[Senate Hearing 109-930]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-930
 
    HURRICANE KATRINA: STOPPING THE FLOOD OF FRAUD, WASTE, AND ABUSE

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                               __________

                            DECEMBER 6, 2006

                               __________

        Available via http://www.access.gpo.gov/congress/senate

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


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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

                   Brandon L. Milhorn, Staff Director
                 Amy L. Hall, Professional Staff Member
                        Jay W. Maroney, Counsel
             Michael L. Alexander, Minority Staff Director
                    Troy H. Cribb, Minority Counsel
                  Mary Beth Schultz, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Lieberman............................................     3
    Senator Coleman..............................................     5
    Senator Pryor................................................     6
    Senator Carper...............................................     6

                                WITNESS
                      Wednesday, December 6, 2006

Gregory D. Kutz, Managing Director, Forensic Audits and Special 
  Investigations, U.S. Government Accountability Office, 
  accompanied by John J. Ryan, Special Agent, Forensic Audits and 
  Special Investigations, U.S. Government Accountability Office:
    Testimony....................................................     8
    Prepared statement with attachments..........................    23
    Responses to post-hearing questions for the Record...........    52

                                APPENDIX

Federal Emergency Management Agency/Department of Homeland 
  Security prepared statement for the record.....................    54


    HURRICANE KATRINA: STOPPING THE FLOOD OF FRAUD, WASTE, AND ABUSE

                              ----------                              


                      WEDNESDAY, DECEMBER 6, 2006

                                       U.S. Senate,
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:01 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins, Coleman, Lieberman, Carper, and 
Pryor.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order.
    Today the Committee holds its fourth hearing investigating 
the loss of taxpayer dollars to waste, fraud, and abuse in the 
wake of Hurricane Katrina. I would like to begin by thanking 
our two witnesses, Greg Kutz and John Ryan of GAO's Forensic 
Audits and Special Investigations Unit, for their dedicated 
work, and I welcome them back to the Committee.
    It has now been more than 15 months since Hurricane Katrina 
devastated our Gulf Coast and since this Committee launched an 
investigation into the failures at all levels of government 
that came to light in that disaster. Hurricane Katrina revealed 
how unprepared the Nation was for a natural disaster that was 
long predicted and specifically forecast and raised serious 
concerns about our ability to respond effectively to a 
terrorist attack.
    Although the initial focus of our investigation was to 
identify ways to expedite relief to the stricken region, most 
of our work examined the many flaws in our Nation's emergency 
preparedness and response structure.
    No flaw has been more persistent and more damaging to 
effective relief for disaster victims and to public confidence 
in their government than the rampant waste, fraud, and abuse 
that have plagued Federal relief and recovery programs.
    To be sure, the majority of the billions of dollars of 
assistance provided to more than 2.6 million applicants in the 
wake of Hurricanes Katrina and Rita was necessary and 
warranted. But FEMA has yet to strike a proper balance between 
expedited assistance and good stewardship of taxpayer funds. 
Current practices invite and enable fraud, harming the very 
people these programs are designed to help.
    Today's hearing provides a follow-up to three previous 
hearings: Our February hearing that focused on FEMA's 
Individuals and Households Program, known as IHP; the field 
hearing held in April at the request of Senator Pryor, 
examining FEMA's purchase of thousands of manufactured homes 
that sat unused in Hope, Arkansas; and the July hearing 
investigating the Department of Homeland Security's use of 
purchase cards.
    At these hearings, our GAO witnesses testified that weak or 
non-existent controls left the IHP program vulnerable to 
widespread misuse. They testified further that fraudulent or 
improper payments could total more than $1 billion. Just think 
of the additional relief and reconstruction and rebuilding that 
could have been accomplished with that $1 billion that was lost 
to fraud, mismanagement, and poor decisionmaking.
    Today our witnesses will discuss their continuing 
investigation, and their findings are truly alarming. I will 
cite a few.
    Nearly $20 million in potentially improper or fraudulent 
disaster assistance payments went to some 7,000 individuals who 
appear to have registered the same damaged property for 
compensation under both Hurricane Katrina and Hurricane Rita.
    FEMA paid nearly $3 million to more than 500 ineligible 
foreign students. In several cases, payments were made even 
after the students informed FEMA of their international student 
status and, thus, their ineligibility for aid.
    Our witnesses will also testify that FEMA has collected 
only about $7 million of the estimated $1 billion in fraudulent 
and improper payments. FEMA has informed me that it has 
repayment plans in place to collect another $8 million. While 
FEMA is attempting to recover assistance obtained by some 
ineligible individuals, even if you add what is in the 
pipeline, the recovery still amounts to only pennies on the 
dollar and is happening far too slowly. The fact is that once 
the money is out the door, it is very difficult for FEMA to 
recover it.
    In our July hearing, the GAO also found excessive prices, 
duplicative payments, wasteful purchases, and substantial 
missing property. Equipment was simply not tracked effectively 
and may have been stolen or lost.
    My Committee colleagues may remember that barely 2 hours 
before our hearing convened on July 19, we received an e-mail 
from DHS telling us that they had located some 80 percent of 
the missing purchases identified by the GAO, ranging from 
electronics to flat-bottomed boats. They disputed the GAO 
testimony before it could be delivered.
    At that time, Special Agent Ryan told the Committee that he 
was skeptical of DHS's claims. We now have concrete evidence 
that the skepticism was warranted. We will hear today that 48 
items that the Department claimed it had located in that early 
morning pre-hearing announcement are, in fact, still missing. 
The GAO witnesses will describe their efforts to verify the 
location of items purchased by DHS for hurricane relief. I 
remember Mr. Ryan telling us that he wanted to actually go 
touch the property. Well, the fact is that I understand that 34 
percent of the items that they tried to locate are still 
missing, whether they are lost or stolen.
    I should add that one of those infamous flat-bottomed boats 
reported missing in July has, in fact, been located--but not by 
DHS personnel, rather by GAO investigators. I will be 
interested to hear why DHS was not able to locate this boat and 
where GAO investigators found it.
    This Committee performed an extensive investigation in 
response to the Hurricane Katrina debacle. Our work has gone 
beyond merely uncovering problems and has extended to crafting 
remedies. Our legislation to rebuild FEMA into a more effective 
entity and, indeed, to strengthen our entire national emergency 
management structure provides a clear road map to improvement, 
but this Committee must remain committed to see that it is 
followed and that administrative and other reforms are, in 
fact, implemented.
    Throughout our Hurricane Katrina investigation, I was 
concerned that another major natural or manmade catastrophe 
would strike while a structure that has so utterly failed was 
still in place. In some sense we got lucky. The 2006 hurricane 
season has passed without another major storm coming ashore, 
and we have been spared other disasters as well.
    We have been given the luxury of time to get this right. We 
must use that time wisely. The American people are generous and 
willing to open their hearts and their wallets to the victims 
of disasters. But they expect that their tax dollars will be 
spent carefully to help storm victims, not be lost in a 
hurricane of waste, fraud, and abuse.
    [Lights failed for a few moments.]
    Senator Lieberman, there are those who say that this 
Committee often operates in the dark. [Laughter.]
    Senator Lieberman. You may be interested to know I have 
been informed that the power is out in the whole building, so 
we have to operate the emergency system.
    Chairman Collins. Please proceed.

             OPENING STATEMENT OF SENATOR LIEBERMAN

    Senator Lieberman. Madam Chairman, it is good to know that 
under your leadership, which I will aspire humbly to emulate, 
not even a power outage could stop this Committee from going 
forward.
    Madam Chairman, I thank you for convening today's hearing 
on the GAO's ongoing efforts to identify waste, mismanagement, 
and fraud in FEMA's administration of the Individuals and 
Households Program (IHP), as well as DHS's use of purchase 
cards for goods and services during the responses to both 
Hurricane Katrina and Hurricane Rita.
    I think we are back on. Welcome. Nice to see the outside, 
too. [Laughter.]
    The record will note that neither of the witnesses nor 
anyone else in the room moved during the power outage, and we 
thank you for that. [Laughter.]
    Testimony we will hear from the GAO's Forensic Audits and 
Special Investigations Unit on this Individuals and Households 
Program I would describe as not only powerful but maddening to 
me personally.
    The GAO's investigations over the past year, as well as 
FEMA's own data on overpayments, show that the agency 
squandered hundreds of millions of dollars in improper payments 
to individuals and households that our government may never 
recover. Some people who were not eligible for assistance 
abused the process, and FEMA had no effective mechanisms to 
stop them. And some ineligible people who had no intent of 
gaming the government but thought they might be eligible for 
assistance were granted payments, even though FEMA should have 
known that they were not eligible and should have explained to 
them that they were not eligible.
    On the other hand, as is well known, last week we heard 
that a Federal judge ruled that FEMA wrongfully cut off housing 
assistance to thousands of Hurricane Katrina and Hurricane Rita 
evacuees without properly documenting why, making it difficult 
for applicants to appeal FEMA's decision.
    So we have this bizarre situation where FEMA apparently 
doled out millions of dollars to people who did not deserve it, 
but denied assistance to many people with potentially 
legitimate needs without using proper procedures.
    During our Committee's investigation of Hurricane Katrina 
earlier this year, the GAO provided an extensive look into 
flaws in FEMA's processing of these Individuals and Households 
Program applications. The GAO's investigation revealed 
significant breakdowns in the IHP registration system that 
resulted in payments to individuals and households who were not 
qualified for assistance or who received duplicate payments.
    Today's testimony further confirms the gross inadequacies 
of FEMA's control systems. Chairman Collins has documented some 
of the specifics. I will not repeat them.
    FEMA's low success rate in recovering payments also makes 
abundantly clear the need to implement proper controls up 
front. FEMA has collected only $7 million in improper payments 
out of the $290 million of such payments that FEMA itself has 
identified. The GAO estimates FEMA's total improper payments, 
as the Chairman said, to be $1 billion through February 2006. 
We do not know yet what FEMA's plans are for recouping this 
money or the extent to which it can recover the money. Clearly, 
the better solution for the future is not to chase after 
improper payments once they are made but to prevent those 
improper payments from being made in the first place.
    GAO's testimony on this program to this Committee in 
February, as well as more detailed reports issued in June and 
September, I hope you know, Mr. Kutz and Mr. Ryan, provided the 
basis for a series of corrective actions that Senator Collins 
and I proposed and that were included in the FEMA reform 
package that passed into law as part of the fiscal year 2007 
DHS Appropriations Act.
    This law mandates that FEMA institute verification 
procedures that minimize the risk of unauthorized and 
duplicative payments under the IHP program, while providing an 
expedited review and appeals process for individuals or 
households who believe that their applications were wrongfully 
denied.
    Having conducted a major investigation of the immediate 
response to Hurricane Katrina and having enacted significant 
reform legislation, our Committee's task now is to continue our 
oversight and to ensure that the reforms are fully implemented.
    Today we are also going to hear testimony from the GAO on 
the efforts of DHS to locate missing items, and I will look 
forward with anticipated exasperation to hearing that result.
    In a November 27 letter to Senator Collins and me, the DHS 
Chief Financial Officer conceded that the Department is still 
having difficulty tracking down those assets, and Mr. Kutz, I 
hope you will share with the Committee your assessment of the 
efforts of the Department of Homeland Security to improve its 
property management.
    So, bottom line, the record here is clear and 
disconcerting. The fact is that, going forward, FEMA has a lot 
of work to do before we can be confident and the taxpayers can 
be confident that FEMA is providing assistance to those who are 
eligible and who need it, while denying it to those who do not. 
The reforms that we have adopted should make a difference, and 
Senator Collins and I are committed to being especially 
vigilant in the months ahead to make sure that they do.
    Thank you very much.
    Chairman Collins. Thank you. Senator Coleman.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Madam Chairman.
    Before I touch on this hearing, first I want to thank you 
and the distinguished Ranking Member for having this hearing. I 
also just want to take the time to thank you for your 
leadership.
    Chairman Collins. Thank you.
    Senator Coleman. I think you have provided extraordinary 
leadership. We have passed major legislation: Intelligence 
reform, chemical security, lobbying reform, port security, 
postal reform, FEMA reform, and enhancement of homeland 
security grants. I think we have accomplished an incredible 
amount of important work not just for the Senate, but for the 
Nation. I just want to personally express my appreciation for 
the kind of leadership that you have offered. We talk a lot 
today about bipartisanship. I don't know if there is a better 
operating Committee in the Senate in terms of working together. 
As I look at my colleagues who are seated here today, people 
for whom I have the most respect for, just the most respect 
for, from the Ranking Member, and a former local official, 
governor, Senator Pryor and I have worked together, the prayer 
breakfast. This is an extraordinary group of people, but your 
leadership has really pulled it together, and I just want to 
personally at this moment--probably our last time that we will 
get together with the gavel in your hand--say thank you and 
tell you what a pleasure it has been for me to be part of this 
Committee.
    I look forward to working with you and the new Chairman in 
the same tone and attitude and hopefully measure of 
accomplishment.
    Chairman Collins. Thank you so much.
    Senator Coleman. Let me just turn to the matter before us 
today. First, I want to thank the dynamic duo, Mr. Kutz and Mr. 
Ryan. We have worked together on this Committee and our 
Subcommittee. Thank you for your work. It is important. It 
makes a difference.
    What we see here today are unauthorized payments, improper 
and fraudulent payments, duplicate payments, inadequate 
recoupment. We still have work to do. We have work to do with 
FEMA, and I think it is important to bring it to the table. It 
is important for us to look at it and say that this is unfair 
to American taxpayers, it is not the way government should 
operate, and we are going to clean it up. And I think we have 
the opportunity. This is part of a process. It is an ongoing 
process.
    You gentlemen have done extraordinary work. We have our 
work to do, and this is the kind of oversight that we need to 
be doing. And I am certainly proud to be part of it.
    So I look forward to the testimony, look forward to 
discussing what new measures we need to implement, look forward 
to making sure that we are doing a better job for American 
taxpayers.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you so much, and I very much 
appreciate your kind comments.
    Senator Pryor.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you, Madam Chairman. I would like to 
echo Senator Coleman's comments about your leadership here. 
Your competence is just overwhelming. You have been able to get 
so many things done in a very bipartisan way, and you have 
really been a great role model for newer Senators to see how 
the Senate can work and should work. In fact, a lot of times 
when I go back to Arkansas, people say, ``What is wrong with 
you people in Washington? Why do you just not get along? Why 
are you always at each other's throats?'' And I tell folks, 
``Well, there is hope. There is the Homeland Security and 
Governmental Affairs Committee, and if you look at how that 
Committee works, it really works the way it should work.''
    As you well know, if there has ever been a question about 
which committee some bill should go to, I always argue for 
Homeland Security because it has just been a great Committee 
with your leadership. And I know Senator Lieberman and you have 
an extraordinarily good working relationship. Like I said, it 
has really been a role model for all of us.
    Chairman Collins. Thank you.
    Senator Pryor. So I thank you for being such a great 
Chairman, and I really don't have any further comments. I look 
forward to hearing from our witnesses today, but I did want to 
thank you for your leadership.
    Chairman Collins. Thank you so much. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Madam Chairman. I was not going 
to say anything, but I am moved to say something. [Laughter.]
    Chairman Collins. You mean you have no choice. [Laughter.]
    Senator Carper. It is what we affectionately call in 
Delaware ``piling on.'' We were putting together orientation 
for new Senators a couple of weeks ago, and we were looking for 
a couple of Committee Chairs and Ranking Members to invite to 
come and speak to our new Senators about bridging the partisan 
divide. And the very first recommendation that I made was that, 
Madam Chairman, you and Senator Lieberman be invited to attend. 
I think because of scheduling problems you were not able to 
come, but I think the relationship that the two of you enjoy is 
just an example for the rest of us in the Congress, in the 
Senate, and in the House, and I think in the Administration as 
well.
    Our friend Senator Pryor is from Arkansas, and they 
actually have a place there, I am told, called Hope. And I 
think he mentioned the word in his remarks. When I think of a 
place called Hope, I don't think of Arkansas. I think of the 
kind of relationship that you have had and the way that it has 
sort of permeated this Committee, the trust that you enjoy and 
the way that it has inspired the rest of us to work on a whole 
host of issues that Senator Coleman has mentioned. And my hope 
is that before we leave here at the end of this week, we can 
add one more to that list, and that would be good not just for 
this Committee, but I think that would be very good for our 
country. And I applaud both of you for your efforts in that 
regard. And welcome to our love fest here this morning. 
[Laughter.]
    Chairman Collins. Thank you.
    Senator Lieberman. Madam Chairman, if I may, if I remain 
silent in the midst of this spontaneous eruption of 
appreciation for you, people may wonder about how good our 
relationship is. [Laughter.]
    I had been thinking I would do this later, but I appreciate 
that my colleagues did it. It has been an extraordinary honor 
and pleasure to work with you on this Committee, and it really 
is what I think all of us came to the Senate to do, and somehow 
we have been able to do it. But you have been the Chair, so you 
have set the tone. The record of accomplishment in your 
chairmanship has been extraordinary, and I don't know how I am 
going to build on it. But we are going to do it together. That 
is the important thing.
    I said to Senator Collins when we talked about the 
transition that will occur that, as far as I am concerned, the 
only thing that is going to change is our titles because we are 
going to have the same partnership that we have had over the 
years here. And it has worked just so well.
    The bottom line is that we have common goals and I have 
total trust in Senator Collins in ways that I will document at 
some point in a book that will not sell any copies but really 
will be worth reading. [Laughter.]
    It is the trust that reaches across the not unimportant but 
ultimately not most important party identifications that we 
hold, to the values that we hold in common, and our shared 
interest in making our government work better and our country 
be better. So you are the best. Thank you.
    Chairman Collins. Thank you very much.
    While I would love to continue with further tributes to 
myself, I do believe we should turn to our panel. [Laughter.]
    But let me just thank you all for your very kind comments. 
This Committee does have a wonderful tradition of bipartisan 
accomplishment, and I do think that is what the American people 
want. And I am confident that it will continue under your 
leadership, Senator Lieberman, and I look forward to being your 
partner.
    Senator Lieberman. Thank you.
    Chairman Collins. I hope the only difference will be 
instead of bills being Collins-Lieberman, they will now be 
Lieberman-Collins. But it would not be possible without the 
Members of the Committee who have taken exactly that same 
constructive approach.
    Senator Lieberman. That is true.
    Chairman Collins. So I very much appreciate the opportunity 
to work with all of you, and remember, I may be back in 2 
years. [Laughter.]
    I would now like to welcome our witnesses today: Greg Kutz, 
who is accompanied by Special Agent John Ryan. They have 
appeared before us many times, so I am not going to go through 
a lengthy introduction other than to thank you both for 
continuing your exceptionally good work.
    Mr. Kutz, we will start with you. Thank you.

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

    Mr. Kutz. Chairman Collins and Members of the Committee, 
thank you for the opportunity to discuss fraud, waste, and 
abuse related to Hurricanes Katrina and Rita. Our testimony 
relates to the completion of our work on individual assistance 
and the use of government purchase cards. Previously, I 
testified that $1 billion, or 16 percent, of individual 
assistance payments were fraudulent and improper. I also 
testified that weak controls resulted in lost or stolen 
government property, bought using government purchase cards. 
The bottom line of my testimony today is that our work shows 
additional fraud, waste, and abuse related to Hurricanes 
Katrina and Rita.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kutz appears in the Appendix on 
page 23.
---------------------------------------------------------------------------
    My testimony relates to FEMA and has two parts: First, 
individual assistance payments; and, second, lost or stolen 
property bought with credit cards.
    First, our work across the government has shown that fraud 
prevention, as you mentioned, is the most efficient and 
effective means to minimize fraud, waste, and abuse. Our $1 
billion estimate of fraudulent and improper payments related to 
individual assistance clearly shows the consequences of the 
lack of an effective fraud prevention program.
    The posterboard supports my point. Next to the $1 billion 
estimate, you can see that through November, FEMA has detected 
$290 million of improper payments. However, only $7 million of 
this $290 million has actually been collected. Absent effective 
fraud prevention, once money is improperly disbursed, the 
government can only hope to collect a few pennies on the 
dollar.\1\
---------------------------------------------------------------------------
    \2\ The poster appears in the Appendix on page 51.
---------------------------------------------------------------------------
    It is important to note that our $1 billion estimate is 
likely understated because it related only to the application 
process and disbursements through February 2006. Today's 
testimony supports that point, as we found at least tens of 
millions of dollars of additional fraudulent and improper 
payments. These problems result from FEMA's lack of an 
effective fraud prevention program.
    For example, FEMA made $17 million of rental assistance 
payments to individuals staying in trailers and mobile homes, 
also paid for by FEMA. The posterboard shows that for these 
individuals the government paid twice for their lodging--first 
by providing them free housing and second by sending them 
rental assistance money.\1\
---------------------------------------------------------------------------
    \1\ The poster appears in the Appendix on page 50.
---------------------------------------------------------------------------
    FEMA also improperly paid rental assistance to individuals 
staying in apartments paid for by FEMA. For example, FEMA paid 
$46,000 to 10 individuals staying in a FEMA-paid apartment 
complex in Plano, Texas. Many of these are fraud cases, as 
seven of these individuals represented to FEMA that they were 
entitled to rental assistance. We cannot estimate fraud and 
abuse in this area because of limitations in FEMA's data.
    FEMA also made $20 million of improper payments to 
thousands of individuals who used the same address to get 
benefits for both Hurricane Katrina and Hurricane Rita. FEMA 
policy is that victims of both disasters are generally entitled 
to only one set of payments for the same damaged address. It 
appears that some of these individuals were paid twice for the 
same television, refrigerator, washer, and dryer.
    Finally, FEMA made millions of dollars of improper payments 
to non-qualified aliens. Non-qualified aliens include foreign 
students and temporary workers. For example, FEMA paid $3 
million to over 500 students at four universities. This 
substantially understates the magnitude of this problem because 
there are many colleges and universities in the region.
    FEMA also paid $156,000 to 25 individuals claiming to be 
foreign workers on temporary visas. We believe these 25 
individuals worked at a crab house in Louisiana. We also 
identified several illegal aliens who received disaster 
assistance in Texas. Total payments to non-qualified legal and 
illegal aliens could be substantial.
    Moving on to my second point, FEMA has substantial problems 
accounting for property bought with government credit cards. 
For example, 85 of 246 items that we investigated, or 34 
percent, are lost or stolen. The posterboard shows one of these 
missing items: A flat-bottom boat. As the posterboard shows, 
this boat is actually in possession of the original owner in a 
shed in Texas.\2\
---------------------------------------------------------------------------
    \2\ The poster appears in the Appendix on page 48.
---------------------------------------------------------------------------
    In conclusion, our work shows that for individual 
assistance payments, at least tens of thousands of individuals 
took advantage of the opportunity to commit fraud. That is 
right--tens of thousands. I am hopeful that FEMA has learned 
from these costly lessons and will make fraud prevention a 
focus for future disasters.
    With respect to lost property, there is no valid reason for 
FEMA's inability to account for over a third of the property 
bought with government credit cards. I think the posterboard on 
my right says it all.
    We have enjoyed the opportunity to work with this Committee 
on fraud, waste, and abuse related to Hurricanes Katrina and 
Rita. Our work has resulted in 25 recommendations for FEMA with 
which they generally concur. My hope, Special Agent Ryan's 
hope, and all of our staff's hope is that our work will bear 
fruit in future disasters. And, Chairman Collins, I will just 
say, too, we have really enjoyed working with you and your 
leadership on this Committee. It goes back quite a long ways, 
even to PSI, Senators Coleman and Levin, and we look forward to 
working with the Committee going forward under both of your 
leadership.
    Thank you.
    Chairman Collins. Thank you very much.
    Mr. Ryan, do you have anything you would like to add now?
    Mr. Ryan. I would just add that it was a real pleasure 
working with Senator Lieberman's staff and your staff, very 
professional. Mr. Bopp was a great leader of yours and pushed 
your work, and we really enjoyed working with the staff and 
with all the members here.
    Thank you.
    Chairman Collins. Thank you.
    Mr. Kutz, whenever I bring concerns about the alarming and 
widespread fraud and improper payments plaguing FEMA's 
assistance programs, I hear the response that it is a choice 
between getting out assistance quickly to the victims or 
carefully safeguarding taxpayer dollars.
    Isn't that a false choice? Isn't it possible for FEMA to 
deliver assistance to the right people quickly without 
compromising the integrity of these programs?
    Mr. Kutz. Yes, we agree it is not a choice. We believe that 
you can do both and that the technology and the processes exist 
that they could have done a substantially better job here. For 
example, they had ChoicePoint under contract, who has some of 
the technology necessary to deny invalid applications. They 
just did not effectively use the tools that were available for 
these two disasters.
    Chairman Collins. And, in fact, did you find any examples 
where FEMA actually disabled software that would have allowed 
duplicative payments to be caught?
    Mr. Kutz. Yes, in many cases there were hundreds of 
millions of dollars, I believe, that their systems had flagged 
as questionable, duplicative, improper--whatever the right 
word--and they sent the money out, for whatever reason. I think 
there was a rush to get the money out. And we do not disagree 
with getting money quickly to legitimate victims. That is the 
primary focus of FEMA. But, again, I believe that if they had 
field tested their controls ahead of time and were ready for 
these disasters, which is what our recommendations have been 
going forward, to take whatever controls you are going to 
implement, field test them, make sure you have a safety net for 
legitimate people who get kicked out when you tighten up the 
fraud prevention controls, we believe that they can be much 
more successful, not only getting money quickly to people, but 
preventing fraud, waste, and abuse.
    Chairman Collins. Because, in fact, every dollar that is 
lost to fraud or frittered away in wasteful purchases is a 
dollar lost that could have been directed to helping the 
victims rebuild their lives and communities. That to me is the 
true tragedy of this. The needs are so great. And when we hear 
your testimony that more than $1 billion has been lost to 
waste, fraud, and abuse, to poor decisions, wasteful purchases, 
outright fraud, it is just an outrage given that the needs are 
so great.
    I realize we are dealing with a large volume of claims--but 
is this a case where the internal controls simply are too 
sophisticated or too difficult to implement to prevent this 
massive fraud?
    Mr. Kutz. No. I have called it Fraud Prevention 101. Basic 
building blocks of an application are: Does the person exist? 
Does the property exist? Did that person live at the property 
at the time of the disaster? Those are things that the 
technology is there to determine almost instantaneously, and 
they did not use that effectively. And that is just one of many 
things that they can do.
    So it is basic fraud prevention, and, again, we are very 
hopeful that they will do a better job for future disasters. At 
this point, the horse is out of the barn right now. The money 
has been spent. You are going to get maybe a couple pennies 
back on the dollar, so the taxpayers have become the new 
victims here. The issue is, going forward, can we actually put 
effective fraud prevention in place, and we believe the 
technology is there, and with your oversight and some good 
management, they can get it done.
    Chairman Collins. Mr. Ryan, tell me more about this flat-
bottom boat? How was it found? Did FEMA have title to the boat? 
Did FEMA or DHS officials find it? Tell us a little more about 
the boat that was found in possession of the original seller?
    Mr. Ryan. This boat is one of 20 boats that FEMA purchased. 
When we initiated our----
    Chairman Collins. At an exorbitant price, if I recall.
    Mr. Ryan. It was $208,000. They paid for 20 boats.
    Mr. Kutz. Twice retail price, yes.
    Mr. Ryan. This boat, as part of our work that we did on the 
property in July, was missing. We did an investigation, and we 
determined that the security director at the New Orleans 
Convention Center actually had the boat. It took him some time, 
but he researched it and found that the boat was titled to an 
individual in Texas. He contacted that individual, and he said, 
``Hey, I sold that boat to FEMA. It was a used boat.'' They 
said, ``Well, you are still the titled owner, so you need to 
come and get it.''
    So the individual went to New Orleans, got the boat, had to 
buy new tires for the trailer because the tires were gone, and 
he carted it back, and he put it in his shed in Texas. As part 
of an ongoing investigation that we had with the Hurricane 
Katrina Task Force, the FBI, and local law enforcement, they 
were able to determine that the boat was parked in the shed of 
the original owner, and they took a photograph of it.
    None of the 20 boats as of October are titled to the 
government. There is still an ongoing investigation in which 
the owner of 11 of the boats has filed a complaint indicating 
that the boats were stolen, so the government does not have 
title to any of the 20 boats.
    Chairman Collins. So let me get this straight. The 
government paid twice what the market price should have been 
for these 20 boats and yet does not have legal title to a 
single one of the boats, and at least one of the boats is not 
even in possession of FEMA. Is that correct?
    Mr. Ryan. That is correct. And I will add that there is 
another boat still missing, and no one really knows where that 
is at. So we know that they have--based on going down, 
touching, and looking, we know they have 18 boats.
    Chairman Collins. Thank you. Senator Lieberman.
    Senator Lieberman. Thanks, Madam Chairman.
    Mr. Kutz, one of the examples in your testimony that is 
maddening is the duplicate payments for 10 residents of an 
apartment complex. According to your report, these 10 residents 
were receiving rental assistance, and at the same time, FEMA 
was providing rent-free housing at the apartment in Plano, 
Texas. The report states that over $46,000 in duplicate 
payments were made.
    How could that have happened?
    Mr. Kutz. I believe it happened because you have stovepiped 
programs within FEMA. You have the individual payment program, 
and you have different people managing the apartment program. 
They have different databases. All they would have had to do--
and, again, the data was limited there.
    Senator Lieberman. Right.
    Mr. Kutz. But at least if they had talked and coordinated, 
they could have done a better job of getting information on who 
the actual people living in the apartments were and determining 
whether or not those people had received these apartments 
before they sent them rental assistance. So, again, I think it 
is a matter of coordinating two programs. We found the same 
thing for the hotel program, the trailer program, the mobile 
home program. They are all stovepiped programs within FEMA, and 
these people do not appear to talk very well.
    Senator Lieberman. So this is a pretty simple thing to 
coordinate, isn't it?
    Mr. Kutz. Yes.
    Senator Lieberman. With modern information technology.
    Mr. Kutz. Yes, and that is how we came up with our 
estimates, for example, for the trailers, the mobile homes, and 
prior work for the hotels is because we just took the two sets 
of data and matched them together and did some analysis.
    Senator Lieberman. Every time we hear from you, it builds 
on the conclusion that we reached in our overall investigation 
of the government's response to Hurricane Katrina, which was 
that we were a Nation unprepared. In this case, this was an 
agency unprepared in the most fundamental ways, almost 
simplistic ways, to deal with basic distribution of assistance 
payments that did not waste taxpayer money.
    Let me ask you, it is my understanding that FEMA has 
generally, if not fully, concurred with your recommendations. 
Do you believe that they have begun to make the necessary 
adjustments, for instance, in breaking the stovepipes that you 
have just described?
    Mr. Kutz. They have represented that they have. We have not 
actually tested it in a live environment, nor do we know if 
they have actually tested it doing a desktop or some sort of a 
practice test, because one of the recommendations we have with 
all of these improved fraud prevention program processes is to 
test them before a major disaster. Because once a disaster 
hits, if you have not tested them, you could deny legitimate 
victims assistance, and none of us wants to see that either.
    So we are hopeful they have agreed with most of our 
recommendations. They have stated they have taken progress. We 
have not been able to follow up on all of them yet, and some of 
them we will have to actually test in a live environment and 
see if they work.
    Senator Lieberman. Right. But in the normal course of your 
work, you will follow up on those?
    Mr. Kutz. Yes.
    Senator Lieberman. All right. Have you performed any 
investigations or analysis of FEMA payments in disasters that 
have happened since Hurricanes Katrina and Rita?
    Mr. Kutz. No.
    Senator Lieberman. So there is at this point no comparison.
    Mr. Kutz. And the reason we have not is because there has 
not been many individual assistance payments. There have not 
been that many larger disasters to test, so there has not been 
that much to test.
    Senator Lieberman. I want to go back to the foreign 
students applying for aid and the findings that FEMA's files 
actually contained documentation showing that the students were 
not qualified. Were you able, again, to determine in your 
investigation how FEMA could, having seen that in the file, 
gone ahead and made the payments to self-evidently unqualified 
aliens? And if you would, I want to ask the broader question 
about whether FEMA has a problem with training their employees 
or contractors in the simple processing of these applications.
    Mr. Kutz. It certainly appears that, whether it was FEMA 
employees or contractors--and it is probably some of both--they 
either did not understand or they did not care, one of the two. 
Because if you look in the files, there are pictures of the 
student visas and there are even FEMA fliers that say foreign 
students are not eligible for these benefits.
    Senator Lieberman. Right.
    Mr. Kutz. Right in the same file. It is scanned into the 
FEMA databases saying this, yet they paid them anyway. Again, 
training is a very important point here. I think because there 
are so many contractors--FEMA has to staff up to do these major 
disasters, and it appears that the training was not effective 
in this case.
    Senator Lieberman. Let me ask you about this in a somewhat 
different way because we all know that in the first days after 
Hurricane Katrina hit, when we all watched the suffering of the 
people in New Orleans in particular, there was a lot of 
embarrassment, and FEMA came under great pressure. Mr. Brown 
resigned. Did you find any evidence that part of the problem 
here might have been that somebody high up in FEMA said, in 
response to the public and congressional, political anger at 
FEMA's actions, ``Get out the checks. If there is a mistake, we 
will come and deal with it later, but let's not get criticized 
for not making payments''?
    Mr. Kutz. It is very possible. We did not see any 
documented evidence of that, but it is very possible because, 
again, when they first started making the disbursements, they 
identified hundreds of millions of dollars of potential 
duplicate and improper payments, and someone somewhere--we 
cannot tell exactly where--made a decision to let them go. And, 
again, I think some of it was manpower. They were overwhelmed 
by the sheer volume of the edits that had identified these 
improper payments, and so they would have had to hold up those 
payments for potentially months. And so the choice at that 
point was--again, because you had not pre-tested your 
controls--shoot the money out the door and try to come back and 
collect it later.
    Senator Lieberman. OK. Thanks very much. Again, the two of 
you have really done an important public service here.
    Thank you.
    Chairman Collins. Thank you. Senator Coleman.
    Senator Coleman. Thank you, Madam Chairman.
    I want to follow up on the system checks here, the National 
Emergency Management Information System. They have an edit 
check system that was kind of a first line of defense. Is there 
any data, any information as to what the delay might have been? 
And, again, what I understand, we have been told that the 
National Emergency Management Information System edit check 
system was disabled apparently to facilitate a more expeditious 
processing of some of these claims and some of this money. But 
do we have any information on, if the system had been kept 
running, what the delay would have been?
    Mr. Kutz. It would have been many months. Again, I seem to 
remember it was about $900 million that had been flagged at 
some point in time, which would have been a substantial number 
of applications, and they just did not have the people to work 
those cases. So I anticipate it would have been many months to 
get that money out.
    Senator Coleman. Had there ever been another instance that 
you are aware of in which the National Emergency Management 
Information System edit check had been disabled?
    Mr. Kutz. We are not aware of any.
    Senator Coleman. No experience with it?
    Mr. Kutz. No experience with it, so we do not know.
    Senator Coleman. At a press conference on November 30, FEMA 
Director Paulison stated that they had established an identity 
verification system to confirm displaced residents who are who 
they say they are and where they have lived. His indication was 
that it would cut down on waste, fraud, and abuse. Have you had 
a chance to review the system at this point in time?
    Mr. Kutz. We have met with ChoicePoint. I believe they are 
using ChoicePoint still, and so we are aware--ChoicePoint has a 
whole menu, Senator, of various fraud prevention controls that 
they can put in place. Again, FEMA did not effectively use 
ChoicePoint the first time. So if they better use ChoicePoint--
I am not saying they can eliminate fraud, but they can make a 
significant dent in fraud, waste, and abuse by implementing 
many of those controls that FEMA or the other ones that do what 
ChoicePoint does implementing those controls.
    Senator Coleman. Mr. Ryan.
    Mr. Ryan. Senator, I still go back to the point that you 
can talk about controls, you can write them down on a piece of 
paper, but somebody needs to test these controls because, quite 
honestly, it is like everything else. You can say you found the 
property, but until you touch it, you really don't know if you 
have it. In this particular case, you can talk about the 
controls, but I really do think there has to be some type of an 
agreement where someone will actually come in and test what you 
are actually putting on a piece of paper. And until that is 
done, I am not real happy that it is going to be satisfactory.
    Senator Coleman. What I am hearing then is that until you 
have really had a chance to review this, you are not in a 
position to say whether it meets the kind of specification, the 
standards that you want to see to prevent further waste, fraud, 
and abuse.
    Mr. Kutz. You really have to test it in a live environment 
to know.
    Mr. Ryan. Yes, not only review it, but you have to test it. 
There are going to be so many different circumstances that come 
up, we have so many different citizens that needed assistance 
that they are going to have different stories and different 
situations. You have to be able to test your program, find out 
where you are going to have an overflow of problems, and make 
sure that you can plan for your manpower so that you can handle 
those situations to make sure that the people that need the 
assistance get it as quickly as they possibly can.
    Mr. Kutz. Senator, can I just add, we did test--with this 
disaster we tested, and that is one of the results of the test 
is them sending us money. I mean, because we went in with bogus 
information, we tested the system various ways to see if we 
could beat it, and that is one of the results. We did it right 
down the hall from our offices.
    Senator Coleman. In terms of testing, some of the 
scenarios, let's say there were two back-to-back disasters. Do 
we have a sense of how the system would operate under those 
circumstances?
    Mr. Ryan. Well, they have an edit that can actually 
identify people making claims for both disasters. In this 
particular case, based on the work that we did, we found out 
that they turned that edit off.
    Senator Coleman. Right.
    Mr. Ryan. Therefore, if the edit was in place, they would 
have been able to identify potential targets. We are not saying 
that all of the individuals who got duplicate payments are 
fraud cases, but we have talked to the task force in Louisiana, 
Mr. Dugas in Justice, and we believe that these cases are 
worthy of referring to them for further investigation.
    Senator Coleman. I want to focus again on at least the 
system that appears to be established and in place regarding 
identity verification. One of the concerns that you raised was 
they used Social Security numbers, and people used Social 
Security numbers that were not their own to get disaster 
assistance. Do you have any sense of whether this system would 
be able to identify folks using improper Social Security 
numbers or whether this system would identify someone who is 
not a U.S. citizen, the parameters of whether this problem 
would be addressed under the system in place right now?
    Mr. Kutz. The ChoicePoint system could have identified if 
one person tried to get in with bad information in most cases. 
There are exceptions to that. I think the foreign students 
could have gotten through if they had Social Security numbers. 
There is no way to tell that they were ineligible foreign 
students.
    One of the other problems was if people were using the same 
Social Security number 20 times, they were also able to get 
through. So hopefully they have put in something, even after 
ChoicePoint says that is a real Social Security number, that 
someone is making sure that they are not registering 20 times 
with the same Social Security number.
    Senator Coleman. I would hope that you would do what needs 
to be done to figure out ways to ensure that--or maybe that is 
our responsibility that this system is tested and that it is 
checked. I would hate to have to come back after the next 
disaster with similar problems and the response was, well, we 
thought it worked but we did not know, and in the end it did 
not work.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you. Senator Carper.
    Senator Carper. Thank you, Madam Chairman.
    Could you ask someone to put up the very first poster that 
was up?\1\
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    \1\ The poster appears in the Appendix on page 51.
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    Just tell us again what we have here, starting from the 
left. It looks like $1 billion was the GAO estimate of improper 
payments, as of what?
    Mr. Kutz. February 2006. And that was based upon a 
statistical sample we did of every payment and registration 
that was made.
    Senator Carper. And as of about a month ago, it looks like 
FEMA had identified roughly 30 percent----
    Mr. Kutz. As improper payments, yes, that is their 
identification of improper payments.
    Senator Carper. And they have gone out and collected $7 
million.
    Mr. Kutz. Right.
    Senator Carper. Which is about 2 to 3 percent of the 
amount. Would you say the $7 million or the 2 or 3 percent is 
about what you would expect? Is that a bit low? I cannot 
imagine it is a bit high. But how would you characterize that?
    Mr. Kutz. I would expect a couple pennies on the dollar. I 
do not expect a lot more. Maybe over time they will get more. I 
mean, that gets into the other issue, and I think Senator 
Collins mentioned it, that FEMA also has maybe $8 million of 
receivables now, so now FEMA is becoming a debt collection 
agency. And that is not really the purpose you want FEMA doing.
    But certainly they could potentially get more, but it is 
not going to be much at the end of the day.
    Senator Carper. Are there others, other entities, public or 
private, to whom they could dispatch or turn over the 
responsibility for debt collection? Maybe they have already 
done that. I do not know.
    Mr. Kutz. The way this is supposed to work, once they have 
issued the letters--I think they sent letters out for the $290 
million, so they have sent letters saying, ``You owe us this 
money back,'' etc. After a certain period of time, the way the 
government process works, they are supposed to refer that to 
the Treasury Department, who has an offset program, and 
ultimately this will end up with collection agents, possibly, 
and they may actually offset it against things like refunds, 
tax refunds, or other things.
    So there is a certain process that FEMA should be following 
that, after a certain age, it goes to Treasury and then 
collection agents, and they offset against other government 
disbursements.
    Senator Carper. Are you aware of anything that we should be 
doing on this Committee or in Congress to increase that number 
from $7 million to something higher than that, to make that 
$290 million that FEMA identified closer to the $1 billion that 
you had identified in your earlier work?
    Mr. Kutz. Well, they have not showed us this yet, but we 
understand they have shared with some of the Committee staff 
that there are hundreds of millions more of recoupments that 
will make that $290 million grow. So they are going to continue 
to be sending more letters out. The question is how effective 
can you be collecting that from people. If they are fraudsters, 
they are gone. They have disappeared. You are never going to 
find them. If it is people who just got an improper payment 
that might not be fraudulent, you have got a chance to get the 
money. And I will use the students as an example. A lot of the 
students apparently had spent the money, and now they were 
saying to our people when we interviewed them, ``We are going 
to have a hard time paying that money back.''
    Again, if you have spent the money, it is kind of hard to 
pay it back sometimes. So it is going to be--again, I think 
good management, they can get several percent, but it is going 
to be hard to imagine them getting a lot. But what you can do, 
I think, is provide oversight of FEMA to try to hold them 
accountable, make sure they are at least following the right 
processes, because, again, the more effective way is fraud 
prevention. But now that you are here where you are, we do want 
to see that people recover as much as possible.
    Senator Carper. OK. I think what you just said there is 
really critical. The important thing is for us to do the job at 
the front end and for FEMA to do the right job at the front end 
because when the money is out, for the most part it looks like 
it is gone, it is out of here.
    Could we look at the second poster that you had up there, 
please? Explain this one again for us, if you would, just 
briefly.\1\
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    \1\ The poster appears in the Appendix on page 50.
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    Mr. Kutz. Yes, this is individuals that are staying at 
FEMA-provided housing, and in this particular case, it is 
mobile homes and trailers. It could be a hotel. The hotels have 
the same issue. Apartments have the same issue. They are 
entitled to free housing under the program if they are 
legitimate victims. What the problem is here is at the same 
time they got free housing, FEMA sent them a check reimbursing 
them for rental that they were not incurring. So the government 
basically paid twice for these individuals' housing.
    Now, again, whether this is fraud or not, it depends on 
certain cases. Some of it might just be people who said, ``Hey, 
I got a check from FEMA for rental assistance even though I am 
staying at a free FEMA hotel,'' or in this case a mobile home 
or trailer. So that is what that represents. Again, you are 
paying twice for the same thing.
    Senator Carper. The courts recently ruled, a Federal 
district court recently ruled that FEMA needed to continue 
providing housing assistance for a number of people who have 
been displaced. How does that fit into this situation? Or does 
it?
    Mr. Kutz. It may. I think one of the issues is: Is FEMA 
making sure people are alerted as to what they are supposed to 
spend the money on? It gets back to the same thing we found 
with the debit cards. FEMA was not telling people how they were 
supposed to spend the money, so that got into certain issues. 
But I am not sure exactly how it relates to this. There may be 
some overlap with this issue.
    Senator Carper. What kind of assurances can you give us, 
looking ahead to the next disaster, the next hurricane, the 
next flood, that FEMA has learned lessons so that we will not 
replicate these problems in the future? Because as you pointed 
out, once the money is gone, it is gone.
    Mr. Kutz. Well, one of the frustrating parts of where we 
sit is we cannot actually do it. We can only recommend it. But 
certainly we have given them what we think are practical, 
implementable recommendations that, again, do not necessarily 
harm legitimate victims but help us to reduce fraud, waste, and 
abuse. So certainly our follow-up and maybe this Committee's 
follow-up would be useful in holding FEMA's feet to the fire 
and making sure that they do better next time. We certainly 
would be willing to work with the Committee on that point.
    Senator Carper. Good. That is one that our Subcommittee may 
want to take a look at in the next year as well. Our thanks to 
both of you for your continued service.
    Chairman Collins. Thank you.
    I would like to return to the posterboard of the disaster 
assistance check received by GAO.\1\ Mr. Ryan, first, explain 
to me how someone from GAO received this?
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    \1\ The poster appears in the Appendix on page 49.
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    Mr. Ryan. We tested the system to see if the up-front 
controls were in place to stop a person like myself and the 
agents that sit behind me from stealing the money. We created 
identities. We used Social Security numbers that were not 
linked to those identities. We went online first to try to 
register. We were not successful because the online 
verification process stopped us because it identified us as not 
real people.
    However, the system said, ``If you don't get through, call 
us.'' Well, we called, used the same information, and we were 
able to register. We provided documentation, which we 
counterfeited, manufactured. They accepted it and in the 
process proceeded to send us this check along with other 
checks.
    Chairman Collins. Isn't it pretty easy to verify an 
identity and a Social Security number to make sure that they 
match? Wouldn't it be pretty easy to prevent this kind of 
blatant fraud?
    Mr. Ryan. I think that FEMA, in using the Internet system, 
had the right idea. I think it was a great start. But the 
problem was that you went down two different paths and they did 
not follow the same process. If you are going to do it on the 
left, you should do it on the right. And there is where the 
vulnerability existed.
    Mr. Kutz. We tried to get in through the Internet, through 
the Web, and we got kicked back. So we went to the phone calls, 
and the very same people who got kicked out--so they did not 
even keep track of who got kicked out either to make sure that 
if they called, they would say, ``Yes, you already tried, and 
we rejected you.'' They did not even have that in place.
    Chairman Collins. And while there were controls if you 
applied via the Internet, those same controls did not exist if 
you called up and applied, which is why you were successful 
when you used the telephone application process, correct?
    Mr. Ryan. Correct.
    Chairman Collins. What is stunning about this is it is not 
a very sophisticated fraud to make up an identity and a Social 
Security number, and yet it was successful. But you first 
testified about doing this back in February, if memory serves 
me correctly. So this raises another interesting question. Has 
FEMA tried to recoup this money?
    Mr. Ryan. We have not received a recoupment letter, and we 
have not cashed the checks, which is kind of a clue that maybe 
you need to be looking at who is spending the money.
    Mr. Kutz. We are probably the only people that have not 
cashed the checks, Senator. [Laughter.]
    Chairman Collins. That I would guess.
    Mr. Kutz, based on the review and investigations you have 
done, what do you think the real likelihood is of FEMA being 
able to recover a substantial amount of the improper or 
fraudulent payments, let's say 50 percent?
    Mr. Kutz. Almost zero percent chance.
    Chairman Collins. Because in many cases, as you have 
pointed out, if someone deliberately committed fraud, they are 
not going to stick around to be caught.
    Mr. Kutz. Right.
    Chairman Collins. But, second, if someone received a check 
and thought, ``Gee, what good fortune that I got this 
payment,'' or ``Maybe I am allowed to collect twice because it 
was two different hurricanes,'' isn't it very likely that money 
is long gone?
    Mr. Kutz. Yes, and, again, they have spent it. Again, like 
our recent examples of the students, many of them had spent the 
money already. What they spent it on we did not follow up on. 
But, yes, they are going to have a hard time paying it back 
now.
    Chairman Collins. Mr. Ryan, I understand that you 
investigated the case of the crab house where the 25 temporary 
workers received over $150,000 in assistance, despite the fact 
that they were clearly ineligible. Should FEMA have known that 
the workers should not receive this assistance? Did you find 
any evidence that FEMA had documents that should have raised 
red flags about the eligibility?
    Mr. Ryan. In this particular case, the individuals were 
here on work visas. They were working at the crab house. When 
the hurricane came, the owner took the employees and went to 
Florida. While they were in Florida, the owner of the business 
made sure that they had all their working visas, took them down 
to FEMA and provided the visas--provided the location for the 
worker to go to and the evidence that they had a working visa. 
It was presented to FEMA. Some of that documentation was 
recorded in the database. And when we reviewed it, we found it.
    What I would like to bring out is that in the application 
process, the question is asked: Are you a legal alien? And in 
these particular cases, without a further explanation or an 
understanding by the FEMA employee, these people were legal 
aliens. They were here on proper work visas.
    What needs to be done is that if you are going to ask that 
question, you need to have either a dropdown screen or you need 
to ask the appropriate follow-up question: Are you here on a 
student visa? Are you here on an H-1 or H-2 type visa? So that 
there is a better understanding of the person who is presenting 
the information so they can determine whether or not they are 
entitled or not entitled.
    So in this particular case, I will say that these 25 people 
who got money, I cannot tell you if they were legal or not 
legal. I cannot tell you if the visas were valid or invalid. I 
cannot tell you if they should have gotten benefits or they 
shouldn't. However, I will tell you that we referred it to the 
task force, and we believe that these people ought to be 
interviewed and a criminal case started against them.
    Mr. Kutz. Well, some of them provided fictitious 
information, and so some of them are suspicious fraud cases. 
The ones that had the visas scanned into the system were all 
from Mexico, and the other ones, there was nothing in the 
system basically. And when we checked their Social Security 
numbers, there were problems with a number of them. Some had 
never been issued before. So, again, some of these could be 
fraud cases.
    Chairman Collins. And I think that is an important point 
because in some of these cases what you are finding is outright 
fraud--manufactured Social Security numbers, false identities, 
other indicators of deliberate fraud. But in some of these 
cases, the individuals--I suspect the international students 
may be examples of this--presented legitimate documentation to 
FEMA that should have led FEMA to say you are not eligible for 
assistance, and there was not fraud on behalf of the claimant 
in some of these cases, but FEMA, through sloppy procedures, 
issued checks even though they had information that should have 
led them to disqualify the individual. Is that fair?
    Mr. Kutz. Yes. And, in fact, representatives from the four 
universities said that FEMA representatives told the students 
to apply even knowing that they were not eligible. We could not 
validate all of that, but certainly we had multiple sources of 
evidence that the FEMA people knew these people were not 
eligible and that they let them apply anyway--or they 
encouraged them to apply. And so, again, like you said, in the 
FEMA system there appears to be valid student visas in the 
system, and even right next to that is a copy in the system of 
the FEMA flier saying foreign students are not eligible. They 
got money anyway.
    Chairman Collins. This shows me that, in addition to having 
better internal controls that are consistently applied and not 
suspended just because there is a large volume of applicants, 
we also need better training, better systems for ensuring that 
FEMA workers understand the eligibility rules, which was 
Senator Lieberman's point as well.
    I just have one final question for you, and it has to do 
with FEMA's attempts to recoup this money. Mr. Ryan, you made a 
very good point that FEMA is not a collection agency. This is 
not an area where FEMA has expertise, and, clearly, resources 
are being diverted to collecting on these cases. And FEMA 
really does not have that as its mission.
    To me, the lesson from that is you have to have good 
controls up front to prevent this fraud in the first place. But 
what is your general assessment--I would like to hear from both 
of you on this issue--of FEMA's system for triggering 
recoupment, going after obviously improper or fraudulent 
payments? Mr. Ryan, we will start with you.
    Mr. Ryan. My experience is that when the money gets out the 
door, it is gone, and you are chasing it down the street trying 
to find it. We are wasting almost as much money chasing it as 
what we are trying to recover.
    I cannot really give you my opinion because I really did 
not work on the recoupment process that they have. But I can 
tell you that based on testifying four times, five times in 
regard to FEMA, we really at your direction, the Committee's 
direction and some of the other committees in Congress, looked 
at what really fraud is. How does fraud exist in these 
programs? In the past, we were told it was 1 or 2 percent. When 
we are identifying from a statistical sample 16 percent fraud, 
it appears that you have to do a better job up front because I 
do not know if you are going to be able to recover the money in 
the back.
    I cannot really comment as to the process that they are 
using for recoupment because I have not looked at it. Maybe Mr. 
Kutz has and the staff has. I have not.
    Mr. Kutz. No, we have not systematically looked at it, but 
the interesting thing is that they have characterized 
recoupments or the $290 million as the fraud rate or the 
fraudulent or improper rate. Well, as you know, that does not 
make any sense. And they tried to compare that to the way we 
did a random statistical sample of the entire population.
    So it just almost seemed like they didn't really understand 
what fraud, waste, and abuse is, and that kind of was a bit 
discouraging. But, again, the fact that they are identifying 
hundreds of millions of dollars is not a bad thing; if they can 
try to collect it, it is good. But you are right. If we get 
bogged down in FEMA doing debt collection and another disaster 
hits, that is not a good thing.
    Chairman Collins. I guess what is most disturbing to me, as 
I mentioned in my opening comments, is this is money that is 
desperately needed by the real victims to rebuild devastated 
communities and to rebuild their lives. The American people are 
very generous, but there is a limit to their generosity if they 
believe that substantial amounts of money are being lost to 
waste, fraud, and abuse. And that is clearly what happened in 
this case.
    It is particularly frustrating to me because in 2004 this 
Committee held oversight hearings looking at waste, fraud, and 
abuse in the wake of the Florida hurricanes, and we identified 
some of the exact same problems that you have testified about 
today. At that time, I remember telling Michael Brown that he 
had to ensure that controls were in place before the next major 
disaster hit. Regrettably, he did not do so, and when a 
disaster of the magnitude of Hurricane Katrina hit, the 
magnitude of the waste, fraud, and abuse was that much greater.
    We cannot wait for yet another disaster to hit and for yet 
another round of investigations and hearings to spotlight once 
again the lack of basic safeguards and internal controls that 
any agency that is providing public assistance should have as a 
matter of course. This is not rocket science. It is not 
something where it requires technology that has not yet been 
developed. It is basic verification of eligibility, identity, 
address, and damage. And I for one am going to continue to push 
FEMA and the Department of Homeland Security to prove that they 
have those systems in place.
    The FEMA reform legislation that this Committee advanced 
and which was signed into law as part of the appropriations 
bill requires the development of those standards. It is not 
something, frankly, that we should have had to put in law to 
ensure that it was going to happen. It is basic management. But 
I hope that you will continue to work with us to probe and test 
the system to ensure that true progress has been made.
    We have asked DHS to respond to your testimony and to these 
latest findings and recommendations. They are still working on 
their response, and I look forward to seeing their response to 
these very troubling findings.
    We all know that lessons can be learned and applied in the 
wake of a disaster, and we have seen some progress being made 
in other parts of FEMA. And I realize there is a lot of 
progress that needs to be made. But the American people are not 
going to be willing to keep writing checks for disaster relief 
and assistance unless they are assured that the money is being 
wisely spent to benefit the true victims. And your work is 
vitally important in helping us achieve that goal.
    I very much appreciate all of your assistance to the 
Committee. It has been a great pleasure to work with you. I am 
certain that this Committee's fight against wasteful spending 
will continue, and I look forward to working with you further.
    I also want to thank my staff for their diligent work on 
this hearing and, indeed, on all of the Hurricane Katrina 
investigation. It was the most extensive investigation ever 
undertaken by this Committee. I believe that this is our 25th 
Hurricane Katrina hearing, and I think we have learned a lot. 
We have issued a major report. We have enacted legislation. But 
it is clear that continued oversight will be necessary. So I 
want to thank the staff for their good work as well.
    The hearing record will remain open for 15 days to receive 
questions for the record, other materials, and I hope DHS's 
written formal response.\1\
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    \1\ FEMA/DHS response appears in the Appendix on page 54.
---------------------------------------------------------------------------
    Thank you again for your good work.
    This hearing is now adjourned.
    [Whereupon, at 11:17 a.m., the Committee was adjourned.]


                            A P P E N D I X

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