[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
PREVENTING STIMULUS WASTE AND FRAUD: WHO ARE THE WATCHDOGS?
=======================================================================
HEARING
before the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MARCH 19, 2009
__________
Serial No. 111-7
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
----------
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Washington, DC 20402-0001
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri TODD RUSSELL PLATTS, Pennsylvania
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
JIM COOPER, Tennessee LYNN A. WESTMORELAND, Georgia
GERRY E. CONNOLLY, Virginia PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of BRIAN P. BILBRAY, California
Columbia JIM JORDAN, Ohio
PATRICK J. KENNEDY, Rhode Island JEFF FLAKE, Arizona
DANNY K. DAVIS, Illinois JEFF FORTENBERRY, Nebraska
CHRIS VAN HOLLEN, Maryland JASON CHAFFETZ, Utah
HENRY CUELLAR, Texas AARON SCHOCK, Illinois
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
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Ron Stroman, Staff Director
Michael McCarthy, Deputy Staff Director
Carla Hultberg, Chief Clerk
Larry Brady, Minority Staff Director
C O N T E N T S
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Page
Hearing held on March 19, 2009................................... 1
Statement of:
Devaney, Earl E., chairman, Recovery Act Accountability and
Transparency Board......................................... 12
Holland, William G., auditor general of Illinois, National
Association of State Auditors, Comptrollers, and
Treasurers; David P. Gragan, chief procurement officer for
Washington, DC, National Association of State Procurement
Officials; Jerome Heer, director of audits for the county
of Milwaukee, Association of Local Government Auditors; and
Jerry Brito, senior research fellow, Mercatus Center at
George Mason University.................................... 53
Brito, Jerry............................................. 85
Gragan, David P.......................................... 59
Heer, Jerome............................................. 77
Holland, William G....................................... 53
Letters, statements, etc., submitted for the record by:
Brito, Jerry, senior research fellow, Mercatus Center at
George Mason University, prepared statement of............. 88
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 248
Devaney, Earl E., chairman, Recovery Act Accountability and
Transparency Board:
Letter dated April 6, 2009............................... 51
Prepared statement of.................................... 16
Gragan, David P., chief procurement officer for Washington,
DC, National Association of State Procurement Officials,
prepared statement of...................................... 62
Heer, Jerome, director of audits for the county of Milwaukee,
Association of Local Government Auditors, prepared
statement of............................................... 79
Holland, William G., auditor general of Illinois, National
Association of State Auditors, Comptrollers, and
Treasurers, prepared statement of.......................... 56
Issa, Hon. Darrell E., a Representative in Congress from the
State of California, prepared statement of................. 7
Towns, Chairman Edolphus, a Representative in Congress from
the State of New York:
Binder for the record.................................... 123
Prepared statement of.................................... 4
PREVENTING STIMULUS WASTE AND FRAUD: WHO ARE THE WATCHDOGS?
----------
THURSDAY, MARCH 19, 2009
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m., in room
2154, Rayburn House Office Building, Hon. Edolphus Towns
(chairman of the committee) presiding.
Present: Representatives Towns, Maloney, Cummings,
Kucinich, Tierney, Clay, Watson, Lynch, Cooper, Connolly,
Norton, Davis of Illinois, Van Hollen, Cuellar, Hodes, Welch,
Foster, Speier, Driehaus, Issa, Burton, Platts, Duncan,
McHenry, Bilbray, Jordan, Chaffetz, and Schock.
Staff present: Ronald Stroman, staff director; Michael
McCarthy, deputy staff director; Carla Hultberg, chief clerk;
John Arlington, chief investigative counsel; Joanne Royce and
Steven Rangel, investigative counsels; Katherine Graham,
investigator; Jenny Rosenberg, director of communications; Adam
Hodge, deputy press secretary; Lawrence Brady, minority staff
director; John Cuaderes, minority deputy staff director;
Frederick Hill, minority director of communications; Dan
Blankenburg, minority director of outreach and senior advisor;
Adam Fromm, minority chief clerk and Member liaison; Seamus
Kraft, minority deputy press secretary; Tom Alexander and
Christopher Hixon, minority senior counsels; Ashley Callen,
minority counsels; and Jill Schmalz, Brien Beattie, Molly Boyl,
and Mark Marin, minority professional staff members.
Chairman Towns. Good morning. Thank you for being here.
Our Nation is at a pivotal point in history as we endure
the greatest economic crisis in more than a half century.
Millions of jobs have been lost. Companies are failing.
Americans are losing their homes. States, cities, communities,
and families desperately need help. This is the greatest
financial crisis since the Great Depression.
Answering the call, Congress recently passed the American
Recovery and Reinvestment Act, known as the Recovery Act, which
provides $787 billion in tax cuts and Federal spending to
preserve and create jobs, assist those most harmed by the
recession, and reinvest in our great country.
I was a proud original cosponsor of the Recovery Act
legislation, but along with the opportunity to heal our ailing
economy, we have the monumental challenge of ensuring that the
American taxpayers' dollars are used wisely and not squandered.
The risk of fraud increases when billions of dollars go out of
the door quickly. This is the painful lesson of Iraq War
spending and spending in response to Katrina where billions
were lost to fraud. Fraud experts estimate that U.S.
organizations lose 7 percent of revenues to fraud and waste.
When applied to the stimulus package, this amounts to a
whopping $55 billion in American taxpayers' dollars.
Mindful of this history, the Recovery Act provides for an
unprecedented degree of oversight and accountability, and it
remedies two of the major problems with Iraq and Katrina
funding. The law mandates the use of competitive contracting
and the use of fixed price contracts. Further, the newly minted
Recovery Accountability and Transparency Board, known as the
Recovery Act Board, is designed to provide transparency on how
Federal recovery money is spent.
I applaud the President for his support of these critically
important reforms. However, these reforms are not enough. We
need to take steps to ensure that problems are fixed before
they arise. Two weeks ago we held a hearing on the Excluded
Parties List of businesses that should have been suspended and
debarred but that were still receiving Federal contracts.
Last month the Inspector General of the Department of
Transportation issued a report which documented that in 2003
executives were paid $73 million, including the payments of
expenses that should have been unallowable, including spa
resort bills, alcohol bills, and 45 automobiles including
Mercedes, BMWs, and other luxury brands. Most disturbingly,
just yesterday the committee learned that several of the very
first contracts awarded using stimulus funds may have been less
than transparent and/or contain paperwork errors. At least one
of these contracts may have had no competition.
Today I will ask that Mr. Devaney conduct a comprehensive
examination of this first set of 11 stimulus related contracts
to determine whether the contracts are transparent and if
taxpayers' money was spent efficiently, and to report back to
the committee within 2 weeks with a full report. I will also
ask that this report contain an assessment of the fraud
prevention programs that are in place at each agency receiving
Recovery Act funding. The sad truth is once fraudulent dollars
go out the door, the Federal Government historically is only
able to collect pennies on the dollar.
I also am concerned that States are already beginning
Recovery Act spending. However, States have not been told
exactly what information to collect. This needs to be fixed and
it needs to be fixed immediately.
In order to assess the adequacy of fraud prevention
programs, I will ask Mr. Devaney to report back to this
committee within 2 weeks his views on whether each executive
branch agency receiving Federal funds has an adequate fraud
prevention program.
I also have major concerns about the administration's
primary transparency tool, Recovery.gov. The fact of the matter
is that Recovery.gov is currently not a usable data base. I
fully recognize the difficulty confronting the administration
in this task with the need to track funding from each Federal,
State, and local agency involved and the need to determine how
many jobs have been created. In order for this to work, we need
to have uniform standards for collecting and reporting
information.
In view of the need to immediately resolve this issue,
today, I will be sending a letter to Vice President Biden
urging him to convene a high tech roundtable of Federal, State,
and private sector IT leaders to come up with a uniform
approach to track and account for Recovery Act funding. We need
to come up with a workable solution to what information is
needed, in what form that information is needed, and how that
information should be displayed.
The national outrage over AIG's decision to give $165
million in bonuses to its employees after receiving Federal
bailout money underscores the need for a thorough plan for the
tracking and accounting of stimulus funds and preventing waste,
fraud, and abuse under the Recovery Act. I look forward to
today's hearing for a thorough examination of the problems that
our Federal, State, and local watchdogs must overcome. And let
us all work with speed and diligence in the greater spirit of
cooperation and bipartisanism and everything else to make
certain that we are able to do the job that the American people
are calling for.
I want to thank all of the witnesses for appearing here
today. And I look forward to hearing your testimony. And at
this point I yield to the ranking member from California, Mr.
Issa, for his remarks.
[The prepared statement of Chairman Edolphus Towns
follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you, Mr. Chairman. And I would ask
unanimous consent that my entire opening statement be placed in
the record.
Chairman Towns. Without objection, so ordered.
Mr. Issa. Mr. Chairman, Mr. Devaney, I am delighted to be
here today. I am delighted to be sitting next to the chairman
and to endorse and to echo each and everything he just said. We
do have a tough job and we look to you to be the spearhead for
this.
During the questioning today, I am going to ask you some
tough questions. I am going to ask you are you willing to stand
up to the Vice President as the IG and say that perhaps he is
not overseeing properly his job? Are you willing to stand up to
each and every Cabinet officer who received huge amounts of
money with little or no guidance and say that, in fact, either
follow-on legislation or additional internal regulations are
going to be essential? And the list will go on. I have known
you for a number of years; I am confident that your answers
will be good and that your efforts will be phenomenal.
I have great confidence in you but I don't have great
confidence in the body that I serve in here today. The money
that you oversee was rushed through in large pots or perhaps
puddles of money. One of the first articles that we are going
to be talking about that the chairman referred to here today is
quick spending by the Forest Service, an organization that
received about half a year's worth of extra money and unlikely
will be able to spend it wisely in 18 months.
Additionally, you are going to oversee whether these funds
are stimulative in their use whenever possible. It is very
clear that there is a spending spree going on by government.
Some of it will not be stimulative. Certainly, although the
chairman was right to note the tax relief that was included in
the stimulus package, certainly many of the dollars sent out
were sent out knowing that they would not be spent.
Additionally, if the government spends its money poorly or
if the consistent message of the stimulus package is Katrina-
like, if I can use that term, the American confidence in our
recovery and in the fact that stimulus is being used well will
slow the overall economic recovery. Mr. Chairman, today we are
looking at $787 billion worth of spending. As you noted in your
opening remark, and I think rightfully so, we really do begin
here and clearly go to TARP funds, government guarantees, and
all of the many trillions of dollars that are currently
committed and more to be committed because they are
interrelated.
Mr. Chairman, our working relationship has been good in the
short time that we have been working together. I expect it to
continue being extremely good. And I would note that when you
quote President Obama's demand for transparency and you do
things like this hearing today to ensure that we begin
fulfilling both what he legislatively did when he was a Senator
and what he is calling for as a President, we work in the way
the American people expect us to work.
So I look forward to all the panels here today. I yield
back the balance of my time and thank the chairman.
[The prepared statement of Hon. Darrell E. Issa follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Towns. I thank the gentleman from California. I
agree with him and I look forward to working very closely with
him in terms of getting rid of waste, fraud, and abuse. Thank
you for your kind words.
Are there any other Members seeking recognition? Yes, the
gentleman from Ohio, Mr. Kucinich.
Mr. Kucinich. Mr. Chairman, I want to thank you for
fulfilling the commitment of this committee for effective
oversight. It is appropriate that we have a meeting today on
this stimulus package so that we can not only review what is
being set in place to assure that taxpayers' money is not
misspent but also send a message across this country that we
take very seriously our oversight role and that we are going to
be watching how the money is being spent.
The actual spending component of the stimulus package apart
from the tax breaks is over a half trillion dollars. It is an
extraordinary amount of money. We are at a time in our
country's history where we have an economic emergency and it is
important that we spend the money and get it into circulation.
Government spending is stimulative. But at the same time, we
want all those who are out there to understand that this money
is precious.
American taxpayers are putting their faith in us to make
sure that we see that money is being spent wisely. And I join
with the committee chairman and ranking member in an insistence
on transparency, that we be able to get the details about how
the money is being spent and get it quickly. I like the idea of
Web pages being used to post information and keep it in real
time so that people have the ability to get the information as
quickly as they can. But this is our function as an oversight
subcommittee.
And I want to thank the chairman for reminding the American
people that this Congress does care how their money is being
spent and that we are going to insist on accountability. I
thank the chairman and I yield back.
Chairman Towns. Thank you very much. I thank the gentleman
for his statement. The gentleman from Utah?
Mr. Chaffetz. Thank you. Mr. Chairman, I applaud you for
holding this hearing. I think this is core to the function of
what we should be doing in the U.S. Congress as a check and a
balance, as a true oversight into what is happening in the
executive branch. So I applaud you for holding this hearing,
the first of what I believe will be many.
And Mr. Devaney, I appreciate you being here. You are a
brave man; you are a brave soul to take this on. This is a very
difficult and contentious issue. No doubt you will be tossed
around and beaten like a punching bag at every step of the way.
But please know that the American people are rooting for you.
We need you to do your job despite all the pressures, all the
input that can be coming from a variety of angles. And I just
hope and pray that you will remain strong and true to the task
at hand in making sure that we hold people accountable and that
there is a maximum of transparency.
I am a freshman here. I didn't create this mess but I do
intend to help clean it up. I voted no on the stimulus package
because I do not believe that it fundamentally solves the
challenges and things that we were trying to accomplish, as it
was reported to be about jobs, jobs, jobs. I find that it is
not. And immediately, right out of the chutes, we are already
dealing with literally hundreds of millions of dollars that are
going to go out the door that the American people fundamentally
know is not right.
We have effectively, with the stimulus and bailouts and
those sort of things, gone into every single American's pockets
and pulled money out and then started to distribute it to
individual companies and organizations and who knows where. I
fundamentally have a problem with that because I think it is
wrong in principle. But at the same time, the decision has been
made. I just want to make sure that we do the very best job to
make sure that those funds are used wisely and that there is
maximum transparency.
I cannot imagine how long we are actually going to be after
this because undoubtedly there will be fraud and there will be
waste. And I want to make sure that the U.S. Government is
tracking every single dollar and is making sure that we give
the American people all the information they deserve about
where their money is being spent. And with that, Mr. Chairman,
I yield back my time. Thank you.
Chairman Towns. I would like to thank the gentleman for his
words. Let me yield now to the gentleman from Maryland.
Mr. Cummings. Thank you very much, Mr. Chairman. Mr.
Chairman, I want to thank you and the ranking member for this
hearing. The timing could not be better.
As you know, Mr. Chairman, what we have done on this
committee over the past many years is that we have a lot of
times conducted oversight after the fact. Here we are up front.
This money is just being distributed, just being laid out
there. And whether one agrees with the stimulus bill or not,
the fact is, it is like the last gentleman said, it is here. I
think holding this hearing sends a powerful message, and this
series of hearings that this committee is about to do--because
what it says is that we will do our job to make sure that we
look over the shoulders of every agency and every person who
may have anything to do with this.
But the fact still remains that right now the Obama
administration is in a very difficult situation. They are
trying to right an economic situation in our country, and as a
matter of fact in our world, which is pretty bad. And we need,
Mr. Chairman, right now to restore a trust of Government and a
trust in our economy. And in order for the President to do
that, it is like pushing, as I have said many times, a boulder
up a steep hill. When we have situations like AIG, the bonuses
that were paid out and the lavish parties and whatever, that
simply is like putting a piece of ice, while the Obama
administration is trying to provide economic reform, like
putting ice on that hill.
Hearings like this give us a grip to get up there so that
not only is the money used for what it is supposed to be used
for, but it is also done in a transparent manner and is done in
a manner with accountability. But most significantly, it leads
to the American people knowing and believing that every dime of
their tax dollars is being spent in an effective and efficient
manner and one which will in the end, Mr. Chairman, benefit
them.
And so I applaud you for this. Mr. Devaney, we look forward
to working with you. I thank you for taking on this role. I
know it is going to be a challenge but I know, from everything
I have read about you, I know you are up to the task and more.
May God bless you and I yield back.
Chairman Towns. Thank you very much. I thank the gentleman
from Maryland. At this time, I yield to the gentleman from
Virginia.
Mr. Connolly. Thank you, Mr. Chairman. Like my friend from
Utah, I am also a freshman. But unlike my friend from Utah, I
was proud to vote for the stimulus bill. We did inherit an
economic mess and something had to be done. And unlike the
previous administration that wanted no accountability or
transparency in the TARP program, this administration put the
Vice President of the United States in charge of oversight,
implementation, transparency, and accountability. I applaud the
Obama administration for that and I welcome Mr. Devaney being
here today.
Mr. Chairman, as you have ably stated, oversight and
accountability of stimulus money is of paramount importance. In
that regard, I was pleased that the American Recovery and
Reinvestment Act included specific funding set aside for
management and oversight.
However, I believe the manner in which these set-asides
were defined leaves much to be desired. First and foremost, the
set-asides do not apply to States and localities, the very
entities to whom much of the ARRA funding will go, despite the
fact that States and localities face numerous reporting and
accounting requirements. ARRA does include language that allows
agencies to adjust awards to help defray the cost of
administration recordkeeping but only after going through the
formal rulemaking process. This will place unfunded mandates on
State and local governments that are already in dire fiscal
straits.
Second, the fact that oversight set-asides are only done on
a program by program basis does not make much sense, it seems
to me. Unless there is a comprehensive enterprise component,
the end result will be numerous unnecessary stovepipes of the
kind this committee has worked to eliminate in the past.
Agencies should be encouraged to take a comprehensive approach
to oversight of awards granted under the act.
I am eager to hear what our witnesses have to say about
these matters. In my view, based on 14 years in local
government, the need for oversight and accountability at the
State and local level is just as pressing as it is at the
Federal level. This is truly where the rubber meets the road.
Thank you for holding this hearing, Mr. Chairman and ranking
member.
Chairman Towns. Thank you very much. Now I yield to the
gentleman from Illinois, Mr. Davis.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
And let me be very brief. As I listened to my colleagues this
morning, I was reminded of having a group of eighth graders in
my office. They wanted to know what our job was. What are we
really supposed to do?
And I said to them that we are supposed to do four things.
One, of course, is to legislate, to make laws, to determine
what is legal, illegal, right and wrong, appropriate,
inappropriate. Then I said we appropriate. That is, we decide
how to spend money and how much of it we are going to spend.
But then we also have the responsibility to investigate,
and that is to make sure that the laws are carried out the way
we intended for them to be carried out and that the money is
being spent the way we intended for it to be spent, that the
American people have a way to trace that money and to actually
find out whether or not it is going for the purposes that we
originally stated. And I must confess that is very challenging.
There are times when my constituents will ask me what
happened to the money. And I will have to say, well, I know
what was supposed to happen with it, but I am not sure that I
can always tell you. And so, Mr. Chairman, I commend you for
holding this hearing. I look forward to working with Mr.
Devaney and trying to make sure that the American people have
the information and the answers that they are seeking. So I
thank you very much and yield back the balance of my time.
Chairman Towns. I would like to thank the gentleman from
Illinois, Mr. Davis. At this time I yield to Mr. Tierney from
Massachusetts.
Mr. Tierney. I yield my time so that we can move on to the
witnesses.
Chairman Towns. Thank you very much. At this time we would
like to swear in our witness.
[Witness sworn.]
Chairman Towns. Let the record reflect that he answered in
the affirmative. You may be seated.
Mr. Earl E. Devaney is chairman of the Recovery Act
Accountability and Transparency [RAT] Board. [Laughter.]
The RAT Board was created under the American Recovery and
Reinvestment Act of 2009, Recovery Act, to provide coordination
and oversight of Recovery Act funds which have an estimated
cost of $787 billion. The RAT Board is mandated to audit and to
review spending of Recovery funds.
And, of course, I will ask you to summarize your testimony
which will allow us to have a period of time to raise questions
with you. I am sure you know the routine. The yellow light
means you have a minute left and the red light means stop. Some
folks don't get that. Sometimes we have problems with that. But
I know you have been around a long time and you understand how
important that is. And then, of course, we will have a time to
answer questions and raise questions with you.
We are delighted to have you here. So you may proceed.
STATEMENT OF EARL E. DEVANEY, CHAIRMAN, RECOVERY ACT
ACCOUNTABILITY AND TRANSPARENCY BOARD
Mr. Devaney. Thank you very much, Mr. Chairman and members
of the committee. I want to thank you for the opportunity to
testify today.
And although I have had the honor of testifying before this
committee before, I appear before you today in my new role on
behalf of the Recovery Act Accountability and Transparency
[RAT] Board, a name on which I had no input. My testimony today
will address the current status and mission of the Board.
Following my prepared remarks I will gladly answer any
questions you might have, and I am sure you have plenty.
The status of the Board is what you might expect 30 days
after the act was signed into law. Specifically, the Board is
still trying to acquire staff, get our equipment, phones,
computers, trying to acquire space which we haven't managed to
get yet, and just trying to keep our heads above water in
ensuring that the Board fulfills its responsibilities under the
Recovery Act. Our first official Board meeting will actually be
held next week.
Regarding the Board's purpose, I view the Board as having a
dual mission. First, the Board is responsible for establishing
and maintaining a Web site, ``Recovery.gov,'' the purpose of
which is to foster an historic level of transparency of
Recovery funds, but to do so, and this is very important, in a
user friendly manner. Second, the Board will coordinate and
conduct oversight of Recovery funds to prevent fraud, waste,
and abuse.
Regarding the Web site, I have some information to report.
Even before the Recovery Act was signed, OMB and GSA had begun
designing the architecture and implementing the plan for the
Web site. A great deal of credit needs to be extended to them
for their efforts. Because of those efforts, all Americans
today can go on the Web site, Recovery.gov.
As you know, the Recovery Act invests the Board with the
authority to maintain and run the Web site. Going forward, I am
eager for the Board to assume control and administration over
the Web site, which I don't have today, in order to fully
maximize its use as a transparency and accountability tool.
Transition of the Web site's control from OMB to the Board's
control is expected to take another 30 to 45 days. Although the
Web site is still in its infancy, the Recovery funds will
have--and the Recovery funds have only just begun to flow--I
truly believe the opportunity to achieve a remarkable level of
transparency never before realized coupled with unprecedented
citizen participation.
Let me give you some of my thoughts about transparency. And
I think to shorten up my testimony I will just say that I have
always agreed that sunlight is the best disinfectant. And those
words lead me to conclude a few things about this Board. The
information on Recovery.gov must be easily retrievable and
understood by taxpayers, lawmakers, and watch groups alike. We
have to find that balance between having all the information
that is required to follow the dollars and to make it simple so
that the average citizen can go on this Board, maneuver around,
and hopefully be attracted to come back in again. And the
public must be given an opportunity to provide feedback and be
heard.
I have been in this business for a long time and I
understand that when you build something they will come. And if
you are not prepared to listen to what the citizens have to
say, that is actually worse than not having the process in the
first place. And then finally, barring some certain exceptions
of national security and personal privacy, I believe all
Inspector General reports, and for that matter GAO, State, and
local government reports ought to go up on this Web site and be
periodically updated to ensure the transparency and
accountability that the act envisioned is actually achieved.
And, regarding the Board's other mission, accountability,
there is encouraging news. Even as the Recovery Act was making
its way toward final passages, IGs across the Federal
Government were meeting to develop strategies to prevent fraud,
waste, and abuse of these moneys. The committee may have
noticed that I have been using the word ``prevent'' to describe
the Board's mission of accountability.
That is very deliberate on my part. Most IGs, including
myself, generally spend considerable time detecting fraud and
waste and then using either a traditional audit or criminal
investigation. It strikes me that although those tools will
undoubtedly come into play later on, IGs may be better able to
maximize their value to the accountability goal of the Recovery
Act by concentrating their efforts on prevention.
The language of the Recovery Act strongly suggests that IGs
and other oversight entities are being asked to minimize the
risk inherent in distributing such an extraordinary amount of
money and to maximize the opportunities to prevent fraud or
waste in the first instance before it actually happens. Some of
those strategies my fellow IGs have been working on include
evaluating as yet unimplemented IG or GAO recommendations,
evaluating their agency's spending plans and performance
measures, conducting evaluations to ensure that proper controls
are in place to receive and dispense these funds, providing
fraud awareness training to both grant administrators and
grantees, developing risk-based analysis tools as an essential
part of a preventative work, and conducting outreach to the
State and local audit community to provide technical
assistance, best practices, and training where needed.
I want to assure each of you that the Board will strive to
be as helpful as possible to State and local governments. To
that end, the Board staff will include audit, investigative,
procurement, and intergovernmental professionals who, as part
of their job descriptions, will be responsible for fostering a
close working relationship with all levels of government.
I look forward to beginning the Board's mandated role of
coordinating with all the other IGs, some 20 plus who will be
more directly responsible for stimulus oversight. I foresee the
Board actively detecting fraud trends, identifying best
practices for conducting reviews, and designing risk-based
strategies to help focus all of our limited resources. The IG's
well regarded task force in response to Hurricane Katrina
should serve as an excellent model for the new challenge. That
effort, which is still ongoing, involved $149 billion and
engaged 22 separate IG officers.
Finally, I would like to present some of the impending
challenges that I see as having the most impact upon the Board
and its mission of transparency and accountability. First and
foremost is the issue of data quality. Simply stated, the
Federal Government's systems have never been fully successful
at producing timely and reliable data. Add to that problem the
difficulty of transmitting and reporting data up through
multiple levels of government as this act contemplates and you
will begin to understand the basis for my concern.
Second to data quality is the lack of adequate numbers of
procurement professionals at all levels of government. Federal
agencies in particular have a great difficulty attracting and
hiring enough procurement professionals to minimize the risks
associated with moving this amount of money quickly and to
accomplish the act's goals. And finally, I am concerned that
there may be a naive impression that, given the amount of
transparency and accountability called for in this act, little
or no fraud or waste will occur.
I am afraid that my 38 years of Federal enforcement
experience informs me that some level of waste or fraud is
regrettably inevitable. Obviously the challenge for all of us
charged with oversight will be to significantly minimize any
such loss. My promise to the committee today is that my staff,
the members of the Board, and I will work tirelessly to reduce
those losses to the lowest level possible.
Mr. Chairman, that concludes my prepared remarks. Thank you
for the opportunity. And I do look forward to answering any
questions you might have today.
[The prepared statement of Mr. Devaney follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Towns. Thank you very, very much. I will start
with the questioning.
What are some of the specific measures the Recovery Act
Board can take to lend a hand to State and local officials to
help assure that stimulus funds coming into their communities
are not wasted? For example, does your mandate include
providing anti-fraud training to State and local officials?
Mr. Devaney. Mr. Chairman, I have been speaking the last 2
weeks to State and local officials from around the country. I
am doing a lot of listening and I have been hearing a lot of
concern about their ability to perform their oversight role.
Lack of funding is obviously a major issue for everybody.
But what I also hear is that they are looking to this Board
to provide exactly what you just talked about, a level of
training, fraud awareness training, to help them develop risk
analysis models that might help them focus their limited
resources, and procurement training. And as I mentioned in my
opening remarks, one of the charges I am going to have to
everybody that works for me on this Board is that a major part
of the responsibility is State and local interaction. I have
been doing this sort of thing for all my career and I have
always had a good, healthy working relationship with State and
local law enforcement and audit folks. I don't intend to change
that now.
Chairman Towns. Well, let me just say that I must admit
that you have a tremendous, positive reputation in terms of
being able to get the job done. Someone said to me the other
day that if anybody could do this job, it is you. So I was
happy to hear that.
But according to the 2008 report of the Association of
Certified Fraud Examiners, occupational fraud is much more
likely to be detected by tip than by audits, controls, or other
means. Do you have a broad plan on how to harness citizen and
whistleblower involvement in keeping an eye on stimulus
spending? And also, I guess, along with that, if you do, how do
you plan to publicize this so that people will feel comfortable
coming forth with information?
Mr. Devaney. As you may know, this Web site is getting an
average of about 4,000 hits per second so citizens are tuning
into this Web site already. And we do need to harness the
collective wisdom that comes from this. I think the beauty of
this transparency and the concept behind this Web site provide
all of us in the audit or enforcement arena an opportunity to
hear and see things that we probably never would find unless
citizens called in and told us about it.
So we will have to build a process where we can sort of
sift through the frivolous kinds of things that are always
going to come in to the real nuggets. And I believe that with
the fact that citizens are going to hopefully be attracted to
this Web site and be on it all the time, that we are going to
find things and hear about things that we never would have
found or heard about in the traditional processes that we have
all used over the years.
Chairman Towns. The Recovery Act requires your Board to
submit flash reports to the President and Congress. I guess,
first of all, what is a flash report and why are they
important?
Mr. Devaney. Well, I think I may be a pioneer in that area.
I actually designed flash reports at the Department of Interior
to notify the Secretary of some immediate need for their
concern, something that might involve potential loss of life or
a security issue.
And so I would use flash reports in this circumstance as
providing both Congress and the administration with something
they needed to hear right away, to not wait for a quarterly
report or a weekly report but just to get it out right away and
get that out to whatever department. For instance, if we have
money that might have gone missing or wasted, get that out
immediately and not wait for the routine reporting process.
Chairman Towns. Senator Claire McCaskill of Missouri has
introduced a proposal whereby State auditors who historically
do single audits every year as required by the Single Audit Act
of OMB, Circular A-133, would instead do audits directly
related to the Recovery Act stimulus money for the next couple
of years. She proposes that the initial round of audits would
focus on the mechanisms in place at the State and local levels
and the second round of audits would be about how effective
these mechanisms have been. Would you please explain the
concept of single audits in IG's use in terms of how this helps
you?
Mr. Devaney. Well, first of all, I would commend Senator
McCaskill for coming up with that idea. I know she was State
auditor before she was a Senator so it is an interesting
proposition. I know the audit community, which would include
all the IGs and the GAO and their State and local counterparts,
have been talking about this in the last few weeks. And I don't
think we have actually arrived at a recommendation about this.
But single audits are used typically to provide audit
coverage of moneys where typically over $500,000 has been
expended by an entity. I think there are a few States that
actually have their State auditors do this kind of work but
most entities are required to hire an outside accounting firm
to do those audits. They are funneled into a central
clearinghouse at the Federal Government level and then, if
there is a problem, the individual IGs that oversee those areas
get involved or get to look at that and followup.
Chairman Towns. Thank you very much. I now yield to the
ranking member.
Mr. Issa. I thank you, Mr. Chairman. As the chairman said,
Mr. Devaney, we have known of your work at Interior and we are
counting on you to do a lot of what you did there. I think the
difference at Interior was very well established programs. The
failures at MMS and some of the areas that you and I have
worked on in the past, these were failures in which the rules
were very specific. They were either violated or we found
circumvention through various means or, in some cases, just
misconduct by individuals.
In the case of these funds, isn't one of your problems the
fact that without a common set of terms and data base, if you
put the information in and then try to search--if a term for a
similar expenditure or term for a use of funds is not identical
throughout the data base--although you can maybe get some
visibility, you are not going to be able in an automated
fashion to search it?
Mr. Devaney. Well, I think that is absolutely correct. As I
mentioned, I have been listening for the last 2 weeks to
principally State and local officials and that is one of the
major concerns that they raise. You know, I need to get control
of the Web site.
And while I said earlier I think a great deal of credit
should be extended to OMB and GSA for getting this Web site up,
it has taken me some time to hire the appropriate amount of
staff to take control of the Web site, particularly the Web
site's content, and then trying to understand the definitions
that have already been sent out to States and Federal entities.
I sort of arrived at the train station and found that the train
had already left. And it was a pretty fast train and it was
going down the track. So I am going to get my hands around
that. I have heard the concerns.
And I want to, as I mentioned earlier, try to strike that
balance between having the system complicated enough so that we
can watch the dollar flow from the Federal pot down to the
local entity, but yet simple enough so that, and I have been
using Mr. and Mrs. Smith from Ohio.
Mr. Issa. As a former Ohioan, I thank you.
Mr. Devaney. Yesterday I was asked and I told them that Mr.
and Mrs. Smith who live in Columbus, OH can go on that Web site
and maneuver around it and be attracted enough to come back to
it. Quite frankly, I am interested in making sure that this is
a totally impartial, apolitical kind of site that is also
attractive. I don't want to put up sort of a CPA or audit kind
of site that wouldn't be attractive enough to get people to
come back in. And I want to take advantage of the citizen
participation. I look at that, as I mentioned earlier, as an
opportunity to learn things we never would learn otherwise.
Mr. Issa. Well, Mr. Devaney, the Washington Post has
reported that, at least in their estimate, it will be a year
before that site is searchable based on estimates that they are
being given. Last week, this committee held hearings in which
XBRL technology and its roll-out at FDIC and now at SEC was
underway. Are you able to in your current position explore--
that happens to be a not-for-profit--groups that could leverage
existing knowledge to maybe increase the speed with which, from
a year to substantially less, you would be able to roll out
standards that would make this thing searchable?
And I appreciate the fact that you want to make this Web
site look good. I will say that the people I am most interested
in seeing this is not John Q. Public. It is, in fact, the
person who didn't get a contract, the person who thinks they
should have gotten funds and who will search analytically to,
in fact, uncover perhaps the misspending or the redirection of
funds that they thought they could have been awarded. I really
need that kind of person. And that kind of person is probably
more interested in a green eyeshade site than they are in
something pretty.
Mr. Devaney. It is a balancing act. I am going to have to
find that balance. I want to listen to as many innovative
technology folks as possible. I mean, second only to the room
where I am keeping all of the resumes that have flowed in is
the room where all the vendors have lined up to meet with me.
Mr. Issa. Good. There is a lot of good technology out there
and we need to take advantage of it.
Last, when Congress passed this stimulus, and it is too
late for us to point fingers, we did not adhere to certain
truisms, if you will. One of them was now President Obama's
legislation that called for greater transparency and laid out
some of it. We have only gone part of the way. Do you need
follow-on legislation or some kind of rulemaking authority that
would allow you to get properly through the Government, the
Government, the government, the contractor, the subcontractor,
and the sub-subcontractor?
Mr. Devaney. I don't know the answer to that question right
now but I will tell you that as soon as I figure that out, I am
going to come back to you and tell you the answer to that.
Mr. Issa. Thank you. Thank you, Mr. Chairman.
Chairman Towns. Thank you. Thank you very much. Now I yield
to the gentleman from Maryland, Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman. Mr.
Devaney, I am chairman of the Subcommittee on the Coast Guard
and one of the biggest fiascos is this Deepwater Project where
we are producing boats that don't float. We have straightened
it out now, I think, but one of the biggest problems were
people who had experience with regard to acquisitions in the
Coast Guard.
I am just wondering, when you look at the stimulus Web
site, the question is first of all do States need a Web site?
And I am going to go back to acquisitions in a moment. Do
States need a Web site? Do they need a stimulus czar to oversee
this stuff?
Mr. Devaney. I don't know if they actually need one.
Mr. Cummings. Do you recommend one?
Mr. Devaney. I have been telling folks--and I have been
asked that question a lot--that if you can afford to do that, I
think it is a good idea. I am of the opinion that the more
transparency and oversight the better.
Mr. Cummings. Are the States telling you that while they
want to provide oversight, they may not have everything they
need to do it? Is that what you said a little bit earlier?
Mr. Devaney. They are telling me that.
Mr. Cummings. And what can you do, if anything, to help
them with that? Are there funds in the budget to help them?
Because one of the things that I fear is that we will have
people, States trying to do the right thing but when we
consider the fact that States are in bad shape--in Maryland we
are sending people on furloughs and things of that nature,
reducing the budget substantially--and I am just wondering, we
are quickly trying to get money out and it seems that is
fraught with all kinds of possibilities of problems.
So I am just wondering, what is available, if anything, on
the Federal level to help the States?
Mr. Devaney. Well, the answer to that is literally almost
nothing. And while the act I think appropriately and generously
funds oversight for Inspectors General, it did not provide the
similar kind of moneys for our State and local counterparts.
And I view them as counterparts. I don't think there is a day
that should go by without us trying to leverage our resources,
our joint resources, and work together. The last thing we need
to do is be redundant.
So, we need those State and local authorities, whether they
are auditors or investigators or prosecutors, we need them to
be in a position to work jointly with us. And I am hearing that
they don't have the money. We have looked at the act a number
of different ways but we don't see a way where we can get them
the kind of money they need. So, it may take some sort of
legislative action.
Mr. Cummings. In the ``Frequently Asked Questions'' on
Recovery.gov it is noted that OMB is not planning to issue
guidelines to States but suggested agencies do so. Is there a
timeline on issuing these guidelines? Are they required? Should
OMB issue uniform guidelines for managing stimulus accounting
and reporting instead of on an agency-by-agency basis?
Mr. Devaney. Well, OMB has issued guidelines and they
continue to try to refine those guidelines and publish
supplemental guidelines. And I think they are using, in an
effort to get those guidelines out as quickly as possible, the
traditional manner that guidelines are proffered. Those are
traditionally done through the agency that manages the funds
that are going out.
So, they have used that traditional approach, and my sense
is that they are going to continue, that none of those
guidelines are cast in concrete. And, they are going to be
refining them and figuring out if they were the right
guidelines or if more is needed or less is needed.
Mr. Cummings. I am picking up on something that the
chairman asked about whistleblowers. It is my understanding
that the stimulus bill goes a little bit further with regard to
whistleblowers in that they actually protect the employee of
the contractor. Certainly, I am sure you may get some
disgruntled employees, some subcontractors or whatever who
aren't getting paid.
I am just wondering what mechanism do you have or will you
have to effectively and efficiently take in those calls, screen
them, and do what is necessary to be done? And if somebody
calls, where does it go from there? And I see this is my last
question, but I appreciate if you answer.
Mr. Devaney. Well, we are going to have to develop a
process to do that very thing. And I think I have a very good
history of protecting whistleblowers. I, for instance, have had
when I was Inspector General of Interior whistleblower
protection officers. I was probably one of the first IGs to do
that. So I am very sensitive to this issue. I am very
protective of whistleblowers.
And quite frankly, with the amount of transparency and
accountability we have on this table, we are going to get more
not less whistleblowers. I will work with the other IGs on the
Board and the other IGs that are not on the Board to ensure
that gets treated appropriately.
Mr. Cummings. Thank you, sir.
Chairman Towns. I thank the gentleman from Maryland. Mr.
Burton from Indiana?
Mr. Burton. I yield my time.
Chairman Towns. Mr. Chaffetz from Utah?
Mr. Chaffetz. Thank you. I appreciate it. There have been
some spectacular assertions as to the number of jobs that would
be created or saved through this. Would you be willing to
commit to providing a detailed methodology for the
administration's method for calculating jobs saved and created
on Recovery.gov so that Americans can check the math for
themselves?
Mr. Devaney. Well, Congressman, I am going to try and
ensure that whatever the administration's guidelines are for
getting information up on that Web site gets up on that Web
site. With regard to the issue of jobs, with the definition of
jobs created or jobs saved, that is sort of the
administration's call to do that. I am going to encourage them
to do that.
But, I am probably not going to be involved in the
decisionmaking in that because it is an administration call.
And, I really don't think this Board and my role is to get
involved in that kind of policy sort of thing. I think, though,
that it is clearly a metric that has been thrown out there. I
have no idea the methodology behind it. But it is a metric that
I think is expected to be tracked on this Web site.
Mr. Chaffetz. But the information that is going to be used
to calculate those types of conclusions would be the
information that we would find on that Web site, correct?
Mr. Devaney. Correct.
Mr. Chaffetz. Who is in charge? Is it you or is it the Vice
President?
Mr. Devaney. Well, I think the President has designated the
Vice President as being in charge of the Stimulus and Recovery
funds. And in turn, I am acting as the chairman of this Board
and reporting to the Vice President, but doing so in an
independent way.
Mr. Chaffetz. How often have you met with the Vice
President thus far?
Mr. Devaney. Three or four times.
Mr. Chaffetz. He, the Vice President, said, and we're going
to do this once a week as we kick this thing off to make sure
we know exactly what we're doing. Is that happening?
Mr. Devaney. My understanding is I am now on his calendar
once a week.
Mr. Chaffetz. Is that happening?
Mr. Devaney. It is going to start next week. But I have
certainly seen him as much as I needed to. And I have been
given assurances that if I need to see him at any time, I can.
Mr. Chaffetz. And what happens? We heard that nobody messes
with Joe. How does that work from your perspective dealing with
this?
Mr. Devaney. I think it is working rather well.
Mr. Chaffetz. No, I mean projecting forward. How is that
going to work?
Mr. Devaney. We need to figure out whether once a week is
right. Do we want once every 2 weeks? We are going to try it
once a week. I am going to try to do what I have always done
with my Secretaries, which is try to have a sort of no surprise
policy.
But I have made it very clear that my intention is to tell
him what he needs to know, not necessarily what he wants to
know. I am not bashful and haven't been in the past about
telling people things that they don't particularly want to
hear. I told him that in the first meeting I had with him. And
I got the answer that I had hoped for, that is what he wants
and expects. And we are going to go forward with that.
Mr. Chaffetz. Will all announcements of contracts and grant
competitions and awards be posted online? Speaker Pelosi has
promised us that would be the case. Is that your understanding?
Mr. Devaney. That is my understanding.
Mr. Chaffetz. Very good. And I noticed that the Department
of Defense Inspector General is not part of the Board, yet they
are receiving funds. What is your understanding of that
situation?
Mr. Devaney. Well, I have been asking now for 3 weeks who
it was that made up the composition of the Board. I can't find
that person. But it is true, in fact, that people that have
money like the Department of Defense IG are not on the Board.
Some people that are not on the Board have more money to
oversee than people that are on the Board. Some people on the
Board don't have any money to oversee. So I really couldn't
tell you.
What I do know is that each and every one of these Board
members has--and I have talked to them each personally; we are
going to have our first meeting next week--is committed the
same as I am to doing as much oversight as we need to protect
the public's money.
Mr. Chaffetz. What is your No. 1 concern?
Mr. Devaney. My No. 1 concern is that we be able to respond
to the amount of citizen information that we are going to get
on this Web site and that we do that in a way that ensures that
we can get on top of everything that I think we are going to
find out. I mean, the citizen participation in this is going to
allow IGs and State and local oversight entities to learn a lot
more than they would through the normal processes. And do we
have the capacity? Do we have the investigative or audit
capacity to look at all this stuff? It is a lot of money.
Mr. Chaffetz. When do you anticipate actually finding a
location at which you can be housed?
Mr. Devaney. I am told I am going to go look at one Friday.
So I would like to get an address. I would like to get some
phones and computers and start taking control of this.
Mr. Chaffetz. Very good. Thank you, Mr. Chairman.
Chairman Towns. Thank you very much. I now yield to the
gentleman from Ohio, Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman. Mr.
Devaney, part of your charge, of course, is to make sure that
the money is being spent properly. Do you have any charge with
respect to the money being spent? In other words, if this is a
stimulus package and this money is being distributed, do you
know how much money remains unspent? And are there any metrics
established for seeing that this money does get spent in a
timely manner to, in fact, be a stimulus?
Mr. Devaney. Congressman, my understanding is the
information that is going to be flowing into this Web site
will, in fact, give us that kind of information. I don't know
that we have been seeing it yet but it is coming.
Mr. Kucinich. So how much has been spent so far?
Mr. Devaney. A lot. The first day----
Mr. Kucinich. Can you quantify ``a lot?''
Mr. Devaney. No, I can't really.
Mr. Kucinich. Well, this is my question, Mr. Devaney.
Mr. Devaney. A lot of money went out under formula; that
type of money went out very early on. Agencies were able to get
money out the door quickly to programs that they normally put
money into every year. So from a risk perspective, that is
probably OK because those are programs that have processes and
people in place to receive that money, albeit it is more money
than they normally do.
Mr. Kucinich. It is going out. Is it being spent? You know
the problem that we have with these TARP funds. The money goes
out but the banks hoard the money. Is this money being spent?
Is it stimulating the economy? Do you know?
Mr. Devaney. I don't know today, but I do know that the
amount of information that OMB is requiring folks to get back
to us with will talk about those issues.
Mr. Kucinich. You know, this committee needs to know.
Mr. Devaney. Yes.
Mr. Kucinich. We need to know that the money is being
spent. How it is spent is, of course, our oversight
responsibility. But that it is being spent relates directly to
whether or not it is a stimulus.
Now I want to talk to you about the general contracting
process. Can you explain why the Recovery Act's emphasis on
fixed price contracts will help contain fraud and waste?
Mr. Devaney. Well, in general terms, there is an incentive
to contractors under fixed price contracting to come in with a
realistic price and we keep the cost overruns down.
Historically, if it is not a fixed cost contract, contractors
have little incentive to make sure those costs stay within a
certain number.
Mr. Kucinich. Are you going to be examining contracts to
see if people are low-balling in terms of competitive bidding?
Mr. Devaney. I think that would be part of an audit process
that we at the Federal level, all of the IGs, and our State and
local counterparts will be doing.
Mr. Kucinich. Are you increasing, does the Recovery Act
increase mandates for competitive bidding of contracts?
Mr. Devaney. It has in place criteria for contracts. And
because it does, because we are going to be able to watch that,
we are going to have a quicker response time and be able to
respond quicker to those that deviate from those rules.
Mr. Kucinich. Will there be fewer exceptions or waivers
granted?
Mr. Devaney. I think that the act contemplates that if
there are waivers or exceptions, that they be posted on the Web
site.
Mr. Kucinich. I have another broad policy question that I
would like you to address. I come from a community, Cleveland,
OH, and was mayor of a city where there is a substantial number
of minority entrepreneurs. Our African American community in
the city of Cleveland is now pretty close to about half the
population of the city itself.
Now, a lot of these entrepreneurs are really not given
opportunities to get in on these Federal bids. What is being
done as part of your charge? And if you are not, who is making
sure that minority contractors who are established and part of
a community are given an opportunity to be part of this bidding
process so that the benefits of the stimulus really get to
communities where the help is needed the most, where people
have been established, and making sure the money gets into the
neighborhoods?
Mr. Devaney. Well, it is not in the Board's mandate to do
that. My assumption is that the agencies are going to be
working very hard to make sure that happens. So it would be the
agencies that are giving the money out and the State agencies
as the money flows down to the States.
Mr. Kucinich. So are you keeping track at all to see if
there is any minority contracting going at all? Do you look at
that? Are you going to keep statistics so that we can know, in
terms of a gross amount of money that might be spent in this
country, how much is going to minority contractors?
Mr. Devaney. I don't know the answer to that but I will get
back to you on that.
Mr. Kucinich. I would like to know. Thank you. I yield
back. I thank the gentleman.
Chairman Towns. I thank the gentleman from Ohio. At this
time, I yield to Mr. Burton of Indiana.
Mr. Burton. Thank you, Mr. Chairman. In a Wall Street
Journal interview, you stated that the experts, the people who
work in the fraud areas say there will be significant fraud,
around 7 percent lost to fraud in most cases. That stimulus
bill was $787 billion plus interest. And if you put a pencil to
that 7 percent that is about $55 billion, 55 thousand thousand
dollars. Seven percent seems like a very high number. I mean,
can't that be improved upon?
Mr. Devaney. Well, I think that is the challenge. I think
the challenge is that we need to obviously minimize those
percentages. I think those percentages, there are very few
organizations, but the Certified Fraud Examiners is where that
comes from. They annually give out those statistics and it goes
up and down in a given year. I think that is the 2008
statistic. And the first time I took a pencil and figured that
out, I was horrified to see that it was $55 billion. So
obviously the challenge is to try to minimize those losses.
But it would be naive to think that there won't be, with
that kind of money around, people who will come and try to
defraud the Government or State and local entities. So I think
we have to expect it. I think we have to have a coordinated
effort between law enforcement at the IG level and the State
and local law enforcement with prosecutors all over this
country and to basically take sort of a zero tolerance attitude
about fraud.
Mr. Burton. Well, I think that is great but I presume this
percentage has been fairly constant over the years. And if it
is 7 percent of something like $700 billion or $800 billion,
you are talking about big money. And the American people, I
mean everybody is raising Cain right now about $165 million
that was given executives at AIG. If they found out that $55
billion is going out in fraud almost every year when you have
that kind of an expenditure, they would march on the Capitol. I
mean, it seems in your position that you and your compatriots
over there ought to be able to figure some way to get that down
to a much lower figure.
Mr. Devaney. Well, we are going to try real hard,
Congressman. I mean, I think that is an unacceptable level of
fraud and we are going to try to do our very best to keep it at
a minimum. And I think trying to send as quickly as possible as
many deterrent messages as we possibly can is one way to try to
minimize those risks. The other thing is, as I mentioned
earlier, it is important for IGs and oversight authorities to
get on the front-end of this pipeline as opposed to simply
waiting until that fraud or waste occurs and then doing an
audit or an investigation.
Mr. Burton. You have a tough job.
Mr. Devaney. Yes.
Mr. Burton. We have what is called the Weekly Waste Watch,
and this is kind of humorous. It says that the town of Union,
NY, is getting $578,661 in Federal Recovery Act funding for a
homeless problem that does not exist within its borders.
``Union did not request the money and does not currently have
homeless programs in place in the town to administer such
funds,'' said the town supervisor. ``We hope and encourage
these new grantees to develop creative strategies for the
funding.''
In other words, they want them to create a program that
doesn't exist because they gave them the money. Will you guys
be perusing and checking these sorts of things out as well?
Mr. Devaney. One of the things, quite frankly, that I
mentioned to the administration is that, sort of the reverse
side of transparency, is that people will come and look at this
Web site every day. There is probably not a reporter in America
that won't wake up and click on that Web site. And we are going
to have to deal with literally thousands of these kinds of
examples. The good news is that if we didn't have the
transparency and we didn't have the Web site, we wouldn't have
found those things in the ordinary course of business.
Mr. Burton. Well, I have one more question regarding the
transparency. Are you aware that the recent guidance from the
administration to Federal agencies tells them that they only
have to follow the money they dole out as far as the State and
municipal level and after that the money trail runs cold. Under
this plan there will be zero accountability for any
contractors, lobbyists, or special interests that get
taxpayers' money.
And I think that the ranking member here in his opening
statement used the example of Chicago receiving stimulus
funding from Illinois. Under this plan, the current guidance,
we wouldn't find out about any sweetheart deals. Now this Web
site, how is it going to deal with things that go beyond the
State and local level, State and community level?
Mr. Devaney. Well, I am going to, when I get a chance to
get my hands around this thing, my goal, and what I believe the
stated goal is, is to follow the dollar from the Federal
Government out to the entity that ultimately ends up with it.
And I am going to do my very best. If the guidance hasn't been
issued yet to do that, I will be encouraging folks to do that.
Mr. Burton. So you will want to extend it past the State
and municipality level?
Mr. Devaney. If it is possible and it is legal, yes.
Mr. Burton. Well, with this 7 percent problem--and thank
you, Mr. Chairman--but with this 7 percent problem in waste and
fraud, I hope you go as far as you can. Thank you very much.
Chairman Towns. Thank you very much. I recognize the
gentleman from Virginia, Mr. Connolly.
Mr. Connolly. Thank you, Mr. Chairman.
Mr. Devaney, as I indicated in my opening statement, the
act provides set-asides on a program by program basis for
oversight and accountability. But these only apply to Federal
agencies, not States. In your response to Mr. Cummings just a
little while ago, you indicated that maybe we would need some
legislative relief. Does it make sense legislatively for, say,
this committee perhaps, to amend the act to allow for set-
asides for States so they can do what they need to do?
Mr. Devaney. I would be supportive of anything that gives
State and local governments the opportunity to participate
fully in this oversight challenge that we all have. So I think
the answer is yes.
Mr. Connolly. Mr. Chairman, I think that is an issue we may
want to revisit as a committee in terms of the idea of a set-
aside for our States to be able to comply with the full panoply
of auditing functions.
Let me ask you a question. Are you concerned about the fact
that by going program by program, unintentionally we may be
creating the kind of stovepipe oversight that actually hasn't
been all that useful in the past?
Mr. Devaney. Well, I would be perhaps more concerned if we
were trying to create a new paradigm in that area because of
the speed that the money is going out. If it is going out in
the traditional way, I think the risk is less than if we had
tried something new. Now, that is the guidance that was issued
and that is the way it has gone out. And I suspect that there
has been some push back on that and OMB may be reconsidering
that. I don't know.
Mr. Connolly. Let me ask, Mr. Devaney, what Federal
requirements currently apply to States in connection with the
stimulus funds? What are they required to do?
Mr. Devaney. They are required to tell us to whom they gave
the money, for what purposes those moneys are being used and,
to the extent possible, an idea of whether or not that created
or saved jobs, and a host of about 80 other things.
Mr. Connolly. Among those 80 other things would be some
kind of certification that they have some kind of process in
place to ensure against waste, fraud, and abuse?
Mr. Devaney. Yes, at the outset. Right.
Mr. Connolly. Are State stimulus Web sites required?
Mr. Devaney. No, they are not required but, as I said
earlier, I think it is a good idea. I am certainly going to try
very hard to have a Web site that links to any of those kinds
of Web sites so that if a citizen comes on the Federal Web site
and wants further information, they can simply click on and go
to those sites that have been set up.
Mr. Connolly. Yes. If we were to revisit the issue of
legislation for set-asides, it seems to me Web sites would also
be another way of underscoring the importance of the
transparency we have been talking about on a bipartisan basis.
Would you recommend, well, first of all, are States
required to appoint stimulus czars?
Mr. Devaney. No.
Mr. Connolly. Do you think they should be?
Mr. Devaney. I think that, from what I can tell, most
States have created some position. Whether they call it a czar
or not may be an issue. But somebody in every State, and they
have already come to Washington, is nominally in charge of
Recovery funds for that State.
Mr. Connolly. In the Frequently Asked Questions on
Recovery.gov, it is noted that OMB is not planning to issue
guidelines to States but suggests that agencies do so. Is there
some kind of timeline to your awareness on issuing such
guidelines?
Mr. Devaney. I would hope that if the Federal Government is
releasing moneys to States that guidance is getting out the
door at about the same time.
Mr. Connolly. But right now you are not aware of any
timeline?
Mr. Devaney. I am not aware that there is a specific
timeframe mandated.
Mr. Connolly. Are the guidelines mandated?
Mr. Devaney. The guidelines are issued by OMB in the normal
way all kinds of guidelines are issued by them. And it is a
requirement that they follow those guidelines.
Mr. Connolly. But the guidelines are being issued by the
agencies, are they not, not by OMB?
Mr. Devaney. They are both. There are some general
guidelines from OMB and there are specific guidelines from the
agencies.
Mr. Connolly. OK. Depending upon the program?
Mr. Devaney. Right.
Mr. Connolly. Right. In most cases, Federal stimulus funds
will flow directly to Federal agencies, which in turn pass them
on to State governments. In some cases, stimulus funds will be
disbursed directly to community institutions. Can you explain a
little bit the circumstances in which money goes directly to
community institutions and whether those institutions have the
resources to oversee and audit stimulus funds?
Mr. Devaney. Well, there may be a requirement, as I
mentioned earlier, if those institutions are getting over
$500,000. There probably is a single audit requirement and in
most cases they would have to go out and hire a CPA firm to do
that.
Mr. Connolly. But there are no requirements for them to do
that right now?
Mr. Devaney. There are requirements in place that if it is
over $500,000 they have to get a single audit done.
Mr. Connolly. OK, so they are required?
Mr. Devaney. Right.
Mr. Connolly. Thank you, Mr. Chairman.
Chairman Towns. Thank you very much. Now we recognize the
gentleman from Tennessee, Mr. Duncan.
Mr. Duncan. Well, thank you very much, Mr. Chairman. In
some of the recent legislation the Congress voted to raise the
national debt limit to $12,104 billion, which is an
incomprehensible figure. And some of us, or most of us on this
side, had a problem with the fact that in this stimulus we are
spending money that we don't have. That was the main problem.
But since we are past that one now, I read recently in the
Washington Post--they had an article the day before we voted--
and it said that the stimulus, and they were for it, was going
to mean a ``massive financial windfall for Federal agencies.''
Those were the words they used, ``massive financial windfall
for Federal agencies.'' And then a couple days later the Post
had a front page story that said they were going to hire tens
of thousands of additional Federal workers.
I noticed, Mr. Chairman, that some were concerned about
some of the excessive claims about job creation. Last week
there was a story in a Montana newspaper. The two Montana
Senators had apparently put out a press release claiming that a
$1.3 million grant to an agency in Montana was going to create
40 new jobs. And the paper went to that agency and they said,
no, actually they were only going to hire two new people. They
were going to give raises to the people that were already there
and pay other expenses. And so some of us have concerns about
this, about how many jobs this thing is going to actually
create.
And another concern is that the night before last on CNN
they said that the private sector lost 4 million jobs last year
while Government created 131,000 new jobs. So while individuals
and families in private businesses are having to cut way back,
the Government keeps expanding. And what I am concerned about
is that most of this stimulus money is going to be a massive
financial windfall for Federal agencies first and then State
agencies. It seems that every business, every private, every
charitable agency in the country is lining up hoping to get
stimulus money. And all the schools are hoping to get stimulus
money.
What I am wondering is, is there going to be some way to
track how much of this stimulus, if any--apparently some of it
will but I am afraid it is going to be a very small
percentage--is actually going to end up in the private sector?
And that is where it is needed the most because, for instance,
to hire tens of thousands of people in this area as the Post
said was going to happen, this is already one of the wealthiest
areas in the country. Are we going to be able to tell how much
has actually gone to the private sector as opposed just to
Federal and State bureaucrats? Because it appears that they are
the ones that are going to benefit the most from this stimulus
package.
Mr. Devaney. Congressman, I would hope that the Web site
eventually is able to talk about jobs created and jobs saved
and give us some idea of where that occurred. I am a little bit
skeptical of the notion that Federal agencies are going to be
able to go on a massive hiring binge because this money runs
out. The last thing that I personally would want to do running
an organization is hire somebody and then have to let them go 2
or 3 years later.
So I think there might be a lot of retired annuitants that
might come back for a while or people that take temporary jobs
that have certain expertise. But we will see. And I would
imagine that we would be able to tell where those jobs were
created or saved.
Mr. Duncan. Well, I was just quoting what the Washington
Post had said. But I can tell you that there is a real concern
there among a lot of us that not much of this is going to
trickle down to the businesses and areas that need it the most.
And I think there is going to have to be a major effort made to
make sure that most of this money is not just spent in areas
like this area and other areas of high Federal employment, that
really the main beneficiaries of all this are not just the
Federal and State bureaucracies when actually they are doing
far better than businesses in the private sector as CNN pointed
out the night before last.
Thank you very much.
Mr. Issa. Would you yield your time?
Mr. Duncan. Yes, I will yield.
Mr. Issa. Thank you. Mr. Devaney, just a followup. Both
sides have talked about the no specific funds for oversight for
the States and local government. Isn't it true that in many,
many, many cases these contributions are cost shifting? In my
own district, they picked a fully funded route, they
Federalized it so they could use stimulus money, and then they
moved those funds to other projects.
So in every State, as far as you know and if you don't know
I would appreciate a response later, aren't there funds that
are being put into programs that otherwise would have been
funded, otherwise were funded? Doesn't that give the States the
ability to, instead of moving a road project funding--fully
funded in my district--to another road, they could move it to
oversight?
I just want to make sure that we understand that all money
is fungible and that we not have any chance that a State
literally doesn't have the money, is not shifting any money
whatsoever from a project, and as a result would have no money
to do oversight.
Mr. Devaney. Congressman, as I have been listening, as I
mentioned, to State and local officials for the last couple of
weeks, they don't think they can do that. And I haven't heard
OMB tell them that they can. So I don't think that they can
shift that kind of money to oversight. I don't think there is
an ability to do that.
Mr. Issa. Mr. Devaney, following up, if they can shift
money into a project that was already fully funded and they can
shift money out, then the money they shifted out, which is
their money, not Federal money, could be used for oversight. Is
that correct?
Mr. Devaney. I think, yes. I am sorry I misunderstood. I
think that could be used. But there is a lack of people out
there that can be hired quickly that can do this kind of work.
That is another challenge.
Mr. Issa. Sure. Mark McCormack in one of his leadership
books said, any problem that money can solve is just a business
decision. So I wanted to concentrate on the money because we
can't necessarily solve the business. But if you find any State
which literally doesn't have an example like mine in
California, so that there is no ability to make the choice to
pay for people if they can be bought, I know this committee
would be very interested in making sure that we find a way to
get additional funds to that State but only if there are no
examples where funds are essentially being alleviated.
I thank you and yield back.
Chairman Towns. Thank you, gentlemen, for yielding back.
At this time, I recognize Mr. Davis of Illinois.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I
was just thinking that there are probably other States that do
a little Valentine decisionmaking every once in a while when I
heard the reference to Illinois and Chicago relative to some
contracting. So I am sure that Valentine's Day exists
throughout the country.
But, Mr. Devaney, let me first of all thank you again for
being here. My comfort level was greatly enhanced as we were
debating and discussing this legislation by all of the
conversation about transparency and how we are going to make
sure that people knew what was going on, that we were going to
make sure that we were watching, that we were going to make
sure that the candy store didn't get broken into.
But we always tell people that. I mean, every legislature
that I have ever been in, every time we get ready to pass some
legislation that relates to spending money, we say that we are
going to do it. What do you see different or do you see
anything different about this effort than perhaps we have seen
in the past?
Mr. Devaney. Well, Congressman, I have been in this
Government for 39 years and I have never seen an attempt made
to be as transparent with the money as this act envisions. I
actually think if we do this right, it will serve as a model
for the future. And I want to dedicate myself to, sort of in
the autumn of my career, to leave government with something
like this in place that can be used for future spending.
And so we have an effort here that I think is historic in
its complexity and trying to do it at the Federal level. Some
cities have done it; some States have done it. But it has never
really been tried at the Federal level for certainly this
amount of money. So we need to get this right. Undoubtedly it
won't be right in the beginning, but as we go forward we will
refine this. And, once again, I want it to be a model for the
future.
Mr. Davis of Illinois. Let me ask, do you envision your
role as being different than that of the Inspectors General
that we have for all of the agencies?
Mr. Devaney. Well, I think that I am going to, I have
decided that I am going to act like an Inspector General. I am
still one. I am on a leave of absence. But in this role, I am
not going to come before Congress or come before the
administration and act any differently than I have the last
decade as an Inspector General: candid, straightforward, call
it like I see it, be responsive to both parties.
Mr. Davis of Illinois. Let me ask, are you going to review
the work of agency IGs or State auditors, other individuals and
agencies that are looking at the expenditures?
Mr. Devaney. I don't think I would use the word review. I
think the role of the Board is more of a coordination to take
the work of those IGs and to follow it, to take the work, to
discern fraud trends, to develop best practices. If one IG is
doing something that is really smart and really innovative, I
would like to be in a position to suggest to the other IGs that
they adopt that kind of work and on down through government.
So, it is more of a coordination role than a review role.
Mr. Davis of Illinois. I note that the duties of the RAT
Board include reviewing whether acquisitions and grant
personnel are qualified and have sufficient training, which is
kind of an interesting addition. If personnel are found not to
be trained, what steps would the Board pursue?
Mr. Devaney. Well, I think we would first have to do that
study and get it out. So that is one of the first things the
Board, I am sure, will be trying to get done. I think at that
point it would be helpful to have a discussion with OPM to see
if there is any sort of waivers that can be given to retired
annuitants as a good example of being able to bring people
back. I mean, we are going to be essentially sunsetting in
2013, so there are about 4\1/2\ years here. And there is a lot
of experience out there that can be tapped into. So things like
that.
Mr. Davis of Illinois. Thank you very much.
And let me just say, Mr. Chairman, if I might, I know that
Mr. Kucinich raised the issue of minority hiring, purchasing.
Mr. Connolly raised the issue of set-asides. I have never been
in a place where we actually did what we said we were going to
do in relationship to either one of those. And so I would
really appreciate you looking hard at that issue and having a
way to examine it.
Mr. Devaney. OK, I will.
Chairman Towns. Thank you very much, the gentleman from
Illinois.
Let me yield to Mr. Schock. And let me just say that we
have a vote on the floor. And what we will do is just return to
the committee 10 minutes after the last vote. Yes, Mr. Schock.
Mr. Schock. Thank you. I will be very quick, Mr. Chairman.
Mr. Devaney, thank you for being here; thank you for your
efforts to help establish this Web site and the transparency
that comes along with it.
Help me understand. It would seem to me that as a part of
this act, the information that we require from the States and
local governments in order to get the money, we should already
have some kind of a central data warehouse that has all of the
information that members on this committee and the general
public are really asking for. Is that the case and if so who is
the keeper of those documents?
Mr. Devaney. Well, I think the vision here is that
Recovery.gov will become that place that all people can go
including legislators. So it is my hope that it will sort of be
one stop shopping at the end of the day.
Mr. Schock. But I mean, it seems to me a function of
establishing the Web site is already having the information in
a data warehouse. And so I guess I am asking does that data
warehouse already exist or does that need to be created?
Mr. Devaney. It is being created and the data will be
flowing in, a massive amount of data. As I mentioned earlier,
sort of a historical amount of data is being collected in one
place. So, it has to be created and it will eventually house
all of the data that is going to come into this Web site under
the requirements.
Mr. Schock. So all of the information that we are requiring
the State and local agencies to submit to the Federal
Government will then be posted on this Web site for individuals
like myself and my constituents to be able to review?
Mr. Devaney. That is the theory and it is my hope that will
be the actual result.
Mr. Schock. What would stop the theory from becoming
reality?
Mr. Devaney. I think that there are challenges here. The
Federal Government has never really tried this before. The
usaspending.gov site was a pioneer work that happened a few
years ago when it was tried. And it is up and running well, but
it didn't involve this amount of money or this complexity. So
there are a number of challenges.
And as I mentioned earlier, I am concerned about data
quality. The Federal Government has never been particularly
good at getting timely and reliable data into their systems,
nevermind sending it to one centralized location. So, it may be
that we get the data in, but the data needs to be scrubbed and
looked at with a fine-toothed comb.
Mr. Schock. Part of the act requires that State and local
governments--there seemed to be some question here this morning
about beyond the State government, what information we are
going to be able to provide on the Web site and to the
taxpayers--part of the act requires that when a local
government receives funds from a State government that they
submit paperwork that says where the money is going, why it is
being spent, what the project is being used for, specifically
how many jobs will be created and so on, and even list a
contact name in the agency who is overseeing the project.
So, if we are going to get that information, again it is
required in the statute, I am assuming that information then
will be on this site as well?
Mr. Devaney. It will.
Mr. Schock. OK. OK, thank you very much.
Chairman Towns. Thank you. I recognize the gentleman from
Illinois, Mr. Foster.
Mr. Foster. Mr. Devaney, the RAT Board's Web site is
supposed to provide a means for public feedback on the
performance of the contracts. And I was wondering whether there
will be transparency with regards to the actual public
feedback? For example, will there be the equivalent of a
moderated blog attached to each contract award?
Mr. Devaney. Yes, I think we are going to have to. I don't
know exactly what that is going to look like, but I certainly,
that would be my hope that we could do that. But the volume is
terrific here and I think we are going to have to figure out:
can we do that and not have to hire 400 people to do it? So, we
are going to have to figure out how that is done but that is
certainly a goal.
Mr. Foster. OK. And you had indicated that in addition to
transparency for the actual disbursements, there would be
transparency for the grant applications process so the public
can see not only the grants that got funded but those that
didn't. Is this going to include the actual grant application
material, the full application, or will there be limits to
that? And also will it include, for example, letters of support
from elected officials and very interesting objects such as
those?
Mr. Devaney. I don't know the answer to that. I can
certainly get it for you.
Mr. Foster. OK, because I think that would be very valuable
if it is possible. It has to do with transparency in
decisionmaking.
Let us see, another thing is while I understand the
benefits of an attractive user friendly interface, will you
also be providing the ability for sophisticated parties to just
pull down the entire data base so that they can make an
independent search engine on this or so perhaps third parties
make even more user friendly access to your data?
Mr. Devaney. Yes, I think as it evolves over a period of
time there will be that capacity. There are a lot of
visualization tools out there today that are very innovative
and I want to look at some of those tools because I think it
will provide exactly what you are talking about, rather than
sort of a standard dashboard where you see charts and graphs
and pies, the ability to click on, for instance, a map of a
State and drill down and get down to the very end of the
pipeline where that money is.
Mr. Foster. Yes, I am suggesting that by making the entire
data base available for mirroring that third parties may beat
you to this by making really cute ideas.
Mr. Devaney. I think we need to get a grip on the
governance of this Web site. And there isn't quite yet a
governance document that is going to govern it. And that would
be part of it as to whether or not we would make that
available. I suspect, I am open minded to that.
Mr. Foster. Yes. Well, I mean the alternative is that
people will design robots to go and mine your entire data base
in a very inefficient manner.
Mr. Devaney. Right, right.
Mr. Foster. OK, my next question has to do with
subcontractor reporting. I was wondering how State and local
governments have handled the reporting requirements for
subcontractors, sub-subcontractors, and so on? Are there States
and localities that meet the Federal reporting requirements and
does the Recovery Act require additional reporting requirements
all the way down to the sub-subcontractor? And second, what
action will the RAT Board take if these standards are not met?
Mr. Devaney. Well, let me answer the second half of that
first. If there is a standard or rule or regulation or whatever
that is not being adhered to, we will make sure that the
appropriate party, be that the agency or OMB, knows about that
and gets some action taken about it. I think it is still up in
the air about exactly how far down this thing can go and should
go. And so I know there are discussions going on about that and
we are going to have to make some decisions in the near term
about it.
Mr. Foster. Right, well, it is an obvious opportunity for
fraud to set up a shell company that is the only thing that
appears on the Web site and then have the real work being done
by someone who is not visible.
Mr. Devaney. Sure. And I would love to think that a citizen
or a reporter or somebody like that would tell us about that if
they could see it.
Mr. Foster. You can only know it if you can see it.
Mr. Devaney. Right.
Mr. Foster. OK, thank you. I yield back.
Chairman Towns. Thank you very much. Let me indicate that
we have three votes and we will actually adjourn and come back
10 minutes after the last vote.
[Recess.]
Chairman Towns. The committee will resume. We recognize Mr.
Tierney from Massachusetts.
Mr. Tierney. Thank you very much, Mr. Chairman. Sir, I want
to thank you for taking this responsibility. First of all, I
think it is an enormous undertaking. And I like your attitude
about how you are going to approach it and put your arms around
things. I see it, as I think you do, as an incredible
opportunity to try something new here and extensive. And I am
particularly interested in the whole crowd-sourcing aspect on
that and the benefit it might do for that.
But first let me start by asking you there, has been a lot
of discussion here today about drilling down all the way from
the Federal money as it goes all the way down to the final sub-
subcontractor at the local level. That is has all been
conversation relative to what the computer will show. What do
you see as the Board's responsibility for tracking the Federal
moneys? How far down should the Board drill, just to the State
level, to the municipal level, or beyond?
Mr. Devaney. I would say that, as I mentioned earlier, I
want to go as far as we possibly can both legally and if it is
possible to get there. If it is not, there is going to be a
significant amount of auditing being done. And a Federal
auditor, for instance, can go all the way down. And we will
have the benefit of any report or any review that they do; it
will be published on the Web site. So that is another way you
get down to the lowest level.
Mr. Tierney. So a State auditor or a city auditor's reports
will be available to you to put out there?
Mr. Devaney. Sure. Right, right.
Mr. Tierney. Because you are going to have to leverage your
resources, I assume. You are not going to have the capacity to
do all that?
Mr. Devaney. There is no capacity to do all that. I think
we have to be smart about how we deploy our resources. I think
I need to use risk-based models that suggest that this kind of
money is a little bit more risky than this kind of money and go
over here first. So we have to be smart about it. We have to
try to get out in front of it and not just wait for the
inevitable to happen.
Mr. Tierney. I think this Congress for about 8 years was in
a coma when it came to oversight or whatever. And I am a little
bit amused about some of my colleagues now being so intent on
it. But I hope they are serious about it as we go forward.
I think part of the issue is going to be municipalities and
States having capacity as well to do it. Do you have presently
in your design of what is going on at the Federal level the
ability and the capacity to help train their people up to
preventative sorts of measures or do you need more resources or
more legislation for that?
Mr. Devaney. I think time will tell but I am definitely
going to make that one of the first goals of the organization--
to develop that capacity to train, to distribute best
practices, to do everything we can for our partners not only at
the Federal but the State and local levels to help them get on
the front end of this money. And that, I think, is a major
mandate of this Board.
Mr. Tierney. Do you see any substantial differences between
the way that States and municipalities now have to report to
the Federal Government with respect to non-Recovery and
Reinvestment moneys that are allocated to them and with the
Recovery money itself?
Mr. Devaney. I think there are. I think it could be argued
fairly that there are some additional reporting requirements
being imposed. Whether or not they are so burdensome that it
clogs the system down, just time will tell. I am sure we will
hear about it.
Mr. Tierney. Did you have an opportunity to read Mr.
Brito's testimony? The gentleman will be testifying on the
second panel from George Mason University.
Mr. Devaney. I did.
Mr. Tierney. You did?
Mr. Devaney. I did, yes.
Mr. Tierney. You did or did not? I am sorry.
Mr. Devaney. I did.
Mr. Tierney. OK, thank you. It is my hearing thing on this.
I also think our microphones need some oversight here from
time-to-time. You can't hear.
Do you have any objection or are you comfortable with doing
the types of things he is recommending in terms of working with
people that are into this type of activity and making the data
as useful, Web-friendly, machine-readable, aggregated,
standardized, and all those things that he is talking about?
Mr. Devaney. No, I have no problem with it at all. I would
love to sit down with him.
Mr. Tierney. I agree. That is great because I think if we
can do that and if you are willing to work in that direction,
we have not only our resources but theirs as well.
Mr. Devaney. Right.
Mr. Tierney. And I agree with you. I am just going to close
out with this. I agree with you. This could be a model for
every government expenditure all the way down the line where we
get the eyes of all the citizens out there and we get rid of
the gotcha stuff. It is no longer going to be just like,
gotcha, you are doing something wrong. Every company that
spends money has people that are looking to do abuse, waste,
and fraud.
We wouldn't have the Wall Street situation going on that we
have today if that weren't true. Every time there is Government
money expended, somebody is going to try it. Every time an
individual has money, somebody is going to try it. If we can
get all the eyes on it and get rid of the gotcha stuff, we can
just have a good, active joint effort here where citizens get
involved. We can be on the front end of this.
So, I congratulate you again on your attitude for this. I
wish you all the luck and I look forward to working with you on
the committee for this venture.
Mr. Devaney. Thank you.
Mr. Tierney. I yield back, Mr. Chairman.
Chairman Towns. Thank you very much. I recognize the
gentleman, Mr. Van Hollen from Maryland.
Mr. Van Hollen. I thank you, Mr. Chairman. And Mr.
Chairman, thank you for holding this series of hearings on
oversight. As we know, we put oversight protections in the bill
to create the oversight mechanisms but obviously Congress has a
very important role as my colleague, Mr. Tierney, and you have
said. And thank you for taking on this responsibility.
I had a couple of questions based on your experience in
oversight, generally. And one of them relates to whistleblower
protections. The chairman of this committee and I, Mr. Platts,
Mr. Braley, and others have been pushing for greater
whistleblower protections at the Federal, State, and local
levels. The bill we passed, the economic recovery bill, does
strengthen whistleblower protections at the State and local
levels.
We have some protections already in place at the Federal
level. We were trying to strengthen those. We thought it made
sense as part of a bill that contained $790 billion in taxpayer
money--some in the form of tax relief, obviously, but the other
in investment--that we strengthen the ability of those Federal
employees on the front lines to report waste, fraud, or abuse
if they see it without fear of reprisal. Because you can't be
everywhere; the Inspectors General can't be everywhere.
So just, I know you may not have seen the legislation, but
just as a general rule, do you think it is important to ensure
that Federal employees and other public officials who see
wrongdoing and are wanting and willing to come forward and
report wrongdoing are protected against any kind of
retaliation? And how important is that in oversight?
Mr. Devaney. I think it is very important, Congressman. And
as I mentioned a little earlier, I have been somebody who has
designed whistleblower protection programs within my
organization. I have not been bashful when I have seen
retaliation to go directly to the Secretary. So my attitude
basically is this: we normally learn a lot from whistleblowers.
It strikes me that the transparency piece of this will
result in many more whistleblowers than we normally see and we
have to be very careful not to send any bad messages out there.
And so I am going to be vigilant about that. When I see it,
let's say it happened in the Department of Education, I am
going to make sure that the IG knows about it and we will work
together to try to cut it off. I want people to come forward.
Now, having said that, it is sometimes labor intensive to
sift through the complaints and the concerns of whistleblowers
to find that nugget. But that is a process and people that know
how to do that can be very helpful in this circumstance. I hope
to hire some of those.
Mr. Van Hollen. Thank you. The other area I wanted to ask
you about had to do with procurement officers in the Federal,
State, or local government. My view is that even before the
economic recovery plan was passed we were stretched very thin
when it comes to Federal procurement officers. You have one
individual that has to oversee lots of contracts. Even the best
trained and best intentioned individuals can have a difficult
time monitoring all that, even to the point where we started
contracting out the responsibility for overseeing contracts
which creates a whole host of conflict of interest problems and
other issues.
Do you think it is important as we go through this process
to try and bring on more procurement officers at the Federal
level so they can ably and effectively deal with the huge
increase in contracts?
Mr. Devaney. Absolutely. And I think you are right, it is a
major challenge. The capacity is just not there. I think around
9/11 we were at $200 billion of contracts a year and now we are
doing $500 billion, not to mention anything about the stimulus
funds, and yet the increase in procurement specialists has
remained flat.
So this puts an extra strain that we obviously have to
address. So the act calls for the Board to look into that
matter, to publish a report at some point. But I know that the
Departments are aggressively looking for people, whether or not
we will find them or not. Ironically, the economic situation
might help us find those kinds of people. But there will never
be enough to handle this kind of money.
Mr. Van Hollen. Well, thank you. Mr. Chairman, I hope we
can as a committee focus on that. This was, as you know, a
problem even before we had the additional funds from the
stimulus package, economic recovery package. And that has only
added to the burden. And as I said, you can have very qualified
and well intentioned people who just get more work than they
can possibly follow in a responsible manner.
Chairman Towns. The gentleman raises a very good point
which I am very sensitive to as well. We will be looking at it
further. Thank you very much.
Mr. Van Hollen. Thank you.
Chairman Towns. Does the gentleman yield back?
Mr. Van Hollen. I do.
Chairman Towns. I yield now to the gentleman from
California, Mr. Bilbray.
Mr. Bilbray. Thank you, Mr. Chairman. Mr. Chairman, God
bless you. You obviously have been dropped right into a, I
guess it was like an old movie, The Volcano. Look, I am at a
great position. I didn't support the Bush administration to
spend a trillion and I didn't support this administration's
action on having to vote on this upfront. And as somebody who
has been in Government oversight since I was 25 in 1976, I
think that we didn't do our due diligence.
Was it 9 hours from the time we saw it until we started
debating it? That means now we have to do due diligence. Now
the oversight after the fact is going to be absolutely central
in this issue. And I hope we can work together in a bipartisan
effort to make sure that we avoid the pitfalls with this
legislation as we are seeing today on the House floor with the
Bush administration emergency spending that has created so much
uproar among the taxpayers.
I have some questions to you. I just came from Oversight in
Science and Technology so basically I have talked to the people
that you will be working with over at the other side. One of
the things that the chairman and I are really trying to work on
is to make sure this administration doesn't fall into the
pitfalls that the previous administration did and the mistakes.
One of the big things that has not been talked about yet
that I think we are going to hear in future months--though we
have talked about the contracts in Iraq to for-profit
organizations and abuses there; we have not even scratched the
surface of what happened in Afghanistan, especially with non-
profits--is that non-profits traditionally do not get the type
of scrutiny and oversight that for-profits have had.
My question to you is that when we get down this line, are
we willing to concentrate and make sure that when we allocate
moneys to non-profits the oversight is as strict and diligent
as we have hopefully done with for-profit contracts?
Mr. Devaney. Well, as an IG, I would never have
differentiated between the amount of oversight I gave to a non-
profit versus a profit company. So as I sit here today, I can't
think of why we would want to be any less vigorous in moneys
going to non-profits as to other entities.
Mr. Bilbray. Well, I will give you one. One is the fact
that we talk about cracking down and not giving contracts to
those who are under criminal investigation, where the business
has at least been indicted or investigated for wrongdoing. And
when it comes to a private company, I think there has been an
outroar about that.
But then we have non-profits. And I will be very blunt with
you. A California organization called ACORN is really under
investigation for major voter problems and for certain criminal
activity. How are we going to continue to move forward with
contracting with non-profits that are under criminal
investigation even though we would not do that with a private
for-profit organization?
Mr. Devaney. Well, without addressing a specific company or
organization, I think that in any sort of a risk model,
somebody that had those kinds of problems would rise to the
top. And if you were going to allocate resources to look at the
universe, you would focus in on something like that.
Mr. Bilbray. OK. I only say this because I want to make
sure we avoid that. And I guess seeing the mistakes that were
made, people thinking, well, because they are a non-profit, we
make assumptions. And people are still pocketing money one way
or the other. There is no physical barrier from that.
Let me sort of shift around and get onto something I think
the chairman would be more comfortable with. [Laughter.]
It is a big concern and I just want to give you the heads
up as you go down there because, as we talked about in Science,
we are moving forward on this energy independence issue and
clean technology being tied into this. I hope you get your guys
working for you to really take the time to touch base with the
Secretary of Energy and talk about what are really going to be
energy independent and environmentally friendly technologies.
I just want to say for one, as somebody who comes from
serving on the Air Resources Board in California, that there
are a lot of people who are going to be proposing contracts
with you to use this money to perpetuate technologies. One of
them that has been really touted in the past is the use of
ethanol as an environmentally friendly fuel. And I would ask
that you get your experts to look at the fact that Duke
University just came out with a report that said from a
greenhouse point of view, it would be better never to plant the
crop at all than to grow corn for ethanol.
The other issue is the new Air Resources Board report--the
No. 1 air pollution people in the world--that says that ethanol
has no environmental benefit over regular gasoline. And I bring
this up so that when these proposals come out we draw the line
and say, wait a minute, this does not fall under green fuel.
The only thing green about ethanol is the money being made from
it. And I know those are harsh words. But it is absolutely
essential that we don't keep following that line.
And I will remind you that even if we talk about cellulosic
ethanol, there is not the market and the ability to use the
ethanol that is being produced today. Right now, the industry
is asking the EPA to waive the 10 percent maximum in our fuel
stream and the EPA is stopping it because of environmental and
operational difficulties on that.
So I just want to say there is great opportunity for
genetically altered enzymes to produce true green fuels. But
please, put it up. If you see ethanol, take a second look at it
and say, even with all the political pressure we can get, we
don't want to have to line up in front of the Science Committee
or the Government Oversight Committee and answer why we gave
these grants out for a technology that the experts in
California, the experts in the universities are saying are not
a green fuel. Is that understood?
Mr. Devaney. I understand what you are saying. I think,
maybe, that is better addressed to the EPA or the Energy
Department. I am not representing the administration here. I am
representing the Board that oversees to prevent fraud or waste.
And if it arises in that arena, we will be very actively
engaged.
Mr. Bilbray. And as a former mayor and council member, you
sit like a council doing oversight to the city manager and the
department heads. And that is why I want you to say that it is
fraud and it is a waste if we take money that is specifically
earmarked for green, clean fuels and because we are not well
informed end up sending money into a technology that is an
environmental dead end and an economic disaster on the long
run.
Now, I am being the squeaky wheel so later I don't come to
you and say, why did you spend money on this when you had all
the scientific people coming out saying that this was a bad
track to go. And I just want to say there are some great
environmental opportunities out there. I hate to see us waste
one dollar on a technology that is not environmentally friendly
when there are all kinds of them lining up to do it.
And I appreciate your allowing me to pontificate on this
issue. Thank you very much, Mr. Chairman.
Chairman Towns. Thank you very much. And just before we
call on the gentlewoman from Washington, DC, let me just say--
investigate--I don't have a big, big problem with that because,
I mean, investigations happen all the time. I think that what I
am really having problems with, my good friend from
California--we have worked on many issues together and worked
together for a long, long time--is when we have situations
where people are being debarred and they still get contracts. I
mean, that is a problem.
And, of course, where you have the CEO of a company that is
being convicted and then the company still gets contracts from
the Government; those are the areas I have problems with. I
don't feel uncomfortable if you say that somebody is being
investigated. That happens all the time. So I just wanted to
share that with you to let you know that doesn't bother me. I
think that sometimes when that happens, then it means that the
job is being done.
And I think that, you mentioned ACORN but I must admit that
ACORN has done some great things in terms of voter registration
and, of course, being involved in the community. So I just want
to sort of share that with you. And of course many people feel
that it is an organization that deserves support.
I yield to the gentlewoman from Washington, DC.
Ms. Norton. I thank the chairman for yielding.
Just a word about the ethanol. I am not sure that was
directed to the right party. And some of us have a lot of
trouble with the current source of ethanol because it has us
eating gas. And there are food shortages all over the world
because corn is being eaten. It is a food in many places and
now it is out of reach whereas here, of course, it has been so
plentiful that we have been willing to drive on it. So I am not
sure the IG can say until after the fact, perhaps, what is
right. And I certainly don't know what the right place is to
look for biofuels. All I know is we have to look for some place
other than corn.
But my question really goes to what I am sure are your
responsibilities because the Recovery Act does authorize--in
fact, it caught my attention--that the Recovery Act in
particular authorizes the IG to look at the contracts, the
subcontracts, the grantees, and all of that is done by local
officials. It caught my eye because I see the Vice President
calling out and telling people he is going to call them out if
he goes and he sees that people are building swimming pools and
other things that nobody would expect stimulus money to be used
for.
But many programs, not just the stimulus money, many
programs of the Federal Government get what, 50 percent, 80
percent? I mean, some get even that much, for example, for the
Medicaid share. So I would like to know if this is a new
authority or if the IGs have always had access to such records
of contractors and grantees and subcontractors who share in
State and local funds?
Mr. Devaney. I think the answer to that is IGs have always
had the ability to follow the Federal dollar to wherever it
went. And to that extent, these are not new authorities.
Ms. Norton. Have you known that to be done by IGs?
Mr. Devaney. Absolutely.
Ms. Norton. Can I ask you how you think this will be done
and whether this is beginning under this authority? It looks
like what the Congress wants here is something pretty
systematic.
Mr. Devaney. Well, I think that we had a discussion earlier
about our need and just being smart about being redundant. So
we don't want to have five different entities showing up the
same day to look at the same money.
Ms. Norton. Agreed.
Mr. Devaney. So we are going to have to be in a mode where
we leverage our resources and make sure that there is a
division of labor here that is appropriate between State,
Federal, and local. But the fact of the matter is, Federal IGs
have always had the ability to follow that money from its
source down to its lowest level, and they often do in audits or
investigations.
Ms. Norton. Yes, well, we would certainly like to find it
before the newspapers do. Thank you very much. Thank you, Mr.
Chairman.
Chairman Towns. Thank you very much.
I now yield to the gentlewoman from California, Ms. Speier.
Ms. Speier. Mr. Chairman, thank you. Sir, I just read a
story about you that was quite flattering about how over many
years you uncovered a lot of fraud, I guess in the Department
of Interior. And it went unabated, I guess is a good word to
describe it. And eventually you left, is that correct?
Mr. Devaney. Actually, I have been in the fraud field for
28 or 29 years. I started in the Secret Service and eventually
I was in charge of all the fraud for the Secret Service. Then I
went into EPA and ran their criminal program. And then I have
been an IG for 10 years. And fraud has always been a part of
the portfolio and is always present when there is money around.
Ms. Speier. I guess my question is, at some point were you
frustrated where action wasn't being taken on issues that you
had uncovered? If so, to make sure that doesn't happen again?
What do we need to make sure is in place--whether it is more
whistleblower protection, more subpoena power--what do we need
to do based on your previous experience where some of your
efforts to uncover fraud were not addressed?
Mr. Devaney. I don't think that I was hampered in any way
by not having the tools to uncover fraud. Sometimes on
occasions at the Department of Interior when I would uncover
misbehavior, whether there was fraud or any other kind of
misbehavior, I became frustrated and quite frankly rather noisy
about my frustration. And got the attention of the appropriate
people and eventually things happened.
But sometimes that is necessary. Sometimes it is necessary
to have a congressional hearing and have an IG come in and talk
about what he has uncovered and then have the department
officials come as well as sort of the second panel. So I don't
think there is a lack of tools. I think IGs have the tools. I
think this act gives them the appropriate amount of money--you
never have enough, I suppose--but a good chunk of money to do
oversight.
And they have set about smartly to get this done. I am very
impressed with their willingness to try to get on the front end
of the pipeline and prevent fraud as opposed to simply waiting
for the inevitable and then going in to detect it.
Ms. Speier. In the financial services arena, we saw a lot
of bad actors in the sub-prime market. And we recently had a
hearing in which we found that in the Federal Housing
Administration, many of those bad actors had just moved over to
provide FHA loans. And the Director of FHA said he just didn't
have the resources at the time to preclude them from
participating. Now we have since put language into one of our
bills that we have moved this year to address that.
But I guess my question is, when you have a volume of bad
actors out there, when they have done business with the Federal
Government and we found out they were bad actors--many of them
are in a position where they just change the name of their
company and come right back to try and do business with us--do
we have a data base of bad actors out there that we can rely
on? Should we have one? Could you comment on that?
Mr. Devaney. Well, most departments as you probably know
have suspension and debarment programs and they get put on a
list. But it has been my experience that people who commit
fraud sort of follow the money. And there is no doubt in my
mind that with this amount of money on the table, they will
come. The challenge for all of us is to leverage our resources
in a way that allows us to get at the fraud that will
undoubtedly occur.
I view the transparency piece of this act as a big help to
investigative bodies because we are going to have hundreds of
millions of eyes and ears that we don't currently have in the
traditional process. So we are undoubtedly going to hear more
from citizens about fraud or reporters that have uncovered
fraud by looking at the Web site and by understanding that
contract does belong to somebody's brother and telling us about
it then we would under the traditional way which is sort of we
stumble upon it or we go out and we find a small amount of it.
Ms. Speier. Well, I would agree with you and I think the
transparency in this process is unlike any transparency we have
seen ever. It should be that transparent because it is so much
money. So I just commend you. I just want to as one Member to
suggest that if it is time to raise the red flags, whether you
need more resources or you believe a hearing would be helpful,
that you call upon us so that we can be helpful to you. I yield
back.
Chairman Towns. Thank you very much. We now yield to the
gentleman from Missouri, Mr. Clay.
Mr. Clay. Thank you, Mr. Chairman. I will attempt to be
brief.
Mr. Devaney, the RAT Board's Web site is supposed to
provide a means for the public to provide feedback on the
performance of contracts relating to the stimulus funds. Can
you explain whether there will be transparency on the actual
public feedback itself?
Mr. Devaney. Well, we don't actually have control of the
Web site yet but when we do we will be looking at the comments
that come in. And I suspect we will have a process which
involves perhaps not providing notification of all the feedback
that we have gotten--I think I mentioned earlier we are getting
3,900 hits a second on this Web site--but we will have a
process where if we see a systemic problem that is developing,
I am going to want to be very proactive about getting that out
there so that not only my fellow IGs and colleagues at the
State and local levels know about it, but so the citizens can
see that it is becoming a problem and that we are addressing
it.
Mr. Clay. Well, let me ask you about the States, local
communities, and independent organizations. Are they aware that
the Recovery Act put emphasis on targeting this money toward
economically distressed communities and also some emphasis on
involving small businesses? I mean, are these communities and
States aware of that? Just how will they be apprised of the
emphasis that the act puts on economically distressed
communities and small businesses?
Mr. Devaney. Congressman, I was asked that question earlier
today and I responded by saying that I am not really fully
aware of how the act addresses that issue and I would get back
to that person. I would be glad to include you in that
response.
Mr. Clay. OK, all right. Well, I thank you and I have no
further questions.
Mr. Chairman, I yield back.
Chairman Towns. Thank you very much. Let me just say this
to Mr. Devaney before we conclude. Will you be able to report
back to this committee within 2 weeks with a full report on
both the initial set of stimulus contracts and an overview of
the fraud prevention programs in place? Could you do that?
Mr. Devaney. I certainly heard that request at the
beginning of the hearing and as I have been thinking about it,
I think the fraud prevention aspect of that is an easier
response than the other one. I would ask your indulgence if I
can't do it within 2 weeks, I will let your staff know about it
and we can maybe work on that. The second one is a little bit
more comprehensive. It is also one where we would have to go to
the agencies themselves as opposed to just the IGs.
Chairman Towns. Right. Well, thank you. If you can, we
would appreciate that.
Mr. Devaney. Thank you.
[The information referred to follow:]
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Chairman Towns. And let me just say that we are delighted
that you are where you are. As indicated earlier, everyone is
saying that if it can be done and done properly, you can do it.
So I want to let you know that whatever we can do here from
this committee's standpoint, we stand ready to do that. If it
is fight for more resources, we stand ready to fight for more
resources with you. Because quite often people in a position,
will not have the tools to be able to do the job that they are
called upon to do.
We want you to know that we stand with you to try to make
certain that you have the resources because we want to really
deal with this whole waste, fraud, and abuse. As it was pointed
out earlier, $55 billion wasted, not going and doing what it is
supposed to do. We want to assure you that we want to bring
that number down. And with your help, I am confident that we
can bring it down. So thank you very, very much for your
testimony and we look forward to working with you.
Mr. Devaney. Thank you, sir.
Chairman Towns. No further questions? Thank you.
We now call upon the second panel. Mr. William Holland,
auditor general of Illinois, is here on behalf of the National
Association of State Auditors. Mr. David Gragan, chief
procurement officer for Washington, DC, is here on behalf of
the National Association of State Procurement Officials.
Welcome. Mr. Jerome Heer is the director of audits for the
county of Milwaukee and is here on behalf of the Association of
Local Government Auditors. Mr. Jerry Brito is senior research
fellow. Of course, we are delighted to have all of you here.
And, of course what we will do is that, as you know, in
this committee we swear everybody in. So we would like for you
to stand and raise your right hands.
[Witnesses sworn.]
Chairman Towns. Let the record reflect that all of them
answered in the affirmative.
So Mr. Holland, we will begin with you. And, as you know,
you have probably heard me say it, that you have 5 minutes.
Then after that, we will have time for questions and answers.
For your statements, we will just go right down the row. Thank
you very much.
Mr. Holland.
STATEMENTS OF WILLIAM G. HOLLAND, AUDITOR GENERAL OF ILLINOIS,
NATIONAL ASSOCIATION OF STATE AUDITORS, COMPTROLLERS, AND
TREASURERS; DAVID P. GRAGAN, CHIEF PROCUREMENT OFFICER FOR
WASHINGTON, DC, NATIONAL ASSOCIATION OF STATE PROCUREMENT
OFFICIALS; JEROME HEER, DIRECTOR OF AUDITS FOR THE COUNTY OF
MILWAUKEE, ASSOCIATION OF LOCAL GOVERNMENT AUDITORS; AND JERRY
BRITO, SENIOR RESEARCH FELLOW, MERCATUS CENTER AT GEORGE MASON
UNIVERSITY
STATEMENT OF WILLIAM G. HOLLAND
Mr. Holland. Thank you. Chairman Towns, Ranking Member
Issa, and members of the committee, I am pleased to be here
today on behalf of the National Association of State Auditors,
Comptrollers, and Treasurers to discuss oversight related to
the American Recovery and Reinvestment Act of 2009. While I may
draw upon my experience as a State auditor in Illinois, I am
here to represent public servants and financial officials
nationwide who take pride in ensuring that taxpayer dollars are
monitored and used for their intended purposes.
Accountability is always our No. 1 priority. However, the
challenges of our current economy coupled with the rapid
spending authorized by the Recovery Act make accountability
more critical than at any other time in our government. We
believe accountability can be achieved by clearing defining
responsibilities and coordinating the various participants.
The Recovery Act and the initial implementing guidance
issued by OMB specifically give Federal departments and
agencies such as the Federal Inspector Generals, the GAO, and
the Recovery Act Accountability and Transparency Board primary
responsibility for maintaining accountability over Recovery Act
funds. Substantial dollars are appropriated to each of these
entities for that singular purpose.
The Recovery Act provides neither direct responsibility nor
direct funds for oversight efforts at the State and local
level. Nonetheless, management of these dollars once they leave
the Federal Government's hands--as well as the cost associated
with that effort--is of utmost concern for to our
organization's members.
State auditors already bear significant responsibility for
oversight of Federal spending programs by State agencies
pursuant to the Single Audit Act and its amendments. These
audits are generally conducted annually and provide assurance
to the Federal Government as to the management and use of such
funds by recipient States and their sub-recipients.
OMB's initial implementing guidance recognizes the
importance of the single audit process in two key ways. First,
in developing risk mitigation plans, Federal departments and
agencies are required to consider prior audit findings
involving Federal programs through which Recovery Act funds
will be disbursed. Second, single audits are specifically
identified in the guidance as an audit tool integral to
promoting accountability over Recovery grants.
Clearly, the importance of the single audit process is
magnified rather than minimized by the Recovery Act's emphasis
on accountability. Nonetheless, during this period of rapid
spending, there may be a desire at the national level to
increase or alter some existing accountability processes. It
will be important to define and communicate any changes in the
single audit process in a timely and expeditious manner to the
State audit community. We had been fortunate that both the GAO
and OMB had been reaching out to the entire accountability
community to discuss implementation of Recovery Act
requirements. However, we are still uncertain as to our
specific roles and what the cost and funding sources for
fulfilling our roles will be.
Staffing and other necessary resources in our offices
throughout the Nation are at an all time low. Due to the influx
of stimulus money to the States, fulfilling our single audit
functions will certainly encompass more Federal programs. This
in turn will cause us to incur additional audit hours and
perform more tests than in previous years. We believe the
appropriated dollars would be better spent by the Federal
agencies on efforts to mitigate risk at the front end of the
process, for instance, by conducting tests and reviewing prior
audit findings to ensure that recipient agencies have a strong
internal control process in place prior to their receipt and
expenditure of Recovery Act funds. To the extent that Recovery
Act funds flow through existing Federal programs, these dollars
will already be subject to audit in accordance with the Single
Audit Act and OMB Circular A-133.
I should also note that financial officials other than the
independent external auditor are very important to this
discussion. Specifically I am referring to State comptrollers
and treasurers that are responsible for the disbursement and
reconciliation of funds. I can tell you that the comptrollers
are very concerned about the reporting requirements and how
that information will be gathered and reported. While much of
the financial information is housed in the State's accounting
system, some of the information is actually gathered at the
State agency level.
This dichotomy brings up concern regarding reconciliation.
We wonder at the State level whether the Federal Government is
going to require central State reporting directly to
Recovery.gov, individual State agencies reporting directly to
Recovery.gov, or individual State agencies reporting to a
Federal agency which is then responsible for assuring that the
information is posted at Recovery.gov. We await further
guidance, timely and expeditious, from the Federal Government
in regard to the reconciliation as it will be extremely
important. We stand ready to work with our Federal counterparts
to assure the most efficient and effective method for reporting
is established.
I should also point out the important role that internal
auditors will play within individual agencies or at the
statewide level in assuring that pre-disbursement internal
controls are functioning properly and effectively.
I am happy to join here today with the Chair of the
Recovery Board and other important organizations. Individually
and collectively, our groups have long been at the forefront of
ensuring public accountability. In a talk at the White House
Recovery and Reinvestment Act Implementation Conference last
week, the President emphasized his commitment to
accountability. And he said if we see money being misspent we
will call it out. I can assure you that the accountability----
Chairman Towns. Your light has gone red. Will you sum up?
Mr. Holland. Oh, it did?
Chairman Towns. Yes.
Mr. Holland. I didn't see it. You got to the end of my
comments. Thank you for the opportunity to speak.
[The prepared statement of Mr. Holland follows:]
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Chairman Towns. Thank you. Thank you very much.
Just before we go to you, Mr. Gragan, I would like to yield
to the gentlewoman from New York.
Mrs. Maloney. I thank the chairman for granting me a point
of personal privilege. I am literally on the floor with
Chairman Rangel with the AIG Accountability and Bonus Act that
we had been working on all week.
But I wanted to place my remarks in the record. I will send
my questions to the individuals. And I complement the
leadership of our chairman and ranking member for a careful,
sharp pencil in oversight on the Recovery moneys.
Congratulations. Thank you. And I have to go back to the floor.
Chairman Towns. Thank you very much. I would like to thank
the gentlewoman for her support as well. Mr. Gragan.
STATEMENT OF DAVID P. GRAGAN
Mr. Gragan. Good afternoon, Chairman Towns and members of
the committee. I am David Gragan. I am the chief procurement
officer of the city of Washington, DC. I am also representing
today the National Association of State Procurement Officials,
the organization of the 50 State procurement directors as well
as the city of Washington and the U.S. territories. We really
thank you for this opportunity to comment on the role of the
government procurement professional in preventing fraud, waste,
and abuse in the implementation of the American Recovery and
Reinvestment Act.
It is our view that State chief procurement officers or
CPOs are uniquely positioned to assist in the development of
guidelines regarding use, timelines, and transparency of
purchases we make as a result of this act. NASPO recognizes
that the effectiveness of a State's CPO is clearly linked to
his or her ability to engage with policymakers at the highest
levels in government and that this engagement is critical to
ensuring effective direction, coordination, and control over
public expenditures.
Additionally, State CPOs are charged with protecting all
public funds from conflicts of interest, anti-trust violations,
fraud, and abuse and have already developed controls to address
these concerns. Therefore, in order to proactively prevent
fraud, waste, and abuse under the Recovery Act, it is
imperative that central procurement be given the opportunity
from the outset to help in developing strategies for properly
spending stimulus funds.
In your invitation to NASPO to participate in this hearing,
the committee asked that we address three specific questions.
First, what proactive steps are State procurement officials
taking to prevent wasteful spending? It is imperative that we
no longer wait for annual external audits to identify waste,
fraud, and abuse. Audit, in my opinion, is continuous. In D.C.,
we post information about every purchase--including purchase
card transactions--on a Web site for public scrutiny. That is
the sort of transparency that I believe that this act envisions
and that we all, as procurement professionals, embrace. The
eyes of the public are the most powerful tool against improper
contracting behavior.
In terms of developing specific safeguards and processes
for stimulus funds, and in anticipation of these projects,
NASPO members are developing and using a variety of strategies
to aid their staff and customer agencies in spending the act
stimulus money efficiently, effectively, and, most importantly,
properly. Closer collaboration with our oversight partners in
government--the auditors, the comptrollers, the Inspectors
General--that is No. 1 among the tools that we are using right
now, communicating more aggressively.
State central procurement offices must communicate guidance
and expectations as well as best practices to user agencies and
localities. Most States are issuing guidance to agency
customers to promote uniformity of requests and reporting while
other States are creating data collection forms for customer
agencies to help identify and track stimulus funds.
Many of us are creating focused procurement teams, which we
have done here in Washington, DC, to ensure that the stimulus
contracting, which is on a unique timeline for public
procurement, is still effectively managed. We recognize that
the need to aggressively and proactively search out the needs
of our customers as opposed to waiting for a requisition is
different from the way procurement professionals typically do
business.
And finally, we are using early identification of
appropriate existing contracts. CPOs are encouraging their
staffs to identify viable cooperative and preestablished
contracts for internal use. Cooperative purchasing is an
effective tool and popular because it can save significant time
with existing, already competed contracts for those commonly
used needs. Many of the stimulus funds, I think, will be spent
on existing needs.
No. 2, you asked, what plans do States have for audits and
investigations to identify and prosecute fraud in stimulus
programs? As discussed in almost all of the opening remarks of
this committee this morning, transparency is a cornerstone of
the act and is an essential element of procurement strategies
to identify waste, fraud, and abuse. NASPO and its partner
organizations are currently in discussions with OMB, with GAO,
and with related agencies to identify the recommended flow of
information as it relates to act reporting. And State CIOs are
working closely with State CPOs and the stimulus teams to
develop those reporting chains.
The third question you asked was, what oversight challenges
are State governments facing as we prepare to properly expend
this stimulus funding? The overarching concern in central
procurement and among the NASPO members as well as NIGP, the
National Contract Management Association, and all professional
procurement associations is the rapidity with which we are
expected to expend these funds. Generally, our concerns are
related to the way we are going to manage data and the actual
procurement operation.
For data management, I will be very brief. It is about
knowing what information we need, when we need it, when and how
to report it. That has already been brought up and I won't
belabor that. More important are the procurement operations.
Government procurement typically does not respond well to
compressed timelines. The process is built to be deliberative
and methodical in seeking best value awards for every customer
need. Our process was developed to deliver value while
preventing fraud, waste, and abuse and, perhaps most
importantly, to instill public confidence in the way that their
money is being spent. Requiring States to perform to
accelerated timelines and procedures countervails the fair,
open, and transparent goals of the act. The rapidity with which
these funds must be contracted requires unprecedented
communication, coordination, and standardization across State
agencies and the central procurement offices.
In conclusion, with this great opportunity for procurement
directors for all of the citizens to accomplish the mission
that our President and the Congress have given us, I would make
three final points. As procurement professionals, we must plan
carefully, we must execute flawlessly, and we must do so in a
manner that is respectful to the public trust.
We cannot forget nor forego our responsibility to uphold
the public integrity that is the fundamental underpinning of
Government contracting. On behalf of NASPO, NIGP, NCMA, and all
the other public procurement professional organizations, I want
to thank you for holding this hearing and for inviting us to be
a part of this.
[The prepared statement of Mr. Gragan follows:]
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Chairman Towns. Thank you very much for your statement.
Mr. Heer.
STATEMENT OF JEROME HEER
Mr. Heer. Chairman Towns, Congressman Bilbray, I am honored
to be here today as a founding member of the Association of
Local Government Auditors [ALGA], to speak with you on behalf
of ALGA and to give you a broad overview of local governments'
efforts to ensure accountability for the use of Federal
stimulus funds disbursed under the American Recovery and
Reinvestment Act.
First I would like to say a little bit more about our
organization. ALGA was founded in 1989 to support and
strengthen local government auditing. We provide training and
information sharing for members and assist local governments in
establishing and maintaining independent audit functions. ALGA
also provides a peer review program to assure the public that
auditors meet professional standards. We currently comprise
about 300 organizational members representing more than 2,000
local government auditors in cities, counties, school
districts, and authorities.
Nearly 60 percent of our members are in the States that
will be covered by the GAO in their longitudinal study of the
long range use of Recovery Act funds. ALGA is well positioned
to coordinate with the GAO in its mandate to monitor local use
of the funds because local government auditors possess in-depth
knowledge of our operations, our organizations, and our
management controls.
To that end, we have recently sponsored a teleconference
with Acting Comptroller General Gene Diderot to discuss how the
Recovery Act will affect local governments and to coordinate
oversight efforts. We have also invited GAO to speak at our
annual conference for a more in-depth discussion of the role
local government auditors will play as we move forward.
We have been asked about proactive steps local officials
are taking to prevent wasteful spending. Some of our member
organizations have already started monitoring the requirements
under the act and communicating expectations to management. And
some members are already providing fraud prevention training
with special emphasis on Federal requirements.
But you should have some comfort in the notion that our
existing oversight infrastructure will also be very helpful in
providing assurance that the Recovery Act funds are well spent
and that the process is indeed transparent. These include the
Single Audit Act, the performance audits that we conduct, our
hot lines, and our longstanding, strong relationship with
auditors at different levels of Government.
With regard to the Single Audit Act, due to the size and
scope of the Recovery Act, we anticipate that much of the newly
available Federal assistance will indeed be subject to the
single audit requirements. Our members either assist in
conducting those audits or contract for them. As to performance
audits, more than 80 percent of our members conduct performance
audits. These are designed to assess whether a program is
achieving the intended benefits at a reasonable cost.
But another important tool is our hot lines. Many local
government audit organizations operate hot lines to receive
information from vendors, employees, and the public about
waste, fraud, and abuse. These audit organizations have
established policies and procedures for investigating
complaints and ultimately for referring cases for prosecution
or other disciplinary action. We publicize our hot lines and we
use them to vigorously pursue fraud in partnership with State
and Federal prosecutors.
Another key strength is our coordination with auditors at
different levels of government. Local government auditors
interact with Federal and State auditors in our work and
through the National Intergovernmental Audit Forum and its 11
regional forums. The mission of the forums is to improve
cooperation among its members to enhance Government
accountability and transparency and to increase the public
trust.
We were also asked to describe our plans for audits and
investigations to identify and prosecute fraud in stimulus
programs. Most of our member organizations have not yet
scheduled specific audits of programs funded by the Recovery
Act because we are still learning how our governments will be
affected. However, we anticipate that many of these high
profile programs are already an existing part of our audit
plans.
Additionally, most of our member organizations base their
audit plans on risk analysis. Because Federal funds carry
inherent compliance risks, we anticipate that local governments
and audit organizations will add audits of these projects to
their plans. Most importantly, the large majority of ALGA
members follow standards that require us to pursue potential
fraud when we do conduct our audits.
The final topic we were asked to address is the challenges
we face in meeting our oversight obligations. While we
recognize the potential benefits that the stimulus funds
provide for our local economies, we do face three significant
challenges. First, despite our efforts, we estimate that fewer
than 20 percent of the Nation's larger cities and counties have
an independent audit function.
If I could offer one suggestion to improve accountability
nationwide, it would be that you craft a way to encourage more
local jurisdictions to create audit functions. Ultimately every
taxpayer would benefit with better oversight of Federal dollars
spent at the local level.
The second challenge is resources. The majority of our
local government audit organizations are very small in
comparison to the resources that we audit. One third of our
members have only one or two staff. Finally, most local
governments have experienced budget reductions in the current
economic downturn. Many of our member organizations have cut
positions or implemented furloughs.
But let me close by saying that despite these challenges,
we welcome the opportunity to work closely with the GAO, with
the Inspector General community, and with State auditors to
provide oversight of local governments's use of the Federal
stimulus funds. Thank you.
[The prepared statement of Mr. Heer follows:]
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Chairman Towns. Thank you.
Mr. Brito.
STATEMENT OF JERRY BRITO
Mr. Brito. Thank you, Mr. Chairman, members of the
committee. My name is Jerry Brito and I am a senior research
fellow at the Mercatus Center at George Mason University and an
adjunct professor of law at George Mason University School of
Law. I want to thank you for inviting me to testify on
preventing stimulus waste and fraud.
This committee knows why it is so important to keep close
tabs on the nearly $800 billion of spending contained in the
American Recovery and Reinvestment Act. The question is how do
we do it. Dozens of Inspectors General and official auditors
around the country will follow the stimulus money. They will do
commendable work but they can't possibly look at every payment
and every transaction.
While we might want to, we can't hire an army of auditors
charged with tracking every single dollar. However, we can
supplement a very small number of professional auditors with a
very large number of small contributions from citizens. That
is, we can crowd-source accountability the same way that
Wikipedia crowd-sources the writing of an encyclopedia.
In fact, this very testimony that I am reading was crowd-
sourced. I published a draft of it on a wiki Web page and
alerted other transparency enthusiasts and academics of its
existence. In the 24 hours that the Wiki was online, over a
dozen persons made edits and additions to these words, all of
them adding value.
If the Government requires clear, timely, and profound
reporting of how every dollar is spent, everyone, not just
Government auditors, could keep track of the money. Millions of
citizens around the country would be able to look at the
transactions related to Recovery funded projects in their
neighborhoods. How would Government enlist the help of citizens
to keep Recovery spending accountable? It doesn't have to. It
just has to provide the data.
If the Government makes the raw spending data available, a
strong community of transparency enthusiasts and scholars will
build tools that allow citizens to search, sort, and report it.
It doesn't have to be just one Recovery.gov. If we make the
data available, citizens can take that data and make many
Recovery.govs with different focuses and different sorts of
presentations of the data.
Earlier this year I launched a Web site, StimulusWatch.org,
with the help of two very talented volunteer software
developers, Peter Snyder and Kevin Dwyer. The site presents the
nearly 20,000 ``shovel ready'' projects that the U.S.
Conference of Mayors reported as candidates for stimulus
funding. Citizens can easily find a list of projects in their
hometown and then rate, discuss, and add factual context to
each project.
Now that you have passed the Recovery Act, we want to
expand the capabilities of our Web site to allow citizens to
track the projects that will be funded in their communities. I
know that other Web developers would like to make similar
tools, including applications that track job creation and plot
stimulus dollars on maps coded with unemployment and other
statistics.
There is no limit to the number of useful and innovative
presentations that public-minded netizens can create. However,
before we can make useful tools for the American public, the
community of transparency innovators needs the raw spending
data in full. To make sure we have that, we need you to clarify
and strengthen existing data disclosure requirements. There are
two key issues that need clarification that I would like to
bring to your attention today: the depth of disclosure and
standardization.
The first is a question of how deeply disclosure will go.
While the Recovery Act requires that recipients of Federal
stimulus funds report to the awarding agencies how the funds
are spent, there is no clear instruction that every level of
subcontract or subgrant must be disclosed. The OMB guidance
interpreting the act states that only the ``prime non-Federal
recipients of Federal funding and the subawards'' are on the
hook for reporting to Recovery.gov. This is very troubling.
If the Government wants to ensure meaningful
accountability, then we must have transparency at every level
of transaction. It is not enough for citizens to know that the
EPA made a grant to Florida which in turn made a subgrant to
Miami, where I am from. We also need to note that Miami made a
payment to ACME concrete, which a citizen with local knowledge
could recognize and flag as a firm owned by the council
member's son-in-law. Right now it is not clear that we will get
this information.
The second key issue is standardization. At this point, the
OMB guidance does not explain what data elements we should
expect Recovery.gov to publish. By data elements I mean such
things as project name, contractor, amount spent, purpose of
the project, jobs created, street address, city, State, etc. If
you think of the raw data as a spreadsheet, we would like to
know what the column headers will be. We also don't know in
what format the information will be presented. As I explain
more thoroughly in my written testimony, ideally the data would
be published in a structured format such as Extensible Markup
Language [XML].
In his first day in office, the President signed a
Memorandum on Transparency and Open Government. The three
central themes of the memorandum to which the President
committed the administration are transparency, participation,
and collaboration. A community of interested and knowledgeable
parties wants to participate and collaborate with the
government to make online disclosure of Recovery spending data
succeed. For example, a wide range of groups and individuals
from all parts of the political spectrum have formed a
Coalition for an Accountable Recovery. I commend to you and the
administration the Coalition's vision statement and proposed
online transparency architecture, which I have attached to my
written testimony.
I am happy to report that so far the administration has
been quite good at listening to suggestions from those of us
who are interested in Recovery data. Unfortunately, it has not
been as good at sharing information in return, a necessity in
true collaboration. Ideally the folks building Recovery.gov
would be allowed to talk with us so we can learn what they are
planning and we can tell them what we would like to see
included.
We are willing to help track the stimulus money and take
part of the responsibility for seeing it well spent. But to do
so, we need the data.
Thank you.
[The prepared statement of Mr. Brito follows:]
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Chairman Towns. Thank you very much. Let me thank all of
you for your testimony. Let me begin with you, Mr. Brito. Since
you just finished up, I will come right back to you. Would you
agree that technology is not a barrier to solving problems?
Mr. Brito. It is not a barrier to solving problems, no. I
mean, it is a barrier to the extent that there are legacy
systems in place in Government and at the State level that
might not be quite at the speed they need to be to report the
data. To that extent, they could be a barrier. But it is a
barrier that could be overcome.
Chairman Towns. Let me put this to you, Mr. Holland, Mr.
Heer, and also Mr. Gragan. As you may know, there are strong
provisions in the Recovery Act protecting State, local, and
contractor employees that report fraud and waste in connection
with stimulus spending. Do you have a broad plan on how to
harness citizen and whistleblower involvement in keeping an eye
on stimulus spending? Do you plan to publicize the new
whistleblower protections in order to encourage whistleblowers
to come forward? Let me just go down the row. Let me start with
you, Mr. Holland.
Mr. Holland. Mr. Chairman, I think that the best way to
address the fraud and abuse that might occur is to catch it
before it begins, which is exactly what I said in my statement.
And it is probably to rely more upon Mr. Gragan's people, the
procurement officers, to go back and take a look at what we
said in our single audits where there were weaknesses in
internal controls in procurement and in contracting policies.
Strengthen the procurement policies that might be out there to
avoid any fraud and abuse that might take place. But as it does
take place, auditors at the State level are always prepared to
disclose any fraud, any abuse, any waste that they come across.
We do so already.
Chairman Towns. Strengthen the procurement policies, what
does that really mean?
Mr. Gragan. I think it means really that the policies
generally, as I mentioned in my oral remarks, are in place.
They need to be reemphasized. People need to be, in many cases,
trained again on the meaning of those policies. I would suggest
to your specific question, Mr. Chairman, that we have
whistleblower protections in place. I think that we have very
good ones in the city of Washington, DC, and the other two very
large governments that I have had the privilege of being an
official in. I would say that we need to reemphasize them.
As we try now, one of our greatest antiseptics to anything
going wrong here is just massive communication, whether it is
by Web sites or all the things Mr. Brito said and many others
of us have said. Let us communicate more aggressively. Let us
make it so easy for any interested member, whether it is the
public or the press or any oversight function that has a direct
role in the process of overseeing the expenditure of funds, let
us make it ultra easy for them to see where every dollar goes,
and not only that but to inquire as to the legitimacy of any
expenditure. So I think now is as good a time as any, a better
time probably than most, to reemphasize those whistleblower
protections that I think we do have in place.
Chairman Towns. Do you think it is easier now to do it with
Devaney coming in the picture or does that make it more
difficult?
Mr. Gragan. I will be honest with you, I don't know the
specifics of exactly how these roles are going to hash out. I
think the idea of putting an organization in place to be
responsible as a single point of information, if you will--a
single point of truth, I will call it because I love that
phrase--I think that is the right idea. And we have to make it
work.
Chairman Towns. Mr. Heer.
Mr. Heer. Mr. Chairman, I would agree that this is a time
to reinforce existing practices dealing with whistleblowers.
But I would also suggest that it is a time for local
governments to maybe think about starting up hotlines and
providing whistleblower protections through their local
legislation. We started our hotline in 1994. We were not the
first.
But there are a lot of governments that have just started
very recently bringing up hotlines at the local level. The city
of Milwaukee is only a couple years old. The State of Wisconsin
just put one up last year. And if you are going to take
information from people alleging fraud, you need to have well-
positioned whistleblower protection. So I think that we will
use this opportunity to try and reinforce and expand the use of
hotlines at the local government level.
Chairman Towns. One of the things that has been talked
about a great deal is the inability to communicate. And, of
course, I suggested to the Vice President to call in and have a
summit to see in terms of a technology standpoint if we can't
sort of have everybody on the same page. And, of course, I am
being discouraged at the fact that they are saying that I am
being unrealistic. I mean, this is coming from professionals. I
mean, and I am to the point where I am saying, why can't we do
this? I would like to just sort of get some opinions on it. Mr.
Brito, you touched upon it earlier. What do you think would
stop us from doing it?
Mr. Brito. Well, I mean, like I said, there are going to be
some legacy systems. And by that I mean old computers that
don't have the capability to produce the sort of data formats
that we need. But aside from that, I think that you can get the
data out in a useful enough format that others can take and
aggregate and make it useful on Recovery.gov and other Web
sites.
So, I guess to answer your question directly, no,
technology should not stop us. This is an unprecedented amount
of money that we are spending. It is the American people's
money and they have a right to know how it is being spent. And
the best whistleblowers are the folks that don't know they are
whistleblowers. If they can go online, look up projects that
are in their neighborhoods, and say, ``boy, I know something
about this project,'' that is what is important.
Chairman Towns. Any other comments before I yield?
Mr. Holland. I would add to this that at the Federal level,
rightfully so, you talk in trillions and billions. At the State
level, we talk in billions and millions. At Jerry's level, they
talk in millions and thousands. When we start inputting that
information at the millions and thousands level across the
country, with lots of different people having responsibility
for inputting that data--deciding what is a job created, what
is not a job created--it may be different in Springfield, IL,
versus Brooklyn. It may be different in Miami or in Chicago.
It is going to be different all over the place. It is a
very complex issue with lots of bits of information that at
some point you are going to want to look at and say, it all is
the same. And that is a challenge before us, to create all that
information the same across the country so that the proper
analysis can be done. And it is not an easy job to do. I
caution you to have a realistic approach.
When you start thinking about it, just that people are
going to put it in, that people are going to say this is the
spending for this 2 week period, it is going to vary all over
the country. It is a real challenge at the grassroots data
entry level. And ultimately it is going to get to you, but you
want it to be right.
Chairman Towns. Yes, but the reason I am so concerned is
that everybody is saying that $55 billion will be wasted if we
are not careful. And, of course, that to me is very disturbing.
That is B as in boy, $55 billion. That is a lot of money. I
feel that we could do a lot of things with that money. If it is
wasted, then, I think that we are not doing the American public
the service that we are supposed to be providing if we are
allowing $55 billion to go out the back door, side door, or
whatever door. I think that is a real concern. I think it is an
issue that we need to continue to talk about. I yield now.
Mr. Bilbray. Thank you, Mr. Chairman.
Let me first go over and say, Mr. Holland, I want to just
say that from where you come from and the job you have done in
the past, you are the meanest SOB I think that has ever counted
beans. [Laughter.]
So I appreciate that. And the challenges in D.C. astonish
me. As a former mayor, I would love to have a shot at this city
for a few years. But there are real challenges there.
I have a question for you. When we were bringing this bill
up, there was a discussion about putting conditions in so we
made sure to direct these funds in a certain way. And, in fact,
the Senators kept wanting to strike some of the guidelines
because they said don't worry, we have oversight. How far does
the oversight and our hands-on ability go? I guess the way to
explain it is, when the Federal Government contracts with
somebody to do a project, we have direct oversight. The
administration has direct oversight. There is a contractual
relationship.
When it goes through the State, and then through down to
the city and the county, is that contractual relationship
broken? Or does the contractual or implied contractual
relationship follow the money as it is going through and thus
allow the accountability to follow the money as it goes
through? Or is the nexus separated at the State line and we are
now at a whole different relationship where our ability to hold
a contractor at the city accountable has been broken because we
went through that system?
Mr. Holland. Well, if I can jump to what I think the answer
you might be looking for is that under the Single Audit Act,
when money comes to the State and it is for Federal programs
being spent, who is responsible for that accountability, at the
State level, that is me. At the city level, that is Jerry. So
that accountability, that single audit, that tracking Federal
funds--and with regard to the stimulus money, it is our
understanding that the vast majority of the stimulus money will
go through existing Federal programs--we will be responsible
under those existing programs and the existing single audit
program for the accountability for those funds. Does that get
that question?
Mr. Bilbray. But let us just say if you do it through a
city program. Let us just say we are building, construction. We
have standards that are on the books and are coming onto the
books that are a Federal minimum for every contractor. When you
accept those funds, is there an implied contract that you are
now a contractor and fall under that? Do you have to live like
other guys do or are you exempt from that to where you don't
have to follow the same rules as somebody who is a private
sector contractor with the Federal Government?
Mr. Heer. Mr. Chairman, in my experience, when we audit
that dollar spent at the contractor, subcontractor level, we
audit against the criteria that is established at whatever
point upstream we got the money from whether it is the State or
Federal Government. So if you have restrictions on those funds
as to how they must be spent, those attach to our audit program
and we follow through on those restrictions.
Mr. Bilbray. OK, let me just be very frank. There was a
real concern here that we make sure that when we create jobs,
we create legal jobs. We are not going to have hundreds of
thousands of people that are illegal using false documents,
false social securities, getting these jobs. There were
Senators that said the condition that we put on at the House to
require E-Verify was repetitive because the administration was
now going to require as of March that all Federal contractors
had to use E-Verify.
The question is this: Is it understood that part of the
fraud and abuse part of this is that when you hire somebody
under these funds, you are going to make sure that they are who
they claim to be and that they are qualified under Federal law
to work legally in this country? The big question is, does that
requirement that this administration is going to apply to
Federal contractors, will that be followed, will that follow
the money all the way down to the local level?
Mr. Holland. Well, we would hope that would be done at the
front end where the people who were responsible for
administering that program would follow the law. And then, if
that is the law, if that is a provision within that contractual
arrangement, that would be subject to audit by either a State
auditor or a local auditor.
Mr. Heer. I would agree with that, Mr. Chairman.
Mr. Bilbray. So in other words, what you are going to look
for is specific language in the text of the grant rather than
the general policy of the Federal Government? You need that
specifically stated? I am wondering here because there are all
kinds of fraud and abuse that I don't think is specifically
stated that you will de facto pick up. I don't know about
nepotism; I don't know about of conflict of interest. I assume
in a lot of those contracts they are there.
But there is a lot of this that I hope you maintain as a
standard that isn't specifically referred to in the grant but
as sort of a common sense approach that you are not going to
give this money to somebody or some group that is in violation
of the law. But the big question is, will that apply also to
this segment that the House strongly, overwhelmingly put into
our bill that, let us make sure that the only people that get
the jobs or get these grants are people who are legally in the
country by requiring E-Verify to be used?
Mr. Holland. I can't speak to any specific program at this
particular point not knowing what is in each specific program.
But if there are those restrictions, we will audit against
those restrictions.
Mr. Bilbray. Yes, sir?
Mr. Brito. I can't speak directly to what the requirements
are on this gentleman right now. But they all seem to agree
that they are accountable for how the money is spent and that
they are in charge of making sure the money is spent
accountably. What I would like to know, and what I would like
to suggest is important as well as accountability from the IG
level, is reporting.
So the question for me would be, does the fact that the
money goes from the Federal Government to the State to the
city, does that still carry reporting requirements where the
city must report what were the contacts that were made, who was
paid, and what for? And then any sort of interest that you
might have about how the money is being spent, a citizen in
that locality can look at that contract and maybe raise a red
flag directly.
Mr. Bilbray. Yes, because this is one of the things you do
if somebody says, oh, I hired this many people. If you don't
check that the social security number and name are actually
viable, they could put any person they want. There is no way
for us to audit the books if there isn't that data available.
And the way you get that data available is through E-
Verify. You actually go and Social Security says, OK, this guy
sent us this name, this number and you match it up. That allows
auditors to say, yes, this was really a person and we can
verify that because here is the number, here is the name and it
has been checked.
Mr. Holland. That should be done by the people who are
running the program at the front end. Your goal should be never
to see me again as an auditor because things have been done
right.
Mr. Bilbray. OK. Mr. Chairman, I apologize but there is one
issue. The reference to Recovery.gov not being up and going for
another year, somebody want to comment on that? Mr. Brito.
Mr. Brito. Yes, I think that would be a real shame. I mean,
if the money is being spent now, we need folks looking at the
dollars being spent now to flag anything that might be
inappropriate or might be wasteful. And this isn't just about
gotcha games.
Mr. Bilbray. That is what we want to avoid, gotcha games.
Mr. Brito. It is not about gotcha games. It is about
performance, really, in a large part. And citizens on the
ground are the best placed to be able to communicate to folks
in their own local government, in their State government, to
you that the project that is going down in their neighborhood--
maybe it is a community center, maybe it is a bridge--that it
is not going very well. Maybe they can't get a job there even
though there are supposed to be this many jobs available.
And the only way that you allow them to know what is going
on is by releasing the data as soon as possible online. And I
understand that Mr. Devaney is facing many challenges, the
least of which is taking over the site now after 30 days. But I
think they need to make that a top priority because that would
mean enlisting millions of auditors which are called the
American people.
Mr. Bilbray. And the chairman has really tried to make this
get away from the gotcha game, to avoid the problem to start
with and if the problem shows up, address it while it is small,
don't wait. And what I worry about with this item is that we
won't know for a year. And that could be enough time for real
problems. Then it ends up being a big blow-up rather than a
little problem we can address. Anybody else want to comment on
that 1 year timeline problem?
Mr. Heer. I would agree that is an excessively long period
of time for us to start getting data. If we are going to have
to wait that long we will probably rely on other resources so
we can share information in the audit community and get ahead
of problems and not wait that long to find them.
Mr. Bilbray. I just want to followup on this, Mr. Chairman,
because I think this really shows what we have done in the past
in the Federal Government. And if we are going to change the
outcome, we have to change the process.
And I think this is one place Republicans and Democrats
ought to be working together to help to keep this
administration out of the gotcha game by us actually saying we
need you to do the right thing first so we avoid having to
point out that you did something wrong after the fact. I
appreciate it, Mr. Chairman.
Chairman Towns. Yes, I agree with you. I think that
transparency is very, very important. And this is what we are
really talking about. And I think that any way that we can do
that should be explored. I think is just so important because
$787 billion is a lot of money. We need to try to make certain
that it is being spent properly. At this time, I yield to the
ranking member.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Brito, we have been throughout the day concerned and I
would like your view on the fact that apparently it is going to
take an estimated year for Recovery.gov to get to a level of
transparency. Can you take us through how we can reduce that
down to as close as possible to acceptable level to get
transparency through the entire process available to either
search engines or the public?
Mr. Brito. I think that OMB, or now it seems that Mr.
Devaney is taking over the Web site so it would be the Recovery
Act Accountability and Transparency Board, they need to issue
guidance--and I would hope that my colleagues up here can
answer this as well--can issue guidance maybe after some
collaboration where this guidance is developed. Basically,
issue guidance that will tell cities, contractors, those who
would actually be receiving moneys and would have to be on the
hook for reporting, what they need to report so that we in the
transparency community can know what we can expect coming down
the pike. And I am talking about what fields need to be added,
which is: the name of the contractor, the cost, number of jobs
created, etc.
Mr. Issa. So you are saying they have to define, somebody
on the government side has to define the fields so that when
you answer the question you put them into fields that are
consistent so they can be searched?
Mr. Brito. Consistently across the country. And I want to
emphasize that I hope this is done in collaboration with the
folks on the ground in the cities and the folks in the
transparency community who are interested in receiving the data
and using it. So that is the first thing. The other thing is
something you all have been doing here today, which is sort of
clarifying how deep will the reporting go. Because you need to
clarify that it is going to go down to the ultimate, terminal
user of the money and that they will be as on the hook as
anybody else.
Mr. Issa. As you have gone through the legislation, would
it be correct to say that nowhere in there does it either
provide for or require that there be reporting down to the
contractor and subcontractor nor is there authority for those
rules to be created?
Mr. Brito. I think that would be correct as far as saying
that there is nowhere in the act that specifically says that
all contractors, subcontractors, subgrantees, etc., are on the
hook for reporting. I am not sure, neither does it prohibit it,
so I am not sure that authority is required. Maybe this is
something that OMB could require on its own. I am not sure.
Mr. Issa. OK. So I think, Mr. Chairman, that is probably
the one point we have between Mr. Devaney and here, and I would
like to get responses from the others, that we don't have a
clear answer to whether or not they will require it and that
they believe they have the rulemaking authority. I believe they
do, by the way. I think by being silent on it, they do have the
authority. But that may be one for us to jointly ask the entire
organization headed by the Vice President about whether they
intend to have those rules and whether they need any further
action from us. And that may be our best joint followup.
Chairman Towns. I have no objections to that at all.
Mr. Issa. OK. I look forward to working something out with
our staffs. And for the others, I would appreciate sort of your
further belief on that point. Because to me, this oversight
which is proactive, which I am very proud the chairman has done
on this basis, only is some good if we look for these things
that we need to do now before those data bases are created and
filled with material that is hard to read. Please?
Mr. Heer. Mr. Chairman, I would agree that the sooner those
decisions are made, the better for all of us who are going to
be involved in reporting and auditing. We need you to be clear
about what you want and communicate that to us. It many involve
the need for some further coordination with training or some
other type of cooperation.
But the sooner you can identify what you want us to
provide, the better. We are used to juggling our systems with
Federal systems. We have a separate system for reporting with
HUD. We have a separate system for reporting Transportation
funding. We find a way to integrate that with our own system so
we can be as efficient and accurate as possible. But we need to
know what you want.
Mr. Issa. Mr. Gragan.
Mr. Gragan. I would like to add, first of all, that I
consider--and I think it is important to register this--the
procurement community in the public sector is part of the
transparency community. And I want to make sure that we all
understand, in my profession and certainly our partners in the
U.S. Congress, that we definitely consider ourselves part of
that community.
It is a well intended plan right now, but not yet well
executed. And this is what most concerns me. If this does not
flow down from the top, what you have, in an attempt to be
transparent, is 50 different State Web sites, probably 3,066
county Web sites, and 70,000 city and town Web sites, all of
whom somewhere are in that chain of expenditure flowing down
from this great act.
But you don't have transparency. What you have is an
impenetrable morass. Any of us who have ever tried to even
figure out how 50 States do business would find that a
challenge because there is no single form in which we would
find the data. So I think I could talk forever on it but that
would only belabor what we all already know and what we have
already said.
Mr. Issa. Mr. Holland, if you have something in closing?
Mr. Holland. Mr. Gragan is right on. Just the volume of
information that is out there is going to make it very
important for us to get clear, consistent guidance at the State
level to those receiving agencies and those Governors to make
sure that they are collecting the exact same information across
the board and that it is filtered back up to the Federal level
in a consistent manner.
Mr. Issa. Now, I have just one followup yes or no question,
if I could, Mr. Chairman. The interesting thing is we are
holding this specifically on nominally $800 billion worth of
special funding. Is there any reason in the world that whatever
we do here should not be the model for what we do on a
consistent basis with all dollars the Federal Government sends
out?
Mr. Gragan. I would like to comment on that, if I may. This
is challenging for all of us, I think. This is very much
challenging for my partners to my left and right here at this
table and everyone else involved, including and maybe
especially Mr. Devaney and his team.
But there are great opportunities here. And one is that
this will force us, this will catalyze, I think, changes that
have long needed to be made with respect to automatically
posting every contractual transaction in government to the Web.
It is public information so why not? Why would we not do that?
Why would we wait for a Freedom of Information Act to do that
when anyone might be interested in the public?
More importantly for me as a procurement professional is
that not all of us have the ability to administer contracts
well. We spend all of our time going to the next contract and
putting contracts in place. Contract administration, that part
where you assure you are being delivered what you ordered
whether it is a good or a service, is one of the most important
areas where fraud can occur and where money can leak. We need
to have contract administration as part of our profession coast
to coast.
And on top of that are internal audits. It is wonderful to
get annual audits from the Inspector General. It is great to
get CAFR audits and other audits. It is even better for me to
be ahead, to have an internal audit capability with procurement
professionals that I can have help me manage the delegated
authority that flows through the agency from the chief
executive, the Mayor of Washington, DC, in my case, through the
people that I trust to spend public money.
So I am hoping that this whole thing is really a catalyst
for some fundamental and foundational changes, to answer your
question, sir.
Mr. Issa. Thank you, Mr. Chairman. I think we have really,
the end has been the best part of the whole hearing. So thank
you.
Chairman Towns. That is because you were part of that.
[Laughter.]
First of all, let me thank all of the witnesses and Members
who attended the hearing today. Before we adjourn, let me state
that America demands that all stakeholders under the Recovery
Act work in good faith to protect the public's interest and
safeguard our unprecedented investment in America's future.
I want to make it crystal clear that this committee will be
watching and working feverishly to ensure accountability and
transparency over these funds.
Let me also thank the ranking member, Mr. Issa, for his
leadership in standing up with me to demand the strictest
oversight. I understand that the minority and majority staff
worked on this hearing in a bipartisan manner and that is the
way it should be. And I look forward to continuing in this
spirit of cooperation.
Finally, please let the record demonstrate my submission of
a binder with documents relating to this hearing. And without
objection, I enter this binder into the committee's record.
[The information referred to follows:]
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Chairman Towns. And without objection, the committee stands
adjourned. And thank you again for coming.
[Whereupon, at 1:55 p.m., the committee was adjourned.]
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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