needed to be taken. FEMA has implemented a number of improved 
identity and occupancy verification controls.
    The GAO has produced a number of reports and statements of fact on 
the Individual and Household Program. In May of 2006, GAO conducted a 
broad data sweep of NEMIS Katrina and Rita payments and provided FEMA 
with an extensive list of potential duplicate and/or improper payments. 
GAO did not, however, indicate which of these payments represented the 
fraudulent cases cited as part of GAO Report 07-300. Although FEMA has 
made several requests for more specific information related to GAO 07-
300, GAO has refused to provide FEMA with additional information. If 
FEMA had received the requested data, it may very well have proven to 
be helpful in conducting post-disaster analysis to determine what 
improvements could be made to our systems and processes to minimize 
fraudulent disaster claims.

    Question: 9. How are duplicate registrations for federal disaster 
assistance being prevented? Describe how this has been field tested.
    Registrants that match a previous registrant's social security 
number in the same disaster are prevented altogether. If, during 
registration, a co-registrant is entered, and their social security 
number matches a previous registrant or co-registrant, the registration 
intake agent taking the call is directed to identify the possible 
duplicate, and to determine whether the application should be 
completed. Even if the agent does continue, the completed registration 
will be flagged for further investigation and resolution prior to 
provision of any financial assistance. Duplications of social security 
numbers, banking information, and telephone numbers are rejected on the 
Internet application altogether and the person must register by phone.
    Regarding field testing, FEMA is testing hardware, software, and 
re-engineered procedural processes prior to their release and 
implementation to end-users in the production environment to ensure 
effectiveness. Additionally, we are completing validation analysis 
throughout the course of testing to confirm that requirement compliance 
is fulfilled and is traceable to system specifications.

    Question: 10. Describe the background checks in place, during the 
aftermath of Katrina, on those taking registrations over the phone. 
Describe the background checks in place now.
    During Katrina, the individual's information was submitted to the 
National Crime Information Center (NCIC) for a preliminary background 
check. At the same time, fingerprints were obtained and FEMA then 
processed the fingerprints through the FBI Criminal History system.
    For contractors, should negative information or history come back 
from the NCIC check, the contractor was advised that access to FEMA 
facilities or information systems could not be granted. Only favorable 
NCIC checks would allow these individuals to receive FEMA contractor 
badges and begin working. Fingerprints returned from the FBI would be 
adjudicated and a favorable or unfavorable decision for continued 
employment was made.
    NCIC checks are no longer being used as an interim step. The 
contractor is required to have fingerprints taken, sent to the FBI 
Criminal History system, returned and adjudicated by FEMA Security 
prior to beginning work with the Agency.

    Question: 11. Provide the following background information on the 
Expedited Assistance program.
    When was it created? ``Fast Track'', the predecessor to Expedited 
Assistance, was first used in 1992 in response to Hurricane Andrew and 
was also implemented during the 1994 Northridge earthquake, which prior 
to the hurricanes of 2004 and 2005 had been FEMA's largest disaster in 
terms of the number of applicants. In 1998, FEMA issued Response and 
Recovery Directorate Policy No. 4430 A/C which formally codified 
Expedited Assistance.
    What is the legal basis for the program? Expedited Assistance (EA) 
is simply the name given to supplying assistance otherwise available 
under Section 408 of the Stafford Act (42 U.S.C. Sec. 5174) in an 
expedited manner. It is not a separate program. In our view, this 
provision of the Stafford Act is sufficiently flexible to permit the 
provision of EA in a situation such as Katrina and Rita where FEMA is 
unable to provide shelter as quickly as it is needed and where impacted 
individuals and households are able to find housing on a temporary 
basis themselves. EA may also be used to provide Other Needs Assistance 
(ONA) under section 408(e) for ``other expenses.''
    What was the programmatic justification for the program? The 
General Accountability Office (GAO) concluded in its October 1997 
report (GAO/RCED-98-1) that the legal authority for expediting disaster 
assistance is implicit in the Stafford Act and that FEMA has the 
discretion to expedite the delivery of disaster assistance in order to 
``assist the largest number of disaster victims in the shortest 
possible amount of time.'' FEMA issued the EA policy in January 1998, 
in coordination with FEMA's Office of General Counsel. FEMA's Inspector 
General also endorsed the need for an expedited approach of this nature 
in the review of the Federal response to Hurricane Andrew in 1992 in 
its January 1993 report titled FEMA's Disaster Management Program: A 
Performance Audit After Hurricane Andrew (H-01-93).

    Provide the legal memo authorizing its creation; please provide any 
documents in support of your answers. A copy of the 1997 GAO report and 
1998 FEMA original EA policy is attached.

    Question: 12. How many times has EA been used historically? Please 
provide: the number of disasters and description of each; the disaster 
location; the total amount of the Expedited Assistance paid; the number 
of recipients of Expedited Assistance; description and information on 
forensic audits of the program each time it was used.

                                                   Following is the EA Report for specific disasters.
 
                                                                                                                                            % of EA
              mon/yy  of                                                       EA  Amount                                 Valid          Recipients to
   Dstr          Decl           ST            Incident       EA  Recipients       Per            EA Award Amt         Registrations       Total Valid
                                                                               Recipient                                                 Registrations
 
   1401         Feb `02          OK                  Ice       2,472                $300            $741,600.00             26,786               9.2%
   1402         Feb `02          KS                  Ice       1,065                $300            $319,500.00             10,457              10.2%
   1403         Feb `02          MO                  Ice       3,128                $300            $938,400.00             19,422              16.1%
   1422         Jun `02          AZ                 Fire          60                $503             $30,180.00              8,207               0.7%
   1545         Sep `04          FL            Hurricane      38,233                $569         $21,772,274.60            457,010               8.4%
   1548         Sep `04          LA            Hurricane         744                $530            $394,515.00              9,345               8.0%
   1549         Sep `04          AL            Hurricane      16,007                $418          $6,694,064.34            165,332               9.7%
   1551         Sep `04          FL            Hurricane      20,715                $472          $9,774,234.76            146,317              14.2%
   1552         Sep `04          PR            Hurricane       4,021                $384          $1,542,894.20            196,429               2.0%
   1553         Sep `04           NC           Hurricane         757                $398            $301,121.00              7,696               9.8%
   1554         Sep `04          GA            Hurricane         297                $653            $193,928.00              2,674              11.1%
   1555         Sep `04          PA           Svre Storm          69                $435             $30,002.00              1,440               4.8%
   1556         Sep `04          OH           Svre Storm       1,405                $381            $534,652.00              8,986              15.6%
   1557         Sep `04          PA           Svre Storm       3,549                $494          $1,752,276.00             37,105               9.6%
   1558         Sep `04          WV           Svre Storm       1,143                $367            $418,916.00              7,240              15.8%
   1561         Sep `04          FL            Hurricane      36,073                $551         $19,889,827.60            356,506              10.1%
   1563         Oct `04          NJ            Hurricane          48                $909             $43,644.00                734               6.5%
   1565         Oct? 04          NY            Hurricane          41                $512             $20,990.00              1,151               3.6%
   1603         Aug `05          LA            Hurricane     618,754              $2,020      $1,249,575,377.00          1,077,673              57.4%
   1604         Aug `05          MS            Hurricane     161,555              $2,001        $323,229,566.00            515,808              31.3%
   1605         Aug `05          AL            Hurricane      22,856              $2,000         $45,715,296.40            112,702              20.3%
   1606         Sep `05          TX            Hurricane     210,131              $2,000        $420,278,933.00            476,206              44.1%
   1607         Sep `05          LA            Hurricane     141,391              $2,000        $282,804,839.00            316,689              44.6%
 

    The above chart does not include statistics on ``fast track'' 
housing assistance that was used on a limited basis in the aftermath of 
Hurricane Andrew and the Northridge Earthquake. Both disasters 
displaced hundreds of thousands of people, compelling FEMA to expedite 
housing assistance (termed fast track at the time) to individuals to 
meet their emergency housing needs, as the traditional methods for 
providing such assistance were inadequate to meet such a high demand. 
At this time applications for disaster assistance were taken on paper, 
and the average time to complete and process an inspection in many 
cases was 21 to 30 days.
    FEMA targeted the highest impacted areas and provided one month of 
rental assistance to individuals applying from zip codes located in 
these areas. This assistance was tagged and paid from the rental 
assistance funds allocated in each of these disasters. The system used 
for processing disaster assistance during each of these events (ADAMS) 
is a legacy DOS based program that would only give us information as to 
the number of individuals paid rental assistance. As a result, it is 
not possible to separate out ``fast track'' payments from standard 
rental assistance paid post housing inspection. The only historical 
information we were able to find in reference to ``fast track'' 
assistance was in relation to Northridge. Specifically, a 1997 FEMA OIG 
memo to Senator John McCain, which indicated that 48,302 Northridge 
applicants received ``fast track'' payments totaling $143 million.

    Provide description and information on forensic audits of the 
program each time it was used.
    Regarding information on audits of the EA program, there is no 
distinction between program close-out for an individual disaster and 
EA. As a result, no specific audit information on EA is available.

    13. How many people received EA during Katrina?
    803,165 Katrina registrants received EA.

    14. Questions regarding FEMA's recoupment efforts. . .

    Please provide an overview of FEMA's recoupment effort.
    As part of its mission to maintain close oversight on the 
distribution of disaster assistance, FEMA is performing a detailed 
review of applications and awards, and where appropriate, notifying 
individuals by letter about necessary repayments, payment plan options 
and the appeals process.
    FEMA's recoupment effort begins with the identification of 
applicants that need additional review to determine if a recoupment 
action is appropriate. This identification of applications comes from a 
wide range of sources to include but not limited to referrals from 
other Agencies, caseworker identification upon additional review of an 
individual's case, and performing searches for overpayments through 
NEMIS reports.
    Upon identification that an applicant may need additional review 
for possible recoupment action, the case is reviewed by a caseworker 
trained to process these types of cases. Additionally, if the 
determination is made that a recoupment is appropriate for the 
individual, the case is forwarded to a secondary review for 
concurrence. Once the determination is made that the applicant has to 
return funds, the recoupment letter is sent to the applicant and the 
case is referred to Disaster Finance.
    As in all housing determinations, individuals who have been 
notified that they are in recoupment status have the right to contact 
FEMA to further discuss their case, request information from their 
file, or appeal FEMA's determination. Instructions are provided to 
individuals in their letter outlining the recoupment and appeals 
process, as well as information on setting up repayment plans.

    How much money has been recouped to date for Hurricanes Katrina and 
Rita? As of 6/9/2006, over $770,000 has been recouped.

    How many recoupment actions have been initiated for Katrina and 
Rita? As of 5/11/2006, 5,450 Katrina and Rita applicants have been 
approved for recoupment; in each of these, the Collection Disaster 
Housing (CDH) letter was sent and their files were transmitted to 
FEMA's Disaster Finance Center.

    How many recoupment letters have been sent? As of 5/11/2006, 5,450 
CDH letters have been sent.
    What is the response rate of the effort?--Response rate data is 
unavailable at this early stage in the recoupment effort. FEMA could 
provide a status update in the coming months as it becomes available.

    How many recoupments have been initiated in relation to EA? A total 
of 1,457 recoupment actions (Katrina only) have been initiated due to 
either multiple payments or overpayments of EA for.

    How much money has been recouped? As of 6/9/2006, over $770,000 has 
been recouped.

    15. Please provide any and all historical data on recoupment 
efforts, by disaster.

 
                              Apps Assisted      APPS Recoup Initiated
 
               DR-1539-FL (2139,392                      1,422
               DR-1545-FL (2277,537                      2,054
               DR-1551-FL (2100,447                      1,268
               DR-1561-FL (2227,732                      3,170
 

    For additional information, please reference FEMA recoupment 
reports which are currently submitted to the IG, GAO, and DOJ on a 
monthly basis.

    16. Questions related to FEMA work with other departments with 
regard to background/identity verification checks. . .

    Describe the work FEMA is doing to work with other Departments/ 
agencies with regard to background/identity verification checks.
    FEMA continues to work closely with Federal agencies to detect 
fraud. We have put in place a Memorandum of Agreement (MOA) with the 
Katrina Fraud Task Force (Fraud Task Force), headed by the U.S. 
Department of Justice's (DOJ) Criminal Division and the Assistant 
United States Attorneys, which consists of numerous Federal agency 
Offices of Inspector General (OIGs). FEMA has trained and granted 
authorized Fraud Task Force employees limited access to FEMA's Privacy 
Act ``Disaster Recovery Assistance Files'' (``Disaster Assistance'') 
system of records for the purpose of identifying and investigating 
fraud cases. FEMA is also currently working closely with the U.S. 
Department of Housing and Urban Development (HUD) and has entered into 
a Matching Agreement that has been published in the Federal Register to 
help identify FEMA applicants who may also be receiving a duplication 
of disaster housing benefits from both FEMA and HUD and for fraud 
purposes. Because the information and the records sought by other 
Federal agencies are ``individually identifiable information'' of 
applicants to FEMA for Disaster Assistance protected by the Privacy Act 
of 1974, FEMA is obligated to protect the privacy of each Katrina and 
Rita disaster victim. In addition, FEMA is required to follow all of 
the Privacy Act requirements, as mandated by the Office of Management 
and Budget and can therefore release records only as permitted by the 
Privacy Act. FEMA is permitted to share each disaster victim's personal 
information only to other parties who demonstrate a legitimate, 
statutory need to obtain FEMA's information that conforms with the 
Privacy Act. Because all Federal agencies are charged with this 
responsibility, most understand the Privacy Act's requirements and the 
necessity to articulate their legitimate need and legal authority to 
obtain FEMA's information on Katrina and Rita disaster victims.

    When did FEMA begin this work?
    FEMA began working with these agencies in the immediate aftermath 
of the 2005 Hurricane season; however, the agreements with these 
agencies were formalized on--
        March 1, 2006--for the Katrina Fraud Task Force
        June 21, 2006--for the HUD Matching Agreement

    Which Departments/agencies has FEMA contacted?
    FEMA's Recovery Division has been working closely with the FEMA 
Office of Chief Counsel (OCC) on the Memoranda of Agreement and 
Matching Agreement due to the complex legal requirements. After meeting 
and discussing with the Federal agencies, FEMA's Recovery Division has 
worked very closely with not only FEMA OCC, but also with the FEMA 
Chief Information Officer (CIO) to address system technical and 
security access issues that may arise from other Federal agencies' 
access to information. Outside of FEMA, agencies include DOJ, HUD, and 
OIGs, based on the description above.

    When will the Department/agency agreements be finalized?
    The agreements with these agencies were formalized on--
        March 1, 2006--for the Katrina Fraud Task Force
        June 21, 2006--for the HUD Matching Agreement
    As indicated above, the Recovery Division works very closely with 
FEMA OCC to ensure that we are proactive in efforts to prevent fraud, 
waste, and abuse. FEMA welcomes the opportunity to work closely with 
other agencies to utilize various Federal agency's systems and 
processes to proactively address potential fraud. It is difficult to 
estimate the date upon which agreements will be finalized as several 
steps and requirements remain:
        Review and concurrence from each agency's Offices of General 
        Counsel;
         Review and concurrence by each agency's Data Integrity 
        Boards;
         Approval by the Office of Management and Budget;
         Publication in the Federal Register for a period of 40 
        calendar days before the Matching Agreement goes into effect as 
        required by the Privacy Act; and
         Notification to Congress.

    17. What employee/contractor training related to fraud prevention 
is provided?
    All call center and processing staff (whether FEMA or contract 
employees) are provided clear instruction during training classes on 
how to report suspected fraud by applicants or by FEMA/contract staff. 
The suspected fraud may be reported to them by the public or the staff 
may suspect it as a result of their phone discussions with an applicant 
or their work with an applicant's case. Instructions are also given to 
members of the public wishing to report suspected fraud directly to the 
OIG. Refresher and updated information and reminders are provided 
periodically during in-person pre-shift meetings and issued in 
bulletins.
    The contract housing inspection staff is often in the best position 
to detect applicant fraud. Inspector trainers discuss possible fraud in 
the areas where the opportunities are most prevalent so that the 
inspectors are more sensitive to recognizing potential fraud. For 
example, identifying deferred maintenance and pre-existing conditions 
the applicant claims as disaster damage as well as simple applicant 
exaggeration; awareness is emphasized in the training when the covering 
Occupancy and Ownership verification; Personal Property ``Verbal Unable 
to Verify'' (the applicant has already disposed of damaged items); and 
actually testing appliances the applicant claims were damaged. The 
Fraud Hotline number and instructions for reporting suspected are 
provided to inspectors during training. FEMA audits the contractor 
training classes to ensure appropriate training is conducted, including 
fraud detection discussions. Additionally, FEMA in coordination with 
OIG is developing a specific module to include in FEMA's training for 
inspectors under the new contracts to be awarded this summer.
    After inspectors are deployed to a disaster area, the detection and 
reporting of fraud are specifically emphasized during the field 
briefings as they begin conducting the actual inspections.

    The contract requirements related to fraud prevention which are 
covered in training include--
         Inspectors photograph damaged dwelling (currently 2 
        photos; new contract will require 5)
         Inspectors verify addresses onsite.
         Inspectors verify ownership and occupancy at the time 
        of the inspection.
         Inspectors verify applicant's identity at the time of 
        the inspection.
         Inspectors are now required to list in comments which 
        personal property items the applicant is claiming as damaged 
        when the item wasn't present at the time of the inspection.
         Inspectors are required to test appliances before 
        recording damage to them.
         Inspectors are required to identify categories of 
        deferred maintenance (DF). Identifying DF is a factor that 
        makes the inspectors distinguish true disaster-related damage 
        vs. something the applicant has not maintained.
         Inspectors are required to support their decision when 
        the home needs repairs. They must record the categories of 
        damage that made the home unsafe; i.e. roof, electrical, 
        windows.
         Inspectors are required to identify what caused the 
        disaster-related damage to vehicles; i.e. wind blew tree onto 
        car.
         Inspectors now view receipts for generators and 
        chainsaws verifying date of purchase to coincide with FEMA's 
        eligibility timelines.
         Inspectors must recuse themselves from an inspection 
        if there is a conflict of interest; e.g., inspector's relative 
        owns damaged dwelling.
          Inspectors suspecting fraud must call OIG Fraud 
        Hotline, or their Field Supervisor, who then provides 
        information to the OIG at the Joint Field Office.

    18. Ms. Dannels testified on June 14, 2006 that FEMA is adopting 
``a more systematic use of technology'' to prevent fraud. Describe such 
technology and how it will prevent and detect fraud. Has this 
technology been field tested? Please describe such field testing.
    FEMA's focus on more stringent policy enforcement for applicants 
who cannot substantiate their identity, along with enhancements for 
identity verification and authentication, will prevent and detect 
fraud. Our response to Question #2 includes specific criteria utilized 
for identity verification.
    The following safeguards have been proposed and are undergoing 
analysis of feasibility, desirability, and cost-benefit to the agency. 
Some projects are waiting funding and software development; others are 
currently under development and will be deployed as soon as feasible. 
These improvements include--
         Enhancing services and data sharing from government 
        and commercial data providers.
         Implementing additional verification measures before 
        providing Expedited Assistance.
         Implementing new system constraints to prevent 
        inaccurate or over-payments.
         Integrating voluntary, local and government assistance 
        data to ensure that the FEMA IHP is not duplicating benefits 
        with other parts of the organization or other agencies.
    Regarding field testing, FEMA is testing hardware, software, and 
re-engineered procedural processes prior to their release and 
implementation to end-users in the production environment to ensure 
effectiveness. Additionally, we are completing validation analysis 
throughout the course of testing to confirm that requirement compliance 
is fulfilled and is traceable to system specifications.

    19. In FEMA's May 19, 2006, response to the GAO draft report, with 
regard to rental assistance, the letter stated ``$2,358 was provided to 
those registrants that lived in one of the 5 hardest hit LA parishes or 
3 counties in MS. Verification of occupancy at a valid address was 
established by utilizing a FEMA contractor.'' If verification of 
occupancy at a valid address was established before benefits were 
disbursed, then explain how each of the registration scenarios below 
took place:

        a. thousands of federal and state prisoners apply for and 
        received benefits;
        Some applicants provided their pre-incarceration residential 
        address and the FEMA mail was forwarded to them. Any assistance 
        provided under these means would not prove that the pre-
        incarceration residence was not their primary address or that 
        they did not own the residence. For applicants who did provide 
        prison addresses, our address correction and existing data 
        sources did not automatically identify the applicant as a 
        federal or state prisoner; only that the applicant had a valid 
        address. FEMA is working with its data vendor to provide flags 
        as to the type of address (residence, business, prison, etc.) 
        so that FEMA may limit payments to only those addresses that 
        are primary residential addresses.

        b. how an applicant using a cemetery as a damaged address 
        received benefits;
        FEMA's address correction and existing data sources did not 
        identify the address as belonging to a cemetery; only that it 
        was for a valid address. There are times when a cemetery 
        address is a valid registration address. For example, if a 
        cemetery caretaker is affected by a disaster, he/she may 
        register for assistance using the cemetery address. However, 
        FEMA is working with its data vendor to provide flags as to the 
        type of address (residence, business, prison, etc.) so that 
        FEMA may limit payments to only those addresses that are 
        primary residential addresses.

        c. how a vacant lot used by GAO as the damaged address receive 
        benefits;
        FEMA's address correction and existing data sources did not 
        provide that an address was for a vacant lot; only that it was 
        for a valid address. FEMA is working with its data vendor to 
        provide flags as to the type of address (residence, business, 
        prison, etc.) so that FEMA may limit payments to only those 
        addresses that are primary residential addresses. This should 
        include vacant lot information, as the vendor can tell whether 
        taxes were paid on a lot or structure or both.
        d. how PO Boxes used as damaged addresses receive $5.5 million 
        in benefits?
        FEMA's address correction and existing data sources did not 
        provide that an address was for a PO Box; only that it was for 
        a valid address. Since August 2006, the FEMA registration 
        system no longer allows PO Boxes as a damaged address during 
        the registration.

    20. What controls has FEMA put in place to prevent such fraud in 
future disasters? Describe how these controls have been field tested.
         Coordination is underway to obtain data verifications 
        for individuals that are incarcerated.
         Coordination is underway to obtain data verifications 
        for locations that are not residential.
         PO Box addresses will no longer be accepted as valid 
        for a Damaged Dwelling address.
    Regarding field testing, FEMA is testing hardware, software, and 
re-engineered procedural processes prior to their release and 
implementation to end-users in the production environment to ensure 
effectiveness. Additionally, we are completing validation analysis 
throughout the course of testing to confirm that requirement compliance 
is fulfilled and is traceable to system specifications.

    21. The May 19, 2006 letter states that changes are being made to 
the NEMIS software. In particular, ``NEMIS will conduct verification of 
ownership and occupancy through FEMA's data contractor during the 
application process.? Describe what is done to verify ownership and 
occupancy. Have these procedures been field tested?
    In February 2006, FEMA implemented identity verification for 
applicants registering via the FEMA call centers, thereby subjecting 
all FEMA disaster assistance applicants to the identity verification 
process. Additionally, all applicants from the Hurricane Katrina 
disaster forward who had not previously been subjected to identity 
verification were verified in April 2006.
    Identity Authentication: Identity authentication takes the 
verification process a step further and ensures that the person 
presenting the credentials is the actual ``owner'' of the data. This is 
accomplished by presenting the applicant with a set of personal 
questions only they should be able to answer based on the demographic 
information they have submitted. Currently, FEMA requires identity 
authentication only for individuals who request an account to access 
their data via the Internet.
    Owner / Occupancy Verification: Traditional FEMA processing 
involved an inspector visiting an applicant's damaged address and 
verifying ownership and occupancy first hand. For many Katrina and Rita 
victims, on site inspections were not possible. For the 2005 hurricane 
season, FEMA implemented an interface with an outside vendor to verify 
ownership and occupancy for identified groups of applicants who could 
not be inspected. In June 2006, a real time interface with FEMA's 
identity verification vendor was implemented for ALL disaster 
applicants to confirm owner / occupancy status, making the information 
available for any necessary future award decisions.
    Regarding field testing, FEMA is testing hardware, software, and 
re-engineered procedural processes prior to their release and 
implementation to end-users in the production environment to ensure 
effectiveness. Additionally, we are completing validation analysis 
throughout the course of testing to confirm that requirement compliance 
is fulfilled and is traceable to system specifications.

    22. The May 19, 2006 letter states ``FEMA continues to develop 
guidance and control measures to prevent the inappropriate use of these 
funds.'' Describe guidance and control measures that FEMA is 
developing. Also describe the field tests conducted on these guidance 
and control measures.
    Existing controls in damage assessments performed by trained 
inspectors use commercial and insurance industry standard protocols to 
review and record disaster-related damages. Only those applicants 
suffering damage related to a Presidentially declared disaster are 
eligible for payment. As a result of investigations from the 2004 
hurricane season, inspectors now are required to photograph each home 
they visit depicting the extent of damage and the house street number 
to validate against the registration address data. Inspection 
contractors are required to review these photographs as a part of their 
Quality Control process.
    Inspectors are also required to view and record information on any 
insurance the applicant has, specifically those coverages relating to 
home, personal property, and vehicle damages. Applicants are also asked 
about insurance coverage during the Registration process. Based on the 
damages incurred and the type of insurance on the home, NEMIS will 
disallow any payment that is potentially duplicative of insurance 
benefits. Caseworkers follow the same guidelines upon an appeal by the 
applicant. Additional automated insurance checking is a priority for 
future development. In all flooding events, FEMA uses an automated 
interface with the National Flood Insurance Program (NFIP) database to 
determine if an applicant has flood insurance coverage on the home that 
they are registering. If a policy is found, the NEMIS database is 
updated with this information and the applicant is deemed insured for 
flood damages, whether or not the applicant listed this insurance 
during the registration process.
    Internal reviews are also performed when applicants request 
additional assistance. When an applicant requests additional rental 
assistance, the applicant is required to submit rent receipts/
substantiation that funds have been exhausted and used appropriately. 
If there has been a misuse of funds, the applicant is not eligible for 
further housing assistance and his or her case may be sent to 
Recoupment for recovery of funds if warranted.

    23. The May 19, 2006 letter states ``Based on the address provided, 
NEMIS will `correct' it to the most acceptable form based on USPS 
data.'' Explain what ``correct'' means.
    NEMIS utilizes GEOSTAN software that provides an ``address 
correction'' or ``address matching'' capability and geo-coding. Address 
correction/matching is the process of matching an input address against 
a postal or geo-coding database. Most address matching solutions work 
by breaking an address into components such as street name and street 
type to find a close match to the data source. The returned information 
identifies the accurate damaged dwelling and mailing address as it is 
recorded with USPS. Geo-coding is the process of appending the 
longitude and latitude to an address.

    24. FEMA's June 14, 2006 testimony states Expedited Assistance 
program ``allows for a pre-inspection disbursement of funds to an 
individual household, based on information gathered from the applicant 
during the registration process that meets the following criteria: the 
registration must be for the primary residence only; the registrant 
must be displaced due to the disaster; and the registrant is in need of 
shelter.'' Describe the fraud detection and prevention controls FEMA 
uses to verify such information.
    At the time of implementation, FEMA had to balance the requirements 
of preventing fraud with those of assisting hundreds of thousands of 
evacuees with immediate and essential needs in a timely manner. The 
only way to ensure both requirements were being met to the best of our 
abilities was to tie the eligibility criteria for EA outlined by the 
Recovery Division Director, to specific questions on the disaster 
application. An applicant's affirmative response to these questions 
resulted in immediate, automated Expedited Assistance awards. If an 
application was found eligible for EA, it was then run through existing 
NEMIS business rules (Duplicate Investigation) to prevent multiple 
payments to the same individual or household. For purposes of 
preventing as many inappropriate payments as possible, the specific 
questions triggering EA were never publicized to individuals either 
within or outside the agency.

    25. FEMA's June 14, 2006 testimony states ``FEMA, in fact, has gone 
to great lengths to ensure they are good stewards of the taxpayers' 
dollar by deterring fraud, while still allowing applicants who are in 
serious need of assistance to receive it quickly and appropriately.'' 
Describe FEMA's efforts to deter fraud.
         In June 2005 FEMA added Identity Authentication to the 
        Internet Applicant Inquiry application in order to protect 
        applicant data and ensure that the person logging in was the 
        ``owner'' of that data.
         In June 2005, FEMA implemented identity proofing to 
        the Internet registration application.
         In October 2005, FEMA launched a new internet 
        registration application that disallows any duplicate 
        registrations;
         In February 2006, FEMA added identity proofing to the 
        call center registration application to ensure all IHP 
        Registrations are subjected to the same criteria as online 
        applications.
         FEMA amended systems to ensure no automated payments 
        are sent to applicants who failed the identity proofing 
        process;
         FEMA began sending all applications taken over the 
        phone from August 2005 until February 2006 to FEMA's data 
        contractor for identity proofing and reviewing those that 
        failed for possible recoupment or referral to the DHS Office of 
        the Inspector General;
         FEMA began data-marking any applications in NEMIS that 
        fail identity proofing so they may be flagged for review and 
        denied automated payment;
         FEMA has implemented enhanced processes related to 
        real-time interaction between the FEMA service representative 
        and the applicant during registration to ensure data is entered 
        correctly before accepting the application.
         In June 2006, FEMA implemented Occupancy and Ownership 
        verification during the registration process.
         FEMA is working with a data vendor to flag addresses 
        that are not residential so that they may be reviewed prior to 
        payment.
         In August 2006, the registration module started 
        preventing applicants from using a PO Box address as a damaged 
        address.

    26. Describe the ``significant improvements,'' as stated in the 
June 14, 2006 testimony, FEMA has made to its delivery process to 
prevent fraud, waste and abuse. See response to question #25.

    27. FEMA's June 14, 2006 testimony states ``Through effective 
planning, enhanced internal controls and a more systematic use of 
technology, FEMA can limit waste, fraud, and abuse.'' Specifically, 
describe in detail the effective planning methods, enhanced internal 
controls and the systematic use of technology FEMA is employing to 
detect and prevent waste, fraud, and abuse in federal disaster 
assistance programs. See response to question #25; also--
        INFORMATION DATABASE: The following changes are being made to 
        FEMA's processing software and have been made available for the 
        start of the 2006 hurricane season:
         No registration will be accepted when that registrant 
        has the same SSN as another registrant in the same disaster

    EXPEDITED ASSISTANCE: Hurricanes Katrina and Rita presented FEMA 
with extraordinary circumstances, where it was critical to answer the 
call of hundreds of thousands of individuals who often had no 
identification, money or even clothes on their backs. In this instance, 
the Expedited Assistance (EA) program served as an appropriate tool to 
provide assistance to victims who had been displaced by the 
catastrophic event. Although there were problems within the EA program 
during the 2005 hurricane season, FEMA has already taken steps--and 
continues to do so--to limit waste, fraud and abuse should this program 
be used for future disasters including reducing the amount of 
assistance provided in this initial payment, providing the assistance 
under the ``other needs'' category which allows for a federal/state 
cost share, and eliminating the use of debit cards.

    RECOUPMENTS: Starting in March 2006, FEMA began the review process 
to recoup any disaster relief money that was inappropriately awarded 
following the 2005 hurricane season and as such has already recouped 
more than $770,000. As part of its mission to maintain close oversight 
on the distribution of disaster assistance, FEMA performs detailed 
reviews of applications and awards, and where appropriate, notifies 
individuals by letter about necessary repayments, payment plan options 
and the appeals process, and refers cases of suspected fraud to the DHS 
Office of the Inspector General.

                                 
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