[Senate Hearing 109-731]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-731
 
     HURRICANE KATRINA: WASTE, FRAUD, AND ABUSE WORSEN THE DISASTER

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 13, 2006

                               __________

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs


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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
                   David T. Flanagan, General Counsel
                 Amy L. Hall, Professional Staff Member
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                Robert F. Muse, Minority General Counsel
                Kevin J. Landy, Minority Senior Counsel
                  Trina Driessnack Tyrer, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Lieberman............................................     3
    Senator Akaka................................................     4
    Senator Dayton...............................................    22
    Senator Levin................................................    27

                               WITNESSES
                       Monday, February 13, 2006

Gregory D. Kutz, Managing Director, Forensic Audits and Special 
  Investigations, U.S. Government Accountability Office, 
  accompanied by John J. Ryan, Special Agent, Forensic Audits and 
  Special Investigations, U.S. Government Accountability Office..     7
Richard L. Skinner, Inspector General, U.S. Department of 
  Homeland Security..............................................     9
Alice S. Fisher, Assistant Attorney General, Criminal Division, 
  and Chairman, Hurricane Katrina Fraud Task Force, U.S. 
  Department of Justice..........................................    13

                     Alphabetical List of Witnesses

Fisher, Alice A.:
    Testimony....................................................    13
    Prepared statement...........................................    85
Kutz, Gregory D.:
    Testimony....................................................     7
    Prepared statement...........................................    41
Skinner, Richard L.:
    Testimony....................................................     9
    Prepared statement...........................................    67

                                APPENDIX

Post-hearing questions and responses for the Record from:
    Mr. Kutz.....................................................    96
    Mr. Skinner..................................................    98
    Ms. Fisher...................................................   103
Memo and letter submitted by Senator Dayton......................   108
GAO visuals submitted by Mr. Kutz................................   110
GAO letter on MREs submitted by Mr. Kutz.........................   115
DHS-IG visuals submitted by Mr. Skinner..........................   122
DOJ ``Hurricane Katrina Fraud Task Force,'' A progress Report to 
  the Attorney General, February 2006............................   128


     HURRICANE KATRINA: WASTE, FRAUD, AND ABUSE WORSEN THE DISASTER

                              ----------                              


                       MONDAY, FEBRUARY 13, 2006

                                       U.S. Senate,
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in room 
SD-342, Dirksen Senate Office Building, Hon. Susan M. Collins, 
Chairman of the Committee, presiding.
    Present: Senators Collins, Lieberman, Levin, Akaka, and 
Dayton.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order.
    Good morning. Federal assistance programs are vital to 
those who are the true victims of natural disasters. The 
critical nature of this assistance makes reports of waste, 
mismanagement, and outright fraud particularly disturbing. We 
cannot sweep such allegations under the rug. We must face them 
head on to preserve public support for these programs.
    Although our focus today is on Hurricane Katrina, the 
ramifications of this issue are relevant to future disaster 
relief efforts in all regions of our country. If those words 
sound familiar it is because I spoke them, with one obvious 
change, at a hearing that the Committee held last May in which 
the Committee examined serious problems with the integrity of 
FEMA's disaster relief programs following the hurricanes that 
struck Florida in 2004.
    We are here today because although the names of the 
hurricanes have changed, the waste, fraud, and abuse remain all 
too much the same.
    This hearing will examine the mounting evidence of 
fraudulent claims, wasteful spending, and ineffective 
management in the disaster assistance programs triggered by 
Hurricane Katrina. Our witnesses will testify about criminal 
behavior ranging from filing false claims for individual 
assistance payments to bribing public officials. They will 
point to the lack of controls that allow precious resources to 
be squandered while so many true victims remain in dire need. 
And they will describe the unprecedented efforts of the 
Hurricane Katrina Fraud Task Force to deter and prosecute 
criminal offenses, enforcing the Administration's pledge to 
prosecute every case of fraud against the government and the 
American taxpayers.
    Following the Committee's work on this very problem last 
year, I am sure that we all expected that another hearing on 
the same subject would be a progress report. Instead, it is a 
fresh indictment. Our witnesses will provide many examples of 
the ways that disaster relief programs have been abused and of 
the FEMA policies and procedures that failed once again to 
prevent abuse, waste, and outright fraud.
    After the hearing last May, Senator Lieberman and I wrote a 
letter to then-FEMA Director Michael Brown in which we provided 
a list of straightforward, doable, and logical reform 
recommendations that could have been implemented quickly and 
that would have clamped down on waste, fraud, and abuse without 
delaying assistance to those truly in need. The response we 
received from Mr. Brown was utterly non-responsive, yet another 
example of a failure to act to reform a flawed system.
    Our witnesses today will provide many more shocking 
examples of absent safeguards and wasted tax dollars. To date, 
FEMA has distributed more than $6 billion in financial and 
housing assistance to nearly 1.5 million individuals. Most of 
that aid is essential, and I want to emphasize that most of the 
recipients are true victims. However, some of the money--far 
too much of the money, desperately needed by victims--has gone 
to people who were nowhere near Hurricane Katrina and were in 
no way harmed by it.
    Multiple payments have been made to individuals, many of 
whom were not eligible for aid in the first place. GAO 
investigators found that debit cards had been used for such 
items as a tattoo, gambling, traffic fines, and a diamond ring 
when, in fact, they were intended for necessities such as food 
and shelter.
    Rental assistance was provided with no inspections of the 
recipients' homes to verify damage and no instructions on the 
proper use of these funds--exactly the problem that we explored 
in May of last year. This ``pay first, ask questions later'' 
approach has been an invitation to the unscrupulous. FEMA paid 
for hotel rooms that were left unused or simply used as storage 
units for personal goods. Some of these rooms were at very 
expensive hotels and resorts costing as much as $400 a night.
    But the problem goes far deeper than a number of 
individuals getting money to which they are not entitled or 
spending it improperly. The real problem is that once again 
FEMA failed to adequately plan for the very type of disaster 
that occurs virtually every year. Now, Katrina was different in 
magnitude, but it was another hurricane. One of the most 
egregious examples of this failure to plan is the purchase of 
25,000 manufactured homes at a cost of approximately $850 
million. A significant number of these homes will likely go 
unused because FEMA cannot install them in a floodplain.
    In the absence of effective pre-disaster planning for 
essential services, FEMA awarded many contracts without 
competition, such as four no-bid contracts for technical 
assistance, including installation of FEMA trailers, each with 
an original ceiling of $100 million that later ballooned to 
$500 million. The government made numerous other purchases at 
retail prices and without government discounts for needed 
supplies that could have been obtained before the crisis 
struck. This lack of preparation is a recipe for wasteful 
spending. Perhaps most troubling, however, are the cases of 
contractor fraud and allegations of bribery. Our witnesses will 
describe some of these cases today. Nothing is more offensive 
than this abrogation of the public trust.
    I am pleased that the Inspectors General of the Federal 
agencies involved in the Katrina recovery have administratively 
adopted many of the proposals that Senator Lieberman and I 
included in legislation that we introduced last fall. I am also 
very interested in the information that will be presented today 
on the Hurricane Katrina Fraud Task Force. This multi-agency 
task force was established by the Attorney General just one 
week after Katrina hit, and it is committed to deterring, 
investigating, and prosecuting hurricane-related fraud in a 
more coordinated and comprehensive way and in adherence to a 
zero tolerance policy, which I think is critical.
    These measures are all highly commendable, but they are 
primarily reactive, and that is why it is so disturbing to me 
that many months after we first held hearings exposing the lack 
of safeguards in FEMA's disaster assistance programs, we are 
sitting here today hearing much of the same problems. We cannot 
continue to clean up waste, fraud, and abuse after disasters. 
We must do more to prevent the mess from occurring in the first 
place.
    Senator Lieberman.

             OPENING STATEMENT OF SENATOR LIEBERMAN

    Senator Lieberman. Thanks very much, Madam Chairman. Thanks 
for your excellent opening statement.
    I want to just say, as I have told you, that there is good 
news and bad news associated with the snowstorm that occurred 
here in Washington and throughout the Northeast over the 
weekend. The bad news is that I could not get out of 
Washington. The good news is, as a result, I am here this 
morning. Senator Akaka had graciously offered to sit in for me 
this morning, so I am going to say a few words and then yield 
to Senator Akaka for an opening statement.
    Basically I am going to say ``Amen'' to everything you have 
said, Senator Collins. I think we have discovered in our 
extensive hearings now on the preparation and response to 
Hurricane Katrina that the key word here is ``preparation'' and 
that preparation is the difference between an effective 
response and a failure in response to a disaster. And lack of 
preparation is the cause of the failures that we have seen in 
the case of Hurricane Katrina at almost every level of 
government and almost everywhere, unfortunately, in the Federal 
Government.
    We have been focused mostly on preparation for and response 
to the immediate disaster. Today we are focused on relief, and 
I suppose in some sense it shocks us that people would try to 
take advantage of relief programs for those hit by a disaster. 
But they do. That is the world we are in. And, therefore, FEMA 
and DHS have to be prepared when disaster strikes to expedite 
assistance to people in need and prevent fraud. It is as simple 
as that.
    Senator Collins was right on target that this is not the 
first time this has happened. This is another case where the 
problems that FEMA confronted were not only predictable, they 
were predicted because they had happened. They happened in the 
Florida hurricanes. And I was proud to join with Senator 
Collins in the letter that we sent. And yet here we go again.
    They are under pressure at FEMA, no question about it. They 
are probably under double pressure because they were 
embarrassed by the immediate failures in response to the 
hurricane to get assistance out to those hurt. But it is no 
excuse. They should have been ready. And I am a great believer 
in government so I always hesitate to make the private-public 
sector comparisons. But when you think about what the witness 
from Wal-Mart told us when he was here, what we know companies 
like Home Depot did, getting ready for any disaster that might 
strike and the ability to deliver when needed, we simply have 
to do better.
    The four people before us are the waste, fraud, and abuse 
busters in the Federal Government, and we appreciate what you 
have done. My hope is that FEMA and DHS get the message because 
their behavior thus far, that you will describe, is 
unacceptable and ultimately infuriating. It rips off not only 
the true beneficiaries, those who really need the relief 
assistance after a disaster; it obviously also rips off 
American taxpayers. And I just feel that we have to do 
everything we can to insist that FEMA and DHS prepare for the 
next disaster, not during but before it, so that they are ready 
to respond and offer relief and prevent the kind of waste, 
fraud, and abuse that we are going to hear about today.
    With that, Senator Akaka, I am proud to yield to you for 
your opening statement, with thanks to the Chairman. She is 
very nonpartisan, but today, to allow two Democratic opening 
statements really is a first. [Laughter.]
    Senator Dayton. She would be hard pressed to find another 
Republican. [Laughter.]

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Senator Lieberman, for 
yielding to me, and thank you, Madam Chairman.
    I want to commend you, Madam Chairman, and our Ranking 
Member for your diligence and your desire to understand why 
tens of thousands of people were left to fend for themselves in 
the aftermath of Hurricane Katrina and for the bipartisan 
manner in which you have conducted these many hearings. I 
really want to commend you for that and to tell you it is so 
good working with you.
    I do have a longer statement that I ask be made part of the 
record.
    Chairman Collins. Without objection.
    Senator Akaka. I would like to say, however, that GAO's 
ongoing audit of illegally claimed and received benefits 
highlights the need for adequate safeguards to deter fraudulent 
applications for benefits. And I wish to associate myself with 
the remarks of the Chairman and of our Ranking Member on this 
and other areas of these Katrina hearings.
    But there is a larger, more systemic problem of major 
management challenges at the Department of Homeland Security. 
These led DHS Inspector General Skinner to include contract 
management and disaster response and recovery in his end-of-
the-year report. For any agency that obligates tens of billions 
of dollars for relief and reconstruction, it is critical that 
there are sound procurement practices, that there will be a 
trained acquisition workforce, that contractors are held 
accountable, and that discovery of fraudulent claims be handled 
quickly. DHS is the government's third largest agency, and it 
is wrong that there are no department-wide policies and 
procedures for procurement operations. We should examine if 
components within DHS, such as FEMA, should come under the 
authority of the Department's procurement office. I cannot help 
but wonder whether decentralization of procurement activities 
may have added to the array of contract abuses related to 
Hurricane Katrina.
    Over 10 years ago, I introduced legislation to impose 
criminal penalties on those who conned Federal disaster victims 
as well as disaster victims who accepted Federal relief funds 
illegally in the aftermath of Hurricane Iniki, which devastated 
the island of Kauai in 1992. I think it may be a good time to 
revisit this idea.
    What we do need is a more effective way to ensure that when 
the Federal Government is forced to expend millions and 
eventually billions of dollars in large relief and 
reconstruction projects, either at home or abroad, these funds 
are not wasted.
    Thank you very much, Madam Chairman.
    [The prepared statement of Senator Akaka follows:]

                  PREPARED STATEMENT OF SENATOR AKAKA

    Thank you, Madam Chairman. Let me commend you and Senator Lieberman 
for your diligence and desire to understand why tens of thousands of 
people were left to fend for themselves in the aftermath of Katrina and 
for the bipartisan manner in which you have conducted these many 
hearings.
    Hurricane Katrina is our Nation's worst natural disaster to date. 
Unfortunately, the damage inflicted by this single storm has been 
compounded by the actions of those who have benefited at the expense of 
the Federal Government and the victims.
    As with any massive mobilization of government assets and funds, 
Hurricane Katrina offered substantial opportunities for contractor 
abuse and individual misuse of relief funds. The Government 
Accountability Office's (GAO) ongoing audit of illegally claimed and 
received benefits highlights the need for adequate safeguards to deter 
fraudulent applications for benefits.
    There is, however, the larger, the more systemic problem of major 
management challenges at the Department of Homeland Security (DHS) that 
led DHS Inspector General Skinner to include: (1) contract management 
and (2) disaster response and recovery in his end-of-year report. For 
any agency that obligates tens of billions of dollars for relief and 
reconstruction, it is critical that there are sound procurement 
practices, that there be a trained acquisition workforce, that 
contractors are held accountable, and that discovery of fraudulent 
claims be handled quickly.
    DHS is the government's third largest agency, and it is wrong that 
there are no department-wide policies and procedures for procurement 
operations. We should examine if components within DHS, such as the 
Federal Emergency Management Agency (FEMA), should come under the 
authority of the Department's procurement office.
    DHS is working on these management shortfalls, but the longer that 
these deficiencies exist, the greater the opportunities for waste, 
fraud, and abuse. I cannot help but wonder whether decentralization of 
procurement activities may have added to the array of contract abuses 
related to Hurricane Katrina.
    GAO's on-going audit confirms that the weaker the internal 
controls, the greater the probability of waste, fraud, and abuse in 
distributing Federal disaster relief. But, the inability of FEMA to 
validate the identity of claimants and confirm damaged addresses is an 
old problem.
    In testimony before this Committee last May, Inspector General 
Skinner discussed his recommendations to strengthen FEMA's internal 
controls over the Individuals and Household Program, known as IHP. As 
we now know, FEMA did not take those actions because, just as with 
Hurricane Frances in 2004, FEMA failed to perform required damage 
assessments and verify identities. Addressing these deficiencies is the 
responsibility of FEMA and, ultimately, the Department of Homeland 
Security's senior management.
    Over 10 years ago, I introduced legislation to impose criminal 
penalties on those who conned Federal disaster victims, as well as 
disaster victims who accepted Federal relief funds illegally in the 
aftermath of Hurricane Iniki, which devastated the island of Kauai in 
1992. I think it may be a good time to revisit this idea.
    I also believe it is important that this Committee continue to 
investigate waste, fraud, and abuse wherever it occurs.
    I appreciate the Chairman's intention to maintain a keen focus on 
the Katrina-related expenses. I should also mention that at the request 
of the Chairman, Senator Lieberman, and I, GAO is conducting a series 
of reviews of acquisition challenges within DHS.
    I also have the pleasure of working with Senator Collins and 
Senator Lieberman on the Armed Services Committee, whose Readiness 
Subcommittee, on which I serve as Ranking Member, held a hearing last 
week on Iraqi reconstruction and contracting problems. In that hearing, 
the DOD Inspector General testified that more than half of the 
contracts paid for out of Iraqi funds and more than 20 percent of the 
contracts paid for out of U.S. funds failed to contain evidence that 
the goods or services paid for had ever been received.
    The American taxpayer is spending billions of dollars both at home 
in the Gulf Coast and abroad, in Iraq and in Afghanistan, in relief and 
reconstruction. In both regions we are seeing evidence of substantial 
fraud and abuse.
    In the case of Hurricane Katrina relief, the Department of Justice 
established a special task force because of concern that large sums of 
money were being dispensed quickly and there was a need to ensure that 
it got to the people who needed it the most.
    Unfortunately, we have a similar problem in Iraq, although there we 
do not have a zero tolerance policy such as we have in the U.S. Gulf 
States, where the Justice Department is prosecuting fraud cases for as 
little as $2,000. Perhaps we need a similar approach in Iraq.
    What we do need is a more effective way to ensure that when the 
Federal Government is forced to expend millions and eventually billions 
of dollars in large relief and reconstruction projects, either at home 
or abroad, those funds are not wasted. Today's hearing demonstrates 
that we do not yet have such a system.
    There is no excuse for that failure. And I hope that the Committee 
will focus its attention following the conclusion of the Katrina 
investigation into similar problems elsewhere so that this Congress can 
assist the Executive Branch in doing a better job of preventing 
taxpayer funds from being wasted.
    Thank you, Madam Chairman.

    Chairman Collins. Thank you, Senator.
    I would now like to welcome today's distinguished panel of 
witnesses. Greg Kutz is the Managing Director of Forensic 
Audits and Special Investigations Unit of the Government 
Accountability Office. Mr. Kutz has been with the GAO since 
1991 and assumed his position as Managing Director in 2005. He 
is accompanied by Special Agent John Ryan, an Assistant 
Director of the Forensic Audits and Special Investigations 
Unit. I would note that this team is no stranger to this 
Committee. We have worked with both Mr. Kutz and Mr. Ryan on 
many different investigations, and once again, I am very 
impressed with the high quality of their work.
    Richard Skinner is the Inspector General of the Department 
of Homeland Security and was confirmed by this Committee last 
year. He has been with the DHS IG's office since it was 
established in 2003. It is notable that he served in the IG's 
office at FEMA from 1991 to 2003, so he has a great familiarity 
with many of the programs that we are discussing today. He also 
testified as a key witness at our hearing last May.
    Alice Fisher is the Assistant Attorney General for the 
Criminal Division of the U.S. Department of Justice and the 
Chair of the Hurricane Katrina Fraud Task Force. I am very 
impressed with the Justice Department stepping up to the plate 
this time since one of the findings of our previous hearings is 
that often fraud in the assistance programs goes completely 
unpunished. And I hope we are seeing a change now.
    Because this is part of our Katrina investigation, we are 
swearing in all witnesses, so I would ask that you stand and 
raise your right hand. Do you swear that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Kutz. I do.
    Mr. Ryan. I do.
    Mr. Skinner. I do.
    Ms. Fisher. I do.
    Chairman Collins. Thank you.
    We are going to violate protocol a little bit this morning, 
Ms. Fisher, which I hope you will bear with us just in the 
interest of telling the story, and we are going to begin with 
Mr. Kutz.

 TESTIMONY OF GREGORY D. KUTZ,\1\ MANAGING DIRECTOR, FORENSIC 
      AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT 
  ACCOUNTABILITY OFFICE, ACCOMPANIED BY JOHN J. RYAN, SPECIAL 
    AGENT, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Kutz. Chairman Collins and Members of the Committee, 
thank you for the opportunity to discuss fraud and abuse 
related to Hurricanes Katrina and Rita. Our testimony relates 
to our work on the Individuals and Households Program. Our 
focus to date has been on expedited assistance payments. These 
$2,000 fast track payments are made prior to individuals 
providing any proof of loss. Through December, over $5 billion 
had been disbursed for this program. The bottom line of my 
testimony is that weak or nonexistent controls leave the 
government vulnerable to substantial fraud and abuse for this 
program.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kutz appears in the Appendix on 
page 41.
---------------------------------------------------------------------------
    My testimony has three parts: (1) fraud prevention 
controls, (2) indications of fraud and abuse, and (3) controls 
over the issuance of debit cards.
    First, we found that FEMA did not validate any identity or 
damaged property address information for most disaster 
applications. Limited procedures were in place to validate 
identities for Internet applications. However, no validation 
was done for damaged property addresses.
    We tested the Internet application process using bogus 
identities and were unable to successfully register. Those who 
failed the Internet verification process were instructed to 
apply by telephone. We then tested the telephone application 
process using falsified identities, bogus addresses, and 
fabricated disaster stories. However, this time we were 
successful and received several $2,000 expedited assistance 
payments.
    The poster board shows one of the Treasury checks that we 
received from FEMA for our bogus applications.\2\ As it turned 
out, FEMA did not validate any identity or damaged property 
address information for any telephone applications. As of 
December, 1.5 million, or about 60 percent of applications, 
were made by telephone.
---------------------------------------------------------------------------
    \2\ The posters referenced by Mr. Kutz appear in the Appendix on 
page 110.
---------------------------------------------------------------------------
    The next poster board shows a picture of one of our bogus 
addresses in Louisiana. For this case, our registration was for 
an apartment on the 13th floor of this building. However, as 
you can clearly see from the picture, this is a two-story 
building.
    Given the weak or nonexistent controls, it is not 
surprising that our data mining and investigations show the 
potential for substantial fraud and abuse. For example, 165 of 
the 250 registrations that we are investigating have potential 
misuse of Social Security numbers. This includes Social 
Security numbers that were never issued, that belonged to 
deceased individuals, or that belonged to someone else.
    Further, our site visits confirmed that at least 80 of the 
damaged property addresses that we are investigating are bogus. 
Some of the criminal activity that we have identified includes 
fraudulent statements to the government, bank fraud, and Social 
Security fraud. These fraud case registrations were from New 
Orleans, Lake Charles, Beaumont, and Port Arthur. Let me 
discuss three of these case studies to give you a flavor for 
what we are finding.
    The first case involves eight individuals who used 61 
different Social Security numbers to receive $122,000. At least 
25 of the damaged property addresses for this case are bogus. 
The poster board shows one of these addresses, which is a 
vacant lot in Louisiana.
    In another case, 17 individuals used 36 different Social 
Security numbers to receive $103,000. Only two of the 36 Social 
Security numbers belonged to these individuals. At least 12 of 
the damaged addresses are bogus, including six in one apartment 
complex in New Orleans that I visited in January.
    In another case, eight individuals used 30 different Social 
Security numbers to receive $92,000. Twenty-two of the 
properties for this case were in Texas. I visited Texas in 
January, and guess what? All 22 of these addresses are bogus.
    The poster board shows where two of the properties were 
supposed to be. However, as you can see, there is nothing there 
but another vacant lot.
    Our data mining shows that these fraud case studies are 
representative of a much broader problem. For example, we 
believe that thousands of individuals misused Social Security 
numbers. FEMA also clearly made payments to many individuals 
using bogus property addresses. It also appears that FEMA made 
tens of millions of dollars of duplicate $2,000 payments to 
identical registration numbers.
    Chairman Collins, we don't know the extent of fraud and 
abuse in this program. However, as we progress with our work, 
we will attempt to project the extent of invalid claims for 
this program. Further, our case studies show that the fraud 
extends beyond the $2,000 expedited assistance payments. Note 
that for every fraudulent registration in FEMA's system, the 
individuals can receive up to $26,200.
    Moving on to my third point, nearly 11,000 debit cards were 
handed out for disaster assistance at three relief centers in 
Texas. I have an example of one of these debit cards in my 
hand, which the Chase Bank was kind enough to provide for 
today's hearing. This card could generally be used wherever 
MasterCard was accepted.
    We found similar problems for debit cards that we found for 
other disaster assistance. Further, FEMA made duplicate 
expedited assistance payments to about 5,000 of the nearly 
11,000 recipients of debit cards. In other words, these 
individuals received $2,000 debit cards and then subsequently 
received $2,000 checks or electonic funds transfer payments.
    With respect to the use of debit cards, 63 percent of the 
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 necessities. However, some cards 
were used for purposes that are inconsistent with the intent of 
disaster relief programs. For example, debit cards were used 
for adult entertainment, tattoos, bail bond services, and to 
pay for prior traffic violations.
    In conclusion, we understand that FEMA was under great 
pressure to get money as quickly as possible to disaster 
victims. However, for every fraudulent disbursement made, there 
is a new, larger group of victims--American taxpayers. More 
needs to be done for future disasters to protect taxpayers from 
fraud and abuse for this program. Also, individuals who have 
committed fraud should pay the price for their crimes. Last 
week, we began referring our fraud cases to the Katrina Fraud 
Task Force. We believe that aggressive prosecution of these 
individuals will send a strong message that stealing disaster 
money from the Federal Government will not be tolerated.
    Chairman Collins, this ends my statement. I look forward to 
your questions, and Special Agent Ryan is here also.
    Chairman Collins. Thank you. Mr. Skinner.

  TESTIMONY OF RICHARD L. SKINNER,\1\ INSPECTOR GENERAL, U.S. 
                DEPARTMENT OF HOMELAND SECURITY

    Mr. Skinner. Good morning. Chairman Collins, Ranking Member 
Lieberman, and Members of the Committee, thank you for having 
me here today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Skinner appears in the Appendix 
on page 67.
---------------------------------------------------------------------------
    Before I begin, I would like to recognize a few people, and 
that is, the talented and hard-working people, the men and 
women of FEMA, who have been assigned to the Gulf Coast. They 
have been working day and night for months on end, away from 
their homes and families, unselfishly assisting those 
communities devastated by Hurricanes Katrina, Rita, and Wilma 
to get those people back on their feet again. They need to be 
recognized and commended, not criticized and chastised as they 
have been, as I see each time I read the papers from the New 
Orleans area. Asking them to do better or to do more, well, it 
is like asking Hank Aaron to hit 755 home runs with a whiffle 
ball bat. Without the right tools, it is an impossible task. 
The dedicated FEMA employees who are assigned to the Gulf Coast 
are doing the best they can with the tools they have been 
given.
    Now, let me begin my remarks with a brief overview of what 
we are working on in our future oversight efforts, and then I 
would like to talk briefly about some of the issues that are 
giving us some concern.
    Given the extent of damages caused by Hurricanes Katrina, 
Rita, and Wilma and the cost to the Federal taxpayer to assist 
the affected States to recover from those damages, the 
necessity for oversight is obvious. Recognizing the need to 
protect taxpayer dollars, the Inspector General community, as 
you know, initiated what is the most aggressive, coordinated 
oversight effort in its history. I have been coordinating this 
initiative through the Homeland Security Roundtable of the 
President's Council on Integrity and Efficiency. I am pleased 
to report that Inspector General representatives from all the 
Federal agencies with hurricane relief responsibilities have 
been working tirelessly to ensure that agency internal controls 
are in place; agency stewardship plans for hurricane relief 
activities are in place and operating as intended; we are also 
exercising or executing our hurricane relief oversight efforts 
in a coordinated fashion so that our resources are utilized as 
efficiently and effectively as possible; and, finally, we are 
also working very closely with the Department of Justice 
Hurricane Katrina Task Force.
    Incidentally, I would like to say that without the 
commitment and support of the Department of Justice Hurricane 
Katrina Task Force, which is led by Attorney General Alice 
Fisher, who is sitting next to me today, we would not be 
enjoying the level of success that we are now having to detect, 
prevent, and prosecute Hurricane Katrina fraud. All in all, the 
efforts of the Inspector General community are commendable, and 
I am proud and honored to be part of that outstanding group of 
professionals.
    I have also created, as you know, a separate oversight 
office just for Gulf Coast hurricane recovery, which is headed 
by a Special Inspector General who reports directly to me. The 
Special IG's office allows us to stay current on all disaster 
relief operations, provide on-the-spot advice on internal 
controls and precedent-setting decisions, and plan for and 
implement a series of audits, inspections, and special reviews 
of FEMA's programs and operations relating to the Gulf Coast 
hurricanes.
    For example, that office currently has reviews underway 
addressing sheltering and transitional housing issues, contract 
management, property management, the Individuals and Households 
Program, and management of mission assignments. In addition, 
that office plans to initiate soon a review of FEMA's 
Mitigation Program, the National Flood Insurance Program, the 
Public Assistance Program, and the Volunteer Recruitment 
Program. We are also wrapping up a special study that addressed 
FEMA's performance in response to Hurricane Katrina. We expect 
to have that report to you very soon.
    Today, I will focus my remarks on two of the reviews that 
we now have underway: Housing and contract management. I would 
like to emphasize, however, that our reviews in these areas are 
still in process. Much work remains to be done, and many 
questions remain unanswered.
    First, regarding housing, we are learning that the 
difficulties experienced by FEMA, finding adequate housing for 
those left homeless as a result of Hurricane Katrina, can be 
linked directly to weaknesses in preparedness, planning, 
communication, and coordination. To compound matters, the 
breadth of States to which victims were evacuated is 
unprecedented. As you can see from this map, literally every 
State is being impacted by this disaster as evacuees are being 
housed across the country.\1\ To date, more than 5 months after 
Hurricane Katrina made landfall, more than 60,000 evacuees have 
yet to be placed into FEMA's Temporary Housing Program.
---------------------------------------------------------------------------
    \1\ The map referenced by Mr. Skinner appears in the Appendix on 
page 122.
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    FEMA introduced a relatively new concept to address housing 
needs called the Housing Area Command. The Housing Area 
Command, which had never been tested to any large extent, was 
charged with the task of coordinating and overseeing housing 
solutions throughout the affected area where several Joint 
Field Offices had been established. It was not intended to be 
an operational element. The housing functions were to remain 
within the JFO, that is, the Joint Field Offices. FEMA's 
housing strategy involved using shelters, hotels, cruise ships, 
and tents to address immediate housing needs of disaster 
victims. It then would transition those victims to travel 
trailers and mobile homes and finally to apartments to address 
longer-term housing needs.
    Unfortunately, this traditional approach of providing 
housing was not suitable for an event as large as Hurricane 
Katrina. Some components of FEMA's housing strategy were not 
well planned or coordinated, while other components were not as 
effective or as efficient as FEMA had anticipated. Most 
noteworthy is the confusion that existed between the Housing 
Area Command, FEMA headquarters, and the JFOs. Some FEMA 
officials viewed the Housing Area Command as becoming an 
operational element working parallel to JFO operations, while 
others viewed it as working in disregard of housing resource 
needs requested by the JFOs.
    Essentially, the authority and responsibilities of the 
Housing Area Command in the chain of command relationship with 
FEMA headquarters, JFOs, and housing contractors were foggy, at 
best. Consequently, housing decisions made by the Housing Area 
Command were often made in a vacuum, without appropriate 
coordination and input from the JFOs, causing confusion and 
most likely wasteful spending.
    For example, it appears that FEMA may have purchased 
unneeded or unusable mobile homes and manufactured homes. It is 
still unclear as to how this decision was made. However, we 
determined that FEMA purchased nearly 25,000 manufactured homes 
at a cost of $857 million and around 1,300 modular homes at a 
cost of $40 million.
    As seen in this aerial photo,\2\ almost 11,000 of those 
manufactured homes are sitting on runways in the open fields in 
Hope, Arkansas. Since they were not properly stored, as you can 
see from this second picture, the homes are sinking in the mud, 
and their frames are bending from sitting on trailers with no 
support. Insofar as many of these homes failed to meet FEMA 
specification requirements or FEMA has no qualified, 
prearranged site location to place them, they may have to be 
disposed of.
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    \2\ The photos referenced by Mr. Skinner appear in the Appendix on 
pages 123-124.
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    With regard to contract management, as government agencies 
rushed to meet requirements in the immediate aftermath of 
Katrina, they used expedited contracting methods as authorized 
in the Federal Acquisition Regulations. While we have found 
many instances where contractors performed their work 
efficiently and in good faith, we have also found instances 
where there are problems. For example, we are finding contract 
taskings without the knowledge of the contracting officers' 
technical rep; contracts with firms with no experience; poor 
invoice acceptance procedures, that is, paying contractors the 
full contract price before the period of performance was 
complete; firm fixed-price contracts with cost reimbursement-
type invoicing, and the subsequent payment of invoices with 
both firm fixed-price and cost reimbursement-type charges.
    And we found cases where FEMA accepted and paid for flawed 
goods and property. For example, FEMA accepted and paid for at 
least 21 damaged travel trailers that cannot be used for 
housing and should have been returned to the contractor. To 
make matters worse, as you can see from this photo, they are 
using the parts from the damaged trailers to equip other 
trailers that were delivered, accepted, and paid for without 
all the required parts.\1\ These, too, should have been 
returned to the vendor.
---------------------------------------------------------------------------
    \1\ The photo referenced by Mr. Skinner appears in the Appendix on 
page 126.
---------------------------------------------------------------------------
    We are finding contracts with poor statements of work, poor 
specifications, and unknown terms, conditions, and 
deliverables. Because FEMA did not always articulate its 
specifications for mobile homes, for example, many expensive, 
luxury-style mobile homes were delivered, accepted, and paid 
for by FEMA. Then to ensure consistency among the mobile homes 
being delivered to evacuees, FEMA would cannibalize the luxury 
mobile homes of such amenities as TVs, microwaves, and 
dishwashers. To date, we have been unable to locate the 
cannibalized parts or how they were disposed of.
    Finally, we are finding contracts with no incentives for 
contractors to control costs. For example, as you can see from 
this chart,\2\ the FEMA contractor responsible for finding 
hotel rooms for evacuees paid a hotel in New York City its 
published rate of $438 per night. Another facility in Panama 
City, Florida, charged between $330 and $375 per night for 
beachfront condominiums. A hotel in downtown Chicago charged up 
to $399 per night.
---------------------------------------------------------------------------
    \2\ The chart referenced by Mr. Skinner appears in the Appendix on 
page 127.
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    We also found cases of apparent price gauging. For example, 
a hotel in Chicago was charging $391 per night per room for 
evacuees, yet its published or advertised rate was only $249 
per night per room. In another case in Ontario, California, the 
hotel charged evacuees $199 per night per room, yet its 
published rate was only $72 per night per room. These are just 
two of the many examples that we have found to date. 
Unfortunately, due to the terms of FEMA's contract with the 
firm responsible for hotel rooms, the government may not have 
or may have little recourse to recoup these excessive charges.
    I can see my time is starting to run out, so I would just 
like to leave you with a few words.
    First, we can all agree that Hurricane Katrina has been a 
catastrophic event beyond anything in recent experience, and we 
will debate its lessons and calculate its total monetary and 
economic impact for many years to come. The bottom line, 
however, notwithstanding the overwhelming effects of Hurricane 
Katrina, it does not mitigate our fiduciary obligations as 
stewards of public dollars. That is why our oversight efforts 
are focused on the prevention of fraud, waste, and abuse, but 
we also hope to provide lessons for future disasters. I believe 
that collectively the Inspector Generals are uniquely qualified 
and positioned to provide the most timely and effective 
oversight of hurricane relief activities in the Gulf Coast, and 
you can be sure that we will do so.
    Chairman Collins, Members of the Committee, that concludes 
my remarks. I will be happy to answer any questions.
    Chairman Collins. Thank you very much for your excellent 
testimony. Assistant Attorney General Fisher.

 TESTIMONY OF ALICE S. FISHER,\1\ ASSISTANT ATTORNEY GENERAL, 
 CRIMINAL DIVISION, AND CHAIRMAN, HURRICANE KATRINA FRAUD TASK 
               FORCE, U.S. DEPARTMENT OF JUSTICE

    Ms. Fisher. Thank you, Chairman Collins, Senator Lieberman, 
and other distinguished Members of the Committee. Thank you for 
inviting me to testify today and also thank you for having this 
hearing. It's my belief that having this hearing will act as a 
further deterrent on those who would intend to commit fraud, 
and it helps us to get our message out that we won't tolerate 
it. So I thank you for doing that and thank you for having me 
here.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Fisher appears in the Appendix on 
page 85.
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    When Hurricane Katrina hit, it brought an outpouring of 
donations from across America and across the globe to the 
victims of the hurricane. We knew that the government would 
have to send money quickly and in record amounts, and we wanted 
to protect the integrity of that money. So the Attorney General 
established the Hurricane Katrina Fraud Task Force on September 
8, with one goal in mind: To make sure that relief money makes 
it into the hands of the victims and not to the pockets of 
fraudsters.
    We must try to deter fraud by anticipating problems, 
coordinating, learning from patterns, and we must prosecute the 
wrongdoers. Every dollar lost to fraud is a dollar that does 
not make it into the hands of the people that deserve it--the 
victims of the hurricane and those that are struggling to 
rebuild their communities and their lives.
    I immediately reached out to my counterparts inside the 
Department of Justice and throughout the Federal Government, 
pulled us in a room together to discuss our goals and to 
discuss our mission. I was overwhelmed by the commitment, the 
dedication and support I received from across the government--
the Federal law enforcement community, including the FBI, 
Secret Service, IRS, the U.S. Attorneys; the Federal Inspector 
General community, too many, too numerous to mention all here 
today, but including Mr. Skinner from DHS, Department of 
Defense, Department of Housing, HHS, Social Security, and a 
host of others; Federal regulators such as the FTC and the SEC; 
State and local partners through the National Association of 
Attorneys General and the National District Attorneys 
Association; and partners such as the American Red Cross.
    We got together into that room and talked about the 
mission, and every agency was energized and standing behind it. 
We have been working hand in hand from that day forward.
    The task force has made it clear from the start we will 
have zero tolerance for fraud in a time of disaster, whether it 
is benefit fraud, charity fraud, insurance fraud, identity 
theft, or public corruption. We are determined to prosecute 
criminal activity to the fullest extent of the law.
    In no time at all did we see people trying to rip money out 
of the hands of the victims. For example, in Miami, a man set 
up a website. He called it AirKatrina.com, and on this website 
it said, ``Donate money here. I am going to fly a plane into 
the Gulf region with humanitarian relief, and I will fly out 
sick children.''
    That was not true. That was a fraud. I am pleased to report 
that this man is now convicted.
    We went on the offensive with the websites. The FBI and the 
Secret Service scoured the Internet for false charity websites 
and shut down 44 of them. The Secret Service shut down six so-
called phishing websites that were only there to harvest 
information about the donors and steal their identity.
    In another example, we saw temporary contract employees out 
in California who were working at a Red Cross call center 
engage in a conspiracy where they would accept fraudulent FEMA 
assistance applications and send their co-conspirators out to 
the nearby Western Union to pick up the cash. So far, 53 
individuals have been prosecuted for that fraud in California.
    We brought our first prosecution within weeks after the 
Hurricane Katrina Fraud Task Force was set up, and since that 
date, we have prosecuted 212 individuals in over 23 judicial 
districts across the Nation. We have convicted 40 of them, but 
our work continues and will continue for the long haul.
    It is also particularly disturbing, as you mentioned, 
Chairman Collins, when public officials try to use their 
position of trust to make money off the disaster through 
corrupt means. We have brought criminal charges in three 
separate cases of public corruption--two involving FEMA 
officials and one involving a councilman in Louisiana.
    As an example of this, about 10 days ago, two FEMA 
employees were indicted in the Eastern District of Louisiana 
for soliciting bribes from a contractor. The public officials 
asked the contractor to inflate his charges for meals pursuant 
to a government contract and provided a road map to the 
contractor on how to do it. Those public officials asked for a 
$10,000 up-front cut and a $2,500-a-week payment after that. 
The contractor turned them in. That contractor chose not to 
engage in the fraud. We want to make that decision easy for 
everyone. We want to hear those tips. We want people to come in 
and tell us because we will prosecute those cases, we will 
investigate them, and we will fine them. The people displaced 
by the Gulf Coast hurricanes have lost enough. They do not need 
to lose even more to criminals and fraudsters.
    By going on the offensive and attacking this problem so 
forcefully, our plan was to deter people from committing frauds 
in the first place, and I am optimistic that our prosecutions 
are having some effect. FEMA and Red Cross have reported to me 
that over $8 million in assistance has been returned.
    I don't know how much of that is because of our 
prosecutions and deterrents, but there are signs that some of 
it is. We have received returned assistance checks anonymously. 
Some people return only partial funds and ask for a payment 
plan to repay the rest. Others have simply acknowledged in 
returning the funds that they took it wrongfully.
    We have engaged in other efforts at deterrence, setting up 
tip lines, websites, advertising of warning about fraud 
schemes, distributing pamphlets on how to protect yourself from 
identity theft. We publicized the criminal prosecutions in 
furtherance of deterrence. Senate hearings, as I said, such as 
this help get that message out.
    I cannot underscore enough that none of this could have 
been possible without the support of all of the task force 
members. One of the most visible examples of this cooperation 
is at the Joint Command Center that we have set up in Baton 
Rouge, Louisiana. At this Command Center, we have IG agents, 
FBI, Secret Service, and others working hand in hand every day, 
sharing information from their databases, sharing information 
about investigations, talking about patterns that they are 
seeing, talking about analysis of things to prevent future 
fraud.
    LSU gave us the space, and their assistance has been 
unwavering. Men and women from the Department of Justice went 
down there with supplies in hand, from computers to staplers, 
to set this up. The FBI has been so supportive. The U.S. 
Attorney from New Orleans, Jim Letten, provided leadership in 
the early days of the Command Center, did this while battling 
the loss of his city and looking for his unaccounted-for staff 
and dealing with a colossal law enforcement crisis. Rick 
Skinner and all his fellow IGs have added analysts and 
resources down to the Command Center to work on investigations.
    It is working. Every day it is making new strides and 
improving information sharing, and it is moving under new 
heights under our Executive Director, U.S. Attorney Dave Dugas, 
from the Middle District of Louisiana. This Command Center will 
be critical to our long-term efforts to protect the money going 
out to the Gulf Coast region.
    Benefit fraud cheats the victims. Fraud in the rebuilding 
process cheats the taxpayers of hard-earned money. It also 
delays and cheats the rebuilding effort itself. The task force 
is committed to its mission to combat fraud for as long as it 
takes. I am so honored to work with everybody on the task 
force, and I look forward to any questions that you may have.
    Chairman Collins. Thank you very much for your testimony.
    Inspector General Skinner, I am going to start my questions 
with you. You stated that FEMA purchased mobile homes valued in 
total at more than $850 million that, by FEMA's own 
regulations, could not be installed in most of the affected 
area. Some of the mobile homes did not even meet FEMA's 
specifications. Others were unsuitable for installation in a 
floodplain.
    This is an enormous amount of money, but it also is a 
source of enormous frustration, as we heard when we visited the 
Gulf region where you have residents who are desperate for 
housing. And yet here we have all of these mobile homes sitting 
unused and unable to be used.
    My question for you is a basic one: How did this happen?
    Mr. Skinner. Essentially, it is because FEMA did not have a 
plan in place to react to the massive requirements that they 
had for housing. That coupled with the fact that they were 
experimenting with or used for the very first time a Housing 
Area Command that has never been used for anything as great as 
this before. There was lack of communication. There was lack of 
coordination with the Housing Area Command and the individual 
housing components within the individual Joint Field Offices, 
not only in Louisiana but also in Mississippi and Alabama.
    FEMA reacted. They knew they needed housing. But they did 
not coordinate their efforts in a strategic manner, that is, 
defining how they were going to provide that housing, how much 
housing was needed, and where it was needed. They had not 
coordinated with the locals to find out where they could place 
the trailers, manufactured homes, or modular homes. They bought 
first, then tried to fit their inventory into their 
decisionmaking processes. As a result, they may have certain 
types of housing, like manufactured homes and modular homes, 
that they will not be able to use. Instead, they may need to 
buy more trailers, which leaves them with a large inventory of 
modular housing that is very costly and that may not be used. 
And, as we speak, FEMA is developing some type of strategy, 
which we have not seen, as to how they want to dispose of these 
units. They may use them for future disasters or dispose of 
them by donating them to GSA for use by other Federal agencies 
that may have housing requirements, or they may just sell them.
    Chairman Collins. If they are sold as surplus property, 
what kind of return can you expect on that?
    Mr. Skinner. I can only speculate, but it is certainly not 
going to be very high, and the reason for that is they have 
been sitting exposed to the elements for months. Some of the 
trailers that we inspected are actually warping and have lost 
wheels. And some have been cannibalized, parts taken out, and 
we don't even know where the parts are right now. So their 
value is going to decrease tremendously.
    Chairman Collins. So they have been allowed to deteriorate, 
but also, from my experience with the government selling 
surplus property, it seems that oftentimes the government only 
gets pennies on the dollar. Is that a fair assessment?
    Mr. Skinner. Absolutely, and FEMA has experience in 
reselling used trailers. It is my understanding they will 
refurbish a trailer once, but the second time that it is used, 
they will put it up for sale, and they literally only get 
pennies on the dollar.
    Chairman Collins. Mr. Kutz, I was struck by your testimony 
that it appeared if someone applied for help via the Internet, 
that FEMA officials had instituted procedures for verifying 
identities and Social Security numbers. But if that individual 
applied over the telephone, there were no such verification 
steps taken. Is that accurate?
    Mr. Kutz. That's correct.
    Chairman Collins. And did you actually find cases where 
people were turned down when they applied via the Internet 
because the Social Security number may have been bogus or the 
identity couldn't be verified and then they were able to get 
the assistance by using the toll-free number?
    Mr. Kutz. Yes. The cases that we did, the bogus cases GAO 
did in our covert operation, in fact, that is what happened. We 
don't know how many other cases that happened because no one 
kept track of the rejected Social Security numbers and 
identities from the Internet application, or at least we 
haven't been given any support for that. We asked for that 
several months ago, and we haven't gotten it. So we believe 
that no one kept track of that.
    So, really, the Internet, although it was a control, it was 
not an effective control because if you just were told to call 
on the telephone and they didn't keep track of who was rejected 
on the Internet, it was really not an effective process.
    Chairman Collins. It just is amazing to me that FEMA would 
have pretty good controls on the Internet, nonexistent controls 
on the telephone system, and then refer people who had been 
rejected by the Internet to apply on a system that had no such 
controls.
    Did FEMA have any explanation for why there weren't 
controls for the telephone registrations?
    Mr. Kutz. They claimed that they had a system change 
request in place back in August 2005. We have been provided no 
support for that. They also claimed at one point that they 
didn't have funding to do it, and, again, we have been provided 
no support for that. So we really don't know the reason, but 
this has been something that should have been done years ago. I 
would call this ``Fraud Prevention 101,'' and I don't think 
they have gotten into the 101 course at this point.
    So, validating identities and damaged property address 
information before someone gets in the system is the building 
of what we call the foundation of information upon which you 
have got this whole program to build on.
    Chairman Collins. It does not seem like rocket science to 
verify an individual's identity, Social Security number, and 
address before cutting a check.
    Mr. Kutz. Correct. Agreed.
    Chairman Collins. Mr. Ryan, I want to talk with you further 
about the Social Security numbers that you found because I was 
struck on your charts by the number of individuals who used 
multiple Social Security numbers.
    GAO's testimony has indicated that 165 of the 248 
fraudulent registrations that you are investigating did involve 
the misuse of Social Security numbers. Can you give us some 
examples of the ways in which Social Security numbers were 
misused?
    Mr. Ryan. Yes, Senator. A Social Security number is a 
unique number. It is provided by the Social Security 
Administration. It is identified to a particular individual.
    What happens in this particular case is that someone will 
take a chance, make up a series of numbers, and claim it is 
their Social Security number. If you do not validate that 
number against the authenticator, then you have a possibility 
of a misuse of a Social Security number.
    In the cases that we are investigating, that is one of the 
main themes that we have seen, is the misuse of the Social 
Security number.
    Chairman Collins. Were there Social Security numbers used 
that belonged to people who are no longer living?
    Mr. Ryan. Yes. We were able to take the database of Social 
Security numbers and work very closely with the Social Security 
IG, who was very helpful to us. In that particular case, we 
were able to run the Social Security numbers against their 
system, and we were able to determine that there was a series 
of numbers that were linked to individuals and dates of birth 
that were already recorded in the Social Security 
Administration's death files.
    Mr. Kutz. There were about a thousand of those, Senator, 
that were deceased.
    Chairman Collins. A thousand.
    Mr. Kutz. About a thousand, yes.
    Chairman Collins. That actually is a good lead-in to my 
next question. You used data-mining techniques to identify some 
of these cases. Do you think that the data mining you did 
indicates the scope of the problem? Or do you think it is 
likely much beyond the cases that you have identified?
    Mr. Kutz. It is certainly beyond the cases we have 
identified. We cannot quantify it. We want to be able to do 
that down the road, and we would hope to be able to report back 
to the Congress in aggregate. But certainly in addition to the 
thousand or so deceased individuals' Social Security numbers, 
there were about a thousand other Social Security numbers that 
had never been issued by the Social Security Administration. So 
those are pretty much slam-dunk cases.
    There is also tens of thousands of other mismatches where 
the name, date of birth, and Social Security number do not 
match, and within our fraud cases, we did see instances where 
those, in fact, were specific frauds of misuse of Social 
Security numbers. So the potential is certainly thousands and 
thousands of--and that is just Social Security misuse. That 
doesn't include bogus property addresses or identity theft or 
all the other types of fraud that you likely have in this 
program.
    Chairman Collins. The lack of these basic controls seems to 
be an invitation to massive fraud, and I just am at a loss to 
understand why these basic safeguards were not built into the 
system.
    Mr. Kutz. Mr. Skinner could probably comment, too, because 
he has a longer history with this, but I don't really believe 
FEMA believes it is their purpose to have fraud prevention. 
That is why they haven't got to Fraud Prevention 101 yet 
because they haven't looked on that as a purpose.
    I would say that they have been very open to our 
discussions with them on doing some of the things we have 
talked about. It is just a matter of actually going out and 
getting it done. And even with respect to using the Social 
Security Administration to help them with this, as Special 
Agent Ryan said, those are the people who issue the Social 
Security numbers. It is surprising to us that they had not been 
in contact with and working directly with the Social Security 
Administration years ago to figure out a way to use government 
information to identify individuals.
    Chairman Collins. Thank you. Senator Lieberman.
    Senator Lieberman. Thanks to all of you. I don't know about 
my fellow Committee Members or people watching on television, 
but I think we need some of that medication that reduces blood 
pressure. [Laughter.]
    As we listen to what you have said because it really is 
infuriating.
    I must say, in response to your last statement, Mr. Kutz, 
which is that FEMA has not viewed its role as fraud prevention 
but as support extension, there is just no excuse for that 
because as Senator Collins said, just last year FEMA should 
have been embarrassed greatly by the stories of waste, fraud, 
and abuse that were coming out of Florida after the hurricanes 
there. We conducted an investigation. We held a hearing. We 
sent those 19 recommendations for fraud prevention, so they 
were really on notice. This is double notice. It is long past 
time for FEMA to understand that if we are going to sustain 
public support for the relief that we all want to give our 
fellow Americans when they are hit by a disaster, they have to 
consider fraud prevention part of their emergency management 
charge.
    I am going to direct this question to you, Mr. Kutz--I 
understand that you do not have a precise estimate, but is it 
possible to estimate the upper range of dollars of total fraud 
under the expedited assistance program?
    Mr. Kutz. No, not really. I mean, it certainly is millions 
of dollars, could be tens or hundreds of millions. It is 
difficult to tell. Again, we would hope to be able to report 
back to you later this year some sort of a range based on a 
statistical sample of what that might be. But certainly tens to 
hundreds of millions is possible given what we have seen.
    Senator Lieberman. OK. Give us, to the best of your 
ability, some sense of what the profile is here of those 
engaging in Katrina-related fraud. Are these professional 
criminals and con artists? Or are they people who may have been 
entitled to benefits under the relief program because of 
Katrina and when they saw how easy it was, they just decided to 
cash in? Or is it something else? Who are these people?
    Mr. Kutz. For the fraud cases we looked at, some of the 
individuals had actually lived in the disaster area at some 
point in time. Most of them had not lived there when the 
hurricane hit.
    Senator Lieberman. So they were just people out across 
America who decided that they would try to figure out how to 
rip off the system.
    Mr. Kutz. I wouldn't say across America. I would say 
primarily in places like Texas, Georgia, Alabama, so on the 
outskirts of the disaster area. That is where we believe many 
of the crimes are taking place. But some of the indictments 
that they have had that we have read that Ms. Fisher talked 
about are all over the country, actually.
    Senator Lieberman. But since most of this is over the 
phone, at least for the assistance, you could be anywhere and 
make the calls, so long as your number was blocked.
    Mr. Kutz. We did it from Washington, DC.
    Senator Lieberman. Yes, exactly.
    Let me next ask you about this Internet-phone question that 
is so interesting, and maybe you have answered it already, but 
it is puzzling to me as to why FEMA could not train the people 
on the other end of the phone to impose the same requirements 
that the Internet was imposing. Do you know what I mean?
    Mr. Kutz. Yes. They could have. The technology is there. 
Actually, it is probably easier to do on the phone because 
based on our covert operations, the phone applications took 
anywhere from 15 to 40 minutes to do, so you would have had 
plenty of time to type in a Social Security number, send it to 
the contractor, and get a yes or no as to whether it was a 
valid Social Security number. So there really is no excuse why 
they didn't do it.
    Senator Lieberman. Let me ask this question: I had been 
under the impression--my staff had, too--that there may not be 
a formal information-sharing agreement between FEMA and the 
Social Security Administration. Is that correct?
    Mr. Kutz. That's correct.
    Senator Lieberman. So in the cases where they checked the 
Social Security numbers, how did they do that?
    Mr. Kutz. They used a company called ChoicePoint.
    Senator Lieberman. Ah, got you.
    Mr. Kutz. They had a contract in place I believe before the 
hurricanes hit with ChoicePoint that was implemented 
immediately.
    Senator Lieberman. Is there any reason from your point of 
view at GAO why that would be preferable to having a direct 
information-sharing program? Or is there no difference really?
    Mr. Kutz. Well, I think that the Social Security 
information may be more up-to-date and current. We did see that 
there were 60 Social Security numbers that were registered by 
Internet that were not valid Social Security numbers. So the 
Internet process is not foolproof either. And what happened, 
Senator, is I believe people before the disaster probably 
created fictitious identities using bogus Social Security 
numbers by opening up a credit card or something. And so in the 
credit information that ChoicePoint was probably using to 
validate, these people appeared to be real individuals.
    Senator Lieberman. So they had set up a kind of fraudulent 
foundation to use that fake Social Security number somewhere, 
since they did it before Katrina struck. Is that what you are 
saying?
    Mr. Kutz. Yes. That's correct. And, again, I think 
ChoicePoint periodically validates their information against 
Social Security records.
    Senator Lieberman. Right.
    Mr. Kutz. But they were validating, we believe, against 
credit headers or credit histories from credit reports.
    Senator Lieberman. Mr. Kutz, am I correct to say that you 
are not arguing--or are you--that the expedited assistance 
program should be ended or dramatically altered? You are saying 
that there ought to be more fraud prevention in the carrying 
out of that program.
    Mr. Kutz. That's correct. We are not arguing that the 
program should be ended or that the debit card was necessarily 
bad either. It is really a management issue, Senator.
    Senator Lieberman. Correct.
    Mr. Skinner, thank you for what you said. Like Senator 
Collins, I am shocked by the story of these thousands of 
manufactured homes purchased with no apparent purpose or 
utility, which are now allowed to begin to deteriorate in that 
open area, the floodplain in Hope, Arkansas. These trailers are 
going to take the place of those very expensive toilet seats 
that we remember from Pentagon days. It is really absolutely 
unbelievable and unacceptable.
    Did I hear you correctly that if we ask you how this 
happened, you would put the blame more on poor management 
within the Federal Government and FEMA, rather than in this 
case on poor performance by the government contractors who were 
hired to do this?
    Mr. Skinner. Yes, that's correct. The contractors were only 
reacting to what FEMA asked for.
    Senator Lieberman. Yes. What about the decision to leave 
the manufactured homes in an area where they now are rapidly 
beginning to deteriorate? Who was responsible for that?
    Mr. Skinner. Those are the questions we are still trying to 
find answers to. We do know that we are talking about 25,000 
modular homes. About 11,000 are in Hope, Arkansas. Others are 
scattered throughout the Southeast and Southwest. For those in 
Hope, Arkansas, they were put there because, I think, it was a 
former military base and, therefore, they could enter into some 
type of an agreement with the military, or whoever was the 
custodian of the property.
    Senator Lieberman. So let me get this clear: The 25,000 
manufactured homes that were bought, how many are actually 
being used?
    Mr. Skinner. We think about 200 have been deployed to 
house----
    Senator Lieberman. Two hundred out of the 25,000?
    Mr. Skinner. About 2,200. I am sorry, about 1,200. Two 
hundred had been deployed to help those that were affected by 
the recent fires in Oklahoma and Texas.
    Senator Lieberman. Yes. Not Katrina.
    Mr. Skinner. Not Katrina.
    Senator Lieberman. Right.
    Mr. Skinner. And about 1,000 had been deployed in Alabama, 
Mississippi, and Louisiana in the non-floodplain areas.
    Senator Lieberman. Right.
    Mr. Skinner. So I am going to say about 1,200 to date.
    Senator Lieberman. And just state again for the record why 
these 25,000 homes, purchased at a cost of $850 million, 
roughly, have not been able to be used to satisfy the 
continuing need for housing by Katrina victims.
    Mr. Skinner. There are several reasons that we have been 
given. One is that they cannot be placed in floodplains because 
that is a violation of the floodplain regulations.
    Senator Lieberman. In other words, if you were going to 
move them into New Orleans or large parts of Mississippi, which 
was going to be one of the purposes, to let people move back 
close to where they had previously lived, you couldn't do it 
because they are floodplains.
    Mr. Skinner. That's correct. Second, they were purchased 
before they had coordinated with the State and local officials 
as to where they could be placed. Many of the officials, for 
example, in Alabama--and as you have read in the paper, many 
places in New Orleans as well--do not want to have trailer 
parks.
    Senator Lieberman. Yes.
    Mr. Skinner. So they don't have a place to put them, even 
if it was outside the flood zone.
    Senator Lieberman. This is just such basic stuff. It goes 
back to preparation. It goes back to just plain common sense to 
have been ready--incidentally, as we found over and over and as 
you know, the predictions of a hurricane like this go back 
decades and the effect it would have on New Orleans. A year 
before, there was a mock exercise saying that about 100,000 
people would not be able to evacuate in time. Of course, many 
that were able to evacuate would need emergency housing to come 
back. And it looks like there was effectively no sensible 
planning ahead of time to meet those housing needs. And the 
result is a disastrous and infuriating waste of public money.
    Mr. Skinner. Yes, it is very disturbing, and everyone keeps 
referring to exercise Pam, which goes back one year.
    Senator Lieberman. Right.
    Mr. Skinner. But I would suggest that FEMA and the Federal 
Government and the State of Louisiana and the City of New 
Orleans knew about this 20 years ago.
    Senator Lieberman. You are right.
    Mr. Skinner. These analyses are not new. These exercises 
and the results, the information that we garnered from these 
exercises is not new. It is not something we just learned a 
year ago. We have known about this for 20 or 30 years, if not 
longer.
    Senator Lieberman. Absolutely right. Thank you. My time is 
up.
    Chairman Collins. Thank you. Senator Akaka, Senator Dayton 
has indicated that he would like you to go next. And it sounds 
like you are going to defer back to him.

              OPENING STATEMENT OF SENATOR DAYTON

    Senator Dayton. All right. Thank you, Madam Chairman. Sorry 
for the confusion.
    Mr. Skinner, I cannot accept your Hank Aaron analogy 
because this is what FEMA does. It is like saying that the last 
place team in the league, using your baseball analogy, with a 
horrendous record deserves credit because its players showed up 
for the 162 games of the season. That is what they get paid to 
do. The National Transportation Safety Board gets--they sign 
up, they build their careers to show up, so I appreciate what 
they do, but I don't think they deserve special recognition for 
showing up at the site of airplane disasters. This is what FEMA 
does.
    I think the disaster--we have a continuing disaster, and 
that is FEMA. I think I have reached a point where I almost say 
we ought to just dispense with FEMA, just start all over again, 
because it would be one thing if these kinds of failures 
occurred in the immediate aftermath of what we all agree is an 
overwhelming disaster, unprecedented disaster. But this is 
continuing today.
    Last week's Washington Post says--just reading some of it, 
the story is about Limbo Land. ``Vast sections of the city are 
still without utilities. Without electricity, businesses cannot 
open their doors. Without open businesses, electric bills 
cannot be paid. Of an estimated 50 million cubic yards of 
hurricane and flood debris, about 6 million has been picked up, 
the city's website reported.''
    ``And everyone is waiting for the FEMA maps like they were 
oracles at Delphi. The maps will tell residents and businesses 
where and how they can rebuild.''
    ``Preliminary FEMA maps are scheduled to come out in the 
spring, but final Federal guidelines for rebuilding may not be 
released until August, when New Orleans will already be several 
weeks into the hurricane season. `People are afraid to do the 
wrong thing, to put money into a home that may or may not be 
insurable in the long run, and this is causing a tremendous 
amount of paralysis,' '' the local official said.
    Madam Chairman, I would like to submit into the record a 
memo I received over the weekend from my staff.\1\ The City of 
Roseau, which was flooded in June 2002--on February 3, 2006, an 
appeal to Region V of FEMA for--this is about a $500,000 
project for an alternate project request. It took 3 years to 
get that request processed for $500,000 as an alternate project 
in a recovery from a flood that devastated that city, and they 
were turned down. Now they have to go through an appeals 
process.
---------------------------------------------------------------------------
    \1\ The memo and letter submitted by Senator Dayton appear in the 
Appendix on page 108.
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    This is a scale that is not New Orleans, but it is 
devastating to Roseau. But this is just part and parcel to me 
of how it operates, and there are no consequences. Mr. Brown 
has left. But I am glad you are prosecuting those who are 
guilty of criminal acts. But the kind of incompetence that buys 
these mobile homes and yet, Mr. Skinner, you say it is unclear 
how the decision was made. So nobody is responsible then. It is 
unclear why the contractor can overcharge, can't function. 
Presumably that is what the contractor is hired to do, to 
parcel a contract for room rates around the area. And I think 
we should get--I would request, Madam Chairman, a list of the 
hotels, the names of the hotels who gouged the American people 
because I consider that to be an unpatriotic act, especially in 
the context of what is going on. And let's put those names up 
on that bulletin board there. I think people should be held 
accountable. I would like the name of the contractor who can't 
buy room rates at less than $496, or whatever it is, in New 
York or $396 in Chicago.
    But this stuff goes on, and then we have another report, we 
have another GAO audit. I am glad we are prosecuting those. But 
nothing fundamentally changes because this organization, which 
is set up to respond to emergencies, isn't responding. Let's 
put the National Guard in charge. Dispense with FEMA for a year 
or so and just start from the ground up and see if you can put 
together an agency. And I agree with you, there are some good 
people. I saw that in Roseau, Minnesota. I saw that in East 
Grand Forks in 1997. But they are so snarled in their 
bureaucratic entanglements that the good people cannot act, 
they cannot make decisions, they cannot give approvals for 
things. I guess when they do give approvals for things, then 
often those are fraudulent.
    So I just throw up my hands and say somebody who can--but 
there is never any consequence in the Federal Government for 
anything that just goes fundamentally wrong. And given your 
efforts, Madam Chairman--and I commend you for them, in the 
aftermath of previous hurricanes, to get this agency 
responsible and ready to respond to, yes, a catastrophe, but it 
is in the business of responding to catastrophes. And if it 
cannot do it, if what we heard the other day down in 
Mississippi and in New Orleans about the views of the public 
down there who are in critical situations to FEMA, then it 
doesn't have the public trust, in my view, to be able to 
continue to function.
    Mr. Kutz, I would like to ask you, What is your estimated 
loss rate for these fraudulent claims? Not the ones where they 
took the $2,000 and you cannot determine what they spent it on, 
but what is the loss rate for those that are--of all the 
emergency claims processed? Can you approximate that?
    Mr. Kutz. Not yet. We are trying to look at that.
    Senator Dayton. Are we talking 5 percent? Fifty percent? 
What is the ballpark?
    Mr. Kutz. I don't know. We are going to hope to report that 
back to you later this year. We are going to try to project 
that.
    Senator Dayton. Well, if you sampled enough--you have these 
examples of horrendous situations. Is that the norm or is that 
the exception?
    Mr. Kutz. Presumably most of the people that applied for 
disasters were, in fact, entitled, so hopefully it is the 
exception. And, again, I would anticipate tens or hundreds of 
millions of dollars we are talking about, but we don't know for 
sure.
    Senator Dayton. But a State auditor--I am not a 
professional auditor--but you can go back and based on a 
sampling make a projection----
    Mr. Kutz. That is what we plan to do, yes.
    Senator Dayton. By the end of the year? This is February, 
right?
    Mr. Kutz. Before the end of the year.
    Senator Dayton. Before next December? It is going to take 
you that long to do a sample?
    Mr. Kutz. No, we will have it done probably this summer.
    Senator Dayton. Probably. So is that probably, what, 6 
months from now? How long does it take to do a sample?
    Mr. Kutz. Well, it depends. It is difficult because we are 
going to have to try to validate everything, including whether 
people had insurance--this goes beyond just the expedited 
assistance payments and the addresses. We would look into 
whether people had insurance and whether the properties 
existed, whether they were reimbursed for property they ever 
actually owned.
    Senator Dayton. Thank you, Madam Chairman. I yield back the 
rest of my time. And I yield back the agency.
    Senator Lieberman. We do not accept it. [Laughter.]
    Chairman Collins. We will put the memo that you mentioned, 
Senator Dayton, and any additional materials into the record.
    Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman.
    The witnesses have a good sense of how the Committee feels 
about finding the problems, the mistakes, and correcting them 
so that we can help when the next disaster happens.
    Mr. Skinner, if a disaster occurred today that would 
require FEMA to use temporary housing, like the manufactured or 
mobile homes that you described, do you think that FEMA is 
prepared to deal with that problem today?
    Mr. Skinner. No. I know they are in the process of 
preparing themselves. They recognize that they have made many 
mistakes after Hurricanes Katrina, Rita, and Wilma. But they 
are not where they should be. They still have many contract 
problems. I think that they need pre-disaster type contracts, 
defining what requirements they are going to need. Additional 
training is necessary and additional staff is going to be 
necessary. Their IT systems and internal controls still need to 
be tweaked. If a disaster occurred today, I think we would be 
no better prepared than we were after Katrina. As a matter of 
fact, maybe even less prepared because we have so many people 
already deployed.
    Senator Akaka. Mr. Skinner, that is for me a shocking 
admission that our government, and in particular, FEMA, whose 
mission is to deal with disasters, to help people, is not ready 
or cannot do it today. This is something I feel that this 
Committee and the Senate need to really get after and locate 
those who have that responsibility and see what we can do about 
it so that they can be prepared today for any other disaster.
    Mr. Kutz, do you know whether debit card recipients were 
given information as to the products or services that could be 
purchased with the debit cards? Were any limitations or 
restrictions relayed to the recipients by FEMA?
    Mr. Kutz. The best we can tell, they were instructed on how 
to actually use the debit cards. They got their PIN numbers. 
But they were not advised on how they actually should spend the 
money, which was different than the checks or the EFT payments 
that they received. For checks and EFT payments, they received 
a detailed booklet in the mail that I thought was very well 
done by FEMA that laid out very clearly what the purpose of the 
program is, what all the rules and regulations are, the appeals 
process, etc.
    So it does not appear for the debit cards or we have seen 
no evidence for debit cards that they were given any 
instructions on what they were to be used for.
    Senator Akaka. You also indicated that there were groups, 
organized groups, prior to Katrina who set out to commit fraud. 
Is there any way that we can identify these groups before a 
disaster?
    Mr. Kutz. Not necessarily because they did not register 
with the Social Security numbers until actually the disaster 
had taken place, but they were individuals that used Social 
Security numbers that, again, were never issued, and they had 
real credit histories, it appears. So they had established 
these bogus credit histories before the disaster, and they were 
individuals--I don't think they were working together, 
necessarily, but it would be difficult, until they registered 
for disaster assistance, to determine who they are.
    Senator Akaka. Mr. Skinner, your testimony indicates that 
DHS has taken a number of initiatives to address the concerns 
raised by your audit and management reports. What are the top 
three recommendations that have not been addressed by DHS? And 
what further actions will you take to ensure their 
implementation?
    Mr. Skinner. Those that have not been addressed?
    Senator Akaka. Yes.
    Mr. Skinner. Generally speaking, they have been responsive 
to about all of our suggestions, and when I say 
``initiatives,'' these are just initiatives. They have not been 
completed. These are actions that they are just now getting 
underway, and examples are the need for increased contracting 
officers, the need for increased contracting officer technical 
reps, the need for increased controls within their NEMIS, the 
National Emergency Management Information System for disaster 
operations. Also, one of the things that we have suggested, as 
a matter of fact, just last week, I think they need to enter 
into MOUs with the Social Security Administration and other 
government agencies that can be used to help prevent fraud 
claims.
    But are they there? No, they are not. They are nowhere near 
there. But they are working toward that. Many of the issues 
that we have identified they agree with, and they have 
identified other issues that we have not even touched upon yet 
that they are going to be addressing. But it will take months, 
if not years, to get a lot of these things done.
    Senator Akaka. So what you are saying is that many of these 
are not completed. They are working on it. I understand from 
other hearings that one of the huge problems that we have had 
has been contracting officers, there is a major shortage for 
that. Do you find that to be true?
    Mr. Skinner. Yes. When Katrina hit, they were woefully 
understaffed in contracting officers. There is a plan now to 
hire, I believe, an additional 120 just within FEMA, half of 
which will be housed in Baton Rouge at an acquisitions center 
and the other half that will be assigned to headquarters to 
look at the big contracts. But they are not there yet.
    I don't even want to suggest that 120 may be enough. If we 
have another Katrina-like event, 120 additional people in their 
contracting office may not be sufficient.
    Senator Akaka. Ms. Fisher, you mentioned zero tolerance. I 
would like to ask you about the origins of the zero tolerance 
program. Is this the first time the Department of Justice has 
used this standard? And if so, who came up with that idea?
    Ms. Fisher. I can't speak historically over the many years 
of the Justice Department to say that this was the first time 
zero tolerance was instituted with a program like this. But 
after the hurricane hit and realizing how much money was going 
to go out the door from people across America that were going 
to open up their hearts and wallets and from the Federal 
Government, we thought it was the right thing to do, to make 
sure that we set that zero tolerance policy to protect the 
money that was going to the victims and to send a very loud and 
clear message of deterrence in this regard.
    Senator Akaka. How long can your Department afford to 
devote resources to prosecuting this level of fraud without 
affecting your ability to take and deal with other cases?
    Ms. Fisher. Well, I can tell you we have so much help 
across America. We have 93 U.S. Attorney's offices that are 
contributing to this effort and that are looking at all of the 
investigations, and we have the Command Center, of course, that 
is set up for the long haul. We are here for the long haul. So 
while I cannot predict forever in the future, the zero 
tolerance policy, I believe, is working as the numbers that I 
described for the deterrence and the money that we are seeing 
returned show, and we have no intention of changing that right 
now. But I can't predict forever into the future.
    Senator Akaka. Ms. Fisher, I appreciate the efforts by DOJ 
to move quickly on fraud cases, as you have reported, relating 
to relief and reconstruction in the Gulf. I know there was 
concern over large amounts of funds being distributed quickly 
and everyone wants to ensure that the victims of this terrible 
tragedy receive the necessary assistance.
    There were numerous articles in the press last fall about 
lobbyists facilitating large contracts going to favored 
corporations with little or no competition.
    Are you looking into any of these cases to see if there was 
any abuse of Federal contracting procedures?
    Ms. Fisher. Absolutely, procurement fraud is part of what 
the task force is going to look at, and we have done a lot of 
things to prepare for that. We have been training the auditors 
down in the Gulf Coast region on what red flags to look for. 
Our task force members, as you know, include the entire Federal 
Inspector General community, who are tied back to the agencies 
that they are working for and the contracts that are going out.
    So any evidence of fraud, procurement fraud, is being fed 
into the Command Center to make sure that we dedicate the 
appropriate resources to investigate that fraud.
    Senator Akaka. Do you have any cases now?
    Ms. Fisher. We have three cases that I mentioned earlier 
with regard to public corruption, and those involved 
contracting. Two of them involve debris removal contracts, and 
one of them involved a FEMA contract for meals provided to a 
tent environment down in FEMA. So while they are public 
corruption because they involve public officials, they are 
really also contracting cases.
    Senator Akaka. Thank you very much. Thank you, Madam 
Chairman.
    Chairman Collins. Thank you. Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you very much, Madam Chairman, and 
thanks to all of our witnesses.
    I was also very much interested in the number of contracts 
that have been awarded on a no-bid basis. Senator Akaka is 
addressing that question in part with his question, and I would 
like just to pursue that.
    How many of the contracts that were awarded by, say, DHS 
have been awarded on a no-bid basis, without competition?
    Mr. Skinner. With regard to the disaster or----
    Senator Levin. Yes.
    Mr. Skinner. I have the numbers here.
    We are talking about--DHS awarded about 2,500 contracts 
immediately following Hurricane Katrina. Of those, 706 were 
awarded on a no-bid basis or with limited competition.
    Senator Levin. Now, of the contracts over $500,000----
    Mr. Skinner. Just those over $500,000.
    Senator Levin. Right, so that over half of the contracts 
was over $500,000. Is that right? My figures that I assume you 
provided to us are that over half of the contracts awarded by 
DHS----
    Mr. Skinner. Yes, 405 of the 712. Then again, if you look, 
there are also some with very limited competition. So it is 
well over half. And I think that is the trend throughout the 
entire Katrina operations, just not within DHS.
    Senator Levin. Is that unusual?
    Mr. Skinner. Yes, it's unusual in this sense: FEMA has 
never experienced anything this big before, and generally they 
have the ability to go out and get contractors on a competitive 
or at least a limited competitive basis. They have also had 
contracts in place prior to a disaster that were let 
competitively, and they just needed to be activated after a 
disaster. This was so large that it required them to react in a 
very quick manner and obtain services through a no-bid 
mechanism.
    Senator Levin. When Mr. Paulison, who is the Acting 
Director of FEMA, came before this Committee in October, he 
said, ``We are going to re-bid all of those no-bid contracts.'' 
Do you know what he was talking about?
    Mr. Skinner. Yes, and that's a recommendation we had made 
to him. Right now, in conjunction with our office, they are 
reviewing each and every one of these no-bid contracts. The 
determination is being made. Do we still need the contract? Are 
the services or goods still required? If not, let's terminate. 
If the services and goods are required, is it for a short-term 
or long-term nature? If it is short term, we will let them run 
their course, then terminate. If it is long term, for example, 
contracts for the maintenance of housing, those are going to be 
re-bid.
    FEMA is now working with DHS procurement, in fact, to put 
bids out or are in the process of submitting requests for 
proposals on all long-term type contracts.
    Senator Levin. How do you re-bid a contract that has been 
issued?
    Mr. Skinner. You terminate for the convenience of the 
government.
    Senator Levin. So have any contracts been terminated?
    Mr. Skinner. Yes, I believe some have.
    Senator Levin. Do you know about how many of those?
    Mr. Skinner. No, I don't have that at my fingertips.
    Senator Levin. Would it be more than a few of the 60 
percent of the DHS contracts that were awarded?
    Mr. Skinner. It could be because many of those were for 
short-term services, for goods and services that we needed 
immediately. For example, we needed water, we needed----
    Senator Levin. No, I am just talking about were they 
terminated, not were they expired. I am not talking about a 
short-term contract.
    Mr. Skinner. OK.
    Senator Levin. I am talking about where a contract is a 
longer term, but where they have been terminated. You say some 
have been terminated, actually.
    Mr. Skinner. Yes, some have been and some will be. Some of 
these contracts were so broadly defined that the specifications 
or the taskings under the contracts were like mini contracts 
within a contract, so to speak. For example, the big four 
housing contracts, one tasking required the contractor to 
``haul and install'' trailers, while another tasking required 
them to maintain the trailers. What they will be doing is 
terminating the tasking for the maintenance and recompeting 
that to other vendors. The same thing with inspections of 
damaged homes contracts.
    Senator Levin. Can you give us for the record how many 
contracts have been terminated?
    Mr. Skinner. Yes, we can obtain that.
    Senator Levin. Now, is it fair to say from earlier answers 
that have been given here that there was a lot of sloppy 
administration inside FEMA of these contracts? I am not saying 
all contracts, but there was a lot of failure, a lot of----
    Mr. Skinner. Yes, there was. There are many contracts that 
worked very well. And, on the other hand, there are many that 
are not working very well.
    Senator Levin. And has anybody inside FEMA been held 
accountable, other than the Director, for sloppy 
administration?
    Mr. Skinner. To my knowledge, no one has yet been held 
accountable other than the top leadership. I know FEMA 
recognizes that contract management is a serious problem, not 
only DHS-wide, but particularly with regards to the FEMA 
operations after Katrina. I do know that their focus--as a 
matter of fact, they have a Procurement Oversight Board in 
which I participate at weekly meetings to address corrective 
actions that need to be taken.
    Senator Levin. We have reason to think that none of the 
contracts have been re-bid, but you are going to give us that 
for the record. Apparently, there were some conversations with 
FEMA staff and, I think, Senator Lieberman's staff that 
indicated that none of the contracts have been re-bid.
    Mr. Skinner. I don't want to say for the record that some 
have been re-bid. I do know some will be re-bid.
    Senator Levin. All right.
    Mr. Skinner. And the ones we are focusing on right now are 
the four big contracts, the multi-million, the $500 million 
contracts.
    Senator Levin. Right. I think Senator Lieberman, in his 
opening comments, made reference to the fact that the IG's 
recommendations to FEMA from May 2005, which followed the 2004 
Florida hurricanes, have not been implemented, or most of them 
have not been implemented. And I am just wondering, are you 
familiar with that issue?
    Mr. Skinner. Yes, I am. Some have, in fact, been 
implemented.
    Senator Levin. Have some key ones not been implemented?
    Mr. Skinner. Yes.
    Senator Levin. And why is that?
    Mr. Skinner. We are monitoring the recommendations we made 
with regard to our review of Miami-Dade as well as the 
recommendations that this Committee has made. We were told that 
many of these recommendations had not been implemented, first, 
because of lack of funds, which I question, and, second, 
because of Hurricanes Katrina, Rita, and Wilma. In the process 
of building up to implement those recommendations, everything 
was put on hold to react to Katrina events.
    Senator Levin. Would you give the Committee the list of the 
recommendations, if they are not already in the Committee's 
possession, that have been made by the IG's office?
    Mr. Skinner. Yes.
    Senator Levin. And the ones that have not been implemented 
and why?
    Mr. Skinner. Yes, we can do that. Many of our 
recommendations are similar to or the same as the Committee's 
recommendations.
    Senator Levin. You have indicated, and I believe Ms. Fisher 
has indicated, that there is going to be some review of fraud 
among contractors. It seems to me following Senator Akaka's 
line of questions that this is critical. We want to go after 
the individual people who have defrauded the government, but we 
also want to go after the big fish who may have defrauded the 
government as well.
    How many of these contracts--or how many contractors, not 
individual violations by individuals of Social Security fraud 
and that kind of thing, but how many contractors have been 
referred to the Department of Justice by the IG's office?
    Mr. Skinner. Most of those cases right now are ongoing.
    Senator Levin. Have there been any references to the 
Department of Justice yet?
    Mr. Skinner. Actual referrals?
    Senator Levin. Of contractors, yes, referrals.
    Mr. Skinner. Let me get back to you on that. We have 
cases--when you say ``referrals,'' wherein we have consulted 
with the Department of Justice to ensure that it is a 
worthwhile case that we want to pursue. We work very closely, 
hand in hand, with the Katrina Fraud Task Force. When we open a 
case, oftentimes even before we open it, we will consult with 
the attorneys, the U.S. Attorneys at that task force.
    Senator Levin. Have any been referred yet to the Department 
of Justice; do you know? I mean a specific reference. I think 
that is a term of art. At least I am using it in a technical 
way. Have you referred any cases to the Department of Justice 
with recommendations that there be criminal prosecution?
    Mr. Skinner. We are drawing a fine line, Senator.
    Senator Levin. All right. Then I will not draw any more 
fine lines.
    Ms. Fisher, last question. It is on this subject, if the 
Chairman would just let me conclude just this one subject, and 
I know I am over my time.
    How many indictments of contractors have there been 
following Katrina?
    Ms. Fisher. Well, to date, we have not had any public 
prosecutions of contractors, but we do expect to see them in 
the future, unfortunately, and we are working hand in hand down 
at the Command Center to make sure that we are getting 
information directly from the IGs as they see these contracts. 
We have also sent down prosecutors to train the audit staff 
from across the IG community on what to look for. I have sat 
down personally with the HUD individuals that are about to send 
out the large amount of contract assistance to talk about their 
fraud programs, and we certainly have more training scheduled.
    So I believe certainly, Senator, I share your concern, and 
we are trying to get ahead of the problem.
    Senator Levin. OK. But in terms of past misdeeds alleged, 
no indictments yet?
    Ms. Fisher. No public prosecutions yet, sir.
    Senator Levin. What is the difference between a public and 
private prosecution?
    Ms. Fisher. Well, we have ongoing investigations, and then 
they become public when we make a complaint or an indictment.
    Senator Levin. There has been no criminal complaint filed 
yet?
    Ms. Fisher. That is correct, sir.
    Senator Levin. Thank you, Madam Chairman. Sorry I went 
over.
    Chairman Collins. Thank you.
    Mr. Skinner, I want to follow up on the contracting issue. 
As you could tell from my opening statement and the questions 
of many of us, the no-bid contracts are of tremendous concern 
to this Committee. But I also understand that your 
investigation has also found very questionable practices in how 
the government has been charged under some contracts.
    It is my understanding that you have found at least two 
large contracts that were originally awarded as fixed-price 
contracts, but they are actually being billed as time and 
materials or cost-plus contracts.
    Now, it is my understanding that if they are being billed 
that way, that totally takes away the protection afforded by a 
fixed-price contract. Could you comment on that?
    Mr. Skinner. Yes, that's correct, and we have found--and I 
think maybe even more than just two, this is because the 
contract in itself was very poorly written and the instructions 
that went to the contractor from FEMA were very confusing.
    What we are finding is, under these firm fixed-price 
contracts, the contractor is billing FEMA--let's say it is a 1-
month contract, they would be billing FEMA every 7 days. They 
would just divide the total value of the contract by four. And 
at the same time, they would be billing the government for its 
time and materials. So FEMA was paying for time and materials 
plus the fixed price value of the contract.
    Now, we are still in the middle of looking at how and why 
this is happening and the impact it is going to have on the 
contract. This is a 6-month contract, and under this billing 
mechanism, the contractor will be paid in full in 3 months. 
Therefore, FEMA has to go back and renegotiate the contract, 
and that is where we are at right now. And hopefully what we 
will see, based on our recommendations, is that FEMA will not 
increase the value of the contract; FEMA need to amend the way 
it is being billed.
    The bottom line is the contractor will end up being paid 
100 percent, but will have only delivered half of the goods or 
services.
    Chairman Collins. That is very troubling, and I would ask 
that you keep us informed of your investigation in that area.
    Mr. Skinner. Yes. We are looking at all of those now. We 
already found two instances of this, and now we are looking at 
all the contracts for that particular problem.
    Chairman Collins. Because even if there had been 
competition originally, if it is being billed as time and 
materials or cost-plus rather than the firm fixed price, the 
taxpayers are going to end up paying an awful lot more, and the 
incentives for holding costs down evaporate.
    Mr. Skinner. Yes, that is a problem with all these 
contracts. We have found very few incentives to keep costs 
down, and that is another area of contract management that 
needs to be addressed now, before the next hurricane season, 
because if we wait until June or July, we are going to find 
ourselves in the same situation that we found ourselves in 
after Katrina.
    Chairman Collins. Ms. Fisher, I want to get back to the 
small-dollar fraud cases. I obviously want you to go after all 
kinds of fraud cases, whether they are big or small. But what 
was disturbing to me in the wake of the Florida hurricanes last 
year is too often if the fraud did not exceed $10,000, nothing 
happened. There was no punishment at all. And, of course, there 
are at least two problems with that. One is it sends a signal 
to the fraudsters that as long as you keep the dollar number 
under $10,000, you can rip off the government and the taxpayers 
with impunity. Second, it ignores the fact that small-dollar 
fraud cases in the aggregate amount to significant sums. And I 
think GAO's study is a perfect example of that.
    GAO found, when looking at individuals who received debit 
cards and also got a deposit into their checking accounts--in 
other words, they got duplicate expedited assistance payments. 
And just with your sample, assuming my math is right, which 
showed that 5,000 of the 11,000 people received those 
duplicates, that amounts to a $10 million mistake or fraud, 
depending on how one looks at it.
    So I guess my message to you today is I want to encourage 
you to go after those small-dollar cases as well. They amount 
to big money in the aggregate, but also, I think it will have a 
tremendous deterrent effect. And, indeed, the fact that you are 
going after them has prompted the kinds of recoveries that you 
are seeing where people are voluntarily turning in money that 
they might not otherwise.
    Would you like to comment on that?
    Ms. Fisher. Well, I agree with you 100 percent, which is 
why we are doing that. I think it is important, and we have 
seen that they have been aggregated in individual cases where 
each one may be $2,000, but one defendant is getting 25 friends 
to do the same thing, and those aggregate cases add up. And 
that is why we hope that it is having a deterrent effect.
    And so thank you for that support, and I do agree with you, 
Senator.
    Chairman Collins. Thank you.
    Mr. Kutz, I want to go back to those debit cards again, and 
I just want to build on an answer that you had earlier. Is it 
the debit cards themselves that were the problem? Are they just 
a poor way to deliver assistance? Or was it the way that they 
were administered and managed that is the problem?
    Mr. Kutz. I would say it was the way that they were 
administered and managed. It is the same as the purchase card 
hearings we have had before you. There was never anything wrong 
with the purchase card. It was the way they were being managed 
by government agencies.
    So, no, I think that there is great potential that this is 
a way to get money to people quickly, and it provides 
flexibility as to how they can either go to ATM machines or 
grocery stores or wherever the case may be.
    Chairman Collins. And, Mr. Ryan, did you find that people 
received instructions on how to use these debit cards and what 
were appropriate uses versus inappropriate uses, such as the 
tattoo expenditures that you found?
    Mr. Ryan. I believe in the cases that we as the group 
looked at, there was more concern on how to get the cards out 
than there was instructions on really what to use it for. I 
think we reported 63 to 65 percent of the people used it for 
ATM transactions. There is no real way to determine, but you 
have to assume that the people used the money for what they 
needed at that time.
    In the case of the debit cards, the cases of the guns and 
using the debit card to pay off tickets and buy jewelry, I 
guess you are always going to find a certain number of people 
that will take an opportunity and use it and turn it to the 
best of their advantage at that particular time. But we did not 
find that they were handed instructions on how to use the card.
    Chairman Collins. One final question, Mr. Kutz. You stated 
that FEMA was well aware that there could be duplicate payments 
to people who received debit cards. Did FEMA institute any 
safeguards to try to prevent those kinds of duplicate payments?
    Mr. Kutz. I would say they were aware that there might have 
been a few. I think they were shocked that almost half of them 
were duplicate payments. I really don't think that they 
understood that until several weeks ago. And, obviously, they 
did not have any controls in place to prevent that, and I think 
they have had a hard time explaining to us why they made 
duplicate payments to almost half the people that received 
debit cards.
    Chairman Collins. It is an enormous number, and as I said, 
that appears to be a $10 million mistake.
    Mr. Kutz. Yes.
    Chairman Collins. Senator Lieberman.
    Senator Lieberman. Thanks, Madam Chairman.
    Mr. Skinner, I cannot get those manufactured homes out of 
my head. I want to just see if I have it clear because there 
were two categories, or maybe three, approximately 25,000 
manufactured homes and then, if I heard you correctly at the 
beginning, another 1,100 of what you called modular homes?
    Mr. Skinner. Yes.
    Senator Lieberman. And are the modular homes similarly not 
in use, or are they used?
    Mr. Skinner. That's correct. I don't believe any of those 
have been put to use.
    Senator Lieberman. Right. And so the total, if I have it 
right, cost of those is now about $900 million.
    Mr. Skinner. That's correct.
    Senator Lieberman. And those categories are different from 
what I have heard described as travel trailers. How many of 
those has FEMA either purchased or leased, do you know?
    Mr. Skinner. I believe it is around 125,000.
    Senator Lieberman. It is a much greater number.
    Mr. Skinner. Yes.
    Senator Lieberman. And most of those are in use, if I have 
it right.
    Mr. Skinner. Yes, most of those are in use. I know they 
just ordered about 4,000 again last week.
    Senator Lieberman. There are complaints about them, but at 
least they are in use.
    Mr. Skinner. That's correct.
    Senator Lieberman. OK. So what we are focused on here is 
approximately 26,000 manufactured or modular homes costing 
approximately $900 million, all but about 1,200 of which are 
not in use. Is that right?
    Mr. Skinner. That's correct.
    Senator Lieberman. Who was responsible at FEMA for the 
decision to acquire those homes?
    Mr. Skinner. We are in the middle of our review as we 
speak, and those are the answers that we are trying to get.
    Senator Lieberman. All right. And we will look forward to 
answers.
    Mr. Skinner. We will have that. We will be issuing a report 
on this subject once we have nailed everything down.
    Senator Lieberman. Is there a single contract provider of 
the manufactured or modular homes, or are there many?
    Mr. Skinner. There are many.
    Senator Lieberman. OK. Ms. Fisher, let me now go to you 
with a few questions. I believe you said that there was 
somewhere over 220 prosecutions that have come out of the work 
of your task force that were Katrina-related.
    Ms. Fisher. Two hundred and twelve, yes, sir.
    Senator Lieberman. Two hundred and twelve. Give us a sense, 
generally, of what the range of crimes that people are being 
charged with is.
    Ms. Fisher. Absolutely. It ranges from fraudulently 
applying for $2,000 FEMA assistance to conspiracy on a larger 
level in working at the call centers and setting up lines of 
people to come in and get individual assistance that is 
fraudulent, to the corruption cases that I mentioned, to the 
websites that I mentioned that were fraudulent and asking for 
donations.
    We had one case in Houston that comes to mind where there 
was an individual that applied for labor assistance, the 
unemployment labor assistance, and received that benefit and 
then went over to a hotel and convinced many other people at 
that hotel to apply for that and got them to do that in 
exchange for drugs and for cash. And it was a large amount of 
money at the end of the day, again, going back to the 
aggregation point.
    So it really runs the gamut, but what we really want to do 
is prepare for all types of crime, and in this operation, where 
we are working together hand in hand to try to make these 
referrals proactive and to add the resources necessary to 
combat crime, we are preparing ourselves for the entire range.
    Senator Lieberman. OK. This morning, I believe, Mr. Kutz, 
you were the one who talked about the hotel price gouging.
    Mr. Kutz. No. That was Mr. Skinner.
    Senator Lieberman. I am sorry. Mr. Skinner.
    Mr. Kutz. Yes.
    Senator Lieberman. I know there are State price-gouging 
statutes. Do you have any intention to prosecute those cases? 
Maybe this is the first you have heard about it. Or do you ever 
forward cases to State prosecutors for action?
    Ms. Fisher. Well, as I mentioned earlier, we are working 
with the National Association of Attorneys General and the 
National District Attorneys Association, and many of them as 
members of the task force are reporting on numerous price-
gouging cases that they have in their States. It is more of a 
State problem with regard to there is no Federal legislation 
that goes to it. But to the extent our State partners need our 
assistance or need our cooperation, the task force is 
cooperating.
    Senator Lieberman. OK. I share Senator Dayton's outrage, 
and so does everyone, and I hope you will take a look at those 
hotel price-gouging cases. Those are outrageous amounts of 
money to charge the Federal Government in this emergency.
    Because this Committee has been active in Katrina-related 
investigations, we have gotten a few of what you might call 
private sector whistleblower calls along these lines. Give me 
your reaction to them and see if you have heard of them. These 
are from smaller--well, not big companies, but subcontractors 
who say that the contractors who received jobs from FEMA for 
Katrina-related work are grossly overbilling, and, in fact, 
they are giving the subcontractors so little money that some of 
the subcontractors say, ``We have had to let our legal workers 
go because we cannot afford to pay them, and we are hiring 
undocumented aliens to do this work because the contractors are 
not paying us enough and they are inflating the price.''
    Have you heard any of that? If so, what do you think about 
it?
    Mr. Skinner. Yes, I know we have received allegations in 
that regard, and we are, in fact, reviewing many of the 
contracts and their billing practices to see exactly how much 
they are being paid, the contractor, and what they are paying 
their subcontractors to make a determination whether there is 
inequity there or excess profit being made by the contractor. I 
don't know what the extent of the problem is.
    Senator Lieberman. I do not either.
    Mr. Skinner. But there are cases out there, this may exist.
    Senator Lieberman. I am glad you are looking at it. What 
would be a charge in that case, Ms. Fisher?
    Ms. Fisher. Well, with regard to overbilling, you could 
have false statements, false claims, major fraud, wire fraud, 
and mail fraud. There is a whole host of Federal criminal 
statutes.
    Senator Lieberman. Mr. Kutz, do you want to add anything?
    Mr. Kutz. No, not to that.
    Senator Lieberman. A final question, Mr. Skinner. I know 
that last September 19, you announced that--is it Matthew 
Judacki----
    Mr. Skinner. That's correct.
    Senator Lieberman [continuing]. Would join your office to 
establish a Special Office for Hurricane Katrina Oversight, 
which would, and I quote from an announcement, ``focus on 
preventing problems through a proactive program of internal 
control reviews and contract audits and would maintain a 
visible presence primarily in the States of Alabama, 
Mississippi, and Louisiana.'' That was quick action. I don't 
know how many people you have working in that office.
    Mr. Skinner. Approximately 100 right now.
    Senator Lieberman. That is a good size. So far, after 5 
months, what kind of IG report would you give to your special 
office? How is it doing?
    Mr. Skinner. I think it is doing very well. As a matter of 
fact, we have expanded the responsibilities for that office to 
include Texas, as well, in response to Rita and Florida in 
response to Wilma. We will be issuing several reports over the 
next 90 days or so, which will reflect the work that we have 
been doing over the last 5 or 6 months. Our biggest problem is 
staffing up. In order to get the people immediately on the 
ground, I had to borrow from our existing staff here in 
Washington as well as out in the field, and that has worked a 
hardship on my office. But those people have been performing at 
a very good pace, and we are now starting to hire people to 
replace them so they can go back to their normal jobs.
    But we intend to keep at least anywhere from 100 to 125 
people fully employed over the next 5 years just on this 
operation.
    Senator Lieberman. Five years?
    Mr. Skinner. At least. It could be longer.
    Senator Lieberman. Yes, I agree. That is good to hear. 
Thank you.
    We have heard--for your own follow-up, not for a response 
now--that the Chief Procurement Officer at FEMA has over the 
last 6 years at different times been asked to also serve as 
Acting Chief Financial Officer or Deputy Financial Officer of 
FEMA. So she has been asked to do two jobs at once, and you 
wonder whether that diminished the focus on the procurement 
part of it.
    Mr. Skinner. Yes. Well, that is no longer the case. FEMA 
now does have a full-time Chief Financial Officer, and I 
believe they have hired a Deputy as well.
    Senator Lieberman. OK. Thank you all. Keep up the good 
work. We need you.
    Mr. Skinner. You are welcome. Thank you.
    Chairman Collins. Thank you. Senator Levin.
    Senator Levin. Thank you, Madam Chairman, and thanks to 
both you and Senator Lieberman for this really extensive and 
detailed effort at oversight, and it is, I think, a really 
great example of what Congress should be doing in the area of 
oversight. I commend you for it. It has taken a lot of digging 
on your part and the part of your staff, and it is just really 
what Congress should be doing more of. And as always, I think 
you two are the role models for the oversight that is so 
essential if we are going to keep the Administration's--any 
administration, not just this one, but any Executive Branch--
feet to the fire.
    Ms. Fisher, you have talked about zero tolerance for 
individuals committing Katrina fraud, and when I look at the 
Attorney General's outline of priorities for your task force 
that was dated September 8, it all seems to be aimed at 
individuals rather than contractors. I know you have this 
morning indicated that you are, in fact, going after 
contractors, but I just want to emphasize the importance of 
that and I think the absence of that in the mandate that was 
given to you by the Attorney General. He talked about identity 
theft; he talked about insurance fraud where insurance claims 
are inflated, government benefit fraud. So you have 212 
indictments so far, all individuals. And I know you are looking 
at some of the--you have two FEMA employees, I believe, who 
have been indicted.
    But the contract area is an area which involves a huge 
amount of money, and I happen to agree with our Chairman that 
individual fraud cases are important and they add up, and they 
are a deterrent and they send a signal. And what I say does not 
in any way--it is not intended to diminish the importance of 
those cases.
    But I just want to make sure that there is a very 
significant focus on contracting fraud here because there are 
allegations, which are mighty serious. None have led yet to 
indictments. And I do not want to prejudge any case, but I just 
do not think that there has been adequate attention that has 
been paid to it, at least from the results so far, and from the 
mandate itself. So you may want to look at that mandate and see 
if you agree with me. I do not know if you are referring to 
that or not.
    Ms. Fisher. Well, Senator, I couldn't agree with you more. 
Procurement fraud is going to be the big dollars, and while 
these cases may come a little later than the immediate 
assistance cases that went out so quickly, we are working very 
hard--I am working with Mr. Skinner and others in the IG 
community to not wait for the investigators to turn them over 
to criminal prosecutors, but actually to get ahead of the game 
and to work with them hand in hand to try to push the 
investigations through aggressively.
    We did a report to the Attorney General, and it does very 
much set out in our mission as part of the Hurricane Katrina 
Fraud Task Force that procurement fraud is an absolute part of 
the mission. We are very committed to it. So while, again, 
these FEMA fraud cases that may have been the lower dollar 
amounts were the first ones that were being made, we never took 
our eye off the ball, and we tried to train and get ready for 
what we expect to be a long haul with regard to the procurement 
contracts. And I am working with the investigators very 
proactively to try to identify them. So I thank you for your 
support in that regard.
    Senator Levin. I take it that the zero tolerance policy 
applies to contractors, not just individuals.
    Ms. Fisher. Absolutely, sir.
    Senator Levin. OK. One of the no-bid contracts that has 
been, I think, in the media has related to the price paid for 
classrooms in Mississippi, 450 portable classrooms to 70 
schools in Mississippi. Is that under investigation, that whole 
issue?
    Mr. Skinner. Yes, that is something that was referred to 
our office. We're working, I believe, with the Department of 
Defense IG's office. It was the DOD Corps of Engineers, I 
believe, who may have let that contract. And that is currently 
under review by that office.
    Senator Levin. The allegation here--and I emphasize 
``allegation''--is that a local contractor with a track record 
of providing portable classrooms had a proposal to provide them 
for about half the cost of a no-bid contract. Is that your 
understanding?
    Mr. Skinner. That's correct.
    Senator Levin. All right. Is debris removal cost subject to 
an investigation as well?
    Mr. Skinner. Yes. In fact, we have several ongoing audits 
of debris removal operations, not only those that were 
contracted out through the Corps of Engineers, but also those 
that were contracted out through the State and local 
governments. All of those are also receiving a lot of attention 
and review by our investigators as well.
    Senator Levin. Is that an example of no-bid contracts in 
that case, do you know?
    Mr. Skinner. Most of those that were let by the States we 
are finding, in fact, were let through open and competitive 
means. Some of those let by the Corps were through prearranged 
contracts. But we also learned that many of the Corps 
contracts, because the needs were overwhelming, were done 
through a no-bid process.
    Senator Levin. The information we have or the allegation is 
that the Federal Government is paying far more than what the 
States are paying for debris removal. Is that the allegation?
    Mr. Skinner. Yes, that's correct.
    Senator Levin. OK. Now, the GAO stated in its report that 
there has not been great cooperation by DHS. Mr. Kutz, I 
believe the report says that a great deal of documentation, 
page 3 of your report, has not been forthcoming. Some of the 
databases have been, but the majority of what we requested has 
not been provided, according to the bottom of page 3 and top of 
page 4. Is that still the case?
    Mr. Kutz. That is the case, yes.
    Senator Levin. And do you know why, what the excuse is?
    Mr. Kutz. I would say it's mostly with the DHS Office of 
General Counsel. That is where all the FEMA data goes through 
before we get it. That may have been how your Committee 
operated in getting information. And so there seems to have 
been a bottleneck there of requests going back to October.
    Senator Levin. What is the excuse given? Because it is 
totally unacceptable, obviously. What is the reason given?
    Mr. Kutz. No valid reason. We may need your assistance 
going forward on this.
    Senator Levin. I have no doubt our Chairman and Ranking 
Member will provide that kind of support, as they do on 
everything else that comes to their attention. I cannot speak 
for them, but they have been great supporters.
    Chairman Collins. You can in this case. [Laughter.]
    This once.
    Senator Levin. I am proud to announce that I have been 
delegated to---- [Laughter.]
    If I can have 10 more seconds, on the question of missing 
children and fractured families, there are still 1,500 cases of 
children who have been reported missing that are still 
unresolved; 275 adults still remain unresolved. The Department 
of Justice has, I guess, designated two private organizations--
the National Center for Missing and Exploited Children and the 
National Center for Missing Adults, who do great work--to help 
to identify those. And yet apparently, we have been told, when 
FEMA is asked by those two organizations to take the lists 
which those organizations have and to check those lists against 
the FEMA list where individuals have applied for help, 
financial assistance, FEMA will not take that list handed to 
them by these two organizations and make those comparisons to 
see if they can identify a location for those kids and those 
adults.
    Do you know anything about that, Ms. Fisher? And if not, 
can you weigh in on that to try to--I guess the Department of 
Justice is not the problem. It would have to be somewhere 
inside of the Department of Homeland Security. So between the 
two of you, if you have not consulted about this, since you are 
in front of us and since I have been given such leeway by our 
Chairman, could I ask you to get together and see if you cannot 
resolve that bottleneck? Because that is unconscionable. We 
have missing kids. It is not a privacy issue because the lists 
are going to be handed to FEMA. They are not asked by FEMA, 
Where are these people? They are just asking FEMA, see if you 
cannot find requests for assistance from those people so that 
then you can go out and identify where these people are. Could 
you try between your two agencies to see if you cannot resolve 
this?
    Mr. Skinner. Most certainly. I'm well aware of the issue 
here, and our office is, in fact, trying--or we are reviewing 
what are the hang-ups and how they can be resolved, and we will 
be issuing a report in the very near future, not necessarily 
dealing with this particular issue, but dealing with like 
issues so that, in the future, this doesn't happen again.
    Senator Levin. Thank you. Thank you, Madam Chairman.
    Chairman Collins. Thank you.
    I want to thank our witnesses today. Each of you has 
contributed greatly to the Committee's understanding, and I 
appreciate your ongoing commitment to eliminate or at least 
reduce waste, fraud, and abuse in disaster assistance programs.
    The American people are very generous, and everyone wants 
the Federal Government in the event of a disaster to deliver 
swift and compassionate aid to the victims. But when scarce 
resources are wasted, when fraudulent claims are paid without 
questions being asked, when safeguards are ignored or are 
absent altogether, there are new victims, and that is the 
taxpayers. And I have always felt that it was a false choice to 
say that we can either deliver the aid quickly and 
compassionately or we can protect the taxpayer.
    I firmly believe that we can do both, and with your help 
that is our goal and our expectation. So we look forward to 
continuing to work with you.
    Senator Lieberman.
    Senator Lieberman. Thanks, Madam Chairman. You said it just 
right. That is exactly the purpose of this Committee.
    I thank the witnesses. In some ways, you have brought us a 
lot of bad news today. But it is the kind of bad news that if 
we don't get and people out there doing bad things don't know 
we are going to get, then it will just get worse. And 
hopefully, from this bad news we can work with FEMA and the 
Department of Homeland Security so that the next time disaster 
strikes, most important of all, they are ready so that they do 
not run around like Keystone Kops in the middle of a crisis and 
inevitably make the kinds of wasteful mistakes that have been 
made here.
    So I thank you for your public service, and through it I 
think public service generally will get better, certainly at 
protecting the money that the American taxpayers give us to 
carry out our public purposes. Thanks very much.
    Chairman Collins. Thank you.
    The hearing record will remain open for 15 days for 
additional questions and materials. Thank you so much for your 
testimony today, and this hearing is now adjourned.
    [Whereupon, at 12:14 p.m., the Committee was adjourned.]


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