[Senate Hearing 111-978]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 111-978
 
                        STIMULUS OVERSIGHT--2009

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

                                HEARINGS

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                             MARCH 5, 2009
  FOLLOW THE MONEY: TRANSPARENCY AND ACCOUNTABILITY FOR RECOVERY AND 
                         REINVESTMENT SPENDING

                             APRIL 2, 2009
   RECOVERY AND REINVESTMENT SPENDING: IMPLEMENTING A BOLD OVERSIGHT 
                                STRATEGY

                             APRIL 7, 2009
    THE AMERICAN RECOVERY AND REINVESTMENT ACT: MAKING THE ECONOMIC 
                     STIMULUS WORK FOR CONNECTICUT
                 FIELD HEARING IN HARTFORD, CONNECTICUT

                             APRIL 23, 2009
    FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS FUNDING

                           SEPTEMBER 10, 2009
  FOLLOW THE MONEY: AN UPDATE ON STIMULUS SPENDING, TRANSPARENCY, AND 
                            FRAUD PREVENTION

                               ----------                              

        Available via the World Wide Web: http://www.fdsys.gov/

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

                        STIMULUS OVERSIGHT--2009




                                                        S. Hrg. 111-978

                        STIMULUS OVERSIGHT--2009

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

                                HEARINGS

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 5, 2009
  FOLLOW THE MONEY: TRANSPARENCY AND ACCOUNTABILITY FOR RECOVERY AND 
                         REINVESTMENT SPENDING

                             APRIL 2, 2009
   RECOVERY AND REINVESTMENT SPENDING: IMPLEMENTING A BOLD OVERSIGHT 
                                STRATEGY

                             APRIL 7, 2009
    THE AMERICAN RECOVERY AND REINVESTMENT ACT: MAKING THE ECONOMIC 
                     STIMULUS WORK FOR CONNECTICUT
                 FIELD HEARING IN HARTFORD, CONNECTICUT

                             APRIL 23, 2009
    FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS FUNDING

                           SEPTEMBER 10, 2009
  FOLLOW THE MONEY: AN UPDATE ON STIMULUS SPENDING, TRANSPARENCY, AND 
                            FRAUD PREVENTION

                               __________

        Available via the World Wide Web: http://www.fdsys.gov/

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




                  U.S. GOVERNMENT PRINTING OFFICE
49-638                    WASHINGTON : 2011
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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri           LINDSEY GRAHAM, South Carolina
JON TESTER, Montana                  ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado

                  Michael L. Alexander, Staff Director
                         Troy H. Cribb, Counsel
                       Holly A. Idelson, Counsel
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
         Amanda Wood, Minority Director of Governmental Affairs
                    Lisa M. Nieman, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                    Laura W. Kilbride, Hearing Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................... 1, 39, 67, 95, 131
    Senator Collins..................................... 4, 41, 97, 133
    Senator Burris.................................... 18, 52, 114, 154
    Senator Voinovich............................................    20
    Senator Tester........................................ 23, 123, 151
    Senator McCaskill................................. 26, 54, 121, 161
    Senator Coburn............................................. 64, 156
    Senator McCain............................................ 111, 159
    Senator Carper............................................ 118, 164

Prepared statements:
    Senator Lieberman.......................... 175, 224, 243, 277, 657
    Senator Collins................................. 178, 227, 280, 659
    Senator Voinovich............................................   180
    Senator Coburn...............................................   229
    Senator Bennet...............................................   281

                               WITNESSES
                        Thursday, March 5, 2009

Hon. Robert L. Nabors II, Deputy Director, Office of Management 
  and Budget.....................................................     5
Gene L. Dodaro, Acting Comptroller General, U.S. Government 
  Accountability Office..........................................     8
Hon. Phyllis K. Fong, Inspector General, U.S. Department of 
  Agriculture; Chair, Council of Inspectors General on Integrity 
  and Efficiency.................................................    11

                                APPENDIX

Dr. Allan V. Burman, President, Jefferson Solutions, Division of 
  Jefferson Consulting Group, LLC, prepared statement............   217
Responses to questions for the Record from:
    Mr. Nabors...................................................   222

                        Thursday, April 2, 2009

Hon. Robert L. Nabors II, Deputy Director, Office of Management 
  and Budget.....................................................    42
Hon. Earl E. Devaney, Chairman, Recovery Accountability and 
  Transparency Board.............................................    45

                                APPENDIX

Responses to questions for the Record from:
    Mr. Nabors...................................................   239

                         Tuesday, April 7, 2009

Hon. Robert L. Genuario, Secretary, Office of Policy and 
  Management, State of Connecticut...............................    71
John P. Yrchik, Ph.D., Executive Director, Connecticut Education 
  Association....................................................    75
Stephen A. Frayne, Senior Vice President, Health Policy, 
  Connecticut Hospital Association...............................    79
Sharon D. Langer, Senior Policy Fellow, Connecticut Voices for 
  Children.......................................................    84

                                APPENDIX

Documents submitted for the Record by Senator Lieberman..........   246
Elliot C. Nelson, Chairman, Bristol Democratic Town Committee, 
  prepared statement.............................................   276

                        Thursday, April 23, 2009

Gene L. Dodaro, Acting Comptroller General, U.S. Government 
  Accountability Office..........................................    98
Raymond C. Scheppach, Ph.D., Executive Director, National 
  Governors Association..........................................   101
Carolyn M. Coleman, Director, Federal Relations, National League 
  of Cities......................................................   104

                                APPENDIX

Letter from Vice President Biden to Senators Lieberman and 
  Collins, dated April 23, 2009..................................   283
Charts submitted for the Record by Mr. Dodaro....................   326
GAO Report to Congressional Committees, ``Recovery Act, As 
  Initial Implementation Unfolds in States and Localities, 
  Continued Attention to Accountability Issues Is Essential,'' 
  GAO-09-580), April 2009........................................   350
Responses to questions for the Record from:
    Mr. Dodaro...................................................   652

                      Thursday, September 10, 2009

Hon. Robert L. Nabors II, Deputy Director, Office of Management 
  and Budget.....................................................   135
Hon. Jon D. Leibowitz, Chairman, Federal Trade Commission........   138
Hon. Earl E. Devaney, Chairman, Rocovery Accountability and 
  Transparency Board.............................................   141
J. Christopher Mihm, Managing Director, Strategic Issues, U.S. 
  Government Accountability Office...............................   144

                                APPENDIX

Documents submitted for the Record by Senator Collins............   661
Scott D. Hammond, Deputy Assistant Attorney General, Antitrust 
  Division, U.S. Department of Justice, prepared statement.......   742
Responses to questions for the Record from:
    Mr. Nabors...................................................   754
    Mr. Devancy..................................................   763

                     Alphabetical List of Witnesses

Coleman, Carolyn M.:
    Testimony....................................................   104
    Prepared statement with attachments..........................   337
Devaney, Hon. Earl E.:
    Testimony.................................................. 45, 141
    Prepared statements....................................... 235, 686
Dodaro, Gene L.:
    Testimony.................................................... 8, 98
    Prepared statements....................................... 185, 286
Fong, Hon. Phyllis K.:
    Testimony....................................................    11
    Prepared statement...........................................   200
Frayne, Stephen A.:
    Testimony....................................................    79
    Prepared statement...........................................   267
Genuario, Hon. Robert L.:
    Testimony....................................................    71
    Prepared statement...........................................   252
Langer, Sharon D.:
    Testimony....................................................    84
    Prepared statement...........................................   273
Leibowitz, Hon. Jon D.:
    Testimony....................................................   138
    Prepared statement with attachments..........................   669
Mihm, J. Christopher:
    Testimony....................................................   144
    Prepared statement...........................................   691
Nabors, Hon. Robert L. II:
    Testimony................................................5, 42, 135
    Prepared statements.................................. 181, 230, 663
Scheppach, Raymond C., Ph.D.:
    Testimony....................................................   101
    Prepared statement...........................................   328
Yrchik, John P., Ph.D.:
    Testimony....................................................    75
    Prepared statement...........................................   256


                   FOLLOW THE MONEY: TRANSPARENCY AND
                      ACCOUNTABILITY FOR RECOVERY
                       AND REINVESTMENT SPENDING

                              ----------                              


                        THURSDAY, MARCH 5, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in room 
SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Pryor, McCaskill, Tester, 
Burris, Collins, McCain, and Voinovich.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. Good morning, and welcome to today's 
hearing, which we have titled ``Follow the Money''--not just 
``Show me the money,'' but ``Follow the Money: Transparency and 
Accountability for Recovery and Reinvestment Spending.'' In 
other words, what are we going to do to make sure that the $787 
billion--or at least the $501 billion that we judge will go to 
spending as opposed to tax reduction, is spent wisely? And how 
will the Federal Government account for all the money that will 
be spent over the next 2 years as part of the American Recovery 
and Reinvestment Act of 2009 (ARRA or Recovery Act)?
    It is our Committee's responsibility under our traditional 
Governmental Affairs role to study ``the efficiency, economy, 
and effectiveness of all agencies and departments of the 
Government.'' We take this responsibility seriously, and we 
intend to ensure that measures are put in place to prevent cost 
overruns, provide strict oversight of contractor performance, 
and ensure that grant conditions are met and that fraud is 
promptly prosecuted in all aspects of the stimulus spending, 
which is truly unprecedented in the amount of money that 
Congress has appropriated and in the speed with which we have 
asked our government to spend it.
    I want to thank our witnesses for being here: Robert 
Nabors, the Deputy Director at the Office of Management and 
Budget (OMB), whose boss Peter Orszag has told us, will be the 
man whose hands will be on the stimulus program; Gene Dodaro, 
the Acting Comptroller General at the Government Accountability 
Office (GAO); and Phyllis K. Fong, Inspector General at the 
Department of Agriculture (USDA), but here particularly in her 
role as Chairman of the Council of the Inspectors General on 
Integrity and Efficiency. That is a great title, and you have 
earned it.
    I thank you all for being here today. Each of you have a 
critical role to play in ensuring that these stimulus funds are 
spent not just quickly to help our economy, but effectively to 
protect our taxpayers.
    History can be our guide in this. It was actually 76 years 
ago yesterday that President Franklin Delano Roosevelt began 
his famed first 100 days with his first inaugural address to a 
Nation then mired in the Great Depression. Unemployment was 
around 25 percent, so as bad as things are and as worried as 
the American people are about their futures, as we all are, it 
was a lot worse then.
    In his address, President Roosevelt told an anxious Nation, 
``Our greatest primary task is to put people to work. This is 
no unsolvable problem if we face it wisely and courageously. It 
can be accomplished in part by direct recruiting by the 
government itself, treating the task as we would treat the 
emergency of a war, but at the same time, through this 
employment, accomplishing greatly needed projects to stimulate 
and reorganize the use of our natural resources.'' And that, of 
course, fits quite perfectly the aim that I think most Members 
of Congress who voted for the stimulus bill had in our minds.
    Ultimately, the New Deal put 8 million Americans back to 
work and accomplished a lot. Six hundred and fifty thousand 
miles of road were built. That was an enormous boost to 
commerce in our country. The Bonneville and Grand Coulee Dams 
were built that brought electricity into rural homes. Airports, 
like LaGuardia in New York City, were built, and they became 
the hubs of a new modern transportation infrastructure. And, of 
course, thousands of other public buildings and parks were 
constructed, many of which we still use today.
    By the end of President Roosevelt's first term, the 
unemployment rate had been cut by more than half, and may we be 
blessed to see a similar cut at the end of President Obama's 
first term.
    The American Recovery and Reinvestment Act is similarly 
ambitious, seeking to save or create 4 million jobs by putting 
Americans to work in traditional infrastructure projects like 
roads, bridges, and buildings, but also by laying the 
groundwork for a 21st Century economy with investments in clean 
and renewable energy, high-speed rail, computerized health care 
records, and expanded broadband access--an information highway 
across the Nation.
    History also shows that the New Deal gives us reason for 
some caution as we embark on this massive public spending 
stimulus program, because the fact is that not all the New Deal 
projects left the grand legacies like those I mentioned a 
moment ago. For instance, in the Nation's capital, 100 people 
were hired as part of that stimulus program to scare pigeons. 
Well, I do not think we need that today, but others may 
disagree. In New York, people were put to work as fire hydrant 
decorators. The Federal Government funded a study of the 
production and efficiency of safety pins.
    As I say this, I miss Senator Coburn. I feel that he should 
be here. [Laughter.]
    So frequent were these dubious projects that the word 
``boondoggle'' was born to describe any job or program that 
wasted money and produced trivial results. In fact, so common 
was the use of this word that President Roosevelt felt obliged 
to rebut it. He said in one speech, ``If we can boondoggle 
ourselves out of this Depression, that word is going to be 
enshrined in the hearts of the American people for years to 
come.''
    But that is not the way it has worked out, really, although 
we look back at the New Deal programs that got us out of the 
Depression with great appreciation. Today, there are still 
boondoggles, and we all know and disdain them. While we 
understand that our economy needs a real jolt urgently, we want 
to make sure that every dollar of the $500 billion that the 
Recovery Act targets for spending on projects and programs will 
be used to restart the economy with hopefully not a penny lost, 
wasted, or stolen.
    Again, we understand that speed is important, but we simply 
cannot repeat the kind of mistakes we have made in other hasty 
spending projects, such as in Iraq reconstruction or in the 
aftermath of Hurricane Katrina.
    I will say this, and I suppose I am patting Congress and 
also the Administration on the back: In the American Recovery 
Act, otherwise known as the stimulus bill, there is some very 
good language and good provisions to put us in a position to 
protect the taxpayers in the spending of this money.
    First, the legislation includes about $250 million in new 
funding for our inspectors general (IGs), who, incidentally, 
report to our Committee, to hire experienced auditors and 
investigators and to oversee stimulus spending. I would like to 
hear this morning about whatever proactive measures are being 
put together by the IGs to ensure with these new personnel that 
the stimulus money is spent properly.
    Second, the legislation, of course, creates the Recovery 
Accountability and Transparency Board. President Obama recently 
chose Earl Devaney, the Inspector General of the Interior 
Department, to head this board. It will also contain at least 
10 other inspectors general from departments and agencies that 
have jurisdiction over the recovery projects. The board is 
meant to ensure coordinated and comprehensive oversight of 
stimulus spending and provide regular reports to Congress and 
the public. Mr. Devaney is just finding his way through this 
new responsibility, and we thought it would be premature to 
have him here this morning. But we look forward to having him 
testify before the Committee at a hearing quite soon.
    Third, the Recovery Act adds protection for whistleblowers 
who work for State and local governments or for private 
contractors who generally have no Federal protection against 
retaliation if they disclose waste or fraud in the spending of 
these stimulus funds. Of course, some of the most significant 
information we get about waste and fraud comes from people 
right in the middle of the system, and they deserve 
whistleblower protection at all levels.
    Fourth, a special Web site called ``Recovery.gov'' will 
provide transparency for posting information about spending on 
these projects.
    We want to work closely with the Obama Administration to 
make sure we have the manpower and systems in place to do the 
job right and safeguard the public investments. Waste or fraud 
in the spending of the $500 billion of stimulus funds will only 
further erode the American people's confidence in their 
government just when they and we need them to have that 
confidence most. That is why our Committee is giving notice 
with this hearing this morning that we intend to very closely 
and aggressively monitor spending of stimulus money ourselves 
and also, if I can put it this way, to oversee those who are 
given the responsibility by the law to also oversee the 
stimulus spending, including the three distinguished witnesses 
we have before us this morning.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    Over the past year and a half, we have witnessed the 
collapse of the housing market, the unraveling of our Nation's 
financial institutions, and the evaporation of trillions of 
dollars in the stock market and in people's retirement 
accounts. The financial crisis that started on Wall Street has 
become a crisis on Main Street in every community in America. 
Nearly 600,000 Americans lost their jobs in the month of 
January alone, bringing the total number lost since the end of 
last summer to 2.5 million. The Nation's unemployment rate is 
the highest it has been in more than 16 years.
    That is why the stimulus bill that we passed a few weeks 
ago is so critical. The economic stimulus package contains 
robust infrastructure spending, significant funding for State 
aid, tax relief for low- and middle-income families, and tax 
incentives for small businesses. It is projected to save or 
create an estimated 3.5 million jobs.
    The investments in this bill should help to turn our 
economy around, but to be successful, these stimulus funds have 
to be spent effectively and with transparency and 
accountability. They simply cannot be lost to waste, fraud, and 
mismanagement. As the Chairman has pointed out, if they are, 
not only will it retard the economic recovery, but it will 
further depress people's confidence at a time when confidence 
is needed.
    If these funds are not awarded in a timely, transparent, 
and appropriate manner, the impact of the economic stimulus 
package will be blunted, and the results, whether for new jobs, 
better roads and schools, or other critical investments, will 
fall far short of our expectations. When there is a lack of 
accountability in Federal funds aimed at stabilizing the 
economy, goals are not accomplished, and public support 
evaporates. And, of course, we have only to look at the 
spending of the Targeted Asset Relief Program (TARP) money to 
see a cautionary tale.
    To avoid the tremendous oversight flaws of the TARP and 
help to prevent similar abuse in the allocation of stimulus 
funds, Congress included strong safeguards in the bill. These 
protections will help to ensure aggressive oversight, enhance 
transparency, and accountability for taxpayer dollars. The law 
includes millions of dollars in additional funding for the 
agency inspectors general and the GAO, and creates a new 
Recovery Act Accountability and Transparency Board to 
coordinate these activities.
    I believe one of the most important safeguards is the 
creation of a new Web site, Recovery.gov, which will allow the 
public to access information on how the stimulus money is being 
spent. From my perspective, the more eyes looking at this 
spending, the better.
    Ensuring that the funds are spent properly also requires an 
efficient and effective acquisition workforce to develop and 
monitor the stimulus contracts. Federal contract purchases now 
exceed $532 billion a year, yet the Federal Government entered 
the 21st Century with 22 percent fewer Federal civilian 
acquisition personnel than it had at the start of the 1990s. So 
what we are going to have is the challenge of a downsized, 
shrinking acquisition workforce, which is already overwhelmed, 
coping with an influx of billions of additional dollars. That 
is an issue I am going to be raising with our witnesses today.
    As one of the witnesses who submitted testimony for the 
record--Allan Burman, a former head of the Office of Federal 
Procurement Policy--has pointed out, this problem also extends 
to State and local levels. There is a real question of whether 
State and local governments are prepared to effectively handle 
this influx of money and to ensure that competitive processes 
are followed.
    We have learned painful lessons from the Iraq 
reconstruction and Hurricane Katrina-related contracts that a 
lack of planning can produce egregious examples of waste and 
open the door to outright fraud.
    Today's hearing will allow us to examine the 
Administration's plans to safeguard the taxpayers' interests in 
the economic stimulus plan's effectiveness and efficiency. Our 
government has an obligation to make sure that these funds are 
spent wisely to get people back to work, to relieve hardship, 
and to turn our economy around. America's families, struggling 
with the economic downturn, deserve no less. Right now I 
believe that they are hopeful, but they are also skeptical, of 
whether we can spend this much needed money wisely.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins. I agree with 
you on both counts, that the American people, including my 
constituents that I've talked to at home, really were pleased 
that we passed the stimulus program. They know they need it. 
But they are worried about whether we are going to spend it 
effectively. And that is why I am so glad the three of you are 
here.
    Robert L. Nabors, Deputy Director, Office of Management and 
Budget, welcome, and we look forward to your testimony now.

  TESTIMONY OF HON. ROBERT L. NABORS II,\1\ DEPUTY DIRECTOR, 
                OFFICE OF MANAGEMENT AND BUDGET

    Mr. Nabors. Thank you, sir. Chairman Lieberman, Ranking 
Member Collins, distinguished Members of the Committee, thank 
you very much for inviting me to testify.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Nabors appears in the Appendix on 
page 181.
---------------------------------------------------------------------------
    We are in a deep recession, which threatens to be more 
severe than any depression since the Great Depression. More 
than 3.5 million jobs have been lost over the past 13 months, 
more than at any time since World War II. And the gross 
domestic product (GDP) declined at an annual rate of 6.2 
percent in the fourth quarter of last year--the highest rate in 
over 25 years. Each community and sector of our economy has 
been affected, and that is why the President signed the 
Recovery Act, which is intended to provide relief to millions 
of struggling families, jump-start our economy, create or save 
more than 3.5 million jobs over the next 2 years, and steer our 
Nation out of this economic circumstance that we find ourselves 
in.
    Passing the Act was an important step towards immediate 
recovery and the restoration of long-term fiscal stability. But 
for the Recovery Act to be effective, funds need to be spent 
both wisely and quickly. Allow me to say a few words about the 
work we are doing to accomplish both of these objectives.
    First, for the Recovery Act to have the desired effect, 
funds must reach recipients quickly. Since the Act was signed, 
the Administration has been working quickly to channel funding 
into our struggling economy. Already, more than $15 billion of 
Medicaid grant awards have been allocated, covering the first 
two quarters of fiscal year 2009. In addition, $10 billion has 
been allocated to create green jobs, revive housing markets 
with high rates of foreclosure, and curb homelessness. New 
funds for unemployment insurance and food stamps, grants to 
hire more police officers and for workforce development, block 
grants to States and localities, dam and levee funding, and 
formula funding for highways and other transit construction 
have been allocated or will be this month. We are doing our 
part to expedite this process by working to make our 
application processes and guidance as clear as possible so that 
funds reach the hands of those who need them, as quickly as 
possible. But we need the help of our State and local partners 
to ensure that Recovery Act funding makes its way into the 
economy. States cannot let Recovery Act funds sit in ``rainy 
day'' accounts, and Recovery Act funds should not be used to 
reimburse programs for previous expenses.
    Second, it is essential that funds be spent wisely at all 
levels of government and in a way that maintains the confidence 
of the public. The President understands the magnitude of the 
government's responsibility in managing the taxpayers' dollars. 
This is precisely why the Recovery Act was designed to ensure 
unprecedented levels of transparency and accountability, and 
why the Administration has moved swiftly to implement both the 
leadership and internal processes necessary to oversee this 
massive effort.
    In terms of leadership, the President designated Vice 
President Joseph Biden as the Administration's point person to 
coordinate the Federal response on the Recovery Act. He has 
also named Earl Devaney, the Inspector General of the 
Department of the Interior, as the head of the recovery 
oversight board.
    On process, the day the Recovery Act was signed, the 
Administration launched Recovery.gov, a Web site that will 
empower citizens to hold the government accountable by 
reporting where recovery dollars are going and how the money is 
going to be spent. The response has been dramatic. Recovery.gov 
received 3,000 hits per second the moment it was launched, and 
it has received over 150 million hits since February 17, 2009. 
As funds make their way to projects, we anticipate that the Web 
site will be a valuable resource for tracking their use.
    In this very early phase of Recovery Act implementation, we 
are focusing on ensuring that Federal agencies tasked with 
managing recovery money are executing their mandates well. OMB 
has transmitted detailed guidance to all of the agencies on how 
to manage Recovery Act dollars in a way that will promote 
transparency and efficiency. The guidance calls on agencies to 
go beyond standard operating procedures and to recognize the 
unusual nature of recovery funds. Agencies are required to 
ensure that recovery money is distinguished from other funding 
in their financial systems, grant and contract writing systems, 
and reporting systems. For example, within their financial 
systems, agencies are generally required to set up unique 
treasury appropriation fund symbols for all Recovery Act 
funding.
    We have emphasized the extraordinary responsibility that 
falls on all government workers to prove to the American people 
that we are spending their dollars well. To inform citizens 
how, when, and where recovery dollars are being spent, the 
guidance presents new, tight reporting deadlines. This week, 
agencies began submitting weekly reports that provide a 
breakdown of funding, noteworthy actions to date, and major 
planned activities. By no later than May 1, 2009, we have asked 
that they submit both an ``Agency Recovery Plan'' and a 
separate ``Recovery Program Plan'' for each program named in 
the Act.
    Within OMB, we closely monitor milestones, obstacles, and 
other significant issues pertaining to the implementation of 
agency recovery plans on a daily basis, as well as the use of 
specific funds. We are working to ensure that matters of 
significance are appropriately brought to the attention of 
senior Administration officials in a timely fashion so that 
they can be resolved before problems arise.
    However, the Administration cannot achieve the goals of 
unprecedented transparency and accountability without help from 
Congress, State, and local governments. All levels of 
government share responsibly for rooting out error and waste 
and ensuring that only the most worthy projects receive 
precious recovery dollars. These projects should meet high 
standards of economic value and equally high standards when 
judged by the public for fairness and impartiality.
    No one should doubt the importance of the Recovery Act in 
creating jobs, restoring public confidence in our economy, and 
putting our Nation back on track. Nor should anyone doubt the 
importance of implementing this Act as efficiently, 
transparently, and effectively as possible.
    Our success going forward with implementation of the 
Recovery Act is in large part going to be determined by the 
tens of thousands of Federal, State, and local officials who 
will be monitoring this funding on a daily basis. In my work at 
OMB, I have been very fortunate to have a team of very 
competent career employees who have been meeting with me on an 
almost daily basis, and I would like to take this opportunity 
just to recognize their hard work so far. There are four of 
them here with me today: Danny Werfel, David Bortnick, Leslie 
Field, and Dustin Brown. These four individuals, plus the other 
individuals back at OMB, should be a model across the Federal 
Government and across all levels of government in terms of the 
amount of dedication that they have shown in terms of making 
sure that this money is spent wisely.
    Thank you very much.
    Chairman Lieberman. Thanks, Mr. Nabors, and we join you in 
thanking the people behind you who have helped to put us where 
we are.
    Before we go to Mr. Dodaro, that is a stunning number for 
hits on the Recovery.gov Web site. That was 150 million.
    Mr. Nabors. Yes, sir.
    Chairman Lieberman. And that's in basically 2\1/2\ weeks--
less, actually, since the bill was signed.
    Mr. Nabors. Yes, sir.
    Chairman Lieberman. Do you have any analysis of what people 
are looking at? Do you have any sense of who they are?
    Mr. Nabors. We are in the process of doing that type of 
evaluation, but from what we can tell, at least initially, 
these are people across the country who just want to see how 
their money is being spent.
    Chairman Lieberman. Yes. That is actually thrilling. Or 
maybe it is intimidating for those who are going to oversee the 
spending. [Laughter.]
    Anyway, that is great to hear.
    Gene Dodaro is the Acting Comptroller General, U.S. 
Government Accountability Office. Thanks for being back here.

  TESTIMONY OF GENE L. DODARO,\1\ ACTING COMPTROLLER GENERAL, 
             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dodaro. Thank you very much, Mr. Chairman, Senator 
Collins, Members of the Committee. I am very pleased to be here 
today to assist you in your oversight of the American Recovery 
and Reinvestment Act by explaining GAO's plans to meet our 
responsibilities under the legislation, and also to discuss how 
we are coordinating with the rest of the oversight entities 
that are charged with various responsibilities.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Dodaro appears in the Appendix on 
page 185.
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    The Act gives GAO a range of responsibilities and tasks. 
They include recurring responsibilities to report and do 
reviews on a bi-monthly basis on the use of the funds by 
selected States and localities across the country. We also are 
charged with reviewing recipient reports, which are required to 
be filed on a quarterly basis, with particular attention to 
their reporting of the number of jobs preserved or created.
    We also are asked to look at a number of targeted areas: 
Education incentive grants in particular; the expansion of 
trade adjustment assistance that is provided; and also efforts 
by the Small Business Administration to increase lending to 
small businesses and increase the liquidity in the secondary 
market for those loans. And we are also tasked with some long-
range studies. One includes looking at the impact of downturns 
on States over the past few decades and trying to develop 
recommendations going forward for how the Federal Government 
can assist States, particularly in the health area, in the 
Medicaid program, in future economic downturns.
    One of the large-scale responsibilities we have is to 
implement this bi-monthly review of selected States and 
localities, and we are moving forward in doing that. We have 
selected 16 States based on expected amounts of money flowing 
to the States and localities: Population figures, poverty 
figures, and unemployment rate projections. We are going to 
track these 16 States, the District of Columbia, and localities 
over the next 2 to 3 years to have a longitudinal study and 
analysis of how they have used the money and what the impact 
has been in achieving the purposes of the Act in these States 
and localities. These States are expected to receive over two-
thirds of the Recovery Act spending, so we believe this will be 
a really good study and present a national picture.
    Now, we are also going to be reviewing the recipient 
reports filed by all 50 States so that we have information on 
them, so we will be tracking the activity there. We also will 
have our Forensic and Special Investigations Unit, which has 
testified before this Committee several times, do a risk 
assessment of some of the programs and areas where we would 
want to do targeted reviews. So just because we will not be in 
the other 34 States does not mean that we will not do some 
reviews in targeted areas in those States going forward.
    We are in the process of selecting the localities within 
those jurisdictions going forward, and we will apprise the 
Committee of the localities that we are selecting within those 
16 States.
    Now, because a lot of the Federal money will be flowing 
from the Federal departments and agencies that are under the 
purview of the inspectors general, who are also going to the 
States and localities, it is important for us to coordinate our 
activities with the inspectors general. Soon after the Act was 
passed, I contacted Ms. Fong, and she and I co-hosted a meeting 
that involved IGs or their representatives from 17 departments 
and agencies to begin coordinating our activities. In addition, 
GAO teams are meeting with each individual inspector general's 
office to coordinate our activities as they relate to the 
States and localities going forward.
    I have also talked to Mr. Devaney, and I made sure that he 
understood that we were committed to coordinate with him as he 
gets the Recovery Board up and running. That will be an 
important coordination step for us as well.
    Similarly, we are doing outreach to the State audit and 
local audit communities. Through the National Association of 
State Auditors, Treasurers, and Comptrollers, we arranged a 
conference call that included representatives from 46 State 
offices, either the State auditors or their representatives, 
and we had a similar conference call with local auditors across 
the country. When we first enter the States and localities, we 
will be working with these State and local auditors because 
they understand their localities, and we will be coordinating 
with them, as well as through the governors' and mayors' 
offices and their designated representatives.
    We also have begun coordination efforts with OMB. Soon 
after the Act was passed, a number of State officials wrote to 
Director Peter Orszag and myself about establishing a working 
group to work on some of the reporting requirements that were 
in the law. I talked to Mr. Orszag, and we have begun working 
with the States and localities on that.
    Now, there is one other issue we have brought to OMB's 
attention and Treasury's attention. As you mentioned, Mr. 
Chairman, while there is about $500 billion on the expenditure 
side, there are also a number of tax provisions that eventually 
people will want to know whether or not they achieve their 
objectives. For example, there are recovery bonds. As well as 
special provisions for depreciation and for creating jobs 
during this period of time.
    Our experience has been at GAO, unless the Internal Revenue 
Service (IRS) makes a determination up front to collect 
specific information about the reporting of these tax credits 
and tax provisions, it will be impossible to determine their 
effect. OMB and Treasury have responded well to this outreach 
by GAO, and we are going to be working with them. They are 
beginning to think about what information should be collected 
on the tax provisions so that the provisions can be properly 
evaluated as to whether they achieved their objectives. I think 
this is very important so that at the end of the period, we 
will be able to have a comprehensive analysis of the entire 
Recovery and Reinvestment Act and whether it achieved its 
purposes.
    Also, this early attention up front is really the governing 
principle and will provide lessons learned about how to prevent 
fraud, waste, abuse, and mismanagement in these programs. I 
have listed in our testimony some of the lessons learned 
documents that GAO has produced in the fraud area: Contract 
management and competition are essential here; having qualified 
people, as has been pointed out, is also essential, and I would 
be happy to talk about that more; and grant management going 
forward. There are a lot of best practices that are available 
to the Federal departments and agencies, and I included them in 
my statement so that they are available at the State and local 
level as well. We will be meeting with those officials when we 
enter the States going forward.
    So, in summary, I think it is important to have this early 
outreach. I am pleased to see some of the discussion in the OMB 
guidance so far. The inspectors general are also outreaching to 
State and local officials, I think. I am encouraged by that as 
well. We are going to be doing the same thing at the State and 
local levels when we enter the 16 States and the District of 
Columbia going forward.
    In closing, I would just say that GAO welcomes the 
opportunity to help the Congress ensure adequate oversight over 
this funding. We are committed to meeting our responsibilities 
on time and in a professional, thorough manner.
    Thank you for the opportunity to be here today, and I would 
be happy to answer questions at the appropriate time. Thank 
you.
    Chairman Lieberman. Thank you, Mr. Dodaro. I find your 
opening statement to be impressive and encouraging. You have 
done a lot in a short period of time. You have been proactive, 
and I appreciate that you are coordinating with the other 
agencies involved here, both the inspectors general and OMB 
particularly. I will have questions for you afterward, but 
thanks for your testimony.
    Phyllis Fong, as I said at the outset, is the IG at the 
Department of Agriculture and Chairman of the Council of IGs. 
Thank you so much for being here this morning.

 TESTIMONY OF HON. PHYLLIS K. FONG,\1\ INSPECTOR GENERAL, U.S. 
DEPARTMENT OF AGRICULTURE; CHAIR, COUNCIL OF INSPECTORS GENERAL 
                  ON INTEGRITY AND EFFICIENCY

    Ms. Fong. Thank you, Mr. Chairman, Senator Collins, and 
distinguished Members of this Committee. I am very pleased to 
be here today to talk about the activities of the IG community.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Fong appears in the Appendix on 
page 200.
---------------------------------------------------------------------------
    I just want to start out by thanking you and the Members of 
your Committee and staff for the opportunity to work with you 
all as the Recovery Act was making its way through Congress. 
There were a number of provisions that directly affect the IGs, 
and you have been very helpful in terms of addressing our 
concerns at an early stage. I want to express our appreciation 
for all of that.
    Chairman Lieberman. You are quite welcome.
    Ms. Fong. This morning I want to talk briefly about how the 
Recovery Act impacts IGs and our responsibilities under the Act 
and how we are approaching our new responsibilities in a very 
concrete way.
    First off, the Recovery Act gives IGs responsibilities in 
three areas. We have increased responsibilities for overseeing 
stimulus expenditures within our agencies. We are now 
participating on the oversight board, as has been mentioned. 
And we also have a new responsibility regarding investigations 
of whistleblower complaints.
    With respect to the first area, oversight of agency 
stimulus programs, we in the community are giving a high 
priority to this activity. We understand the funds need to be 
moved out very quickly to address the problems in the economy. 
We also understand that when funds move out quickly, there is a 
risk of internal controls not being as strong as they could be. 
And we understand the need to be proactive.
    I want to assure all of you that my colleagues in the 
community are very aware of the need to be proactive and that 
all of us are engaged in activities right now to do that. We 
are also working very closely with GAO and OMB, as has been 
mentioned by my distinguished colleagues here at the table.
    With respect to the oversight board, there were concerns 
that have been expressed as to whether or not the independence 
of IGs will be impacted by the creation of this new Recovery 
Board. I think early on in the process, those concerns were 
articulated very publicly and in a very articulate way. And we 
in the community were also concerned initially. But I will say 
that I appreciate the Committee's help in addressing our 
concerns, and at this time we do not believe that our 
independence will be adversely impacted for a number of 
reasons.
    We note that the board's members are now all IGs, and so we 
would bring to that board our unique perspective and our 
sensitivity to the need for independence.
    We also note that the chairman is Mr. Devaney, who is a 
longstanding IG, well regarded in the community, and we know 
that we can work with him.
    And last, but perhaps most important of all, the Act itself 
provides that the IGs will have the final say as to whether or 
not we initiate audits or investigations or stop audits or 
investigations. And so I anticipate that we will be able to 
forge a very productive working relationship with the board as 
we move forward, and that we should be able to address any 
issues that come up.
    With respect to whistleblower complaints--you raised that 
as a new area of responsibility for us--we are very mindful of 
the fact that whistleblowers deserve protection and are 
certainly a wonderful source of information for all of us. The 
Recovery Act gives us, as IGs, some new responsibilities to 
investigate complaints of reprisal from whistleblowers who are 
employees of State and local government or non-Federal 
employers, recipients of stimulus money. This is clearly a new 
responsibility for us. It is a little early to tell what kinds 
of issues will arise in terms of our taking on this 
responsibility. But we are gearing up to do it. We all 
understand what we need to do, and we will keep the Committee 
apprised of our progress on this.
    Turning to activities that we as IGs have started to 
undertake to address our responsibilities now, as you 
mentioned, Mr. Chairman, last fall you passed legislation 
creating the Council of IGs. We are now up and running. We are 
an organization of 67 Federal IGs and other senior members of 
the Administration. One of our main missions is to ensure 
coordinated approaches to issues that have governmentwide 
impact. Stimulus oversight would certainly be one of them.
    When the Recovery Act was enacted, the Council of IGs 
decided that we needed to start taking some proactive measures 
to plan for our oversight activities. And so we put together a 
working group of the 23 IGs who are receiving dedicated 
stimulus oversight money, and we have started to share among 
ourselves best practices for moving forward. We have held some 
meetings. We have met with GAO. We have talked with Mr. 
Devaney. And we have started to move out. I want to just 
highlight for you some of the concrete measures that we are 
taking now in the community to address funding before the money 
moves out.
    Let me just say that we surveyed the community, and of the 
22 IGs who responded, all of them are engaged in proactive 
measures. These measures range from participating in our agency 
steering groups and work groups; to identifying unimplemented 
audit recommendations pertaining to programs that are getting 
stimulus money and working with our agencies to get those audit 
recommendations implemented now; to conducting pre-award audits 
of recipients; and also conducting real-time audits of systems 
with our agencies; to reviewing agency spending plans for 
internal controls; to conducting fraud awareness briefings of 
our departments' employees to make sure that they are aware of 
red flags that could occur; and to sharing best practices 
information both among the community members as well as with 
our departments and agencies.
    There are many best practices that we are providing our 
agency program officials with and saying, look, when you issue 
grants, these are things that you should be doing right up 
front.
    Probably the key theme that is coming out of the community 
at this point in terms of proactive work is that there is an 
essential need for good communication and collaboration with 
agency program officials. That, in many ways, is really the key 
to making sure that all of these things get implemented in an 
effective way.
    We also are as a community implementing a number of longer-
term measures to provide oversight to stimulus spending, and as 
you might expect, those would cover a wide range of activities, 
including sampling of recipients who are receiving funds to 
make sure that the programs are really operating the way they 
should be; looking at databases, data analysis; verifying 
agency data as it is reported to Recovery.gov; handling 
investigations of fraud; and dealing with whistleblower 
complaints--all of the risk-based kinds of activities that IGs 
traditionally do.
    The main theme there, of course, is that we as IGs will be 
looking in our departments to determine which programs are at 
the most risk or are most vulnerable depending on the money 
flow and other internal control issues, and then directing our 
resources to those issues as a priority matter.
    Finally, all of my colleagues have indicated that they 
anticipate challenges in terms of how we meet our oversight 
responsibilities, and these challenges can range from the very 
basic challenge of hiring up and recruiting quickly--with our 
new stimulus oversight funds, we need to recruit more people; 
that takes some time and effort--to balancing our normal 
oversight work with other mandated work, and addressing our 
stimulus responsibilities in a way that we can handle all of 
the things that we need to do, and do them responsibly.
    We also anticipate some issues with respect to data 
matching. There may be ways to facilitate that process so that 
we can really identify fraud across agency lines. And I think 
that is an area for real exploration with the Congress as we 
move forward.
    So in closing I want to say that we are here to do our 
part. We recognize the need to move out quickly. We are moving 
out quickly. We look forward to working with you as you 
identify issues for us to look at.
    Thank you very much.
    Chairman Lieberman. Thank you, Ms. Fong. Another 
encouraging report.
    We will do 7-minute rounds of questioning. Let me pick up 
on the end of your testimony because the stimulus bill does 
give $250 million in additional funding for inspectors and 
auditors by the IGs. Do you have any sense of how many people 
that you need to hire or will want to hire pursuant to that 
appropriation?
    Ms. Fong. Well, the appropriation funds are made to each of 
the 23 IGs, and they vary in amount. I will say some IGs are 
getting at the low end of the spectrum perhaps $1 million or $2 
million.
    Chairman Lieberman. Which is for the 2 years.
    Ms. Fong. Exactly, for a short period.
    Chairman Lieberman. Right.
    Ms. Fong. And then at the higher end, there are some of us 
who are getting $22 million or $42 million.
    I can speak for myself. At USDA, we are getting about $22 
million. We are looking to hire between 20 and 30 auditors and 
10 and 20 investigators. We need some human resource assistance 
as well in order to staff up and to track our money. And we 
have already started our recruitment process. It does take some 
time and effort to do that.
    Chairman Lieberman. Yes. So you are beginning basically 
with the personnel that you have.
    Ms. Fong. Exactly right. And so what we find that we are 
doing is reallocating our audit and investigative resources, 
taking them off of work that is of lower priority and putting 
them on our stimulus work.
    Chairman Lieberman. Right. Mr. Dodaro, GAO received $25 
million, how are you going to use that money?
    Mr. Dodaro. We plan to hire up to about a hundred people. 
Now, the strategy that we have taken here is that we have a lot 
of former GAO people who have left the workforce, for example, 
to raise a family. So we have reached out to a lot of people 
who have left as well as retired GAO employees. We have already 
identified 65 people who are interested in returning to GAO. 
Some of them we have actually brought back.
    The advantage of this is the money that we have is only 
available until September 2010, so that you do not want to hire 
a large permanent number of people.
    Chairman Lieberman. Right.
    Mr. Dodaro. So we plan to fill about half, if not a little 
bit more of that, with people who have left GAO--and the other 
advantage is these are people that have already been trained by 
GAO. They can hit the ground running once we bring them back. 
This is also something the acquisition community ought to be 
thinking about doing to help themselves meet this need. But we 
are doing that, and we also have advertisements out that we 
have posted for additional help.
    Chairman Lieberman. Good.
    Mr. Dodaro. In the meantime, we are reallocating 
experienced people to get this up and running. It is important 
when we go into the States to have experienced people there.
    Chairman Lieberman. That is a great idea, a great way to do 
it.
    Mr. Nabors, let me talk a little bit about the pace of 
getting this money out there because obviously the speed of it 
is very important. We are trying to fill, as the President has 
said over and over again, this gap in demand that economists 
say may be $1 trillion a year for the next couple of years that 
is not coming from the private sector.
    What are our goals at this point? Let me start with this 
baseline question. As I recall in the debate here, in the 
Senate stimulus bill we raised the percentage of money that 
would be spent in the first 2 years, understanding that in 
nobody's vision of this could we spend it all within the 2 
years. And as I recall, we were close to about 80 percent in 
the first 2 years of the full stimulus money that would be 
spent.
    Mr. Nabors. As I remember it, the Congressional Budget 
Office (CBO) estimated that the House bill would spend 
approximately 60 to 65 percent of the funds within the first 18 
months.
    Chairman Lieberman. That is right.
    Mr. Nabors. And that the Senate bill would spend somewhere 
between 75 and 80 percent of those funds within the first 18 
months.
    Chairman Lieberman. Right. That was my recollection, too. 
So what are your goals from OMB about how much of this money 
you hope to have out in the economy--and we are talking about 
the spending side; I am going to get to the taxes in a minute--
in the first year?
    Mr. Nabors. I do not know that we actually have a 
particular goal in mind for a dollar amount that would go out 
in the first year. I think that what we are focused on, 
especially right now, is making sure that we have a planning 
process in place so that we are not just throwing money out the 
door, that we are taking the money that Congress has given us, 
and we are putting it into those areas that have the highest 
bang for the buck. And what you will see, especially in the 
next couple of months, are pretty significant and expedited 
planning processes within each of the agencies to lay the 
groundwork so that going into the future we have a baseline by 
which we can determine how money should be spent, and so that 
we can expedite that money going into the future.
    Chairman Lieberman. Am I correct that on the Recovery.gov 
Web site you are going to be regularly reporting how much money 
you have spent of this bill?
    Mr. Nabors. Yes, sir. We will be reporting not just the 
allocation of the funding, but the spending of the funding as 
it actually goes out.
    Chairman Lieberman. We are going to obviously keep in touch 
on this, but I would be interested, as you go on, to know what 
your goals are for how much of the money you hope to get out in 
the first year.
    Let me ask about the tax cuts now, the ``Make Work Pay'' 
tax cuts, the reduction of the payroll tax. How soon will 
taxpayers see that so that they will have a little more money 
which we hope they will spend?
    Mr. Nabors. I would want to defer to the Treasury 
Department, but I believe that they are planning to make that 
available on an expedited basis.
    Chairman Lieberman. OK. Let me go to a different part of 
this. This goes to fraud. I have two questions.
    US-CERT, which is the U.S. Computer Emergency Readiness 
Team in the Department of Homeland Security, over which we have 
oversight responsibility, recently reported that it received a 
bogus e-mail from scammers offering economic stimulus payments 
in an attempt to steal personal information from those who 
respond. I wonder if you had heard about that and what you 
think can be done to warn the public about fraud related to the 
stimulus package.
    Mr. Nabors. I have not heard about that. That causes me 
great concern, and I would want to go back and talk to--we have 
a daily conversation with each of the Cabinet agencies, and I 
think that this is the type of thing that we bring up to make 
sure that we have a common way of addressing these types of 
problems. Obviously, this needs to be dealt with quickly and 
forcefully to ensure that private information is not stolen.
    Chairman Lieberman. Let me ask a final question, because my 
time is running out, and I will come back on fraud.
    The President asked the Vice President to oversee this, so 
what is the organization chart? Because we have a lot of people 
involved. We have OMB, we have GAO, we have the IGs, we have 
the new Recovery Board with Mr. Devaney. Does the reporting all 
go up to the Vice President?
    Mr. Nabors. Well, the way I would view this is that I think 
it is important that the recovery oversight board and the IGs 
continue to be thought of as independent. I do not believe that 
they are actually reporting to the Vice President. They are 
reporting to the Congress; they are reporting to the American 
people; they are reporting to the Secretaries. And they are 
continuing to play the oversight role that Congress has 
identified for them.
    Within the Executive Branch, in terms of the management of 
the activities and programs, we thought it was important that, 
to the maximum extent possible, we were coordinated, that 
agencies were using best practices, that agencies were sharing 
information about things like contract practices and hiring 
practices. And the center point for that is the Vice President. 
The Vice President is the one that calls us all together.
    In terms of OMB's role, OMB will continue to play the role 
that it has traditionally played in both the management and 
budgetary functions.
    Chairman Lieberman. And you have special responsibility 
there for OMB, as I understand.
    Mr. Nabors. Well, the President has asked each agency to 
designate a single point of contact to ensure that there is 
clear accountability within each agency. Within OMB, I have 
been designated as the point of contact.
    Chairman Lieberman. All right. That is very helpful. So the 
Vice President and OMB are basically overseeing the 
implementation of the stimulus, carrying out of the stimulus 
act, and the IGs and GAO with the board are doing independent 
oversight to make sure that the money is being spent 
efficiently and without fraud.
    Mr. Nabors. And in a perfect world, the two pieces are not 
stovepiped.
    Chairman Lieberman. Right.
    Mr. Nabors. From our perspective, trying to weed out waste, 
fraud, and abuse before it actually occurs is incredibly 
important. It is great to catch the bad guys later, but 
ensuring that the bad guys do not get the money in the first 
place is incredibly important, and that is why we have had the 
initial conversations with GAO, Mr. Devaney, and the IGs ahead 
of time.
    Chairman Lieberman. Good. Mr. Dodaro, I know you want to 
say something, but I have a lot of Committee Members here, and 
I am over my time limit. So I am going to yield to Senator 
Collins.
    Senator Collins. Thank you.
    Mr. Nabors, following up on the statement that you have 
just made, there is a tension between spending the stimulus 
money quickly and ensuring that safeguards to protect against 
fraud and waste are not suspended. When the government has 
attempted to distribute funds quickly in the past, we have seen 
corners cut and protections suspended that have led to 
widespread fraud. The best example which this Committee 
uncovered was almost $1 billion in improper and in some cases 
fraudulent payments that were made to applicants for assistance 
in the wake of Hurricane Katrina.
    What is OMB doing to ensure that proper controls remain in 
place despite the need to disburse the stimulus money quickly? 
What we found in the wake of Hurricane Katrina is that the 
Federal Emergency Management Agency (FEMA), in an attempt to 
get the money out to the victims of the storm quickly, 
suspended all of the internal controls that would have caught 
applicants that had applied twice, that did not qualify for 
funding, and in some cases did not live at the addresses that 
they claimed. That led to literally $1 billion in improper 
payments. How are you going to prevent that this time?
    Mr. Nabors. Well, I think that there are three things that 
we are focused on doing. The first, OMB sent out very detailed 
guidance to the agencies, almost 60 pages worth of guidance, 
and rather than suspending the normal controls, we actually 
used the opportunity of sending out the guidance to remind 
people of the controls that are in place and to remind them of 
the fact that those controls are in place for a reason--to 
protect the taxpayers. So as we put out more and more guidance 
those are the types of things that you will see. Rather than 
suspending the controls, we are actually reminding people not 
to suspend the controls.
    The second thing is transparency. Both through Recovery.gov 
and through reporting mechanisms to Congress and to others, we 
are ensuring unprecedented transparency from the very beginning 
of the recovery efforts to make sure that we are not in the 
position 3 months from now where we are asking questions about 
where the money went.
    The third thing that we are doing is we are putting in 
place very strong planning and reporting processes where the 
agencies are not just being asked to put out money, but we are 
asking them to stop for just a brief period of time and think 
about what are the most effective actions that they could take. 
And in some instances, those plans will be submitted to the 
Congress for consultation. In other areas, we will be having 
informal consultations with the Congress. But I think the more 
people who can be involved in the types of conversations that 
we need to have about how the money is going out and where the 
money is going out, that will help.
    And I think the final thing that I would point to is 
accountability. By putting this information on its web page, on 
Recovery.gov, by identifying a single point in each agency, we 
are essentially saying--and I am speaking for myself as one of 
those people--I am responsible for the actions that OMB take. 
And when Congress has a problem, when the American people have 
a problem with actions that have been taken, I am the one that 
is going to be accountable for that. And I think that 
combination of activities will help to get at the issues that 
you have raised.
    Senator Collins. Thank you.
    Mr. Dodaro, the large omnibus appropriations bill that is 
now before the Senate contains substantial funding increases 
for many of the same agencies and programs that already are 
receiving huge funding increases in the stimulus bill. I think 
it is extremely unfortunate that the omnibus bill has not been 
revised to take into account the recently appropriated funds in 
the stimulus bill. That is particularly true for agencies such 
as the National Endowment for the Arts, the Census, AmeriCorps, 
and the Department of Agriculture computer upgrades.
    Does GAO have concerns that this additional funding, which 
may well be duplicative and may exceed the entire budget of the 
agency the year before, will increase the difficulty of 
ensuring that the funds are spent carefully and well?
    Mr. Dodaro. We have not been asked to address that issue, 
so we really have not done the type of analysis to make the 
comparisons that you cite, Senator Collins. So I am really not 
in a position to comment on the omnibus as it relates to your 
questions--we have been focused on the Recovery Act.
    But I would say that to the extent to which there can be 
some flexibilities built into the money that would be 
beneficial--most of that money is to complete the funding for 
this fiscal year that we are currently in. The continuing 
resolution expires March 6, 2009, and I know that because GAO 
is one of the entities under the continuing resolution. But I 
would say--and this relates to the Recovery Act as well as the 
omnibus--that I think there ought to be some flexibility to 
maybe shift some of the time frames for when the money is spent 
to allow for the type of examination that you are talking 
about, even if we are talking about some of the balancing 
between spending quickly and spending wisely. And I think there 
are some provisions in the bill that if States do not spend 
money, certain money like in the transportation area, within 
120 days, that money gets reallocated to other States.
    So I think this is something that needs to be monitored 
carefully, and there ought to be some flexibility built in to 
make sure that when those two choices are there, ``wisely'' is 
equal weight to ``quickly.''
    Senator Collins. Thank you. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins.
    We will now go to Members of the Committee. I appreciate 
the attendance. We do so, as is our custom, in order of 
appearance. For the information of the Members, the list I have 
is Senators Burris, Voinovich, Tester, McCain, and McCaskill.
    Senator Burris.

              OPENING STATEMENT OF SENATOR BURRIS

    Senator Burris. Thank you, Mr. Chairman, and I would like 
to thank the panel.
    Because, as you know, I am an old State auditor, State 
comptroller, and a member of the National Association of State 
Auditors, Comptrollers, and Treasurers (NASACT). I am glad to 
see that you are involving the NASACT in that, Mr. Dodaro. That 
is a great organization for dealing with what we can do on the 
State level.
    But, every day I receive calls in my office from 
constituents wanting more information on the Recovery Act and 
how those dollars are going to be spent. And after reading your 
testimony last night, I have a better idea how it will be 
disbursed and also great confidence in the transparency, 
accountability, and the oversight provisions. OMB, GAO, and the 
IGs, such as Ms. Fong, you set the bar very high. I just hope 
and pray that we will be able to execute on that bar that we 
have set.
    I wonder if you, Mr. Nabors, could just give me a walk-
through example. If you send to our Department of 
Transportation (DOT) in the State of Illinois, let us say, $2 
billion for construction or for highway programs, I know how 
the money flows in the regular program. What is different now 
with the Recovery Act funds that are going to come in as 
opposed to the other funds that will be coming in for our 
highway construction, for example?
    Mr. Nabors. Well, I will answer that in two ways. In one 
way, there is not a lot that is different. It is coming through 
the same programs to the same people. In a separate way, 
though, there has been a higher level of scrutiny that has been 
placed on Recovery Act funds than had been placed on normally 
appropriated funds. Within the Executive Branch, we have 
created separate Treasury accounts for Recovery Act money to 
better allow us to track how that specific amount of money is 
being followed. And I think that in terms of the types of 
conversations that you will hear from the President and from 
other members of the Administration, I think that you should 
expect to hear a greater desire about how those funds are going 
to be spent.
    Normally, the transportation money, for example, goes to 
the States, and the States have a great deal of flexibility as 
to how they spend that money. I think that you will hear the 
Administration talking about not just getting the money out but 
recommendations and suggestions on how that money can be most 
effectively spent.
    Senator Burris. Now, will there be some type of extra sign-
off on these particular funds in any way? Or would that 
procedure still be the same?
    Mr. Nabors. There are special reporting procedures and 
certification procedures that are set out in the Act, which we 
are working with the governors and the State and local 
officials to clarify. But, yes, there are special sign-off 
procedures related to making that money available.
    Senator Burris. Perhaps Ms. Fong or Mr. Dodaro can answer 
this question, but will we be able to track that once those 
sign-offs are done? Will there be any up-front assessments in 
the State agencies or the cities or the municipalities where 
these funds will end up? Let us say it is a water project that 
is under the Recovery Act. Will there be any advance looking at 
that project by any of our governmental agencies, or will that 
all be certified by the local, State, or municipality that 
received those funds?
    Mr. Dodaro. For the States and localities that we will be 
visiting, Senator Burris, we will be looking at that process 
that they use to make those decisions. Now, it would be 
inappropriate for us to insert ourselves as independent 
auditors before the management makes the decisions. But once 
those decisions are made that will be something that we will be 
reviewing. We will also be talking to the State auditors and 
the local auditors about their work with regard to those 
issues. But that will be our goal in tracking the uses of the 
funds going forward.
    Senator Burris. I am trying to get at the fraud or abuse of 
the funds, whether or not that project really was a worthy 
recovery type of project. And in hindsight, let us say we spent 
$15 million on that sewer treatment plant and it was really 
determined that this was something that was probably not needed 
by the municipality, will we run into something like that, or 
is that what you will give some type of report on after it is 
done?
    Mr. Dodaro. Well, we will try to track that real-time as 
those decisions are made. I think the other really unique 
feature of this whole thing is that from my understanding, once 
these projects are awarded, they are to be posted on Web sites 
by the States and localities so that they would be visible to a 
lot of people. We can look at the justifications that are 
there. I think it is a potentially very good development that 
this level of transparency will be there, and I think that is a 
unique aspect of this.
    On some of these issues, you will be able to perhaps look 
at the justification and raise some questions. On the other 
hand, it may be a management prerogative or a decision for 
which discretion is given to the State and local officials, and 
we will have to take all those things into account.
    Senator Burris. Perhaps this is the most important question 
in this hearing today. How can the Committee and the Congress 
as a whole aid in your efforts to implement the Recovery Act? 
The onus is on all of us to work together and get this done 
right. So what can we do to make sure that you all were able to 
implement it? Mr. Nabors, I think that would fall in your 
bailiwick, right?
    Mr. Nabors. Well, I think that the most important thing 
that Congress can do is hold these types of hearings, hold us 
accountable, make us bring the facts to light so that you have 
the opportunity to do what Congress does, which is to both 
legislate and provide oversight of Executive Branch activities.
    I think that we will be most successful when all of the 
information about what we are doing is public, and only when we 
do that will the public regain confidence in its government.
    Mr. Dodaro. I would just add to that, that I agree the 
oversight by the Congress is pivotal here, I would encourage 
the Congress to conduct oversight of the individual departments 
and agencies and really let the departments and agencies know 
that the Congress is very interested and concerned about what 
they are doing.
    Senator Burris. Because we cannot make any mistakes here. 
This is our last shot at the public coming down on us.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Burris. Senator 
Voinovich.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Mr. Chairman.
    I have never seen such anxiety in this country as I do 
today. We need to restore people's faith in the future, restore 
our credit markets, restore our housing values, deal with the 
human needs that are there that we are experiencing and will be 
experiencing, and last but not least, create jobs. We are 
looking for something to happen relatively fast to kind of turn 
this thing around so people are starting to say we have a 
future, start spending some money, and we are moving in the 
other direction.
    We have a human capital crisis--Mr. Dodaro, in many of the 
agencies. I am really pleased to hear what you are doing. You 
have some flexibilities, I think, to hire back annuitants in 
your department. Ms. Fong, does the inspector general have 
similar authority?
    Ms. Fong. We cannot do it directly. We need to get waivers 
of the dual compensation provisions from the Office of 
Personnel Management (OPM).
    Senator Voinovich. Go back to OPM and get it.
    Ms. Fong. Exactly.
    Senator Voinovich. Mr. Nabors, you are talking about your 
great people back in your shop. How many people are you going 
to have to hire so you can do the job that you traditionally do 
at OMB and take care of all these things that you just talked 
to us about? I am concerned about that. I am also concerned 
about the use of the flexibilities. If you have looked, Mr. 
Nabors--and I suspect that you have--at what agencies are going 
to need additional people? What kinds of people are they going 
to need? Do we have the flexibilities to bring these people on 
in a timely manner?
    It is the human capital part of this, I think, that is 
really important.
    Second is how fast you get the money out on the street, and 
you mentioned the States are involved. I think you will find 
around the country that you have State legislators that are 
involved right now deciding who is going to get the money and 
how is it going to be put out on the street. And I think unless 
you, on the national level, through OMB, or through other 
agencies, basically say to folks, look, get it on the street--
and they have 18 months. But we really need to move very 
quickly to get the job done.
    I would like all of your comments about where are we with 
human capital. Do we have the flexibilities? What are we doing 
to reach out to the States? Mr. Dodaro, you said you are going 
to 16 States. What are they doing to get the money out on the 
street? How do you push the governors? How do you get a letter 
to the legislators saying, hey, we gave you a bunch of money 
and we expect you to start to move it.
    I would like your comments about those two areas.
    Mr. Dodaro. I will go first. On the human capital crisis 
situation, I think you are exactly right, Senator Voinovich. My 
suggestion would be--and the OMB guidance talks about the 
flexibilities for the acquisition workforce--that they do have 
the ability to bring back retired annuitants and experienced 
people. So I would hope that the agencies exercise that 
flexibility.
    However, I do believe that in this type of emergency 
situation, OPM ought to consider some blanket authority or 
waiver to allow more flexibility to----
    Senator Voinovich. Mr. Nabors, have you talked to OPM about 
that? Have you done an inventory of all the departments and 
what they are going to need?
    Mr. Nabors. We have started our conversation with OPM, and 
we are looking at the authority that currently exists, things 
like rehiring annuitants, using direct hire authority, and 
veteran's preference. What we are trying to do is to come up 
with the universe of authorities that exist right now, see how 
successful we can be using those authorities, and then go from 
there to what additional authorities might be necessary.
    Mr. Dodaro. Because this is one area that I had suggested 
back in the Year 2000 (Y2K) computing crisis, and they gave a 
blanket authority because a lot of the COBOL planners had 
retired that wrote the original code and they brought them 
back. So I think this is very effective.
    If each agency has to go individually to OPM to get the 
authority, it is going to take too long for this period of 
time. So I am encouraged to hear that they are outreaching. So 
I would say that would be issue No. 1, because those people can 
come back right away. They are not concerned about the time 
frames here. It fits within the ability to be able to do that. 
So I would say that is very important.
    We will be working with the States. We expect to be in the 
States this month. We will be talking to them about their 
processes.
    Senator Voinovich. Mr. Nabors, are you aware of what is 
going on out there?
    Mr. Nabors. In the States?
    Senator Voinovich. Yes.
    Mr. Nabors. Yes, I get calls from mayors and governors just 
about every day.
    Senator Voinovich. It is just the whole issue of 
prioritization. In Ohio, we have $2.7 billion worth of highway 
projects that are shovel-ready, but we only have $1 billion 
available in stimulus funds. The question is which billion do 
you select. Or sewer and water, Ohio will receive $247 million, 
but we have a $6 billion need. By the time they figure it out, 
it could be too late.
    Mr. Nabors. While trying to be respectful of State and 
local processes as they make decisions about which projects 
need to go forward, we are emphasizing in all of our 
conversations that the money does need to be spent. In certain 
instances, Congress has actually written in requirements that 
if you do not spend the money, Congress will take it back and 
reallocate it.
    That has both a plus and a minus. One of the fears that I 
have is that incentives like that may lead to some questionable 
projects being funded simply to make sure that the money does 
not go back. But we will continue to work through the processes 
with the flexibilities that we have.
    Senator Voinovich. If it was not for the money they got 
there, a lot of them would be in terrible shape. So I think we 
have a little hammer on them.
    We have all kinds of reports. We have reports that OMB is 
going to, every 2 weeks, ask people for reports, or every week? 
Then you have the inspector general. Then you have Mr. Dodaro 
doing his thing. This group, that group, and everything else. 
[Laughter.]
    I am just wondering, is everybody going to be doing the 
reports? Who is going to be doing the work?
    Mr. Dodaro. Right. Well, I can speak at this from a couple 
different perspectives. First, like the TARP program, where we 
have to report every 60 days, we have these bi-monthly reviews. 
We will be able to meet our requirements. We will be doing the 
audit work. We will be out in the field. The unique perspective 
that we will bring is looking at the State and local sector 
across all the Federal programs and the flow of funds. So our 
reporting under this particular act will be unique in that 
respect, and we will have people out doing all the audit work. 
I am not concerned about that, Senator, really.
    Senator Voinovich. Mr. Nabors, you ought to do an inventory 
of how many reports everybody is going to have to do.
    Mr. Nabors. A lot.
    Senator Voinovich. And find out, does this make sense, 
because particularly in the first 6 months with people getting 
started, finding out how to do things, and then they are 
filling out all these reports. Do they want us to do this or 
are they more interested in the reports?
    Mr. Nabors. Well, I think what I would offer at this moment 
in time is that what we are doing is unprecedented, and I think 
we appreciate the amount of attention that people are paying to 
oversight at this moment in time. We will get better at this as 
we go through, and we will come up with streamlined procedures, 
best practices that our first weekly reports were due this 
week. I think we have 23 out of the 25 agencies that have 
reported, which is fantastic. As we get better at these 
reports, hopefully it will be less of a burden on the agencies.
    Ms. Fong. May I offer a comment on the reporting? Just from 
the IG perspective, we are looking to not spend a lot of time 
putting together our formal, traditional audit reports, but to 
actually get in there and give agencies our advice and our 
recommendations in as quick a fashion as possible. So you will 
see fewer traditional IG reports, but hopefully you will see 
more advice and helpful recommendations coming out.
    Senator Voinovich. Great.
    Chairman Lieberman. Thanks, Senator Voinovich. And you are 
right. We reacted in this emergency with an unprecedented 
spending program and a pressure to spend it quickly. But we are 
all concerned, as the public is, that there is a risk it can be 
spent inefficiently and even fraudulently. So we create these 
layers of oversight, but then we have to make sure that the 
layers are well and efficiently implemented. That is part of 
what we want to do by regular public hearings, and I know it is 
what the three of you want to do as well. Thank you.
    Senator Tester.

              OPENING STATEMENT OF SENATOR TESTER

    Senator Tester. Thank you, Mr. Chairman. I want to thank 
the folks for testifying today.
    I think each of you, maybe with the exception of Mr. 
Nabors, talked about reaching full staffing and hiring a bunch 
of people. When do you think full staffing will be achieved, 
Ms. Fong?
    Ms. Fong. Well, we are aiming to have most of our staff on 
board by the end of the fiscal year, and that is reality. Now, 
we will be looking to try and get some waivers through OPM on 
the re-employed annuitant issue, and that will allow us to 
bring people on much faster. So if we can get that done, we 
will be able to do it sooner.
    Senator Tester. Mr. Dodaro.
    Mr. Dodaro. By the end of the fiscal year.
    Senator Tester. Are you doing any oversight right now? I 
mean, the money is just starting to flow out at this point in 
time, which is commendable. I commend the President for that. 
Is there any oversight going on right now of expenditures?
    Mr. Dodaro. Well, since our focus is on the State and local 
level, we will be in the States. We have not been to the States 
yet, or localities. We will be there this month. We needed to 
wait until they received the money and made some decisions on 
how they were going to use it. We did not want to show up 
prematurely.
    Senator Tester. No.
    Mr. Dodaro. For reasons that we talked about.
    Senator Tester. Right.
    Mr. Dodaro. But we are going to be there this month, and 
our first report is due next month.
    Senator Tester. Ms. Fong.
    Ms. Fong. Yes, I can speak from my experience at USDA. We 
are actually issuing audit reports this month on a couple of 
programs that are receiving stimulus funding, in particular, 
the broadband program. And there will be some very specific 
recommendations to those managers.
    Senator Tester. Along those lines, as things unfold here, 
how much are you depending on the States for their oversight 
functions?
    Mr. Dodaro. Well, as I mentioned, I have talked to State 
auditors and local auditors, so what we are going to do is see 
what they are doing.
    Senator Tester. OK.
    Mr. Dodaro. And we will rely on that, first for the 
coordination issue, not just at the Federal level. It is also 
at the State and local levels.
    Senator Tester. Absolutely.
    Mr. Dodaro. And I am committed to build on what they have 
done.
    Senator Tester. So in a time of tough budgets, as Senator 
Voinovich talked about, I can tell you that one of the things 
that States will probably be cutting out is staffing, and some 
of that staffing may be in the area of oversight. How are you 
going to deal with it? We are talking about 16 months, assuming 
80 percent of this money goes out--which, by the way, I applaud 
that for good projects. How are you going to know if the States 
are doing their job?
    Mr. Dodaro. Well, from our standpoint, we are going to get 
out in the field. I have senior GAO leadership for each State. 
We are going to have a team. We are going to be there. That is 
why I wanted to stay with the 16 States for a period of time, 
Senator, so we could figure it out. If you are popping in and 
out, you are not going to be able to do it.
    Senator Tester. OK.
    Ms. Fong. With respect to USDA, we have the Food Stamp 
Program, which receives massive amounts of money, and it 
transfers it right down to the States.
    Senator Tester. That is correct.
    Ms. Fong. And then it gets put out to individuals. We have 
always worked very closely with the State governments to 
oversee that program to make sure that eligible people get 
money, ineligible people do not get it. We are ramping up our 
efforts to intensify our collaboration with the State and local 
officials, and we will do more with them.
    Senator Tester. All right. There are some great measures 
taken in this whole thing, and I commend you all in the work 
you are doing, and I will get to that in a minute. But one of 
the things that I think occurs to everybody in this position as 
we put that bill through to stimulate the economy, create jobs, 
and build infrastructure is what happens to the people who get 
money and do not spend it correctly and you are paying for a 
backhoe that is idling in somebody's yard instead of digging a 
trench to put in a water line? You have allocated the money. 
The money has been spent. The contractor has it. They did not 
do the job as planned. You guys know it. What do you do?
    Mr. Dodaro. Well, the first thing you do is report it and 
make sure that it is visible. And depending upon the nature of 
the offense there are potential remedies. But I think 
transparency is the real key here, to raise it up to the proper 
authorities to----
    Senator Tester. I agree. What are the remedies?
    Mr. Dodaro. Well, you have clear remedies if there is----
    Senator Tester. What is the range of remedy?
    Mr. Dodaro. Well, there is a range--from fraud, if there is 
fraud, there is a normal process for those type of penalties. 
The other types of penalties would have to flow from whatever 
the State or local response would be in this particular case, 
or the Federal level recourse for getting reimbursement. It 
depends on the grant provisions and the contract provisions. 
That is why it is important to have those spelled out so you 
can take action.
    Senator Tester. All right. You have talked about guidance; 
you have talked about making the controls evident; you have 
talked about transparency and accountability. All that is good 
stuff, by the way. It is all really good stuff. I assume each 
one of you have probably been with your individual department 
for a number of years. You just did not come in the first of 
the year. You have probably been there awhile?
    Mr. Nabors. I have been at OMB since January 20.
    Senator Tester. OK. So I was wrong. [Laughter.]
    Mr. Dodaro. I have been at GAO for 36 years.
    Senator Tester. OK. Well, you make up----
    Mr. Dodaro. I am settling in.
    Mr. Nabors. We average together 18 years.
    Senator Tester. Yes, 18 years apiece.
    Ms. Fong. And I am in the middle. I have been at USDA 6 
years.
    Senator Tester. Well, these things that you are doing, it 
is great stuff. Especially when you talk about what happened 
with Hurricane Katrina, and what has happened in Iraq with some 
of the spending there. Why isn't this just standard operating 
procedure? And do you anticipate it being standard operating 
procedure from this time forward? Or do you think at the end of 
this 24-month period that you are going to be cutting a bunch 
of people loose and you are going to go back to the way things 
used to be? Oversight of money is critically important. People 
are always talking about government waste, and there is waste 
in the private sector, too. But government waste is tax 
dollars. Do you anticipate your jobs changing going into the 
future because of this?
    Mr. Nabors. From OMB's perspective, I think that before 
Recovery.gov was stood up, we had USAspending.gov, and I know 
that there has been some frustration as to the financial 
reporting that has been put on there. I think that we are using 
Recovery.gov to test-drive a number of different concepts that 
we have, and I think just in that one narrow area, if we are 
successful in terms of making money transparent, that type of 
thing will filter over into other activities.
    Senator Tester. So you do not see it as much as manpower, 
more transparency?
    Mr. Nabors. I think manpower will be important, but 
transparency is going to be important as well.
    Senator Tester. Mr. Dodaro.
    Mr. Dodaro. I am hopeful that the attention being given to 
this issue right now will transform itself into more 
fundamental changes and better management. You need more people 
to manage these contracts and grants if you are going to 
eliminate waste. We face an ominous Federal budget situation 
going forward. It is not just this situation.
    Senator Tester. I hear you.
    Mr. Dodaro. We have a long road to travel together in this 
area, and better management is essential.
    Senator Tester. Ms. Fong.
    Ms. Fong. I would say that the techniques and the work that 
we are bringing to bear on this issue are not drastically 
different from what we normally do in our oversight of agency 
programs. But what has changed is the intensity and the time 
critical of the issue. And I think that urgency is what really 
makes this unique.
    Senator Tester. Well, I thank you very much for testifying 
today. Thank you very much.
    Chairman Lieberman. Thanks, Senator Tester. Excellent 
questions. Senator McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you. I do not know where to start.
    Let me start with the Single Audits. It seems to me that we 
ought to figure out a way to wipe out A-133 Compliance 
Supplements for the next 2 years and require every Single Audit 
to be completely about this money, and I wanted to get your 
response to that idea. For the record, the Single Audit is a 
required audit that States must do for Federal money.
    Now, knowing the folks that do Single Audits, they get 
tired of looking at the same programs every year. I think the 
auditing community at the State level would be thrilled to 
accept this challenge, because--and it would be just for the 2 
or 3 years that we are tracking this money. Frankly, most of 
the oversight and controls are in place for most of the Federal 
programs they audit every year. They may find a little bit of 
problem with a reconciliation, or maybe they may find a problem 
in the child support program or some of the other Federal 
programs. But this is a huge enchilada that has been put on 
their plate, and it seems to me we could unleash all of those 
State auditors that know about how to audit Federal money to do 
nothing but these funds on an emergency basis for the next 2 or 
3 years.
    Now, first of all, what do you think of the idea? And, 
second of all, what would it take for us to legally require 
that?
    Mr. Dodaro. First of all, I think it is an excellent idea. 
If something does not change with the Single Audit procedures, 
it is too little too late going forward. And bringing the State 
audit community in earlier, the local audit community--I had 
mentioned in my opening statement I have already outreached to 
them, to try to engage them to help GAO coordinate with what we 
are going to do.
    I think you could implement what you suggested. But I do 
not know if OMB has the authority to do that administratively. 
They can change the A-133 Compliance Supplement. You are 
talking about a radical change, which I would endorse. I think 
it is a really good idea. The only amendment I would make is to 
require internal control testing now and not wait until the end 
of the year with the Single Audit.
    But I think they have the capabilities. They have already 
asked and talked to me about funding. They will need some 
support. But the normal support that they receive, I think, 
should be sufficient if you change the requirements.
    Senator McCaskill. Yes. I mean, you would not need any 
additional personnel--they have the staff in place. In fact, we 
are beginning the Single Audit season as we speak.
    Mr. Dodaro. Right.
    Senator McCaskill. The teams in every State are right now 
looking at A-133, figuring out which programs they need to look 
at. They are doing their scopes. They are doing their plans. 
And why could we not just say we are going to tell you to 
forget about A-133, we want you this year in the Single Audit 
to look at the controls that are in place for this money that 
is coming, and next year in the Single Audit we want you to 
evaluate those controls and how they are working. It would be a 
perfect way, without spending any extra money, for us to look 
at an unprecedented amount of money that is flowing quickly 
into the States. And if we had to amend a law to do that, I 
think we could probably get that done. I think we could 
probably get both sides of the aisle to agree to something like 
this that we could quickly do. And I think that the State audit 
community would embrace it because they would like to be 
challenged in this regard. At least I know the line auditors 
would, because they are sick of doing the same old Single Audit 
every year that nobody pays any attention to. They would like 
to do a Single Audit that somebody reads.
    Mr. Dodaro. I think it is a great idea.
    Ms. Fong. I think from our perspective it is a great idea, 
and I would love to have some time to think about it and give 
you some comments on that.
    Senator McCaskill. Well, if you guys would, and I would 
particularly like, Mr. Nabors, for you and the team at OMB to 
think about that. I know if we try to change A-133, trust me, I 
know it will not get changed until 7 years from now. I mean, 
the notion that we could do this by making announcements about 
A-133, that we are going to change it, and then taking 
comments, and then somebody is going to write it awhile, and 
then somebody is going to look at it awhile, and before you 
know it, we will change A-133 to audit these recovery funds, 
right about the time they are all gone. So it would take the 
government doing something we do not do very well.
    Now, we just did something pretty bold. It seems to me that 
we could be just as bold with oversight as we have been with 
spending the public's money. And it seems to me they need to go 
together. So I would hope that the Administration would take a 
serious look at this, and if you all could maybe--Mr. Dodaro, 
if you would reach out to the State auditing community and get 
their response, I would be shocked if it was not positive.
    Mr. Dodaro. I would too. But I will do that.
    Senator McCaskill. All right. Let us see if we cannot get 
that done.
    Mr. Dodaro. OK.
    Senator McCaskill. The second thing is I am a little 
confused about the Web site. I do not believe the Web site 
belongs with the Recovery Board. I think that is a huge job for 
a temporary group of folks. I think it belongs at OMB. That is 
where the data is. I had an amendment to do that, and we did 
not get it done. But I think OMB needs to really stay hooked up 
on this Web site because it is unrealistic that this board is 
going to be able to do what we have advertised that this Web 
site is supposed to do. And, specifically, I want to talk about 
the detailed guidance you guys gave to reporting requirements.
    On page 14 and 15 of the OMB's guidance document for the 
Recovery Act, dated February 18, 2009, I am a little confused 
because it seems to indicate that the only recipients that need 
to report is, in fact, the prime recipient. What it says is 
``prime recipients.'' Now, obviously the agencies have to 
report, but I am talking about the money that is going to the 
State.
    What the guidance says, which is very troubling, is if the 
State A gives the money to City B, who hires a contractor to 
build a bridge, and then hired a subcontractor to supply the 
concrete, OMB is telling the State that all State A has to do 
is report the sub-grant to City B. But City B has no 
requirement to report anything.
    Mr. Nabors. Right.
    Senator McCaskill. So how do we get to the contracts?
    Mr. Nabors. Well, I think that in putting out the guidance, 
one of our chief concerns was reporting burden with regard to 
small businesses. We have a strong desire to get to the very 
last contract, if at all possible. But one of the things in the 
quick timetable that we were looking at, both with the 
legislation and putting the guidance out, was that we could not 
have a system or a structure in place that would sufficiently 
reduce the burden on small business or perhaps individual 
contractors in such a way that it would not be overly 
burdensome.
    As we are going through the guidance process, this is the 
type of thing that we will be looking at, though. This will 
always be a tension. How far can we drill down into the data? 
And I think our commitment is to drill down just as far as we 
can possibly get.
    Mr. Dodaro. I would just add, this sub-recipient issue has 
been a nettlesome one for a long time. I think this would be a 
good pilot exercise, before the money disappears. You could set 
some thresholds on this so you are not reporting things below a 
certain level.
    Senator McCaskill. Well, the law has a $500,000 threshold.
    Mr. Dodaro. Right. You need to have this information if you 
are going to properly track this.
    Senator McCaskill. I have to tell you the truth. If a city 
in my State gets $5 million to build a bridge, and that is all 
we know, I tell you, that city is going to be bothered because 
my staff is going to be calling them and wanting to know--they 
are not even required to say whether they competitively bid it.
    I just think this guidance does not match what we have 
advertised. And I get the reporting requirements are tough, and 
maybe there are ways that we can streamline that. But if we are 
actually saying that all the money going to the State, all the 
State has to do is say what city got it or what program got it 
and that is it, I do not think we get to competitiveness; I do 
not think we get to the issues that many of us have staked our 
reputation on that we are going to try to do this. And to start 
at the very beginning and say you do not even have to report 
who got the money in terms of the contract, I think that is 
problematic.
    So I would ask you guys to take a look at that. I know this 
is not final guidance. I know this all came really quickly. But 
I would ask you to take a look at that, and I will save my 
other stuff for the next round. Thank you.
    Chairman Lieberman. Thanks, Senator McCaskill. I was just 
thinking that in the U.S. Marine Corps they say once you are a 
marine, there are no ex-marines. So I think in your case, once 
you are an auditor, there are no ex-auditors. [Laughter.]
    Thanks very much. You really make a contribution to the 
Committee. We will do a second round as long as Members want to 
have another 7-minute round.
    Incidentally, I will say with regard to one of the 
questions you asked, at a staff level there were some very 
preliminary discussions with Mr. Devaney, and I think it is 
fair to say that he understands that the law says that the 
board has the primary responsibility for the Recovery.gov Web 
site, and a lot of their money will be used to staff that up. 
But OMB has started it, and I think he envisions a cooperative 
relationship between the two. But I am sure you all will work 
that out as it goes on.
    Let me focus in on this question of fraud. I mentioned 
earlier that the Department of Homeland Security (DHS) Computer 
Emergency Readiness Team had found out about scammers offering 
economic stimulus payments fraudulently in an attempt to steal 
personal data information from those who respond. Human nature 
unfortunately tells us when you have this much money out there, 
quickly being spent, in one or another way people are going to 
try to take advantage of it and rip off the money.
    What are the standard moves that you make as inspectors 
general at GAO, to try to ferret that out? Because this is 
going to be a lot of money going out to a lot of people pretty 
quickly. And obviously we have the whistleblower protections 
here, so you hope that will help with people involved directly 
in the public and private sector. But do you do random checks? 
Do you use undercover people? How are we going to work to 
prevent fraud in the use of this money?
    Ms. Fong. Let me take a first crack at that.
    Chairman Lieberman. Go ahead.
    Ms. Fong. We are aware of a similar situation that occurred 
in one of the departments--I think it was the Small Business 
Administration (SBA), actually--where there was someone in the 
public who was attempting to hold themselves out as an SBA 
official, and they were trying to get personally identifiable 
information (PII). The IG became aware of it and worked with 
the administrator of the agency. They squashed the fraudulent 
bulletin. They went out and issued releases to the public, and 
also to their recipients of funds, saying, ``If you are 
contacted by anybody holding themselves out to be a Federal 
official saying `Send in your PII information,' do not do it.'' 
They have also issued some public information notices, and most 
importantly, they have notified all the rest of the IG 
community that these scams are going on.
    And so what we are doing in our own departments is going 
out to our officials and saying, ``Hey, this went on at SBA, it 
could happen with us, we need all of you to be aware of these 
potential scams, please let us know when you see them, and then 
we will pursue it through all of our prosecutorial means.''
    Chairman Lieberman. Well, that is good. And, of course, we 
hope even by mentioning it here today that people will be on 
notice. But go beyond that. I just happened to mention that 
because I heard about it.
    One of the worries that I have with all the money going out 
so quickly is--and this is a subtle kind of fraud, but it is a 
fraud--that we will end up being overcharged by various 
contractors who will be getting stimulus funding. We should not 
allow ourselves to be overcharged.
    Mr. Dodaro. Yes, there are at least two issues in addition 
to the awareness feature that Ms. Fong talks about, which is 
very important. One is to look at the design of the controls 
for the program up front or the testing of the eligibility 
requirements. Are they verifying with other data sources up 
front?
    But we also plan to do proactive testing whereby we would 
use undercover identities. We would test the system. The $1 
billion that Senator Collins mentioned in the FEMA program and 
Hurricane Katrina was a result of our people doing a 
statistical sample and then projecting from that using 
identities to test the system to make sure that people who are 
not eligible were not receiving benefits--or even testing 
whether or not you can receive a provider status under the 
Medicaid program and not have a real entity.
    So we plan to do targeted testing up front to try to test 
these systems, but you also look at the design and the 
controls.
    Chairman Lieberman. Ms. Fong, do you want to add anything? 
I know you spoke first about the kind of consumer scam, but 
from the IG perspective, what else can we expect the IGs to do 
to try to ferret out fraud here?
    Ms. Fong. Well, one of the things that we are doing at USDA 
is building up our data capacity, and what I mean by that is we 
are starting to go to the agencies and looking at the data 
coming in on program monies and participants to identify 
anomalies in that data, which is sort of an early-warning 
system for us.
    When we identify situations like that, we can then go out--
--
    Chairman Lieberman. Excuse me. What kind of anomalies, for 
instance?
    Ms. Fong. Well, for example, if benefits are being passed 
out through one of our programs--and we notice in some of the 
data fields that there are a number of indicators that perhaps 
some people should not be getting these benefits, for whatever 
reason. It depends on the eligibility criteria.
    Chairman Lieberman. Right.
    Ms. Fong. Then we would be able to take that data, go out 
and do some testing, do some undercover work if we need to do 
that, which is a traditional tool that we use quite a bit at 
USDA, and start working with the program managers to say, 
``Hey, you need to be looking out for these red flags, go after 
these red flags, and we will pursue individual cases as well.''
    Chairman Lieberman. I am really glad to hear you are using 
undercover agents, and I want people to know that you are using 
undercover agents because this could be different to those who 
may be hatching plots to defraud the public of some of this 
money.
    Mr. Dodaro, I was very encouraged by some of the proactive 
steps you are taking with regard to the tax cuts in this 
program, and they are very important. So I gather part of the 
aim here is not only to make sure that people get the tax cuts, 
but to put you in a position to evaluate the impact of the tax 
cuts. Is that right?
    Mr. Dodaro. Yes, that is correct.
    Chairman Lieberman. Why don't you talk a little bit about 
what you are looking for in the evaluation?
    Mr. Dodaro. Oh, sure. These would be not in the amounts of 
money being reduced, withholding, or the amount of checks that 
are sent out to people. This is for the tax provisions.
    For example, there are provisions in there that allow 
Recovery Act bonds to be provided. But unless IRS identifies 
who is giving those bonds, a lot of this gets rolled up in part 
of the tax reporting of the entities, and you cannot determine 
at the end of the day how many of those bonds are issued or 
whether people are getting credit for creating certain jobs and 
taking that credit. But if it is rolled up with other 
information IRS collects and not separately identified by IRS, 
that will not happen. The same for depreciation. There are some 
depreciations that are allowed under the Act.
    Those are just three examples. There are many others that 
are in there, and our experience has been over the years that 
when Congress turns to us a year or two down the road and asks 
us to evaluate the effectiveness of some of these credits--the 
Enterprise Zone credit is one that we were asked--you cannot do 
it.
    So what we have been trying to do is proactively identify 
these areas so that IRS can track it. This is equivalent to 
Senator McCaskill's question on the sub-recipient level because 
IRS is concerned about the burden on the taxpayers, but the 
real issue is if Congress really wants to know whether or not 
the amount of money that has been foregone, if you will, or 
provided through tax relief here--which is significant, it is 
over $200 billion--is actually producing what the Congress 
intended, you need the data to be able to do it.
    In any one year, tax expenditures can be more money than 
total discretionary spending. And we have advocated for a while 
now that more transparency, visibility, and re-evaluation of 
those tax provisions be a normal part of oversight in the 
Federal Government.
    Chairman Lieberman. That is very important. I appreciate 
it, because obviously--and, of course, we will see some of this 
from the macro economic data, but we hope that the tax cuts 
will encourage people to spend, because consumption has been 
falling so fast and not driving our economy in the way it 
normally does. Thank you very much.
    Mr. Dodaro. You can also have tax fraud in some of these 
areas, and that is something else we will be taking a look at 
as well.
    Chairman Lieberman. What are you thinking about?
    Mr. Dodaro. Well, this would be in some of the 
administrative areas and whether or not some of the payments 
were made; people are claiming credits that may not actually 
have the justification for.
    Chairman Lieberman. Thank you. Senator Collins.
    Senator Collins. Thank you.
    Mr. Nabors, I want to associate myself with the questions 
that my colleague from Missouri asked you about the guidance 
that is being given. The intent--indeed, the letter of the 
stimulus act--requires Federal, State, and local governments, 
but also private businesses, that are receiving money under the 
Recovery Act to adhere to the transparency and accountability 
requirements. The initial implementing guidance that OMB issued 
on February 18, seems to indicate that you are looking at 
tracking only at the macro level.
    For example, the guidance states that sub-grantees, 
including contractors and subcontractors, do not have any 
specific reporting requirements for the purposes of reporting 
to the Recovery.gov Web site.
    I just want to alert you that that concerns me, because if 
we are truly going to follow the money, which is the goal, we 
have to be able to track it down to the level of those who are 
the actual recipients, not just those who are passing the 
funding on.
    And so I hope that you will take a look at this issue as 
you issue more detailed guidance. I am not trying to burden 
small businesses with unreasonable reporting requirements, but 
we do have an obligation, if we are going to be tracking the 
money, to look at where the money goes.
    I think that Senator McCaskill has raised an important 
point, and it is a point that I had intended to raise as well.
    Mr. Nabors. The points that you have raised are very 
important, and we will take that back.
    Senator Collins. Thank you. Mr. Nabors, you may be aware 
that the 2009 Defense Authorization Act, as a result of 
provisions that Senator Lieberman and I authored, required the 
establishment of a government-wide Contingency Contracting 
Corps. Our vision in authorizing such a core of experienced 
contracting officials applies exactly to this kind of situation 
where there is a need to have money allocated and under 
contract quickly, but we need experienced personnel to ensure 
that it is also done effectively and without shortchanging the 
need for competitive contracting.
    The Corps would be a very useful asset to have in place for 
the stimulus funding. Could you tell me the status, if you are 
aware of it, of establishing this Corps and where this falls on 
the list of priorities that you have?
    Mr. Nabors. Well, I am aware of the Corps. We have had some 
initial conversations, not just with regard to the Recovery 
Act, but in terms of the President's commitment to essentially 
clean up the way Federal contracting is done. And we have 
evaluated, or we are continuing to look at this as an important 
tool.
    I cannot give you a specific timeline or prognosis as to 
when you would see the Administration come forward with a 
specific proposal to implement this, but I can tell you that it 
is very much on people's radars right now.
    Senator Collins. Ms. Fong, you mentioned the number of 
additional auditors and investigators and human resources 
individuals that you are looking to hire, and, of course, that 
is being repeated across the Federal Government. I am not 
concerned about your ability to get the human resources people, 
but I am very concerned about whether or not GAO and the IGs, 
in particular, are going to be able to find the number of 
auditors that are going to be required.
    We have seen with the Special Inspector General for 
Afghanistan a terrible time in his efforts to staff up his 
office. Now, granted, it is a lot harder when you know that you 
might be deployed to Afghanistan than to cities around the 
United States to audit the stimulus spending. Nevertheless, I 
am concerned about this.
    I am also concerned that the Federal hiring process is so 
encumbered with regulation that it is very difficult to hire 
people quickly, even if they are superbly qualified.
    Do you have any recommendations to this Committee for 
helping you cut through the bureaucracy for hiring the people 
that you need?
    Ms. Fong. Well, you are exactly right. This is one of the 
major challenges we are facing.
    I think in our view--and I have talked to a number of my 
colleagues in the community--if we can bring on board people 
who have left our offices and retired, if we can re-employ them 
as annuitants, that would do a lot to solve our problems, 
because they are properly trained, they know the programs very 
well. They can just get on board and start running right away.
    Now, the trick on that, of course, is that under the 
current legal structure, we have to go to OPM, and we have 
talked today about the need to work with OPM very closely on 
that.
    Obviously, one of the issues that we could put on the table 
is if there is any legislation working its way through Congress 
right now on re-employed annuitant authority, perhaps 
consideration could be given to us. That would be a wonderful 
thing.
    Senator Collins. Ms. Fong, there is a huge disincentive for 
annuitants to come back, as their pensions are offset by their 
salaries. And Senator Kohl and I have a bill that would solve 
that problem. I would ask you all to take a look at it, because 
I think if you are looking at re-employing annuitants, we have 
to take away the huge financial disincentive for them to come 
back to work.
    Mr. Dodaro. Senator Collins, we at the GAO have the 
authority to waive the annuity offset provision. We have our 
own personnel authorities, and so I have no doubt we will be 
able to find the right people. But on your point about re-
employed annuitants, over the past few years we have hired 
about 80 people that way, to come in for specific projects for 
specific periods of time. It is wonderful, and I would endorse 
whatever you could do to provide legislation to give that 
authority to others.
    It needs to be carefully used, just like any other 
authority, but in the meantime, there is no reason OPM could 
not give a blanket waiver for this emergency situation, in my 
opinion.
    Senator Collins. I am not sure that OPM has that authority, 
but we will take a look at that. You have correctly envisioned 
what my next question was going to be, because I knew GAO did 
have that authority, and there is a real contrast in your 
ability to re-employ annuitants who are already trained, 
looking for a short-term assignment. It is truly perfect for 
overseeing this money which is going to expire. So I hope, Mr. 
Chairman, that we can move that bill.
    Let me just ask quickly one final question, Mr. Dodaro. It 
is extraordinarily important that we track the job creation 
provisions of this bill so that we know whether or not we were 
successful in creating or saving 3.5 million jobs, which is the 
estimate for this bill.
    Are you working or do you have recommendations for OMB and 
for us in Congress on how that can be best accomplished? One of 
the reasons that I am concerned about the tracking is if you do 
not have tracking going down to the contractor level, I do not 
know how you are going to be able to estimate with any accuracy 
at all how many jobs were created.
    Mr. Dodaro. Yes, we have responsibility under the 
legislation to look at the recipient reports, specifically as 
it relates to the portion of the report that they are required 
to file quarterly on the number of jobs preserved or created.
    Now, there are a lot of issues we have been thinking about 
on this. We have been trying to get up and running on the bi-
monthly reviews at the State and local level, and the sub-
recipient question was one we had talked about. If that is 
provided, you will have better data on that. There are 
definitional issues. What is a job? How do you make sure all 
the people who are reporting are using the same type of 
definitions? So we are going to look into that issue going 
forward.
    I think also the recipient reports need to be juxtaposed 
against macro economic analysis of the job creation. CBO has 
made some estimates about the number of issues there, and I 
have talked with the new director, Doug Elmendorf, about trying 
to use the reviews of the recipient data to test some of the 
broader trends in the macro economic analysis.
    So we are going to turn our attention to the methodological 
aspects of this soon, and we would be happy to share our 
thoughts with you.
    Senator Collins. Thank you. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Collins. Senator 
McCaskill.
    Senator McCaskill. OK, so here is another idea. All the 
State governments are offering early retirement to experienced 
auditors because of their budget crunches, and they have made 
very attractive packages for State auditors to retire. There 
would be a whole pool of auditors available for this period of 
time that would not have the annuity considerations. Let me 
just talk about my love affair with auditors for a second.
    These people, you people who do this work, you are not in 
it for the glory, and you are not in it for the money, because 
there is very little glory and there is not a whole lot of 
money. The people who do this kind of work are really public 
servants. They enjoy the fact that they are doing what needs to 
be done to look after the way we spend public money. And I 
think that there is a cadre of these retired people at the 
State level that would be honored to step up to the plate and 
help out during this 2-, 3-, 4-year period because of what we 
are trying to do here. We are trying to save our economy in a 
way that makes sense for most of America, and I think that 
there would be a patriotic duty that would kick in.
    I can give you five or six names of incredibly good 
auditors in the State of Missouri that have all retired within 
the last 2 years, and I think the average amount of time they 
audited was 25 to 30 years apiece. And they never made six 
figures. And one of them was in charge of the Single Audit in 
the State of Missouri for probably 20 years.
    Now, here is somebody who understands Federal programs, 
understands how to track Federal money, and poor Ken Kuster is 
going to hear about this hearing and go, ``I cannot believe 
Claire is signing me up, and nobody has talked to me.''
    But I really do think that if you went out to NASACT and 
said, ``Can you give us five to six names in your State of 
recently retired State auditors that might be willing to come 
to work for IGs that have all these resources that we hope to 
get in the bill?'' I think you would have an incredibly 
positive response, especially if you told them they did not 
have to move to Washington for the rest of their lives, because 
they are not going to want to come here. They are going to want 
to stay where they are. But that is the beauty of this, is that 
you need people out in these States doing this work, and I 
think that you have a built-in contingency audit force there if 
you take advantage of it.
    This is an awkward thing for me to ask because I think 
everybody knows how supportive I was of the President during 
the political season, but I want to talk to you all about the 
Web site, and this is especially for OMB. This board now is 
made up of IGs. They are not political. They really do not 
serve this President. They served the last President and they 
will serve the President after this President. They are non-
political people, for all the right reasons. They should not 
claim a party. They should not claim an allegiance. They should 
want to just look after public money, period, and we need to 
protect them politically.
    I would like to throw out the notion that we need to be 
very careful on this Web site to make sure that it is not 
political. I want to see the President's radio addresses, or 
hear them every week. But I am not sure that is a link that 
belongs on Recovery.gov, because he is going to give a lot of 
radio addresses in the next year that do not have anything 
directly to do with how we are spending this money.
    I think this is a little bit different than the White House 
Web site or any other government agency Web site where I think 
there is a natural tendency to promote whatever President is in 
office. But I think on this Web site, because you have a group 
of IGs in charge, I just think everyone needs to be very 
careful that it does not appear to be promoting anything that 
could even have a whiff of political advocacy. And I would like 
your take on that, Mr. Nabors.
    Mr. Nabors. I concur with your assessment. Part of the 
reason why we originally envisioned the oversight board taking 
control of Recovery.gov is to better convey to the public that 
this is not data that has been cooked through a political 
process. And I think that OMB will continue to play a role 
going into the future with the Recovery Board simply because 
OMB, as sort of the backbone of the Federal Government, has 
processes in place to actually quickly pull that data in that 
they are looking for. And I think that we will continue to want 
to play that type of role.
    We are very concerned, though, about the appearance that 
Recovery.gov may be seen as something other than a fact-based/
driven database of information for the public, and I will make 
sure that your concerns get back to the White House. But it is 
a sensitivity that has been expressed.
    Senator McCaskill. Great. And every single picture has our 
President in it. I think a great photograph that should be on 
Recovery.gov would maybe be a photograph of the Chairman and 
Ranking Member of this Committee as it relates to the oversight 
capacity they have.
    Chairman Lieberman. Because we are so non-political. 
[Laughter.]
    Senator McCaskill. In this example, you are.
    Chairman Lieberman. I appreciate it.
    Senator McCaskill. For individual reasons for both of you. 
But this is not about just the President of the United States. 
This is about having more information about IGs and who they 
are and what they do, and how they get to the jobs, and more 
information about GAO. I think people who are coming to this 
site want to get information about if we are watching their 
money. I would much prefer links through to a number of reports 
from GAO than links through to 150 pictures of the President I 
worked so hard to get into the White House. So, consider that 
for what it is worth.
    Mr. Nabors. I will work to ensure that those links are 
there in the future.
    Senator McCaskill. All right. Great.
    The last thing I wanted to just mention to you, Mr. Dodaro, 
was your testimony as it related to contracting. I would 
welcome any suggestions you have. I am very excited that the 
Chairman has created an Ad Hoc Subcommittee on Contracting 
Oversight. And we have hired a staff director for that 
subcommittee. She begins on Monday, and we will begin work 
immediately. I would very much like input on how we can in that 
oversight committee begin to immediately look at contracts that 
are being entered into with this money. And I would like us to 
keep the running tally of competitive versus non-competitive 
and fixed price versus any other garden variety. And it may be 
that we can together devise a way that tally is kept, because 
if everyone knows we are keeping that tally going into it, I 
think it might have the sanitizing effect that we are looking 
for. And I would ask that you and also Ms. Fong, in terms of 
the IG community, to consider that as you begin to get some of 
these contracts and see them.
    I am particularly interested in personal service contracts. 
I am particularly interested how many people we hire to do 
services as opposed to building stuff or moving dirt. I think 
there is a real potential for abuse there.
    Mr. Dodaro. I would be happy to provide help on that. I 
think it is a very important issue. It is another good idea. 
And we would be happy to help.
    Senator McCaskill. Thank you all very much.
    Chairman Lieberman. Thank you, Senator McCaskill. I am 
excited, too, about the subcommittee that you are going to 
chair, and I think it would be a perfect focus at the outset to 
take some of the contracts issued pursuant to the stimulus, 
because, again, we want both the governmental people involved 
and others to know that we have the GAO, we have the IGs, and 
we have this Committee overseeing what they are doing.
    I want to come back to something Mr. Nabors said. The fact 
that there have been 150 million hits on the Recovery.gov Web 
site in less than 2\1/2\ weeks since the law was signed by the 
President is amazing. And I presume, to reach a conclusion that 
it reflects both the anxiety and urgency with which the 
American people want to see us doing something to get the 
economy going again and want to benefit themselves as they 
understand where the money is going. Also it reflects how much 
they want us to make sure that the money is spent efficiently 
and well. And, of course, the law empowers the three of you to 
play critical roles, and those that work with you, in doing so.
    I am very encouraged by what you have said today. I think 
we are off to a good start. But we have all got a 
responsibility to stay on top of this because any significant 
fraud or waste in this program is going to have a devastating 
blow on public opinion and trust in government.
    Our full Committee is going to stay on this, and as 
frequently as is constructive. I definitely want to come back 
within the month before we break for the Easter/Passover recess 
to hear Mr. Devaney and maybe ask you to come back and tell us 
where you are at that point, and we will continue to do that on 
a monthly basis as long as it makes sense, to see how much 
money is out, how is it going, and what are you learning. Maybe 
there is something that is happening that requires a quick 
legislative fix, and we can also see what systems you have put 
in place, Mr. Dodaro, Ms. Fong, and Mr. Nabors, to make sure 
that this money is being spent efficiently and honestly.
    So I thank you very much. We have a lot of work to do 
together. We are going to keep the record of this hearing open 
for 15 days, if you want to add to your testimony, or Members 
of the Committee want to ask you additional questions. But, 
most of all, thanks for what you have done so far. We are with 
you. This is very important to our country.
    The hearing is adjourned.
    [Whereupon, at 12:05 p.m., the Committee was adjourned.]


                  RECOVERY AND REINVESTMENT SPENDING:
                 IMPLEMENTING A BOLD OVERSIGHT STRATEGY

                              ----------                              


                        THURSDAY, APRIL 2, 2009

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

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. Good morning and welcome to this second 
in what will be a series of hearings our Committee will hold 
pursuant to our oversight responsibility to monitor how the 
billions of taxpayer dollars that we have appropriated under 
the American Recovery and Reinvestment Act, the Stimulus Act, 
are being spent.
    I am going to begin with a quote from Benjamin Franklin, 
which is always a safe thing to do. ``It takes many good deeds 
to build a good reputation and only one bad one to lose it.'' 
And so it is in some ways with the Recovery Act. We all want 
the Recovery Act to succeed. In fact, we all need it to succeed 
to protect and create jobs to start our economy growing again. 
But a mistake, a story about how taxpayer money is being wasted 
or funneled to improper uses, will really undercut faith in 
this program and, I suppose, undercut faith once more in 
government, no matter what other parts of the program are 
successful.
    I understand that is a large undertaking, to say that we 
will attempt to prevent any misuse of this money, but that has 
to be our goal because of the importance of this project to our 
national economic revival. So our Committee wants to use these 
hearings in cooperation with the Administration, particularly 
with Mr. Devaney, whom we welcome this morning, as a way 
together to assure ourselves that we have systems set up to 
guarantee two things as best we can. One is that the money 
moves out quickly, which is what we want it to do, but two, 
that we set up systems that both prevent waste, fraud, and 
abuse, and also detect potential problems in that regard so we 
can stop them before they occur.
    To help with the very kind of supervision I am talking 
about the legislation which created the Recovery Act also 
created a Recovery Accountability and Transparency Board 
composed of a chairman and 10 inspectors general from across 
the Federal Government. That board met for the first time last 
Friday and its chairman, Mr. Devaney, on loan from his job and 
good work as an inspector general (IG) at the Interior 
Department, joins us here today. We look forward to hearing how 
that first meeting went and what plans or recommendations 
emerge from that or have been put in place already.
    The Recovery Act also included $250 million for Federal 
Inspectors General to hire additional experienced auditors and 
investigators for their agencies and we would like to hear 
about how that is going.
    There is a special problem that we note around the country, 
and I heard some indication of it in Connecticut, and that is 
to make sure that State and local agencies, which are now being 
stretched thin by the recession, in some cases letting people 
go, have the capacity to effectively manage Recovery Act funds 
at the State and local level. I am going to be holding a 
Committee hearing next Tuesday in Connecticut to explore in the 
State and local setting how the money is being watched as it is 
being spent at the State and local level.
    I am also pleased to welcome again this morning, Robert 
Nabors, Deputy Director at the Office of Management and Budget 
(OMB). In addition to providing overall guidance to Federal 
agencies on Recovery Act implementation, OMB has stood up the 
Web site, Recovery.gov, which will allow citizens, journalists, 
and bloggers, to keep an eye on stimulus spending and report 
waste, fraud, abuse, or theft if they suspect it.
    I continue to be impressed by the numbers of usage here. 
The last I heard, Mr. Nabors--and you can bring us up to date 
in your testimony--was that the site is getting about 4,000 
hits a second. That is astounding. This can be a marvelous 
tool, not only to monitor Recovery Act spending but to 
eventually help us develop powerful tools to monitor all 
Federal spending.
    For Recovery.gov to work to its best potential, it is going 
to need, I think, to allow users as best we can to burrow into 
the details of where and how the money is being spent. I want 
to follow up this morning on concerns raised at our last 
hearing about how we can actually do that, how the data trail 
can be followed and not turn cold at some of the precise points 
spending should be monitored, and that is at the specific 
contract level.
    I understand, Mr. Devaney, that the board is taking over 
responsibility for the content of Recovery.gov while OMB will 
remain responsible for the collection of data that feeds into 
the Web site, so I would like to hear from you about how your 
work is going.
    And Mr. Nabors, finally, it is important for us in these 
regular hearings to get a sense of how much of the money is 
actually out there. We have seen some glimmering of economic 
upturn lately. Obviously, employment numbers continue to be 
bad, but some other indicators have taken an upturn, and I 
wonder whether some of that may be related to the first 
spending of the stimulus dollars. Again, we ask these questions 
in the spirit of trying to make this program work well working 
together with the Administration.
    I close with gratitude to my staff for yet another piece of 
wisdom from Mr. Franklin. ``By failing to prepare, you are 
preparing to fail.'' So with our economy at stake, the American 
Recovery and Reinvestment Act really is too big and too 
important to fail, and that is what we are all about with your 
help this morning and every day. Thank you.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman. I feel like I 
should quote Abraham Lincoln or something just to get into the 
spirit of this day, but I will proceed nonetheless.
    Nearly 2 months ago, the President signed into law the 
American Recovery and Reinvestment Act to help turn around our 
economy. Now the challenge is to make sure that the billions of 
dollars provided by that law achieve the purpose of boosting 
our economy and saving and creating jobs.
    As my Senate colleagues and I worked to craft this bill, we 
established an oversight board and imposed tough reporting 
requirements to help ensure transparency and accountability in 
the expenditure of these funds. We remain determined to protect 
this critical spending from waste, fraud, and mismanagement.
    Several provisions included in the law provide safeguards 
and oversight of stimulus spending. Perhaps, however, the most 
important is the Recovery Accountability and Transparency 
Board, created to coordinated Federal oversight efforts. As the 
Chairman has indicated, the GAO and many of our Nation's 
inspectors general also have been provided with additional 
funding to carry out investigations and reporting requirements. 
A new Web site, Recovery.gov, has been launched to report on 
expenditures and to provide the public with access to stimulus 
information. The more eyes that we have on this spending, the 
better.
    The Recovery.gov Web site is now up and running, and as the 
Chairman has indicated, is tremendously popular. It is my 
understanding that it has already received some 300 million 
hits. It is now linked to the individual Recovery Act Web sites 
for States and Federal agencies. I have included a link to the 
Recovery.gov Web site from my own Senate Web site, as well as 
the special Web site I created to provide Mainers with specific 
information about Recovery Act spending as it relates to our 
State.
    Technology not only allows an abundance of information to 
be shared quickly with people across this Nation, but also 
helps to ensure transparency and accountability.
    The American people have high expectations for the Recovery 
Act. The President has estimated that it will save or create 
approximately 3.5 million jobs and will help to turn the 
economy around. Taxpayer dollars will be used to improve roads 
and schools, enhance health care, and invest in infrastructure 
and science. Regardless of the purpose, each dollar must be 
spent wisely. Funds need to be disbursed quickly to meet the 
goals of stimulating the economy, but we must ensure that haste 
does not make waste or permit fraud and mismanagement. Striking 
the right balance between speed and caution will be difficult, 
but it is essential as we administer the grants and contracts 
funded by this law.
    Press reports have already questioned whether some of the 
first few contracts using stimulus funds were awarded without 
sufficient transparency and whether contracting mistakes were 
made. Although the press has generally described these as 
sloppy paperwork, this is not a reassuring start. Problems like 
these can easily erode public confidence and leave our economic 
goals unrealized.
    Today's hearing will provide us with a more in-depth look 
at the most important oversight organization, the Recovery 
Accountability and Transparency Board. I look forward to 
hearing from Mr. Devaney, the board's recently-appointed 
Chairman.
    From OMB, I am particularly interested in hearing how it 
expects to address the challenges of tracking funds at the 
State and local level, the very issue that the Chairman raised, 
and ensuring transparency, accountability, and competition in 
stimulus contracting.
    Our government has an obligation to make sure that these 
vital dollars provide the maximum possible benefit to our 
economy. The American taxpayers deserve no less from their 
investment.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you very much, Senator Collins.
    We will start with Mr. Nabors. I note, Mr. Nabors, in one 
of the recent news stories on OMB Director Peter Orszag, it 
mentioned that he drank a lot of high-caffeine tea during the 
day. I note the presence of the bottle of Coke Zero there. I 
share that particular addiction, and with that sense of 
brotherhood, I now invite your testimony. [Laughter.]
    Mr. Nabors. It might be best just to close at that point. 
[Laughter.]
    Chairman Lieberman. Go right ahead.

  TESTIMONY OF HON. ROBERT L. NABORS II,\1\ DEPUTY DIRECTOR, 
                OFFICE OF MANAGEMENT AND BUDGET

    Mr. Nabors. Chairman Lieberman, Ranking Member Collins, and 
Senator Burris, thank you for inviting me to testify about the 
implementation of the Recovery Act. Today, I would like to talk 
about the progress we have made since the last hearing in 
addressing our shared goal, and that is to implement the 
Recovery Act as wisely and as quickly as possible.
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    \1\ The prepared statement of Mr. Nabors appears in the Appendix on 
page 230.
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    I will start by talking about where we are with respect to 
spending Recovery Act funds. As of this morning, Federal 
agencies have obligated about $51 billion. That is up from 
about $15 billion when we last met. While just two agencies had 
issued Notices of Obligation at the beginning of March, an 
additional 13 have done so since then. This includes the 
Department of Transportation, the Department of Housing and 
Urban Development, the Department of Labor, the Department of 
Education, and the Department of Health and Human Services.
    In addition to obligations, there is other evidence of 
accelerating spending activity. Agencies have announced nearly 
$151 billion in formula and block grants that will be made 
available to States. These allocations enable States to foresee 
important increases to their budgets and can influence States' 
decision making and benefit the economy even before they are 
technically obligated. Nearly 500 Recovery Act contracting 
opportunities and notices have been posted. Seventy-one 
Recovery Act grant opportunities have been posted. And as of 
yesterday, Making Work Pay tax cuts were fully implemented, 
benefiting 95 percent of working families.
    Chairman Lieberman. Can I interrupt you on that? I 
apologize. We will give you more time. But explain what that 
means, about the Making Work Pay tax cuts. I understood that it 
might go in, depending on the employers' decision, as early as 
April.
    Mr. Nabors. It actually started in February and there was 
an April 1 deadline.
    Chairman Lieberman. I see.
    Mr. Nabors. At that point, it should be fully implemented.
    Chairman Lieberman. So the people should really begin to 
see now, or will see as of April 1, a reduction in the payroll 
tax.
    Mr. Nabors. Exactly.
    Chairman Lieberman. I originally had heard that it might 
not happen until June. Maybe that was during the consideration 
of the bill. OK, that is great. Thank you.
    Mr. Nabors. But it is important to be absolutely clear that 
while getting funds into the economy is important, it is 
critical to do so in a responsible and transparent way. This 
remains a priority for the Administration and the American 
people who continue to monitor the government actions through 
Recovery.gov.
    As Senator Collins mentioned, the Recovery.gov has had a 
total of about 300 million hits. That is double the level since 
the last time we spoke.
    Speaking on behalf of OMB, I can tell you that we are 
taking numerous steps towards effective implementation of the 
Recovery Act. We are reviewing numerous agency spend plans to 
ensure that funds are invested appropriately and with 
sufficient planning ahead of the actual obligations. We have 
facilitated the launch of recovery Web sites at all major 
agencies, which are linked through Recovery.gov. We have worked 
with Federal agencies to improve the timeliness and 
completeness of their financial reports that are publicly 
available through Recovery.gov.
    And perhaps most importantly, we are preparing to release 
tomorrow additional guidance to enhance agency reporting 
requirements and clarify recipient reporting. In order to get 
the most up-to-date information possible, the updated guidance 
requires agencies to report more frequently and in more detail. 
We will ask agencies to provide information about significant 
funding announcements to OMB as they occur. We are not going to 
wait. We are going to ask them to report that information to us 
as the spending decisions occur in order to provide a better 
real-time sense of what projects are being funded, where they 
are being funded, and how much funding they are actually 
receiving.
    We will define agency and program plan requirements with a 
detailed template geared towards performance and oversight. We 
will eliminate the transition into a monthly financial report 
that was included in the original guidance. The monthly report 
was originally intended to provide a more detailed level of 
reporting. But instead, we will continue the weekly financial 
report with enhanced reporting requirements so that more up-to-
date information will remain available for the public, 
Congress, and Federal managers.
    To further ensure that Recovery funds are tracked and 
monitored to the sub-recipient and project levels, the updated 
guidance also provides significantly more detail on recipient 
reporting and establishes data collection methods, standard 
data definitions, and a process by which the recipient 
information will flow into Recovery.gov.
    The guidance will clarify several points. For instance, our 
guidance will establish that the Administration will be able to 
track the vast majority of Recovery funding to the sub-
recipient and project levels. For contracts, which total about 
$60 billion of the Recovery Act, we will be able to track 
Federal contracts awarded, how prime contractors are using the 
funds, and information on any subcontracts that they award.
    For the approximately $300 billion in grants that are 
subject to recipient reporting requirements, we will be able to 
collect detailed information on Federal grants awarded and sub-
awards from the primary recipient. Overall, we anticipate that 
we will be able to collect sub-grant information in about 95 
percent of the cases and we are working to expand that going 
into the future to collect the other 5 percent.
    I would just like to stop here and acknowledge, when we 
came before you the last time, we heard the concerns that this 
Committee raised with regard to making sure that we follow this 
money as far down through the chain as possible. As much as 
possible in everything that we are doing going forward, we are 
trying to capture those concerns. This is a first step towards 
addressing some of your concerns and we are going to continue 
to take steps going into the future.
    We are going to ensure that recipient data collection will 
be centralized. OMB will oversee the development of a central 
collection system for recipient reporting, which will lower 
government-wide system modification costs, improve the 
consistency and availability of data, and alleviate reporting 
burdens for the recipients by establishing the central point of 
collection. We are only going to make a limited number of 
exemptions to that centralized point, and we are going to make 
those exemptions for those agencies that have clear expertise 
or systems already set up where it might be disruptive to 
create a secondary system.
    Recovery Act reporting will be standardized via the terms 
and conditions for Federal grants, loans, contracts, and other 
awards. This will also assist agencies in implementing Davis-
Bacon and Buy American provisions.
    And finally, OMB is interested in public views on this 
guidance and will be accepting public feedback through April 
17. After this date, OMB will plan to issue another update to 
their guidance based on those comments from stakeholders, 
including Federal agencies, Congress, State and local 
government officials, grant and contract recipients, and 
citizens.
    There are just a few of the things that we are trying to do 
to address the concerns that you have raised in the past.
    To point to another issue raised by members of this 
Committee, the Administration is committed to ensuring that 
agencies have the skills and capacity to plan effectively, 
award and administer contracts, and carry out programs funded 
by the Recovery Act. Per the advice of this Committee, we are 
reviewing the use of a government-wide contingency contracting 
corps in limited circumstances.
    However, given the likelihood that the activities of the 
Recovery Act will require many agencies to handle an increased 
workload over an extended period of time, we are also 
encouraging agencies to use various existing authorities and 
options, such as the direct hire authority or coordinated 
interagency recruitment efforts. We are looking at all 
available personnel authorities that are currently available. 
For example, on March 17, the Office of Personnel Management 
(OPM) authorized the government-wide use of excepted service 
appointments so that agencies can quickly hire additional staff 
without sacrificing veterans preferences.
    We are also reviewing a bill introduced by Senator Collins 
recently which would authorize Federal agencies to re-employ 
retired Federal employees on a limited basis without offsetting 
the annuity from salary. Employing retirees could be a 
promising means of building capacity for Recovery Act 
implementation and we are supportive of the kinds of additional 
flexibilities proposed in this legislation.
    With that, I will conclude by reiterating that all levels 
of and branches of government have been entrusted with a great 
deal of responsibility for helping to lead the Nation out of an 
economic crisis. We share the burden of living up to the 
expectations of the American people and delivering the 
transparency and accountability and performance that we 
promised.
    Thank you, and I look forward to your questions.
    Chairman Lieberman. Thanks very much, Mr. Nabors. That was 
very helpful in many regards and I thank you for responding to 
the concerns and questions raised by the Committee at the last 
hearing.
    Mr. Devaney, welcome. Obviously, we have enjoyed the 
presence of you and your testimony before at this Committee. We 
welcome you in your new capacity and thank you very much for 
taking on these responsibilities.

   TESTIMONY OF HON. EARL E. DEVANEY,\1\ CHAIRMAN, RECOVERY 
             ACCOUNTABILITY AND TRANSPARENCY BOARD

    Mr. Devaney. Thank you, Mr. Chairman, Ranking Member 
Collins, and Senator Burris. I want to thank you for the 
opportunity to testify today. I have had the honor of 
testifying, as you mentioned, before this Committee in the past 
as the inspector general of the Interior Department, and as you 
know, the President has recently appointed me to chairman of 
the Recovery Accountability and Transparency Board, and it is 
in that capacity today that I appear before you.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Devaney appears in the Appendix 
on page 235.
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    I am pleased to tell you that the board has recently 
obtained office space and is busy acquiring a staff of highly 
skilled oversight and IT professionals. Our first board 
meeting, as mentioned earlier, was held last week and we have 
set in motion a number of initiatives to ensure that the board 
fulfills all of its responsibilities under the Recovery Act.
    The members of the board, and I, view the board as having a 
dual mission. First, the board is responsible for establishing 
and maintaining a Web site, the purpose of which is not only to 
foster historic levels of transparency, but to do so in a user-
friendly way. Second, the board will coordinate and conduct 
oversight of Recovery funds to prevent fraud, waste, or 
mismanagement.
    Even before the Recovery Act was signed into law by the 
President, OMB and the General Services Administration (GSA) 
had begun designing the architecture and creating the 
implementation plan for the Web site. A great deal of credit 
must be given to OMB and GSA for their efforts to launch this 
Web site. Because of their efforts, all Americans can visit the 
Web site today, as we have talked about, at Recovery.gov. 
However, I think it is important to point out that the creation 
of this Web site is an evolving process with multiple phases. 
It is not a single event.
    As you know, the Recovery Act vested the board with the 
authority to maintain this Web site. Now that this first phase 
of getting Recovery.gov up and running is over, I am eager for 
the board to start the second phase of development. During this 
second phase, the board will begin to manage the Web site's 
design and content. OMB will retain responsibility for the 
reporting guidance and the collection and verification of data 
and GSA will continue to host the Web site.
    I am confident that this division of labor will provide the 
best opportunity to maximize Recovery.gov's use as a 
transparency and accountability tool, and I am equally 
confident that we will also have the opportunity to achieve an 
unprecedented level of citizen participation.
    IGs across the Federal Government have developed multiple 
strategies to help prevent fraud, waste, or mismanagement of 
Recovery Act funds. In fact, this Committee recently heard 
testimony about some of those preventative strategies from the 
Chairman of the IG Council, Ms. Fong. What I can tell you today 
is that IGs are quickly transforming those strategies into real 
action. For instance, at least six IGs have finished reviews of 
previously unimplemented IG or Government Accountability Office 
(GAO) recommendations. These reviews will allow the Departments 
to take corrective actions now to ensure that effective 
controls are in place for handling these funds.
    Interior Department's Office of Inspector General has 
developed a risk-based model to use in conjunction with 
Recovery grant funds and is now assisting the Department with 
developing its own risk-based models for grants with the hope 
of extending those models to contracts and cooperative 
agreements.
    Energy's Office of Inspector General has completed over 30 
fraud awareness briefings nationwide involving over 2,000 
attendees. And several other IGs have audits and evaluations 
that are about to be released which will include 
recommendations that will be particularly helpful to the 
Departments for Recovery Act activities.
    At our first board meeting last week, both Ms. Fong and I 
supported the board's decision to form a new Recovery Funds 
Working Group, which will be co-chaired by Board Member Calvin 
Scovel, the IG of Transportation and a member of the board 
staff, former IG John Higgins, will be the other co-chair. The 
purpose of this working group will be to ensure a maximum level 
of coordination and cooperation among the IGs necessary to 
prevent fraud, waste, and mismanagement.
    Mr. Chairman, you and the Members of the Committee have 
noticed that I have been using the word ``prevent'' to help 
describe the board's mission of accountability. That is very 
deliberate on my part. The language of the Recovery Act 
strongly suggests that IGs and other oversight entities are 
being asked to minimize the risks inherent in distributing such 
an extraordinary amount of money and to maximize the 
opportunities to prevent fraud, waste, or mismanagement in the 
first instance before it happens.
    I see the board actively detecting fraud trends, 
identifying best practices for conducting reviews, designing 
risk-based strategies to help focus the oversight community's 
limited resources. The new Recovery Funds Working Group will 
undoubtedly serve as a catalyst for an unprecedented leveraging 
of resources. We will also work closely with the Department of 
Justice to ensure that when fraud is detected, a swift, 
coordinated process will follow.
    Finally, I would like to talk about some of the biggest 
challenges I see the board having. First and foremost is the 
matter of data quality. Simply stated, the Federal Government's 
systems have never been fully successful at producing timely 
and reliable data.
    Second to data quality is the lack of an adequate number of 
procurement professionals at all levels of government, not only 
the Federal Government. However, I am encouraged by the news 
that the Office of Personnel Management has tentative plans to 
hold a multi-agency job fair sometime in May to help agencies 
with their human resource needs in this arena.
    And finally, Mr. Chairman, 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 tell me otherwise and that some level of 
fraud or waste is, regrettably, inevitable. Obviously, the 
challenge for those of us charged with oversight will be to 
significantly minimize those losses. My promise to this 
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, Members of the Committee, that concludes my 
oral remarks and I would be glad to answer any questions.
    Chairman Lieberman. Thanks, Mr. Devaney. That is a good 
beginning. We will do 7-minute rounds of questions.
    Mr. Nabors, let me talk first about the speed with which 
money is being spent, because obviously one of the reasons the 
President asked Congress and Congress responded with the 
Stimulus Act quickly was to get the money out into the economy. 
You have mentioned some numbers, $51 billion obligated, and 
then I think you said another $151 billion, which I take it is 
formula money that will go out to the States.
    But help put that in some context for us. The total of the 
stimulus package was $787 billion, rounding off. That is over a 
2-year period. In the Senate--I am pleased to say that under 
the way we wrote the bill, 80 percent would be spent in the 
first 2 years as opposed to a lower number when it originally 
came through the House. Give us a sense how these numbers fit 
in.
    Obviously, if we divide the $780 billion by two--you tell 
me if this is correct--then it would seem there would be $390 
billion available this year. So how much of that would you say 
has begun to move out into the economy? And am I choosing the 
right numbers as a reference point?
    Mr. Nabors. Well, I think it is a little more complicated 
than that----
    Chairman Lieberman. Yes, I would suspect it.
    Mr. Nabors. If you look at what both the OMB technical 
staff and the Congressional Budget Office (CBO) technical staff 
were projecting, they were projecting a ramp-up in year one and 
significantly more activity at the end of year one leading into 
year two, and I think that is exactly what you are seeing right 
now.
    The numbers that I talked about were just grants, loans, 
and contracts. Within the $787 billion that you referenced, 
there is additional money with regard to food stamps----
    Chairman Lieberman. Right.
    Mr. Nabors [continuing]. Unemployment benefits, and tax 
cuts. That money is not tracked in the numbers that I was 
talking about with regard to obligation, but that money is also 
making its way into the economic system, as well, so----
    Chairman Lieberman. And that is a substantial amount of 
money----
    Mr. Nabors. Absolutely.
    Chairman Lieberman. That is many tens of billions, and 
presumably, as you indicated, with the reduction in the payroll 
tax credit, that has begun to feed in as of yesterday, as of 
April 1. I presume with food stamps and other programs, the 
extra benefits are already going out, but that they would go 
out over a period of time as people become eligible for those 
benefits.
    Mr. Nabors. That is correct. The food stamp money has not 
yet gone out, but it will go out soon and it will go out in an 
even way over the entire length of the program.
    Chairman Lieberman. Right.
    Mr. Nabors. With regard to unemployment insurance, those 
benefits are available through December 2009, so it is on a 
slightly shorter time frame than the rest of the benefits.
    But I think overall, what you should expect to see is that 
agencies--and we are encouraging this type of behavior--
agencies are taking time right now to plan their spending 
activities. We will see increased grants, loans, and contracts 
being made going into the summer and into the fall with a--and 
there will be increased activity going into the end of this 
year and going into the beginning of next year. I think that 
both OMB and CBO were projecting large bumps in terms of the 
amount of spending that is being done probably by the end of 
this year and at the beginning of next year. So we are ramping 
up to that.
    Chairman Lieberman. So what number do you use? I mean, the 
presumption was that all this money could not be spent in the 
first year or even in the first 2 years. What percentage of it 
do you hope will be spent in the first year, and if you can--I 
may be pushing you to take a guess--what percentage do you 
think has already begun to flow out into the economy now?
    Mr. Nabors. Our goal is that within the first 18 months, 
through this year and going into the next fiscal year, we would 
hope that 70 percent of the funding is actually spent.
    Chairman Lieberman. OK.
    Mr. Nabors. And I think we are on track to accomplish that.
    Chairman Lieberman. OK. So that is a kind of front-loading, 
if you will.
    Mr. Nabors. Yes.
    Chairman Lieberman. And that does not count all of next 
fiscal year.
    Mr. Nabors. Well, it counts all of next fiscal year. It 
does not count all of the next calendar year.
    Chairman Lieberman. OK. So by the end of the fiscal year 
2010, you hope to have spent 70 percent----
    Mr. Nabors. Correct.
    Chairman Lieberman [continuing]. Of the money, which is a 
little lower than I think was originally anticipated. Is that 
because of the capacity of the system to spend quickly or is 
that just the way it ended up once Congress sent the bill to 
the President?
    Mr. Nabors. I think that is just a reflection of the 
changes in programs that were made as the bill was going 
through conference.
    Chairman Lieberman. Right.
    Mr. Nabors. I think that we will still have a responsible 
plan. I think over the period of the plan, we are still making 
significant investments that will--even the promise of the 
money will jump-start the economy.
    Chairman Lieberman. Yes. I understand what I am asking is 
very dependent on definitions, but what percentage of that 
would you say has been obligated now--which does not 
necessarily mean spent yet, but it is into the flow?
    Mr. Nabors. I would want to get back to you with a more 
definitive answer for the record on that. I know the answers 
with regard to the spending side. I would want to talk to the 
Treasury Department with regard to some of the tax revenues 
that are floating out.
    Chairman Lieberman. But to summarize it, are you feeling 
good about the extent to which the system, the governmental 
agencies responsible, have begun to move the money out into our 
economy and into people's pockets?
    Mr. Nabors. I do. We are still at a very early stage in the 
Recovery Act----
    Chairman Lieberman. Right.
    Mr. Nabors [continuing]. And for the most part, the 
agencies are still in the planning phase. We want to make sure 
that the planning phase is as effective as possible. We are 
planning on working closely with Mr. Devaney to make sure that, 
as he mentioned, that we are trying to avoid waste, fraud, and 
abuse up front, and as we develop those plans, more of that 
money will go out the door.
    Chairman Lieberman. OK, thanks.
    Mr. Devaney, not only do we oversee, but the press does. I 
want to ask you to respond to two press stories I have seen. 
One is the New York Times report that bids on some of the first 
stimulus construction projects are coming in lower than 
expected, which is good news. But then others raised the 
question, particularly watching what has been happening in the 
area of Department of Defense acquisition, about whether the 
initial bids are accurate and whether there will not be 
inflation as we go along.
    The second is a story the press always loves, and we know 
this from Department of Defense history, regarding spending on 
toilets. There is a press report that the Forest Service used 
an existing GSA Schedule for the purchase of 22 precast 
concrete toilet buildings for the Mark Twain Forest in Missouri 
and therefore did not solicit any other bids. My own 
understanding of this, and I am not drawing a conclusion about 
the fairness of the price, is that when an agency purchases off 
the GSA schedules, it does not mean there is a lack of 
competition.
    So give us a quick response to both of those.
    Mr. Devaney. Let me start with toilets first.
    Chairman Lieberman. I am not going to comment. [Laughter.]
    Mr. Devaney. Unfortunately, the first thing that came 
through the door was this.
    Chairman Lieberman. Yes.
    Mr. Devaney. And it was borne from a story that chronicled 
the first 11 contracts, actually, that were let, and so when 
they came to our attention--we have the ability to do a 
preliminary inquiry and take a look and see and identify, if, 
in fact, it was sloppy reporting, if something was tagged 
wrong, or something is not in the right database, we probably 
can do that. But of the 11, we ended up referring nine of those 
to the two IGs that had the nine contracts and----
    Chairman Lieberman. So they are going to follow up on that?
    Mr. Devaney. They are going to follow up on that and get 
back to us, but actually, if you are going to need to do 
interviews in the field, they are going to have to do that.
    Chairman Lieberman. And there was the suggestion that by 
using a GSA Schedule, they were avoiding the law's requirement 
for competitive contracting procedures.
    Mr. Devaney. Well, the law does not actually forbid using 
the GSA Schedule. It just says that it should be competitive as 
often as possible. The positive thing about the GSA Schedule is 
these companies have been vetted and they have been used 
before----
    Chairman Lieberman. Right.
    Mr. Devaney [continuing]. And it is something that I think 
contracting officers will think about when they are trying to 
move money fast.
    Chairman Lieberman. So we will rely on you to let us know 
when you get the IG reports back.
    Mr. Devaney. Right.
    Chairman Lieberman. How about a quick response to the other 
story about the first bids on construction coming in lower than 
expected?
    Mr. Devaney. I will get back to you on that. I am really 
not familiar with this.
    Chairman Lieberman. Thank you. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Devaney, you said in your testimony that your many 
years of experience informs you or convinces you that some 
level of waste or fraud, regrettably, is inevitable. The 
problem here is the numbers are so huge that even if we lose a 
very small percentage to waste, fraud, and abuse, it is a big 
number. Do you have a percentage estimate based on your 
experience of what you are concerned will be lost to waste, 
fraud, and abuse?
    Mr. Devaney. Well, as I mentioned in my testimony, our goal 
is to reduce any percentage to as low as we can possibly get 
it, and the transparency that is going to be in this arena has 
never before been in place. So I am excited about the 
opportunity to have the force multiplier, to have citizens 
telling us about things that we probably will not discover if 
it were not for them calling in or e-mailing in that something 
is wrong.
    So I think we have a good shot at reducing it to as low a 
level as we possibly can, but I have been in this business for 
39 years. With that kind of money on the table, the bad guys 
are going to come. As we put up on Recovery.gov today, I think 
a series of scams that have already started, people who say, we 
will send you a stimulus check if you send us your Social 
Security number and your bank account, that kind of stuff has 
already started. It started 6 days after the bill was signed. 
So that kind of thing is almost inevitable and we are going to 
try to get those kinds of things up on the Web site, get the 
press knowing about those kind of things, point people to the 
right departments that can help them with that.
    Senator Collins. The more eyes, the better, clearly----
    Mr. Devaney. Right.
    Senator Collins [continuing]. As I said in my opening 
statement. The problem is, if you take $787 billion, even if it 
is a 1 percent loss, you are talking about a huge amount of 
money and that is why I think that it really is important to 
enlist citizens in reporting and to make sure that you have the 
resources to follow up on those tips, because we have seen 
cases in the past where citizens or Federal employees have 
called to blow the whistle on fraud and the resources have not 
been adequate, which brings me to your testimony today on the 
two biggest challenges.
    The first is the quality of the data. The second is the 
lack of qualified procurement personnel. Mr. Nabors very kindly 
mentioned the bill that I have introduced with Senator Kohl 
that would allow experienced Federal employees who have retired 
to be reemployed temporarily to help meet this surge capacity 
need. Do you support legislation that would allow for the 
rehiring of annuitants without their incurring a financial 
penalty?
    Mr. Devaney. Well, speaking personally, yes, I do. I do not 
think the board has taken a position on that, but I cannot 
imagine that not being a good thing.
    Senator Collins. Thank you.
    Mr. Nabors, I want to bring to your attention an issue that 
has come up in Maine. The people of Maine are trying hard to 
comply with the guidance and report accurately, but on some 
issues, it has been difficult to figure out exactly what OMB 
wants to have reported. One of them centers on the very 
important issue of what constitutes a job. Now, since all of us 
are very interested in how many jobs are created--that was a 
major purpose of our working so hard to pass this bill--this is 
an important measure of our success. Let me give you the 
specific example that the people of my State have given to me.
    There is a paving project that is going to be funded from 
the stimulus bill from Topsham to Gardiner in Maine, and it is 
going to create much needed jobs. Those jobs are, however, 
temporary jobs. They are only going to exist as long as this 
paving project is underway and it will take a number of months, 
but then it will be completed. Then those individuals, 
theoretically, at least, could go on to another project that is 
funded by the stimulus law, another transportation 
infrastructure project.
    So how are they counted? Are they counted twice, which is 
not exactly accurate because it is one person continuing to 
have a much-needed job, but on two different projects? Are they 
counted twice, because, after all, they are new jobs that are 
created and would not exist. Are they not counted at all 
because they are temporary jobs? What do I tell my constituents 
on how to comply?
    Mr. Nabors. You have put your finger on the exact issue 
which is sort of confounding us in terms of making sure that we 
have a standard way of reporting that. In the very near future, 
OMB is going to be putting out specific guidance with regard to 
how to calculate the job numbers. We are working very closely 
with the Council of Economic Advisers (CEA) so that we have the 
best economic measures and the best economic minds thinking 
about this so that we can standardize those types of issues 
across not just States, but also across Federal programs, as 
well.
    Just to give you one example, building on what you have 
just said, we will get estimates from the Department of 
Transportation, who is very familiar with the type of issue 
that you are raising. They use a calculation for job years. 
Well, job years is not the same as a job that the Department of 
Energy is calculating. What we are trying to do right now is 
come up with a methodology so that it can be standardized in 
such a way that everybody can use it in the same way, but most 
importantly, that it does not misrepresent the numbers.
    I think that you are absolutely right. The whole reason for 
the Recovery Act was to create or save jobs. I think the last 
thing that we want to do is misrepresent what is actually going 
on with the dollars that we are spending. So within the next 
few weeks, you should see that guidance coming out and we hope 
that it will be helpful to States and local governments in 
terms of making those types of calculations.
    Senator Collins. Thank you. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Senator Collins. 
Senator Burris, good morning.

              OPENING STATEMENT OF SENATOR BURRIS

    Senator Burris. Good morning, Mr. Chairman, Ranking Member 
Collins, and to our distinguished presenters.
    My question will initially piggyback on what Senator 
Collins was asking in reference to the ability to bring in 
talent, Mr. Devaney, from the other governmental employees. Do 
we have a number, in terms of these agencies, of what we are 
really looking for in terms of the number of personnel? And 
second, I would assume that these agencies with the stimulus 
packages have been provided resources to handle that, what size 
are we talking about in terms of costs in that regard?
    Mr. Devaney. Well, Senator, I think that it is fair to say 
that this is a problem across government. It is not any 
particular agency. It is absolutely across the board. There has 
been not much hiring in the procurement professional arena over 
the last decade, and at the same time, there has been flat 
hiring. There has been an awfully big increase in spending and 
this bill just dumped on top of that is causing a great deal of 
concern.
    IGs are looking and working with the departments to see 
what the gaps are, what the needs are. The board is required to 
conduct a review, which we have just started, to look and see 
what the needs are and what the situation is. I think as of 2 
days ago, and now up on Recovery.gov, the first report came out 
of the Department of Energy, which suggests that they are 
understaffed in the procurement professional arena. Even though 
they have actually undertaken a hiring blitz over the last 3 or 
4 years and gone up in percentage, still, with this kind of 
money going to be spent, they are going to need to do better. 
We have an aging workforce. We have people eligible to retire. 
So all of this is sort of coming together as a perfect storm, 
if you will, and it causes me great concern.
    I think OPM is looking at a number of different kinds of 
solutions, and as I mentioned in my testimony, they are going 
to hold job fairs. But I think they are going to do a lot of 
thinking about issues like Senator Collins raised with retired 
annuitants and other things to bring some relief to this very 
troubling area.
    Senator Burris. Mr. Nabors had mentioned the fact that 
there are $51 billion that has either been obligated or is 
already out there, and I would assume that we are tracking that 
pretty closely, if either one of you all want to respond to 
that, in terms of are those dollars in advance of our tracking 
system? We need to make sure that they are going to get the 
same scrutiny that dollars will be 6 or 7 months from now.
    Mr. Nabors. No, they are not in advance of our tracking 
system. Right now, we currently have a system in place where 
the agencies are reporting to us on a weekly basis on their 
financial activities. Grant information, contract information 
is coming to OMB and we are making sure that information is 
made public. A lot of the initial funding are obligations 
related to things like Medicaid and we have a very good idea on 
where that money is going because it is largely going to States 
for health care types of costs.
    Senator Burris. Now, are you sure the States are geared up? 
Will your computer be able to track down to the spending point 
of that contract or of that grant from the States?
    Mr. Nabors. The guidance that we are going to put out 
tomorrow will put in place a system that will allow us to track 
subcontract recipients.
    Senator Burris. Mr. Devaney, I think about the fraud issue 
and abuse issue, and being a former attorney general of my 
State, would certainly say that you have to look for those type 
of resources, especially your State attorneys general that 
could help you with that fraud and abuse tracking process, and 
I hope that there would be some attempt to bring those in, 
especially as a part of the overall tracking system. Will this 
put an additional burden on the State resources?
    Mr. Devaney. Absolutely, Senator. I think what we are 
looking to do is we are going to have in-house an experienced 
prosecutor that is going to work at all levels of government, 
Federal, State, and local, with district attorneys, attorneys 
general, and try to figure a way to leverage our resources, to 
figure out how to best present fraud awareness training and to 
help prosecutors at all levels of government.
    Senator Burris. But you know what will be reported, the 
sensational story where the one person got away with a major 
contract, and they are out there. They are trying to do it. It 
is amazing how the schemes come about. You mentioned it 
already, they are already advertising with their schemes to try 
to rip off the government. We spend more money trying to 
protect ourselves, which will then free up a lot of money to 
get out from people trying to rip us off.
    So I just hope that we are able to track this, because as 
Senator Collins said, that is a lot of money when you are 
dealing with these numbers and these sizes. If you are just 
talking about a tenth of one percent of a few billion dollars, 
the taxpayers are going to start looking at all of us, saying, 
why did not we do something?
    Of course, we have to make sure that we do what the 
President said we are going to do, which is that we are going 
to watch every dime. I hope that we can probably watch every 
$100 million rather than every dime, because if we can watch 
every dime in this, I want to know what format President Obama 
is going to be using and I would want to commend every staff 
member on your team and on Mr. Nabors team who protect our 
money. I mean, you all should get a major blue ribbon for that.
    Mr. Devaney. Thank you, Senator.
    Senator Burris. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Burris. Senator 
McCaskill, welcome.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you very much.
    I know we are struggling with overseeing some of this money 
and the last time we talked a little bit about the Single 
Audit, I heard back from most of the GAO and IG community on it 
and I completely understand that we cannot abandon some of the 
basics of the Single Audit, primarily the financial statement 
audit, because everybody depends on that for their bond 
ratings. And we have to have a schedule of expenditures in 
terms of Federal awards just so everybody can keep track of who 
has what.
    But the requirement that 50 percent of all Federal funds be 
covered and the emphasis on the very large low-risk programs, 
the A-level programs, as opposed to, for example, in my State, 
and I think in all of the States, where we are going to have 
some ugly stories before this is all over is in the 
Weatherization Assistance Program. I look at the Urban League 
of St. Louis, and typically they get a million dollars a year 
for weatherization programming. They are going to get $15 
million.
    Where do these crews come from? Are they competent to do 
the work? Has it been bid? And are they being told it is OK to 
turn the money back in instead of the alternative of giving a 
second cousin who has a pick-up truck and two friends a bunch 
of money to go weatherize some homes, and then we go and check 
and maybe they put weather stripping around the front door and 
that is all that happened.
    I mean, we are up here, and you get right down to it, I 
think the home Weatherization Assistance Program is not like 
Medicaid. It is not like child support. But it is one of those 
places where you have a low-level program that now has 
incredibly high risk because we are overloading that program 
with a whole bunch of money they have never had before.
    Where are we on looking at the OMB annual Compliance 
Supplement A-133 and what chances do we have of changing it 
this year to move out some of these A-level low-risk programs 
and get at some of these smaller programs where I think we are 
going to have some problems?
    Mr. Nabors. Well, in response to your comments from the 
last hearing and in response to your letter, I have asked the 
OMB staff to work with the key stakeholders to determine how 
the Single Audit process can maximize the accountability and 
transparency of our Recovery actions. By the end of April, OMB 
is planning on publishing an update to the compliance 
supplement for Circular A-133 and this will clarify the 
coverage of the Single Audit. It will highlight significant 
accountability requirements for Recovery dollars and it will 
help to ensure that appropriate Recovery programs are 
designated as high-risk and audited as major programs.
    Senator McCaskill. And they are looking at this, the issue 
that I talked about----
    Mr. Nabors. Absolutely.
    Senator McCaskill [continuing]. Where we are putting a 
bunch of money--I mean, a lot of these programs are going to 
get looked at anyway, but when you have such a huge bump-up, 
that is where I think----
    Mr. Nabors. And if I may, ma'am, you will know more about 
Circular A-133 than I will ever know and I was hoping that I 
could have my staff come up and work with your staff as we put 
together this supplement----
    Senator McCaskill. That would be terrific.
    Mr. Nabors [continuing]. To make sure that we are, to the 
extent possible, capturing the concerns that you have.
    Senator McCaskill. That would be terrific. And what might 
be really helpful is to get somebody on the phone in a 
conference call at that time that actually does an A-133 audit 
in the State. There are people in every State that take on this 
responsibility to do these audits, the practitioners at the 
State level, and the government auditors at the State level.
    And I would think pulling together two or three of those 
people--I am not talking about the elected State auditors or 
the appointed State auditors. I am talking about, I mean, there 
was somebody in my office that had been doing the Single Audit, 
responsible for 20 years. They know everything. Frankly, they 
know a whole lot more about it than I do.
    And I think getting those kinds of practitioners together 
quickly is important, and you could do it very easily through 
the State auditors association. You could pull together five or 
six very senior State auditor practitioners, not the bosses, 
but the worker bees, the ones that are actually going to do the 
work papers and the ones that are actually going to look at 
internal controls and all those kinds of things that those of 
us who hold the press conferences do not do.
    Mr. Nabors. We will do that.
    Senator McCaskill. OK. Let me also ask you about the 
Federal Audit Clearinghouse for Single Audits. This is going to 
be a great location because I think all these State auditors, 
regardless of what you do with A-133, are going to want to look 
at these funds because there is a lot of political pressure for 
them to look on these funds, although a lot of State auditors 
are not elected. But having said that, most of them are going 
to feel the pressure to look at this money and how it is being 
spent.
    Typically, the Federal Audit Clearinghouse is not really 
particularly well-suited for the average citizen. It is not 
really user-friendly. And auditors--and I know that Mr. Devaney 
will back me up on this--many times, they do not speak English. 
They are a little bit like the people that hang out at the 
Pentagon. They have a lot of terminology that is not friendly 
for the average person.
    Have you guys on the board considered looking at the 
Federal Audit Clearinghouse and seeing if we could incorporate 
that into Recovery.gov, because it is going to be a great 
treasure trove of oversight information on the stimulus money 
and it seems to me we ought to transplant that over to 
Recovery.gov in a user-friendly way that allows people to get 
to their own State audits to look at what is actually happening 
in their States in terms of oversight.
    Mr. Devaney. Senator, I think that is a great idea. I mean, 
we really had not thought about it, but I appreciate you 
bringing that up and I fully agree that whatever we do, it has 
to be in English and not ``auditese.''
    Senator McCaskill. Yes. And speaking of English, we have 
been spending a lot of time on Recovery.gov in my office and 
the weekly updates, kind of feel like internal use project 
plans. They do not feel like they are being written so people 
can look at it and really understand what is happening. I do 
not think they are useful to most people, the weekly updates, 
the way the terminology is and the way it is characterized.
    Let me ask you this. On Recovery.gov, do you have folks 
that are like the people who go into the restaurant that are 
working from the newspaper and going to see how well they do 
with their food? Do you have people accessing this Web site and 
giving you objective third-party feedback that are not working 
there in terms of what they are learning, what they are not 
learning, and how it works?
    Mr. Nabors. Well, the Recovery.gov does have a link that 
allows the public to comment and add suggestions with regard to 
how we are performing. But I would defer to Mr. Devaney.
    Mr. Devaney. Well, every morning, Senator, I get up and I 
go to Recovery.gov, the first thing in the morning, and I share 
your concern.
    Senator McCaskill. You poor thing.
    Mr. Devaney. I share your concern. Well, it is mine, so I--
--
    Senator McCaskill. I know it is yours. [Laughter.]
    You have no choice.
    Mr. Devaney. I have no choice. But let us say it this way, 
that the site, as I mentioned earlier in my testimony, is an 
evolving process and this site is going to be, I believe, an 
opportunity to really have an historic level of transparency 
and citizen participation, and it may serve, if we do it right, 
as the model for how we do this in the future.
    And so I am determined to get this right, and I think, for 
instance, content management is an issue, that we are now 
transitioning from OMB's good work standing this site up to the 
board is going to take over content management, and I am 
working very hard to get on my staff people who can write in 
English and can put stuff up to which people are going to be 
attracted. And at the same time, the technology out there, it 
is phenomenal, what we can do with this site. In a relatively 
short time, I think we can have a site where people would only 
go on it once, but want to come back the next day and the day 
after because we will be able to drill down as the information 
starts coming back in to the level where people really want to 
see this in the neighborhood.
    Senator McCaskill. Thank you, Mr. Chairman, for your 
indulgence. Let me just say that I think another idea I would 
give you is that I discovered that the best thing I did when I 
was an auditor was I hired a journalist to begin writing the 
summaries for audits. Unfortunately for our democracy, there 
are a lot of journalists looking for work right now and they 
understand how to write a lead, they understand how to keep it 
very concise, they understand how to make it interesting, and I 
would certainly encourage you to look at the vast number of 
really qualified journalists that are out there looking for 
work right now because I think you could get some real talent 
that could really help us with that content in terms of making 
it interesting to people.
    Mr. Devaney. Senator, tomorrow morning, I am interviewing 
two journalists.
    Senator McCaskill. There you go. All right. Great minds 
think alike. Thank you, Senator.
    Chairman Lieberman. Thank you, Senator McCaskill. Senator 
McCaskill has her own stimulus employment program. [Laughter.]
    Senator McCaskill. Helping all the people out there typing 
on their laptops.
    Chairman Lieberman. I appreciate that.
    We will do a second round if people want to stay. I think 
we have a while before the vote-a-rama starts.
    Let me just pick up on the Web site, if I might. The usage 
is really miraculous or stunning. So to the extent that you are 
analyzing now, am I correct in assuming that most of those hits 
are just looking for information about how the stimulus works, 
how you might get funds, or something of that kind?
    Mr. Devaney. Mr. Chairman, I think people are coming in 
right now out of curiosity----
    Chairman Lieberman. Yes.
    Mr. Devaney [continuing]. And seeing what is there. And 
what I would say to them is keep coming back periodically and I 
think you will see it getting more robust and more user-
friendly. And I am really excited about the idea. There are 
some terrific technologies out there that we can use, 
interactive mapping and drill-down techniques where you can get 
down to where I think people really want to see the rubber hit 
the road. And I think OMB's guidance coming out now will be 
very helpful in getting down to those lower levels that you 
have expressed some concern about.
    And then we need to display that. We need to be able to let 
people go on that Web site, click on their State, and then keep 
clicking until they get down to their city to see the projects, 
to see the money that has been spent in that area----
    Chairman Lieberman. Yes.
    Mr. Devaney [continuing]. And all of that is possible. It 
is not there now, but it will be.
    Chairman Lieberman. I appreciate that commitment to make 
that happen.
    Let me ask you about the extent to which this is 
interactive. For instance, tell us about the process--it is 
early on now in the program, but this will presumably happen--
where someone will say, hey, this Stimulus Act money in my town 
is being used badly, or my company got a grant and it is being 
wasted. How do you funnel those comments to a point where you 
can respond to it and use it?
    Mr. Devaney. Well, if the call were to come to us, we would 
do what we always do in any IG office. We would get as much 
information as possible and then, in our case, we are going to 
be funneling that to the appropriate IG and then asking that IG 
to get back to us.
    Chairman Lieberman. So is there a clear portal for people 
to go to on the Recovery.gov Web site if they want to 
whistleblow?
    Mr. Devaney. There is a portal where they can make 
comments. There is a portal where they can tell a story, if 
they wanted to.
    Chairman Lieberman. Great.
    Mr. Devaney. I do not think we necessarily are, from the 
oversight perspective, interested in the stories as much as we 
are the citizen that might look across the street and see the 
Web site, says a school is going to be built and they look 
across and there is just a forest.
    Chairman Lieberman. Yes.
    Mr. Devaney. So we are going to have to develop the 
capacity, and this is no easy endeavor, to sift through the 
millions of citizen comments that are going to be coming into 
this Web site.
    Chairman Lieberman. Yes, that is what was on my mind. It is 
pretty hard to do that right now, I assume.
    Mr. Devaney. No, we cannot do that right now, and we are 
talking to groups that suggest they can do that for us. But we 
want to make it real. Personally, I believe that we will lose 
the value of citizen participation if they do not think they 
are heard.
    Chairman Lieberman. I agree.
    Mr. Devaney. And so if you write into the site and you 
never hear anything back or you never see any action, I mean, 
that is actually worse than inviting them to do it in the first 
place.
    Chairman Lieberman. Yes, I agree.
    Mr. Devaney. So we have an enormous challenge here. I am 
trying to get the smartest people I possibly can to come in and 
talk to us about this. It has never been done before at this 
scale, so----
    Chairman Lieberman. Right. That is a real challenge, and so 
we wish you well. I could not agree with you more that people 
at least have to have a kind of automatic response that you got 
their message and somebody will go over it. But to ferret out 
of all that input the whistleblowing that you really do want to 
know about is your challenge.
    Let me go to a second part of this, on the prevention part. 
What will your IGs do--what kind of systems will they set in 
place, not just to detect but to prevent, with a program this 
large and with this money moving out this quickly, to prevent 
waste, fraud, and abuse?
    Mr. Devaney. Well, as I mentioned earlier, we have created 
a working group where we are all going to talk to each other on 
a regular basis. We are going to try and leverage our 
resources. There are going to be some IGs that are going to be 
able to easily handle the load and then there are going to be 
some IGs who do not have the staff to do it, so we are going to 
have to leverage resources and achieve the highest level of 
cooperation, perhaps, we have ever seen before in the IG 
community.
    And I think IGs are, right now, they are out there giving 
fraud prevention awareness training to the Department staff. 
They are out there talking to local enforcement and 
prosecutors. They are doing a lot of that right now. They are 
developing risk models, as I mentioned in my testimony. We have 
to figure out what the risk models need to look like in this 
endeavor so that we can focus our limited resources in the 
right place. A model that suggests that this particular kind of 
a grant or this particular kind of a contract, if we only have 
a certain amount of resources, let us expend it there.
    But IGs are not just doing that internally. I mentioned at 
my former office, they have taken that risk model that we have 
always had internally and they shared it with the Department 
and they are encouraging the Department and working with the 
Department to help build their own risk models. So IGs are out 
there right now working with the Departments, who, by the way, 
are working, from my overview, very well in setting up their 
own internal shops to manage this money, as, quite frankly, I 
have never seen them do before. So I am encouraged by that.
    Chairman Lieberman. That is good news.
    Mr. Nabors, let me ask you this question, and it may be 
hard to answer it now, but perhaps as we go on in this 
experience, when you come back, you can help us with it. 
Obviously, we appropriated this enormous amount of money 
because we all heard about the trillion-dollar gap in normal 
demand in the economy and we are trying to fill it and get 
economic activity going again.
    There has been some encouraging news lately. And obviously 
the discouraging news is that the economy continues to bleed 
jobs. The encouraging news is that there was some evidence last 
month of consumer spending going up a little bit, of more 
activity in housing sales, and the stock markets had their best 
month in March in quite a while.
    So I do not know whether you have any ability to relate 
that to the money that the Recovery and Reinvestment Act has 
put out into the economy thus far. I would welcome that 
analysis as we go on, which is a way in a broader sense for us 
to try to determine whether the Stimulus Act is achieving its 
purpose.
    Mr. Nabors. We do not have it now, but I would be happy to 
work with our staff to generate that model for you.
    Chairman Lieberman. I appreciate it. I mean, it is hard to 
imagine that putting this much money out into the economy would 
not help some. I mean, the question is, how do we track, to the 
best of our ability, how much it has helped? I thank you.
    Senator Collins.
    Senator Collins. Thank you.
    Mr. Nabors, I want to bring up another area that really 
concerns me, and that is when the omnibus appropriations bill 
was passed, without my support, I would add, it did not 
reconcile the funding in that Act with the funding that we had 
just approved a couple of weeks earlier as part of the stimulus 
bill. The result is that there are some Federal agencies that 
are going to receive an enormous increase in funding, far 
beyond what they have ever handled before. Let me give you a 
specific example.
    The Federal Railroad Administration (FRA) has traditionally 
been a very small agency that is responsible for dispersing 
some Amtrak funding. Now, its funding is going from $1.5 
billion to over $10 billion. It is an enormous increase in the 
funding that this very small agency is going to have to get out 
the door properly in grants and contracts. Are you doing 
anything to target agencies like this one that are receiving, 
as a result of the combination of the Stimulus Act and the 
omnibus bill, a massive increase in funds but may not have the 
people and the procedures in place to ensure the money is spent 
wisely?
    Mr. Nabors. This issue is one of the primary issues that we 
have been focused on since the passage of the omnibus, making 
sure that there is the appropriate management and planning 
structure in place, especially for these agencies that are not 
used to seeing large sums of money. The Vice President has been 
very involved personally with regard to the FRA and ensuring 
that they have both the personnel and the plans and procedures 
in place to ensure that this unprecedented amount of money that 
was provided to them is used for what it is intended, and that 
is to both stimulate the economy and to fundamentally transform 
the way our infrastructure system operates in this country.
    It is going to be a challenge. I will not try to softball 
that one. And it is a challenge that we are dealing with each 
and every day. But it is something that we are all very 
cognizant of and it is something we are focused on and it is 
something that we are working on every day.
    Senator Collins. Mr. Devaney, are you giving extra scrutiny 
to agencies or programs that have had massive increases in 
funding? It seems to me that this is a recipe for the kinds of 
problems that you have been talking about.
    Mr. Devaney. I think you are right, Senator, and I think 
this IG Working Group that we have put together, all of those 
IGs, as I mentioned, are at some stage in developing risk 
models and the kind of things you are talking about would be 
the kind of agencies we would look at as high-risk. And so I 
think what you will see emerging at some point is a strategy 
for IGs, maybe somewhat different in different Departments, but 
overall, we are going to try to identify those high-risk areas. 
That one would certainly be one.
    Senator Collins. Mr. Devaney, you talked earlier about the 
e-mail scams that are already going around----
    Mr. Devaney. Right.
    Senator Collins [continuing]. And one of them asks people 
to send personal data and information in order to get their 
``stimulus check.'' I am fearful that a lot of people will fall 
for that scam because--and what I think was an error in 
policy--we did do these one-time checks a year or so ago of 
$300 or $600 to taxpayers. So this may well ring a bell with 
the citizens of this country and they may respond to it.
    Have you thought of enlisting groups like AARP, or there is 
a group called Triad that works with local prosecutors to try 
to educate seniors in particular? It is fine for the IGs to be 
aware of this. It is fine for the Federal Trade Commission 
(FTC) to put out alerts, but that is not going to reach a lot 
of people who will receive these e-mail scams. It seems to me 
that you need to get nonprofit groups, senior centers, Area 
Agencies on Aging involved. Is there any attempt to do that 
underway?
    Mr. Devaney. Not yet, but that is a wonderful idea. I mean, 
we have just been collecting all the various scams. We put them 
up, I think, 2 days ago on Recovery.gov and we have been 
working with the various agencies like FTC and we have all of 
the linkage. On Recovery.gov, we have links to all of those 
agencies. We have links to all the IGs at the respective 
agencies. But working with groups like AARP, that is a 
wonderful idea. We will do that.
    Senator Collins. Thank you.
    Let me just end with one final question, and that is to go 
back to the issue that waste, fraud, and abuse is inevitable. I 
know there was a Wall Street Journal interview that you gave in 
which you expressed your concern that there could be as much as 
7 percent of the stimulus funds lost to waste, fraud, and 
abuse. When you are talking about $787 billion, I think that 
amounts to something like $55 billion.
    I just want to get on the record that we simply cannot 
allow that. That is an unacceptable percentage no matter what 
number it is applied against, but when we are talking about a 
number this large, the economy will lose significant funding. 
The public will lose significant confidence in what we are 
doing if more than $50 billion is lost to waste, fraud, and 
abuse. So I believe it is incumbent upon all of us to ensure 
that does not happen.
    I know what you are saying, and you are applying more than 
30 years of Federal law enforcement experience to this job, but 
we have to ensure that does not happen.
    Mr. Devaney. I totally agree. The 7 percent comes from a 
very reputable and well known association of fraud examiners, 
and I was asked about the 7 percent and it is $55.1 billion. I 
was horrified when I first did that math. I am very hopeful 
that we would never, ever see something like that, but we have 
to get it down to the lowest level possible. I do not even like 
talking about the 7 percent because I do not want to 
acknowledge it ever could be that way. It is a number that is 
out there.
    Senator Collins. Thank you.
    Mr. Chairman, I want to commend you for the hearings we are 
holding because I think that the ideas that we are all 
generating and passing on to you in this collaborative effort 
will help to ensure that we do not see that level of waste, 
fraud, and abuse, so thank you for your leadership.
    Chairman Lieberman. Thank you, Senator Collins. Thanks for 
your contribution in that regard. Too often we authorize, we 
appropriate, and then we leave the rest to the Executive 
Branch. This is really too critical, too big, and as I said at 
the beginning, it is too big for us to let it fail. So 
together, we have to make it work, and I thank you.
    Senator McCaskill.
    Senator McCaskill. I would like to talk a little bit, Mr. 
Devaney and Mr. Nabors, about blanket purchase agreements and 
utilizing the catalogs of existing deals. The toilets that have 
been talked about are in the Mark Twain National Forest and 
they are in my State, so I have spent a lot of time going 
through it, and you know what? It was not a bad deal. It made a 
great headline, and my friend, Senator Coburn, before you talk 
about the toilets, make sure I get you this memo because you 
will be impressed.
    In reality, what they did was they looked carefully to find 
the least expensive way to build buildings for toilets that are 
accessible, low maintenance, and a good value in the Mark Twain 
National Forest. But because they were toilets and it was a lot 
of money, all of a sudden, everybody got the vision of the gold 
hammer and the $5,000 toilet seat.
    But it brings me to an issue that I am wondering if you all 
have talked about, and that is I was surprised when I got here 
and I learned that agencies were soliciting other agencies to 
buy off their book of contracts because they got some kind of 
bump for it. In the Armed Services Committee we were looking at 
this. There was actually advertising by one agency saying, use 
our existing contracts to buy off of because, I guess, there is 
some kind of transfer of funds between the agencies if they use 
each other's. So when GSA sells stuff to the Department of 
Defense (DOD), they were able to get some extra money.
    Have you all looked at that in terms of these transference 
of funds between these agencies using existing contracts 
because that is not what we meant this money to be used for.
    Mr. Devaney. Well, I would just tell you that as the IG of 
the Interior Department, I wrote some rather scathing reports 
about the use of the franchise funds at Interior. I think the 
Interior Department is one of seven departments that actually 
has that capacity. Things have gotten a lot better. They still 
have it, and some of the abuses that we chronicled have been 
corrected. But nonetheless, there are seven entities--I think 
there are only seven--that allow other departments to come in 
and they will buy you and take a piece, if you will, of the 
action----
    Senator McCaskill. Right.
    Mr. Devaney [continuing]. In some administrative fees. My 
critiques went to what they were doing with those fees after 
they got them.
    Senator McCaskill. Right.
    Mr. Devaney. But nonetheless, it is legislation that was 
passed by Congress and they are allowed to have it.
    I really have not thought about these funds with those 
systems. I am interested to hear that is happening and we will 
look into it.
    Senator McCaskill. Yes, because I think it is a place where 
we could have some abuse----
    Mr. Devaney. Right.
    Senator McCaskill [continuing]. Because there is a lot of 
money being put into the system and because--and, of course, 
they have two masters here, all these agencies. One is to get 
the money out quickly and one is to make no mistakes. Well, 
those are two masters that are hard to serve at the same time. 
So I think that might be something we want to look at.
    Let me also, just briefly, ask you about leasing versus 
construction. One of the things I discovered is that we have 
this bad habit of leasing non-permanent buildings that 
eventually turn into permanent buildings that we buy. Is there 
any incentive in the way that we are putting this money out 
there that people would begin to engage in buying temporary 
buildings? Army Materiel Command did a temporary building, OK. 
Well, I went to the temporary building, and believe me, this is 
not a temporary building. This is a large office building, and 
they tried to tell me, well, we could take it apart if we 
needed to.
    But I am curious if you all have put any rules in place 
about uses of this money for capital as to whether or not 
people are going to lease temporary buildings or if they, in 
fact, are going to invest in buying buildings, because right 
now, construction costs are so low, they might even be lower 
than what we would pay to lease a temporary building which 
inevitably the government ends up getting around to buying at 
the end of the day. Have you all talked about that or looked at 
that?
    Mr. Devaney. We have started talking about it. I think that 
one of the first 11 contracts that we were asked to look at, 
particularly as Chairman Edolphus Towns on the House Oversight 
and Government Reform Committee asked me to look at, involve 
such a matter, and so we have referred that to the GSA IG and 
we are waiting for them to get back to us. But I think we want 
to learn from that what the scope of that problem might be.
    Senator McCaskill. Yes. I think you are going to see--
because these manufacturers can come in and do a pretty good 
sales pitch on temporary buildings. I am just worried that it 
will be a very seductive process, that people will say, well, 
we can just go for this lease of a temporary building. We do 
not have to jump through all the hoops that we would have to if 
it was a capital expenditure because we can take it out of a 
different fund, and with this stimulus money, I think that is 
another area that we might have some abuse. So I would 
appreciate any feedback we could get on that.
    Mr. Devaney. Absolutely. Sure.
    Senator McCaskill. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you very much, Senator McCaskill. 
Senator Coburn, welcome.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, and thanks for having the 
hearing and thank you all for coming to testify. I have read 
your testimony.
    One of the problems that we have in the Federal Government 
is Congress telling us how we budget, because outside of the 
stimulus package, we lease almost 90 percent non-military 
buildings. We do that because the accounting rules we have 
charges the whole cost of the building in the year in which you 
take occupancy to the agency. So we do not actually buy. We 
lease because it is the least budget-impacting, which is silly 
and something we ought to change in the long run.
    I was not prepared to talk about toilets this morning, so I 
will pass on that one.
    Senator McCaskill. I knew it was coming some day. 
[Laughter.]
    Senator Coburn. Maybe, maybe not. We are looking for the 
truth, not the headline.
    Mr. Nabors, I have some real concerns with what you all are 
doing thus far, and let me explain. If you go to Recovery.gov 
and you put another computer up right next to it and go to 
USAspending.gov, you see two totally different approaches. In 
USAspending.gov, you can go by city, you can go by contractor, 
you can go by grantee, you can go by Department, and you can go 
all the way down to find out who is doing what. I am waiting on 
a letter to come back from OMB now clarifying when 
USAspending.gov will include subgrants and subcontractors. 
Senator McCaskill and I were significantly involved in getting 
that done.
    I am hearing that you plan to move USAspending.gov to 
Recovery.gov, which scares me to death based on what I see in 
Recovery.gov. Recovery.gov is not searchable where as 
USAspending.gov is searchable.
    So would you mind settling me down a little bit in my worry 
and gray hair accumulation that you are going to go toward 
something like USAspending.gov, that is multi-searchable, that 
you can use almost any matrix to get where you want to go, and 
you can do it quickly? I spent 10 minutes this morning on 
Recovery.gov, and I want to tell you, there is nothing there. I 
know it is early, but I just want to know where you are going 
with it. If you are going in the direction of what it looks 
like versus what is on USAspending.gov, you are not going to 
give anybody the assurance of anything in this country about 
really finding out what is going on across the street.
    Mr. Nabors. Well, let me try to save your gray hairs.
    Senator Coburn. OK. Thank you.
    Mr. Nabors. Our plan--I think it is a misunderstanding with 
regard to what we are trying to do with Recovery.gov. The 
reason why we did not use USAspending.gov right now is because 
there seems to be such an overwhelming demand to get 
information as quickly as possible onto the Web sites. The data 
systems that feed into USAspending.gov just are not at the 
point right now where we can get information up as quickly as 
we believe that the public is demanding it.
    But our goal in the long term is to try to merge the best 
of both Web sites, the data quality and the extensiveness of 
the data on USAspending.gov along with the search capabilities 
with the speed that we are trying to build into Recovery.gov. 
Recovery.gov, in my wildest dreams, will become a model for 
being able to update our financial systems to a degree where we 
are not just able to track Recovery Act spending in almost real 
time, but we can also do the same types of things with regard 
to overall Federal spending.
    I know that the Recovery Act has a special place in our 
economy at this point, but I think that both you and the 
President share the joint objective that every dollar that the 
taxpayers provide to the Federal Government for spending is 
special, as well, and we need to be able to track that money 
quickly. So we are trying to not necessarily bring 
USAspending.gov into Recovery.gov, but to learn lessons from 
the two to make a Web site going into the future that allows us 
to better track Federal spending.
    Senator Coburn. What is the difficulty with getting the 
data? My understanding was the difficulty with getting the data 
to USAspending.gov is that the agencies were not providing it.
    It was not a technical problem. It is that the agencies 
refused on a timely basis to bring it forward. If they did, how 
is that going to be any different on Recovery.gov using the 
same agencies?
    Mr. Nabors. Well, the batch processing and the financial 
data that we use for USAspending.gov does have a significant 
delay and we are trying to, at this point, speed up the extent 
to which data is available. So we are actually using not just 
financial data on Recovery.gov, but potentially budgetary data 
and other types of information, as well, to get that money out 
ahead of the normal time frames that our financial systems 
produce that amount of information.
    Senator Coburn. Right. Mr. Devaney, thank you for your 
years of service as IG. It is often times an unthankful job, 
but I know you have done a great job there and I appreciate it.
    The 7 percent figure bothers me, but the 10 percent figure 
on the Federal Government bothers me even more. If we look at 
what the Federal Government is doing in total, if you come in 
at 7 percent, that is not acceptable, but it is better than 
what we are doing everywhere else. What we ought to be doing is 
redoubling our efforts to where we get that down to about 2 or 
3 percent because after that there are diminishing returns on 
the dollar. I have heartburn over the $787 billion. I have 
heartburn over the $55.1 billion. However, I do not think it is 
going to be in better hands than in your hands to see if we 
cannot limit the waste.
    I would suggest, besides what Senator Collins said, put Ad 
Council ads on TV for seniors about these scams. I mean, it 
does not cost much. You can get it out faster than AARP can. 
Two weeks from now, you can have 2 or 3 weeks' run of Ad 
Council ads where almost every senior in the country knows, do 
not fall for this scam.
    You may have covered this prior to me coming in. When do 
you foresee that we will actually have a viable and multi-
searchable Web site on Recovery.gov?
    Mr. Devaney. Senator, we have been doing an awful lot of 
meeting on this, and we have been talking to a considerable 
amount of smart people. We are going to try to hold an 
electronic town hall in the near future where we solicit the 
public in general and technology folks in general, and then 
move quickly after that with the help of perhaps somebody like 
the National Academy of Public Administration (NAPA) to select 
some vendors. There is some really amazing stuff out there that 
I think is going to make this site very exciting to go on. So I 
hope you will continue to visit it as we try to make this thing 
something that people are going to want to come to on a regular 
basis and allow them to understand where their money has gone.
    Senator Coburn. If we are a year from now, and a year is a 
pretty fast pace to do something like this, a year from now we 
will have spent about 70 percent of that money already. Can we 
do that within a year? Can you get it done within a year? I am 
talking the real deal, up where people can really use it?
    Mr. Devaney. Yes, I think we can. That is my goal.
    Senator Coburn. Would you be so kind as to keep this 
Committee advised if you are going to fall behind that 
schedule----
    Mr. Devaney. All right.
    Senator Coburn [continuing]. So that if it looks like you 
are not--we spend $64 billion a year in this government on IT. 
Thirty-six billion of it is wasted. The American taxpayer needs 
to know that. Thirty-six billion, over half of what we spend on 
IT, gets wasted every year. This is the one place where we 
should not waste and there should not be a hiccup. We do not 
need another Harris Corporation Census no-bid contract that 
does not perform that we paid a bonus for.
    And Mr. Chairman, I would ask that my statement be 
submitted for the record.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Coburn appears in the 
Appendix on page 229.
---------------------------------------------------------------------------
    Chairman Lieberman. Without objection.
    Senator Coburn. And I thank you all.
    Chairman Lieberman. Thanks, Senator Coburn. Very good 
questions.
    Thanks, Mr. Nabors and Mr. Devaney. I think it has been a 
very constructive exchange. I appreciate what you are both 
doing, first to spend the money that we have appropriated 
because that is why we appropriated it, to get it out to help 
the economy grow and to protect and save millions of jobs. And 
second, to make sure with every human and technological 
resource we have that the money really is spent for the purpose 
for which it is intended and not wasted or lost to fraud in any 
way. So I thank you.
    I found this so constructive, and Senator Collins did too, 
that we are going to ask you back for a repeat performance 
because we really want to keep this going. We hope you find it 
as productive as we do. We will probably ask you to come back 
sometime later in May, so you have a little more time to see 
how it is going.
    We will leave the record of this hearing open for 15 days 
for additional questions or statements.
    I will just end with thanking both of you. You are really 
both very impressive public servants and we need you to do what 
you are doing.
    The hearing is adjourned.
    [Whereupon, at 11:33 a.m., the Committee was adjourned.]


                       THE AMERICAN RECOVERY AND
                        REINVESTMENT ACT: MAKING
                         THE ECONOMIC STIMULUS
                          WORK FOR CONNECTICUT

                              ----------                              


                         TUESDAY, APRIL 7, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                             Hartford, Connecticut.
    The Committee met, pursuant to notice, at 10 a.m., at the 
Learning Corridor, Greater Hartford Academy of the Arts, 
Theater of the Performing Arts, 359 Washington Street, 
Hartford, Connecticut, Hon. Joseph I. Lieberman, Chairman of 
the Committee, presiding.
    Present: Senator Lieberman.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. This hearing of the U.S. Senate 
Committee on Homeland Security and Governmental Affairs will 
now come to order. Let me thank all of you for being here.
    I want to apologize to all of you out there on behalf of 
the witnesses that their backs are turned to you, but such is 
our custom in the U.S. Senate.
    Let me also quickly but quite sincerely thank Eric 
Bernstein, Principal of the Hartford Academy of the Arts, for 
hosting this field hearing; and Jim Keller, Managing Director 
of the Theater of the Performing Arts, for handling the 
logistical arrangements. And let me give a particular welcome 
to the students and teachers of the Greater Hartford Academy of 
the Arts and the Greater Hartford Academy of Math and Science.
    [Applause.]
    Let me welcome also everyone else who has come, including 
some in State and local service who are here to join us in what 
is a continuing series of hearings that our Committee is 
holding. The first two occurred in Washington DC. This is the 
third one, a field hearing here.
    And the basic goal we have is to monitor how the billions 
of taxpayer dollars that the President requested and Congress 
approved for the so-called stimulus program are being spent.
    I thought because the students are here I would take just a 
moment to give some history and explain why we are here and 
what this Committee is about, and maybe I will start with a 
personal story.
    Shortly after I was elected to the Senate in 1988, I was 
down in Washington for some orientation meetings for the new 
senators, and I was at a reception, and Senator John Glenn, who 
was then the Senator from Ohio--and, of course, world famous 
for being an astronaut--came over to me and he said, ``Joe, I 
am going to try to return a favor to you that was once done to 
me.'' He said, ``Just after I was elected, I was at a reception 
somewhat like this, and the then-Senator from Connecticut, 
Abraham A. Ribicoff ''--probably the students do not remember 
that name, which should inspire some humility in people like 
me, but others will remember our former governor and Senator 
from Connecticut. Senator Glenn said, ``Abe Ribicoff came over 
to me, and he said, `John, you are going to have the 
opportunity to select what committees you want to be on. A lot 
of times, people do not think about the Governmental Affairs 
Committee, but it is an extraordinary Committee. It has the 
responsibility, among other things, to oversee the expenditure 
of Federal money and to monitor what every department of the 
Federal Government is doing and to hold investigations' ''--
which, over history, the Committee has done. These 
investigations go back to Senator Harry S. Truman, when he 
investigated, during the Second World War, the spending of 
money during wartime. There were other investigations held by 
the Committee. Probaly the most famous, when I was a kid, was 
done by a Senator from Tennessee, named Estes Kefauver, into 
organized crime. It goes on and on.
    Senator Glenn said, ``Why do not you put your name down for 
it? I do not think there is much interest.'' So I did. And 
Senator Glenn by that time had become the Chairman of the 
Committee, and he said, ``I always look back and I am grateful 
to Abe Ribicoff for giving me that suggestion.''
    So I did put my name down. It was not my first choice. My 
first choice was the Environment Committee, which I was lucky 
enough to get on, but there was not much interest in this 
Committee. And so I also got put on it. The students probably 
have heard about the seniority rule in the Senate. This is the 
rule that basically says that you get the opportunity to move 
up in almost all cases based on how long you have been there. I 
remember that at the orientation session we had when we first 
arrived, there was a Senator named Wendell Ford from Kentucky, 
who had been a Senator for a long time. He came in and he said 
to the 10 or 11 of us who were new Senators, ``A lot of the 
things you are going to find around here, you are not going to 
understand or they are actually going to annoy you.'' He said, 
``That is the way I felt about the seniority rule when I got 
here. But, the longer I have been here, the more sense it 
makes.'' [Laughter.]
    So it goes. You never know how your seniority is going to 
play out because you never know what is going to happen to the 
people ahead of you in seniority on the Committee. I have been 
very fortunate to become the Chairman of this Committee.
    In 2002-2003, this Committee generated the legislation that 
created the Department of Homeland Security, and when it came 
time to decide which Committee would oversee this new 
Department, they asked us to do that, in part because our 
Committee has had a really good reputation for bipartisan work, 
and I have had the privilege to work with two Republican 
chairmen, Ranking Republicans when Democrats have been in the 
majority: Senator Fred Thompson, who left me to go back to 
``Law and Order''--I do not know how he could have made such a 
choice--and Senator Susan Collins from Maine. So the Committee 
is now known as the Senate Committee on Homeland Security and 
Governmental Affairs, but it is in the second capacity, 
Governmental Affairs, which is the oversight of how Federal 
programs are operating and how Federal money is being spent, 
that I am privileged to conduct this hearing today.
    In a way, I want to use our State of Connecticut as a 
microcosm of the challenges facing all of our State and local 
governments as we try to get Federal stimulus money moving 
through our economy, protecting and creating jobs, and making 
investments in our future.
    I am not going to spend much time talking about the 
economic problems that brought forth the stimulus because we 
live with them. This is an unprecedented economic experience.
    Last year, the American people, American households, lost 
$11 trillion of value, assets, and wealth in the loss of value 
in our homes and in the loss of value in stock markets and the 
savings and investments that we have had. In the State of 
Connecticut, since the recession began in December 2007 to 
January 2008, we have lost over 50,000 jobs. We had the worst 
month of job loss in Connecticut in February, the worst month 
in 15 years, in which we lost over 15,000 jobs.
    It is that set of facts that led President Obama and his 
Administration, as they came into office, to reach out to 
Congress and to propose what we call a Federal stimulus 
package. The formal name of it is the American Recovery and 
Reinvestment Act. It is the largest Federal appropriation of 
its kind in American history, and it came about because the 
economic situation we are in is unprecedented. We have never 
had one like this.
    This is not the Great Depression, thank God. Unemployment 
and the loss in the economy are nowhere near as great as they 
were then. And we have the beginning of some signs of 
hopefulness. The markets which measure all of this had their 
best month in years in March. There was the beginning of 
economic activity. Consumer spending went up a little bit. The 
newspapers today, here in the State, say that the Connecticut 
Business Industry Association did a survey of small businesses 
in the State, and it found that they were finding it easier in 
the month of March to get loans from banks, which has been a 
real problem.
    But State and local governments are hurting, and will 
continue to hurt, and until we begin to create jobs again and 
stop the bleeding off of jobs with people becoming unemployed, 
we are not going to be anywhere near where we want to be. That 
is what occasioned the stimulus package, $787 billion 
authorized over 2 years, and here is what the basic thought 
was.
    There was a real problem in our economy: Subprime 
mortgages, loss of housing values, trouble in the financial 
sector and banking, people could not borrow money, the 
beginning of unemployment--real problems. Those real problems 
did two things: First, they created understandable anxiety, a 
lack of confidence in the American people about their future 
economically, whether they were going to lose their jobs, for 
instance, or if they had lost wealth in the stock market or 
their housing values. And so people stopped spending, and 
spending drives about 70 percent of economic growth in our 
country.
    A lot of economists told President Obama, and told Members 
of Congress, that there was a $1 trillion gap between what the 
American people will normally spend and what will be spent. 
Businesses stopped investing because they could not borrow the 
money for this year and probably next year. And in that 
reality, the only entity, the only organization that could 
begin to spend to try to turn the economy around and restore 
people's confidence was and is the Federal Government. That is 
why the President made the recommendation to enact a stimulus, 
and why we adopted it. I was privileged to be in the middle of 
the negotiations to not only form the bill but to get the 60 
votes we needed to get it out of the Senate to a conference 
committee and to pass and be signed by President Obama.
    I believe that the stimulus package has begun to put money 
out into the economy in a way that is working, and I think that 
is part of why confidence has gone up and why some of the 
economic indicators have gone up. But there is a lot more that 
we have to do, and that is why we are really here this morning.
    I will tell you that there were two goals that the 
Administration spoke of, and I think most Members of the 
Congress have, for the stimulus package. The first was to get 
money out into the economy to protect and create jobs. The 
second was to try to do it in a way that would make 
investments, significant investments in a better future for the 
American people; in other words, not only to stop the bleeding 
and build up the economy again, but to do it in a way that 
would be an investment in better quality of life and sustained 
economic growth, particularly in three areas--education, health 
care, and energy independence.
    As you probably heard, under this program, the State 
Government of Connecticut is in some cases not holding all the 
money itself but in most cases distributing it, including 
through local governments, particularly education money. The 
State will receive $2.9 billion in funding, and I am very glad 
we have been able to do that. This total does not account for 
other programs that will be funded under this that people will 
apply for directly from the Federal Government, nor does it 
count the payroll tax reductions that are beginning this month 
and will reduce the payroll tax for 1.4 million workers in 
Connecticut and their families, $400 for a single worker and 
$800 for a couple. Some people say that is not a lot of money. 
For a lot of people in our State right now, that is a lot of 
money, and it is going to enable them to maybe pay some bills 
off or maybe buy some things that they need that they otherwise 
would not be able to buy.
    So, today, we are really focusing on that $2.9 billion that 
is coming to the State Government of Connecticut for spending 
and also redistribution to other entities. And we are 
privileged to have with us a perfect group of witnesses, one 
representing the State, the others representing an education 
group, a health care group, and a broader group, which speaks 
particularly for children, but also for social services in our 
State.
    So let me now go, with that introduction, to our witnesses. 
Each of them, I think we have told you, will have 10 minutes 
for an opening statement, and then we will go on to a question-
and-answer period.
    Our first witness is the Secretary of the Office of Policy 
and Management of the State of Connecticut, Hon. Robert 
Genuario. I cannot think of a better preparation for this job 
that he had than to be a State Senator. Since I was once one 
myself, I have a bias. Secretary Genuario, welcome, and we look 
forward to your testimony now.

 TESTIMONY OF HON. ROBERT L. GENUARIO,\1\ SECRETARY, OFFICE OF 
          POLICY AND MANAGEMENT, STATE OF CONNECTICUT

    Mr. Genuario. Thank you, Senator Lieberman, and it is a 
pleasure to be here. Let me, on behalf of Governor M. Jodi 
Rell, extend my thanks to you for holding this hearing and 
giving us an opportunity to have a conversation, a dialogue 
about the stimulus package and its impact on Connecticut. We 
appreciate very much the effort and the rapidity with which 
this package was passed. It came to Connecticut when 
Connecticut, as other States, was going through a very 
difficult time.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Genuario appears in the Appendix 
on page 252.
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    I might add that the current economic crisis may adversely 
impact Connecticut to a greater degree than most other States 
because of Connecticut's dependence or involvement in financial 
services industries, both from the point of view of its 
population and from the point of view of the revenues that the 
industry generates for the State budget so that the State 
budget can provide services to many others.
    So, by way of backdrop, at the time the Congress and the 
President were putting together the package for our Nation, 
Governor Rell, my office, and members of the Rell 
Administration, were putting together a proposed budget for the 
General Assembly's review, and we were facing very substantial 
deficits. Our revenue situation had deteriorated significantly. 
My office had projected a $6 billion deficit back in January 
over the 2-year period. Since that point in time, my office has 
looked at the data that is coming in, and we are currently 
projecting a $7.4 billion deficit.
    So difficult decisions needed to be made, and the fact that 
the Federal Government was recognizing the problem that all 
States were facing and was providing assistance--not assistance 
to make all our problems go away, to be sure, but significant 
assistance by virtue of a variety of revenue streams targeted 
in many ways at those services that States historically have 
stepped up to the plate on and have provided for their 
populations.
    So Connecticut, we believe, began even before the Federal 
legislation was adopted by including our best estimates of what 
that legislation would provide in Governor Rell's State budget. 
We have been working with various agencies at the Federal level 
ever since to make sure that we are in a position to maximize 
the benefits of this legislation for Connecticut and 
Connecticut's citizens, and to do so in a way that makes 
Connecticut citizens proud and the Federal Government proud and 
keeps to the goals of transparency and accountability that are 
contemplated by the legislation.
    To that end, Governor Rell issued Executive Order No. 25, 
which calls for the creation of a State accountability officer, 
a State transparency officer, and a stimulus project oversight 
officer. The governor is very focused on making sure that 
Connecticut leads the way in demonstrating how transparent a 
process this can be. Early on in the process, the governor 
called together groups of legislators, municipal leaders, 
representatives from the nonprofit community, and stakeholders 
of all sorts to try to put together a list of projects that 
would meet the shovel-ready definitions in the Federal 
legislation. That has been an open and transparent process. She 
created very early on in the process a State Web site to follow 
the workings of this group. Decisions that are made are posted 
immediately on the Web site as those decisions are made. Those 
meetings are public, recorded, quite transparent in the manner 
in which the decisions to move the stimulus money--particularly 
what I would call the shovel-ready or the infrastructure 
portion of the stimulus package money--out to Connecticut 
citizens and to the folks who will create the jobs and improve 
the infrastructure for the State of Connecticut contemplated by 
the Act.
    As you might imagine--and I think as everybody recognized 
going forward--because of speed with which this legislation was 
developed, because it was developed at a time when States were 
putting together their own budgets, there has been and 
currently is a lot of interaction between our State agencies 
and their counterparts on the Federal level as policies on the 
Federal level are developed to tell us what we can do and what 
we cannot do with the money, how we can access it, what it is 
intended to do, what are the limitations, what are the 
condition on it.
    Chairman Lieberman. Are you finding the Federal Government 
personnel responsive?
    Mr. Genuario. We are finding them to be very responsive, 
Senator, and that is really one of the most pleasant 
experiences about this. These are complicated questions. There 
is a clear policy contemplated by certain provisions of the 
Act, but by its nature, there is not time to adopt formal 
Federal regulations for the use of this money consistent with 
the speed with which we would like to see the money get out. 
But my office, and the offices of various State agencies, have 
had numerous phone calls, conference calls, meetings with their 
counterparts at the Federal level, and we have found the 
answers are coming very quickly and that the Federal Government 
is showing a demonstrable willingness to work with the States 
in order to solve problems that come up on a day-to-day basis. 
So we are very pleased with the Federal Government's response.
    Chairman Lieberman. Good.
    Mr. Genuario. From where I sit, Senator, assisting the 
governor in promulgating and hopefully passing a State budget, 
the help that came to us by way of a stimulus package was very 
important to us. And as far as its impact on the State budget 
itself as a budget and as a mechanism to deliver services, 
those funds fall into several categories. First and foremost, 
there is the increased Federal Medical Assistance Percentage 
(FMAP) Medicaid money, that Connecticut will share generously 
in. Connecticut will receive over the course of 3 years about 
$1.3 billion additional Medicaid reimbursement. That will begin 
in fiscal year 2009, which is important because the State faces 
a significant deficit for the fiscal year that we are in. It 
will also assist us over the course biennium.
    There are, appropriately, conditions although, in my view, 
not too onerous in terms of the use of that money. When the 
governor proposed her budget, some of those conditions were not 
known. We will necessarily withdraw a proposal or two that she 
had made that are inconsistent with those conditions. But, by 
and large, the additional FMAP money does not unduly constrain 
the States in our view in order to access it.
    Perhaps I am speaking more from Connecticut's point of 
view. Connecticut tends to have relatively generous benefit 
packages, and I will use the unemployment compensation 
component as an example. Connecticut stands to get about $87 
million in additional unemployment compensation money.
    I noted in some of the national colloquy that certain 
conditions are required; certain benefit levels at the State 
level need to be adopted in order to access that money. The 
truth of the matter is Connecticut already meets 95 percent of 
those conditions from a benefit point of view.
    We did need--and the governor has proposed and the 
legislature is poised to adopt--one fairly inexpensive 
improvement to that benefit package in order to access that $87 
million. We are quite willing to do it. From where I sit, 
again, it will probably cost us $2 to $3 million per year. I 
think any businessperson would be willing to----
    Chairman Lieberman. That is a good deal.
    Mr. Genuario [continuing]. Undertake that additional burden 
in order to access the $87 million at a time when it is sorely 
needed.
    The other significant component of the stimulus package 
that flows through the State budget is the State stabilization 
fund. Obviously, that is targeted primarily, though not 
exclusively, towards making sure that we are able to continue 
our commitment to funding public schools. And the governor has, 
in fact, proposed a budget that will provide an amount of money 
to public schools in Connecticut equal to that which it 
provided last year. The governor essentially flat-funded all of 
its major educational grants. And I say that with some pride 
because in this day and age of shrinking revenues, flat-funding 
is a sign of priority. We are not in a position to increase our 
funding in too many areas, so that if we are able to maintain 
our commitment over the course of the next 2 years and, 
therefore, be in a position to continue the gains in those 
areas in the out-years, it is a win for us.
    I might add that Connecticut under Governor Rell's 
leadership provided one of the most significant increases in 
public school funding over the last biennium, so we are 
starting at a higher plateau than we would have been say 3 
years ago.
    The stabilization money does provide--and it is somewhat of 
a curious mechanism, but not one that I believe we will find 
difficult to work with. But we need to appropriate less than 
what we appropriated last year in order to access the money. 
But if we do so, then that money will then flow to the 
municipalities and the boards of education in amounts equal to 
what they would have gotten under the grant. It is not a 
provision that we think in the long run will provide us any 
difficulty. We will have to craft legislation that will 
accommodate that condition, but at the end of the day, the 
result will be the same, that every public education entity 
will get the same amount of money this year that it got last 
year consistent with the governor's proposal.
    The stimulus package also provides additional money under 
Title IV-E in order to assist Connecticut in its efforts to 
provide programs and services for children who are in need of 
adoption and in need of the services of the Department of 
Children and Families, and we are grateful for that as well.
    Beyond those three areas that flow through the State, 
Connecticut will receive approximately $150 million--and when I 
say Connecticut now, I am talking about entities other than the 
State itself--in other education programs, primarily special 
education, which we are grateful for, and educational 
technology; $450 million in transportation infrastructure 
money; $48 million in clean water funding; $64 million in 
weatherization; and $38 million in other energy programs.
    All in all, the stimulus package has provided the State 
with needed resources at a time when the State needs it the 
most. We are grateful for that, and we are particularly 
grateful with the efforts of the Federal Government to make 
clear the methods and conditions that we need to comply with in 
order to access these funds.
    Chairman Lieberman. Thanks, Secretary Genuario. That gets 
us off to exactly the right start, and I think your testimony 
perhaps shows--I tried to say this in my opening statement 
also--the main goal of the stimulus package was to get money 
out into the economy quickly to stop the slide down of our 
economy, but obviously also we had two other goals, which are: 
First, not to spend it so quickly that it is wasted or it is 
subject to fraudulent uses; and the second, obviously, is to 
make sure that it gets used for the purpose for which we 
intended it.
    Let me ask you just a factual question at this point about 
the flow of money to the State now from the Federal Government. 
Has it begun in a significant way?
    Mr. Genuario. We have not actually received the cash yet, 
but----
    Chairman Lieberman. But the check is in the mail.
    Mr. Genuario. The check is in the mail. [Laughter.]
    We do expect to be receiving it very shortly, particularly 
the fiscal year 2009 Medicaid money. Our counterparts down in 
the Federal Government have assured us that those dollars are 
available.
    We need to file our applications. The applications are 
involved. I think we are poised to file our application for the 
energy funds today. I was told, though, late last night that 
the electronic components are not up to receive the application 
as yet. But those are things that will be worked out.
    So, as you say, I think the check is in the mail. I am very 
confident that we will receive it by the close of business----
    Chairman Lieberman. In a timely fashion. I appreciate that. 
That is a good beginning.
    The challenge here is to make sure that the money is spent 
for what we wanted it, not just to avoid waste and fraud but to 
get to the benefits we wanted. And I will admit that there were 
mixed feelings, at least, in the Congress, probably in the 
White House, too, about this. We do not want it to be used just 
to pay for the operations of State government that otherwise 
would have to be paid for in the State. On the other hand, 
clearly, if one of the things we are doing by getting the money 
to you is to enable the State and local governments, education, 
etc., not to have to let people go, then that is part of what 
we wanted to do. And that line is a difficult line, and I think 
it is one that we will probably hear about as we hear our next 
three witnesses.
    John Yrchik is the Executive Director of the Connecticut 
Education Association (CEA), and education obviously was very 
much in the minds of Members of Congress and the President in 
adopting the stimulus package in all the ways that I have 
stated. So please proceed now with your testimony, Doctor.

  TESTIMONY OF JOHN P. YRCHIK, PH.D.,\1\ EXECUTIVE DIRECTOR, 
               CONNECTICUT EDUCATION ASSOCIATION

    Mr. Yrchik. Good morning, Chairman Lieberman. I want to 
thank you for your invitation to appear at this hearing on the 
American Recovery and Reinvestment Act, and I would like to 
thank you, Senator Christopher Dodd, and other members of our 
congressional delegation for your roles in assuring the passage 
of this legislation. The CEA would like to commend you and 
other Members of Congress for recognizing the critical 
importance of education in our economic recovery.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Yrchik appears in the Appendix on 
page 256.
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    In the next 2 years, over three-quarters of a billion 
dollars in new education aid will flow into Connecticut. This 
aid is unprecedented both in size and in nature. It is the very 
first time the Federal Government has stepped in to directly 
fund school funding formulas. But even with this enormous 
infusion of Federal dollars, like other States, Connecticut is 
projected to have layoffs and reductions in positions in a 
number of districts in our State. The reason for this, as 
Secretary Genuario has alluded to, is in part due to the 
enormous concentration of financial services jobs in our State. 
We have approximately 60 percent more financial services jobs 
than other States on a national average basis, and those jobs 
in turn produce many other jobs. So when the rest of the Nation 
has a cold, we catch the flu, and that is really what we are 
struggling with. The size of our deficit is a matter of great 
dispute in our State. One projection has it as high as $8.7 
billion, or approximately one-quarter the size of the entire 
budget.
    Connecticut is one of the relatively small number of States 
that is proposing to use the State fiscal stabilization fund to 
supplant State aid that the State currently provides to 
municipalities. Our State may be alone in proposing to use the 
entirety of the State fiscal stabilization fund to backfill 
existing State education aid to municipalities with Federal 
dollars, and in doing this, our State will have reduced its 
actual commitment to education aid by over 14 percent over the 
next 2 years.
    Connecticut's governor did have the option of using 
stabilization funds to exceed the fiscal year 2009 
appropriation but chose not to do so. And as Secretary Genuario 
said, we are not funding municipal aid to education at the 
level of current services. And next year, the State will be 
contributing 21 percent less than what it would have 
contributed if it merely provided an increase sufficient to 
maintain current services at this year's level of education 
cost-sharing grants.
    But, I have to say that as difficult as the situation is 
now, it would undoubtedly have been far, far worse had the 
American Recovery and Reinvestment Act not passed Congress. By 
way of illustration, our State Board of Education earlier this 
year passed a budget in which it cut education cost-sharing 
grants by 12 percent. Had a cut of this magnitude or anything 
like it survived the legislative process, it would have had 
catastrophic results on education in Connecticut.
    Chairman Lieberman. And I presume, if I can draw you out on 
that, that would have meant significant layoffs of teachers and 
other school personnel.
    Mr. Yrchik. Enormous. And so I think it has to be said 
that, as bad as things are now, they would have been 
considerably worse had these funds not been available, and that 
is a point that has to be stated categorically.
    At the same time, because these are one-time funds and our 
State is using them to supplant existing State dollars, the 
question arises: What will we do when the funds run out and our 
State does need to begin, it seems, rather soon to develop a 
plan to deal with the hole in the budget that will come when 
the Federal dollars are no longer there? That is one challenge.
    Another one is that as a condition of accepting the 
stabilization funds, the State has to make progress in four 
areas: Teacher effectiveness, standards and assessment, 
improving achievement in low-performing schools, and creating 
systems that track student progress.
    In the governor's original budget, she eliminated the 
funding for a mentor program that would have been extremely 
important in improving effectiveness in our State, and 
particularly in ensuring teacher quality across Connecticut 
districts.
    Chairman Lieberman. Mentoring for teachers.
    Mr. Yrchik. That is correct.
    Chairman Lieberman. Not students, right?
    Mr. Yrchik. Yes.
    Chairman Lieberman. Important.
    Mr. Yrchik. In addition, her original budget eliminated 
funding for a program called CommPACT Schools, which takes some 
of our lowest-performing schools and, in a historic 
collaboration with the School of Education of the University of 
Connecticut (UConn), attempted to turn them around using a 
whole school reform approach that has been proven successful in 
many other parts of the country.
    Both of these programs have been restored in the most 
recent budget of the General Assembly, and we are hopeful that 
they will survive the legislative process.
    Last, with respect to transparency, we believe that our 
State's efforts to ensure transparency are adequate, and we 
believe that they are doing an admirable job in trying to track 
the use of funds. I would just say that we want to ensure that 
the need for transparency does not create so many 
administrative burdens that it becomes counterproductive, and 
that is something I think we will monitor as we go along.
    On the subject of IDEA, our State will be receiving $133 
million in IDEA funds.
    Chairman Lieberman. Please define IDEA?
    Mr. Yrchik. IDEA is the Individual with Disabilities 
Education Act. The Federal Government originally committed to 
spend about 40 percent of the total costs of IDEA when the Act 
was first passed. Currently in our State, it spends something 
like 16 or 17 percent. With the stimulus package came an 
enormous infusion of new IDEA dollars. The State currently 
receives $150 million in IDEA funds and over the next 2 years 
will receive an additional $133 million.
    Chairman Lieberman. Almost doubling. Or a little less.
    Mr. Yrchik. A 60-percent increase in each of the next 2 
years, correct. And one of the things that the last 
reauthorization allowed is for school districts to use 50 
percent of the increase, just 50 percent of the increase, to 
supplant State and local funds currently being expended on 
special education to defray other costs in the school operating 
budgets.
    In a time like this, when teachers are being laid off in 
many parts of the State, this would seem to be an important 
issue. But so far, school districts have not really moved to 
aggressively use the IDEA funds that can be freed up in this 
way to prevent layoffs. I think in part that is because at an 
initial meeting of superintendents, they were not told that 
they could. And then when guidance finally came from the State 
department, they were told that if they did, they could have 
holes in their operating budget 2 years from now.
    But given that these funds are arriving in our States under 
the guise of an act whose primary purpose is to preserve jobs, 
to retain jobs, and to create jobs, it would seem to be 
important that we look at the potential uses of money in this 
way to do exactly that.
    I would also like to talk about Title I, which is education 
for disadvantaged students. In fiscal year 2009, Connecticut 
received $102 million and over the next 2 years will receive an 
additional $97 million, roughly a 50-percent increase in each 
of the next 2 years. A perennial criticism of No Child Left 
Behind has been that it was underfunded, and one of the primary 
areas of criticism was that Title I was underfunded. And with 
this historic increase, it would seem we are much closer to our 
goal of properly funding No Child Left Behind.
    The problem is that these are not ordinary times, and in 
the context that we are in, we are looking at effectively a 
reduction in State aid because level funding is a reduction for 
next year. We are looking at layoffs, eliminations of programs, 
positions, and pretty severe fiscal stress in many 
municipalities. And I think the question really is: Can $97 
million over 2 years adequately compensate for the losses that 
will come to education from the distress that I have just 
mentioned?
    In normal times, it would be used to provide professional 
development, to create after-school tutoring programs, pre-K 
programs, and other things that we know work. But at this time, 
it is difficult to know what its effect will ultimately be. It 
will ameliorate some of the effects of the distress, but 
whether it will ultimately be able to help districts fulfill 
the promise that comes with it is hard to stay at this point.
    As with IDEA, we believe that a portion of these funds 
could be used at this time to help districts preserve their 
core education programs and bridge the shortage in revenues 
that they will experience between now and fiscal year 2011. 
What we need to do this, however, is clear guidance from our 
State department and from the Federal Government, and we need 
the ability to get this guidance on a rapid basis.
    I would like to say just two quick points in conclusion: 
That the CEA stands ready to work with the State Department of 
Education in helping to ensure that these funds are used 
properly; our teachers at the local level stand ready to work 
with local school districts. And we believe that this is an 
important time for all of us to work together.
    I would like to say, too, to reiterate what I said earlier, 
that the overall result of almost $800 million in Federal 
funding is unreservedly positive. We believe that the promise 
of the Recovery Act is great, and on behalf of the CEA and the 
National Education Association (NEA), we very much appreciate 
your effort to hear our stories and to work with you toward 
economic recovery.
    Thank you.
    Chairman Lieberman. Thank you, Dr. Yrchik, both for the 
tone and the substance of your statement. And I think you 
really highlight the moment we are at, a moment of real need in 
which this Federal money can avert and will avert some really 
disastrous consequences at the State level in education, for 
instance. But we want it to do more than that, and that is the 
challenge that everybody has here because we want it really to 
be not just a stop-gap now but an investment in a better future 
for our kids through the education system. It is not easy to do 
because there is a natural tendency to try to put your finger 
in the dike so it does not get blown away by the water. But, on 
the other hand, if I may continue this old metaphor, maybe we 
really need to rebuild the dike so that it is a better dike. 
That is the challenge, and I want to engage in some 
conversation after we get to the other witnesses about that.
    Our next witness, speaking for the health sector, is Steve 
Frayne, who is the Senior Vice President for Health Policy at 
the Connecticut Hospital Association. He has been a long-time 
advocate and thoughtful spokesperson for better health care in 
the State. We welcome you now.

   TESTIMONY OF STEPHEN A. FRAYNE,\1\ SENIOR VICE PRESIDENT, 
        HEALTH POLICY, CONNECTICUT HOSPITAL ASSOCIATION

    Mr. Frayne. Thank you, Senator. Good morning. As you said, 
my name is Steve Frayne. I am the Senior Vice President for 
Health Policy at the Hospital Association, and we do appreciate 
this opportunity to testify on the benefits that the American 
Recovery and Reinvestment Act of 2009 will have for Connecticut 
hospitals and Connecticut communities. We also want to thank 
the hosts here for this wonderful facility and also for all of 
the students who are participating. I am sure some of them 
might feel a little anxious about some of the things we are 
talking about here, but I am sure you agree, as I am hopeful 
most of the panelists do as well, that really we do have the 
best and brightest folks working on these issues. I think we 
are all very confident that we will succeed, and succeed in a 
terrific way, in turning our economy around and producing some 
great things for the future.
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    \1\ The prepared statement of Mr. Frayne appears in the Appendix on 
page 267.
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    I would certainly encourage all of them, as they are 
thinking about their future, to also consider careers in public 
service. These are terrific careers. They are very rewarding. 
Whether it is in health care, education, or in government, 
these are things that we would certainly encourage them to 
think about.
    This morning, in terms of my testimony, I would like to 
talk about a few things. One is to give a little context about 
what hospitals are and who they serve. Second is to talk about 
how we are doing right now. And then third is to really talk 
about how the Recovery Act affords us some opportunities to, in 
fact, be able to advance where we need to go as both a hospital 
community and as a State as a whole.
    Connecticut hospitals are really more than just facts and 
figures and dollars and cents. At their very core, hospitals 
are really people taking care of people. Each year, the more 
than 66,000 employees who work in Connecticut hospitals do 
their level best to provide the absolute highest quality of 
care that the citizens of our State need.
    Last year alone, we had roughly 2 million days of care 
delivered by hospitals to patients in the State of Connecticut. 
We also had more than 4 million outpatient visits to the 
hospitals throughout the course of the State. Some of those 
visits, about a million and a half of them were emergency 
department visits; other visits, well over 600,000 of them, 
were for basic primary care services, basic physician services 
that individuals just could not find access to at a private 
physician's office, and they needed to seek out that care in a 
hospital.
    We also contributed quite significantly to the overall 
economy of Connecticut. Last year, those 66,000 jobs together, 
with the direct employment and then the employment for all of 
the other jobs that actually provide services to hospitals, 
combined produced over 97,000 jobs in the State of Connecticut, 
almost $13 billion in economic activity, and we purchased 
nearly $6 billion in goods and services locally here in the 
State of Connecticut.
    So, obviously, hospitals are a fairly significant part both 
of the economic health of the State as well as the personal 
health or contributing to the personal health of those who need 
our assistance when they are ill.
    In the best of times, the ability of Connecticut's 
hospitals to contribute to the general economy as well as to 
providing high-quality care is often taxed, and taxed quite 
significantly. In a routine year--and, obviously, we are not in 
a routine year--it is quite typical for hospitals to experience 
well over half a billion dollars in losses providing services 
to individuals who are enrolled in State and Federal programs, 
as well as the uninsured. This is really a fairly significant 
burden, one which we have to figure out how to deal with on an 
annual basis. It never goes away and it grows larger and larger 
every year.
    As I said, obviously these are not typical times, and what 
we are experiencing, unfortunately, for the very first time in 
our history is a situation where those instances where we have 
had investments that we were able to use to help offset some of 
those losses through Federal programs or State programs, those 
investments, not dissimilar to what other folks are 
experiencing in their 401(k)s or dollars that they might have 
had saving for the future, have declined quite dramatically 
over the last year. We are now in a situation where not only 
are they not contributing to our ability to manage some of 
these routine losses, they are actually adding to the losses on 
a routine basis. And this is really a very devastating 
situation that we find ourselves in at the moment.
    Switching to hopefully some of the good news, thankfully, I 
think, Senator, with your leadership, Congress is delivering 
some very significant relief to the State of Connecticut. It is 
much needed, and we are clearly very appreciative of all the 
hard work that you and your staff and others in Congress have 
put forward to bring desperately needed funds into the State of 
Connecticut.
    I am going to talk about four elements of the Recovery Act 
and how those might be particularly helpful to hospitals.
    I think earlier, Mr. Genuario referenced the Medicaid match 
and how that will provide a significant benefit to the State, 
particularly in its ability to be able to continue to provide 
much needed access to health care. Where we stand at the moment 
in terms of how those funds are going to be used is we have 
kind of a range of options, anywhere from, on the upside or the 
best of situations as it currently looks, we may experience no 
cuts to our current levels of funding; and in the worst-case 
scenario, there are proposals out there where there may be 
potentially upwards of $170 million worth of cuts over the 
course of the next 2 years.
    This is a difficult situation, and I think it gets to the 
point that you were raising earlier, which is where is that 
fine line and do we find the right place where, on the one 
hand, we both stimulate the economy and preserve jobs and 
increase jobs in our State and, on the other hand, we also make 
it possible for the States to help balance their budgets. That 
is a very difficult line to find, and I think, respectfully, we 
all may have very different opinions sometimes around where 
that line may lie.
    Our view, obviously, is that first and foremost those 
dollars are intended for Medicaid and need to be used for 
Medicaid. We think that it is absolutely critical that we 
preserve access to health care for those folks who, through no 
fault of their own, find themselves in a situation where they 
need to rely on the State and Federal Government for their 
basic health insurance. So we certainly do not want to see any 
of those funds not used to both preserve access as well as to 
meet the growing number of individuals who need to use those 
services.
    Chairman Lieberman. So you would say your minimal goal for 
the use of the Medicaid reimbursement or support that is part 
of this bill, is that there be no cutbacks in services 
available to anyone in the State eligible for Medicaid?
    Mr. Frayne. Correct. That is our minimum starting point for 
which we think those funds should be used.
    Chairman Lieberman. Let me just interrupt you. I do not 
usually interrupt, but since we are at home, Secretary 
Genuario, do you accept that goal or does the State accept the 
goal?
    Mr. Genuario. We have proposed some changes to our Medicaid 
plan, changes that I think are reasonable. I do accept as a 
general premise that Medicaid is an important program, that 
there should be no deterioration in rates that we pay for 
services, and that there should be no deterioration in 
eligibility for Medicaid services. But I think the State should 
reserve the right and is entitled to reserve the right 
concerning the particular programs that it provides and whether 
or not modifications in those programs are warranted.
    Chairman Lieberman. So that means what?
    Mr. Genuario. I will give you an example.
    Chairman Lieberman. Yes. Obviously, what I am interested in 
is whether it means a reduction in benefits under Medicaid in 
the State.
    Mr. Genuario. I will give you a couple of examples, and 
they are examples that vary in range. But Connecticut, for 
example, for those who are dually eligible for Medicaid and 
Medicare, pays for preferred policies as opposed to benchmark 
policies offered under the Federal Medicare Part D plan.
    Chairman Lieberman. That is the prescription drug program.
    Mr. Genuario. Yes. Under the governor's proposal, this 
year, given our economic times, we have suggested that the 
State will pay for benchmark plans but not for preferred plans. 
I know of no other State in the Nation that pays for the 
preferred plans.
    So there are changes like that that I think are 
appropriate.
    Chairman Lieberman. Mr. Frayne, do you want to react to 
that? Would that meet your minimum threshold or does it go 
beneath it?
    Mr. Frayne. I think in the example that the Secretary 
provides, it probably could meet it, but I think there are a 
number of other changes which have been proposed that, we have 
testified before the legislature that we think do not, for 
example, imposing co-pays on individuals, requiring them to 
share in a cost of the premium, I think changing who might be 
necessarily eligible for the program or some of the benefits of 
the program. I think in those instances we would hope, first 
and foremost, we use these dollars to make sure--we do not have 
to make it more difficult for folks.
    Let me just say, we do genuinely appreciate this 
Administration and those in the legislature who are having to 
wrestle with these incredibly difficult problems.
    Chairman Lieberman. Yes, tough times.
    Mr. Frayne. How to balance this and make it work. We 
certainly do not envy the decisions that they have to make. And 
I think it is our goal to, as respectfully as possible, 
communicate to them our views on how these things might work 
and how they could best be used and how actually they can help 
create jobs in the State.
    One of the things that has been kind of a consistent theme 
of ours is that, in order for it to be a stimulus, it actually 
needs to have some portion of increased spending. If, in fact, 
all we do is crowd out the State dollar for a Federal dollar 
and there is no actual increase in spending, then, in fact, in 
part some of the stimulus impact has been lost.
    We think, quite frankly, there is a way to balance the 
objectives of both preserving the Medicaid program intact for 
those who are in need of it, helping the providers so they can 
continue to provide that care, and having an enormous amount of 
funds left over to, in fact, contribute to the State budget. So 
we think we can meet all three goals.
    Chairman Lieberman. OK. That was an important exchange.
    Incidentally, I would say this with regard to education, 
health, and the whole array of child services that Sharon 
Langer is going to talk about: Part of why I am doing a hearing 
like this and why we are continuing our oversight is, as I said 
earlier, to make sure that we are achieving in a difficult time 
the goals we want to achieve. And I will tell you that Congress 
will reserve the right to legislate again on this before this 
2-year period is over if we think that the difficult balance--
nobody is making it easy--between sustaining current services 
and investing in new services that are meant to improve our 
future, is not met adequately, not only here but across the 
country. I think you can expect Congress to get back in and 
mandate or speak more clearly in some areas of this law where, 
frankly, there was some room left for judgments at the local 
level.
    So, I am sorry, go ahead, Mr. Frayne. Please finish your 
statement.
    Mr. Frayne. There are a few other things that I would talk 
about that are in the Recovery Act. There is the provision to, 
in fact, provide to hospitals in particular access to 
additional funds to deal with the fact that the number of 
individuals in this State who find themselves without any 
access to health insurance at all and, therefore, perhaps not 
access to basic fundamental care. Those numbers of individuals 
are growing, and thankfully, as part of this legislation, there 
was a provision in there that said we are going to open up some 
additional funding to States to allow them to be able to pass 
that on to providers.
    One of the caveats or one of the hooks that causes those 
funds to come in is at first the State has to be currently 
expending all of the available dollars that it could access. 
This is a program called the disproportionate share program. 
Every hospital in the State of Connecticut is, in fact, 
eligible for those, so it is not a program just limited to 
cities or towns. It helps suburban hospitals and urban 
hospitals and large hospitals and small hospitals.
    Sadly, in this instance, as we see it, we are not going to 
be able to get access to those funds principally because, as it 
stands right now, the State is not fully accessing existing 
dollars. So it would require in this environment to have the 
State actually increase spending, which is not likely--not 
possible, really. And, therefore, I think those dollars will 
not be able to be accessed for the purpose they were intended.
    On this point--and I think the next two points that I am 
going to raise--as Congress thinks about these things in the 
future, one of the things that we would hope some thought is 
given to, particularly when the States find themselves in a 
very difficult place where they need to spend a dollar in order 
to bring in a dollar, perhaps it might be better in the future 
when the States find themselves in a situation where they 
literally cannot spend another dollar, even though they may 
want to do everything they can to help us, they just find 
themselves not in a position to do so. And I would at least 
propose for consideration that we find some way to make sure 
that those dollars that you are looking to send to us are not 
simply contingent upon the good will or the ability of the 
State to be able to access those funds.
    Chairman Lieberman. That is a good recommendation. Yes, I 
take your point.
    Mr. Frayne. The last two things I would talk about are 
interrelated with each other. There are dollars that will flow 
through the Medicare program starting in 2011 over the course 
of 4 years. Actually, a fairly large sum of funds, probably 
about $150 million, will come into the State of Connecticut 
over the course of 4 years. The purpose of those funds is to 
help hospitals, in fact, implement electronic health records so 
that we can actually improve the quality of care that we 
provide to patients. What many may not know is that these kinds 
of undertakings--electronic health records, physician order 
entry systems, and computerization, really of a lot of what we 
do in health care--are extremely expensive, very time-
consuming, and could take multiple years to complete these 
projects. It would not be unusual for an average hospital to 
have to spend upwards of $20 to $30 million and be engaged in a 
3 to 5-year project to implement these things. So these kinds 
of resources coming through us would be extremely beneficial 
and should go a long way to helping us succeed.
    The very last point which is related to that is--and one I 
hope that we will be able, in fact, to work with the Secretary 
on and the balance of the Administration and the legislature--
that there is another provision in the law which relates to 
this that says States can actually create loan programs to, in 
fact, help providers--not just hospitals but physicians and 
other providers--be able to borrow money so that they can, in 
fact, purchase these electronic health record systems, which we 
know are extremely expensive. And it is really unprecedented, I 
think, the benefit of this program, where the Federal 
Government will match $5 to every $1 the State is able to put 
forward.
    Now, obviously, we realize it is a very difficult time for 
the State to even come up with the $1, but we are hoping that, 
given the fact that this is not a grant but it is, in fact, a 
loan program, we will be able to find during the course of this 
legislative session both the will and the commitment and the 
means to be able to do this, because I think we really need to 
be looking out for the next several years on how are we going 
to improve the care that Connecticut citizens want and expect.
    So I think I would just conclude that, as I said earlier 
on, we are clearly very appreciative of all the hard work that 
you personally have put into this Act. And I think yourself as 
well as the Congress have really put before us really an 
unprecedented opportunity, one which we really just cannot 
afford to squander. We have to find a way to make this work. We 
have to find a way to balance both the needs of the citizens in 
Connecticut and the care that they need along with balancing 
the State budget. I am reasonably confident that we are going 
to be able to do that. Thank you.
    Chairman Lieberman. I appreciate that very much. Thank you.
    I would just say a word to the students about something you 
said earlier, which maybe is not evident. The hospitals of 
Connecticut, the health care system, like the schools, do not 
just deliver a service, which is health care or education. They 
are tremendous centers of economic activity. In almost every 
city in this State, probably the largest employer or close to 
the largest employer is the local hospital. And part of why we 
want to keep them healthy is not just so that they keep us 
healthy, but that so they keep our metropolitan areas healthy 
economically. And part of why we want this money to be used to 
avoid the disastrous layoffs of teachers, for instance, that 
would have occurred without the stimulus funding is that, to 
say the obvious, you want to protect the jobs. I always feel 
the best thing government can do is to try to help people get 
and hold good jobs to provide for themselves. But if they lose 
their jobs, they obviously do not have the money to go out and 
buy the things they would normally buy, and that trickles down 
in the economy so that the recession gets worse and worse. 
Stores close, etc.; other people get laid off because the 
stores are closed.
    Anyway, that is why at the center of this stimulus program 
the first goal was to protect and create jobs, for the jobs 
themselves but also for what they mean to the rest of the 
economy.
    That is the end of my economic lesson for today, students.
    Sharon Langer is the Senior Policy Fellow at Connecticut 
Voices for Children. Thank you for being here, and thanks for 
your patience.

    TESTIMONY OF SHARON D. LANGER,\1\ SENIOR POLICY FELLOW, 
                CONNECTICUT VOICES FOR CHILDREN

    Ms. Langer. Thank you, Senator Lieberman. I am honored to 
be here today, and I echo many of the sentiments of the other 
panelists. I am here on behalf of Connecticut Voices for 
Children. For those of you who do not know, it is a research-
based public education and advocacy organization which works 
statewide to promote the well-being of Connecticut's children, 
youth, and families. And I appreciate particularly the 
invitation to discuss the enormous challenges that our State 
faces in ensuring that the stimulus funds for health care and 
education are spent quickly, wisely, and fully.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Langer appears in the Appendix on 
page 273.
---------------------------------------------------------------------------
    And I echo Mr. Frayne's comment that I do not envy 
Secretary Genuario his job, but I want to say on behalf of 
those of us who are not part of the government, who are not 
either in the Executive Branch or the legislature, that we 
stand ready--and I think the Secretary knows that Connecticut 
Voices for Children stands ready--to be a partner, not merely 
to criticize, but to be a full partner in helping the State 
move through this very difficult next 2 or 3 years. And I am 
delighted that the Federal Government, represented by you, 
Senator, and Secretary Genuario today representing the State, 
that you are here together, that this is a dialogue that 
hopefully will continue on many levels.
    I will just reiterate a couple of points that others have 
made.
    We know that our State is reeling from the collapse of the 
financial markets, the slump in the housing market, and the 
alarming increase in our State unemployment rate, which I 
believe is approximately 7.4 percent. And at the same time, the 
governor and the State legislature are faced with tackling a 
projected State budget deficit, as we have heard earlier, of 
anywhere between $6 and almost $9 billion for the two State 
fiscal years that will begin July 1. And just to keep it in 
perspective--and I think maybe Dr. Yrchik actually said this--
if we have a projected State deficit for 1 year that is 
anywhere between $3 and $4.5 billion of an $18 billion State 
budget, that is approximately 25 percent of our State budget, 
which is unprecedented. And at the same time, Connecticut, our 
little State, which has 169 cities and towns, faces terrible 
budget choices, including the town of West Hartford that I live 
in. And as a result, I agree that the Federal stimulus dollars 
have come none too soon to help our State keep its commitment 
to children, struggling families, and all the residents of our 
State.
    I also want to reiterate what has been said before about 
the Federal Government agencies--the Department of Health and 
Human Services, the U.S. Department of Education--it is 
seemingly unprecedented that they have been able to issue 
guidances to help the States understand and interpret the 
stimulus legislation. And I think that those kinds of efforts 
by the Federal Government are enormously helpful. It is my 
understanding that the Federal Government and its State 
partners are on the phone, practically daily and for weekly 
conference calls.
    I would urge both the Federal Government and the State 
government, to engage nongovernmental stakeholders in these 
conversations. I was in Washington recently, and one of the 
general counsels for the Department of Health and Human 
Services talked about the fact that they are trying to figure 
out how to reach out to others who are very interested in 
understanding how this money is used, both to make sure that it 
fulfills the multiple objectives to stimulate the economy and 
to preserve critical services. It is also so important that 
everyone knows what is happening on the ground so there is not 
unnecessary concerns about waste or fraud. I mean, everyone has 
to be vigilant given how much money is at stake and how quickly 
the attempts are being made to move it on the ground.
    We were particularly pleased that the Department of Health 
and Human Services, its Centers for Medicaid and Medicare 
Services, came out with a guidance that really explained to the 
States what they can and cannot do in order to receive the 
increase in the Federal Medicaid matching funds. And I just 
want to say, for those of you who do not know, that the 
Medicaid program in Connecticut alone provides critically 
needed health care services to one out of four children. Over 
30 percent of the births in this State are to moms on our 
Medicaid program (which includes those moms on the Healthcare 
for Uninsured Kids and Youth (HUSKY) A program).
    While the guidance from the Federal Government and the law 
make clear that the States cannot cut back their eligibility 
rules, there are many other ways, as we know from years and 
years of research, that you can create either intended or 
unintended barriers to getting families on publicly financed 
health programs, keeping them on, and getting them services. 
Proposals that have been put forward to institute cost-shifting 
onto low-income families, persons with disabilities, or elderly 
folks, garner savings by inhibiting people's ability to either 
get on the program or to access the health services. So we 
encourage both the Federal Government and the State Government 
to really carefully assess whether such proposals are in the 
best interests of children and families.
    I would also point out that we have to appropriate the 
Medicaid dollars, in order to draw down the stimulus funds to 
appropriate the money. We have to spend the money in order to 
receive Federal reimbursement. And so there is not a guarantee. 
And so to the extent that we are cutting back in our Medicaid 
budget, for example, we put at risk our ability to access all 
of the Federal dollars that we get from the Federal Government.
    I also want to reiterate what Mr. Frayne said, that we are 
worried that Connecticut may forego opportunities to utilize 
all the Federal funds available because Connecticut, quite 
frankly, has a long history of leaving Federal funds on the 
table, whether those are Medicaid funds, as Mr. Frayne said, a 
disproportionate share of hospital payments. During the 10 
years of the Children's Health Insurance Program, we left a lot 
of money. Delightedly, the law with your help and the help of 
your colleagues, Senator Lieberman, the Children's Health 
Insurance Program (CHIP), was recently reauthorized. It is a 
fabulous law. It attempts to fix the funding problems to give 
States many options to cover more children, to simplify 
eligibility requirements and processes, to do outreach. And, 
quite frankly, Connecticut is very unlikely to take advantage 
of most of the opportunities in that law, partly because of our 
fiscal crisis and partly because Connecticut in some ways has 
been ahead of many other States, and it will just be a very 
difficult process.
    The other challenge has to do with the way that Connecticut 
actually budgets. I do not know if there are other States that 
do this, but we are one of a few States that gross budgets both 
the Federal Medicaid dollars and actually the Title IV-E 
dollars, which, as Secretary Genuario said, goes to fund our 
child welfare program to help families adopt children. Those 
are really our poorest children in the State. And we also gross 
budget, which means we appropriate many of the Federal block 
grant funds that the Federal Government sends us.
    So what that means in plain English is that the Federal and 
State dollars are combined in line items of the State budget. 
For example, the anticipated Medicaid stimulus funds in the 
form of the increased what they call Federal Medical Assistance 
Percentages (FMAP) payments to the State will just appear as a 
Medicaid line item in the State Department of Social Services 
budget. And as a result of this longstanding practice of 
including the Federal funds without explanation in the State 
budget, it will be difficult to track the actual use of the 
stimulus funds.
    I am delighted to hear from Secretary Genuario, and after I 
wrote my testimony, I did become aware that the governor has 
issued an executive order to create various positions, a 
stimulus project oversight officer, and the like. And so, in 
order to facilitate increased transparency and accountability, 
we would urge the governor to make sure that any work of these 
officers is put on the State recovery Web site and that the 
work of any work groups that Secretary Genuario referred to is 
also on the State's recovery Web site.
    I would also let you know that Connecticut Voices for 
Children has created our own web page concerning the Federal 
stimulus, and so as soon as we see something new, whether it is 
a guidance from the Federal Government, information from 
Secretary Genuario's office, or elsewhere related to the 
implementation of the stimulus, we have put that information 
on----
    Chairman Lieberman. Ms. Langer, let me interrupt and I 
apologize. The time is going on.
    Ms. Langer. I am basically done.
    Chairman Lieberman. Let me say for the record that we are 
going to enter everybody's statement in the record in full--and 
I have read them; you have some good statements. I want to 
leave some time for back and forth. But I appreciate what you 
have said.
    I actually want to pick up on the final point that you 
made. The Recovery Act itself and the President are very set on 
this being as transparent and accountable a program as we have 
ever had in the Federal Government, particularly using 
technology and the Internet. The government set up a Web site 
called Recovery.gov, and as of last Thursday, when I held my 
second hearing on this in Washington, the Web site had received 
over 300 million hits since about the middle of February when 
the Act was signed. It is quite startling how much interest 
there is in what is happening, and the President has set some 
very high standards that have never been met before here for 
people to be able to follow contracts, and to follow money from 
the Federal to the State to the local level.
    So I want to ask you, Secretary Genuario, first, what the 
State is doing to try to comply with those requirements?
    Mr. Genuario. The State has its own Web site.
    Chairman Lieberman. Specifically with regard to the 
stimulus?
    Mr. Genuario. Absolutely.
    Chairman Lieberman. What is that address? Ah, I got you.
    Mr. Genuario. You got me on that one. It has its own Web 
site. I think it is up on the governor's----
    Chairman Lieberman. Ms. Langer, what is it?
    Ms. Langer. I have it.
    Mr. Genuario. Terrific.
    Chairman Lieberman. What is it?
    Ms. Langer. It is www.recovery.ct.gov.
    Chairman Lieberman. That is recovery.ct.gov, good.
    Mr. Genuario. Thank you.
    Ms. Langer. You are welcome.
    Mr. Genuario. I was going to point out before that when I 
want information, I go on Connecticut Voices' Web site. 
[Laughter.]
    But Governor Rell's office, early on, formulated its own 
Connecticut stimulus Web site. It can be accessed directly. It 
can be accessed off the governor's own Web site. The minutes of 
every working group meeting are posted on that Web site. 
Decisions that the working group make or that the governor 
makes following recommendations of the working group are posted 
on the Web site. Decisions have already been made with regard 
to certain Department of Transportation infrastructure. Not 
only have those decisions been made, but as contracts are 
entered into, those will be posted on the Web site.
    So I think Governor Rell has actually been in the forefront 
of making sure that this is a transparent process. Backing up, 
even before that, she engaged a variety of stakeholders in 
order to help make decisions in these areas.
    Chairman Lieberman. That is really important, and to say 
what is obvious to you at the table, this transparency that you 
will find on the Federal Web site and now on the State Web site 
is important for many reasons, one of which is obviously for 
people to figure out how to access funding under the stimulus 
bill; but the second, of course, is to see how it is being 
spent and in a certain sense to enable any citizen to become a 
whistleblower, to say, for example, the Web site says that this 
money is being used to build a new building in my town, and I 
live across the street from that property and nothing is 
happening. So it is very important.
    As part of this desire to make sure the money is spent 
wisely, we set up a Recovery Accountability and Transparency 
Board, which is being headed by Mr. Devaney, who is the 
Inspector General at the Interior Department. He has said that 
one of his goals will be to try to help the States in fraud 
prevention and waste prevention by conducting briefings.
    Is that something you think would be helpful for State 
officials?
    Mr. Genuario. I do think it would be helpful, and I think 
we all need to be conscious of the fact that this is a lot of 
money going out the door relatively quickly.
    Chairman Lieberman. Right.
    Mr. Genuario. So I think that would be very helpful.
    Chairman Lieberman. Incidentally, we appropriated, believe 
it or not, $250 million over the 2 years for the hiring of 
additional inspectors and investigators for the inspectors 
general to pursue the spending of money across the country, 
just as a kind of guarantee.
    I know you mentioned some appointments Governor Rell has 
made. Governor Schwarzenegger recently got some attention by 
employing a separate inspector general at the State level to 
monitor stimulus spending in California. Is the governor 
contemplating anything like that?
    Mr. Genuario. She has made several appointments. She has 
appointed a transparency officer, an accountability officer. We 
are looking to hire a stimulus officer who will track each and 
every project within that office.
    Chairman Lieberman. So that would be the equivalent of what 
Schwarzenegger has done in California.
    Mr. Genuario. Exactly.
    Chairman Lieberman. And I think in your prepared testimony, 
Ms. Langer, you endorsed a State Senate bill?
    Ms. Langer. Right, and it was a Senate bill before the 
State legislature that basically would set up a commission to 
do what I believe Secretary Genuario is talking about. We 
applaud the governor for instituting these kinds of offices, 
and what is important to us is the transparency and the 
opportunity to give feedback.
    Chairman Lieberman. So do you still favor the creation of a 
State commission on Federal stimulus fund distribution, or do 
you think what the governor has done satisfies that?
    Ms. Langer. All I know about what the governor has done was 
in the press release, so it appears to do that. I guess the 
question is whether the commission goes farther because it is 
made up of a group of people rather than just several 
individuals.
    Chairman Lieberman. Secretary, does the governor have a 
position on this bill? Are you familiar with it?
    Mr. Genuario. I am generally familiar with it, and I think 
the governor's position is that the Federal legislation sets up 
the Executive Branch as the director of most of these funds, 
though not all. And to the extent that the Federal legislation 
sets that up, that ought to be the system that Connecticut 
uses.
    With regard to advisory commissions or advisory boards, the 
governor has frequently worked with the legislature in terms of 
creating those types of bodies, and I doubt whether there would 
be an objection to that.
    Chairman Lieberman. Let me ask you about some of the 
questions Mr. Frayne raised about the State losing the 
possibility of Federal funding because of its unwillingness or 
inability to put in the State's share. Would you respond to 
that?
    Mr. Genuario. Well, over the course of the last several 
years, the State has, I think, gone to great lengths to 
maximize, to the extent possible, Federal reimbursement. Now, I 
believe he is correct that there is some room within our 
Disproportionate Share Hospial (DSH) pools for additional State 
appropriations that would result in additional Federal 
reimbursement, though if memory serves me, the DSH pools are 
not eligible for the increased FMAP stimulus reimbursement.
    Chairman Lieberman. I believe that is right.
    Mr. Genuario. So there would not be any increased Federal 
reimbursement.
    There are times when, pursuant to the amount of revenue we 
have available, we spend what we think is reasonable and obtain 
the Federal reimbursement that is appropriate. You cannot 
always spend a dollar to chase 50 cents, and there are probably 
times where hospitals and other providers would like to see us 
increase rates in order to get additional Federal 
reimbursement. And to be sure, we have done what we think is 
reasonable.
    I will point out that over the course of the last 2 years, 
Connecticut has increased Medicaid rates substantially--clearly 
not to the extent that some of the providers in the hospitals 
would like. But there has been a substantial movement towards 
increased Medicaid rates over the course of the last 2 years, 
and those increased rates will remain in effect under the 
governor's budget, and presumably under the budget that finally 
passes, we will get the additional FMAP for those increased 
rates, though not for any DSH payments.
    Chairman Lieberman. Let me ask you a question that each of 
the other three witnesses in one way or another raised. And I 
know it is hard, particularly when you are in the midst of the 
budget crisis the State is in, to look too far forward. But I 
guess some people call it keeping away from the edge of the 
cliff. In other words--and Dr. Yrchik I think stated it very 
explicitly--the significant additional Federal funding for 
education that will flow through the States to the local 
governments for education purpose will go on for 2 years. Those 
funds are stopping some significant cutbacks that otherwise 
would have occurred. In one sense certainly with IDEA and with 
Title I of No Child Left Behind, they are helping to meet 
commitments that the Federal Government has not met, where the 
Federal Government set a mandate but did not fund it.
    But then what happens after the 2 years? In other words, 
obviously we all hope and I believe that the economy will be 
doing better so that tax revenues will be coming in at a more 
normal pace 2 years from now for the State and local 
governments; but, nonetheless, we have a real challenge ahead.
    Mr. Genuario. Well, I thank Dr. Yrchik for raising it, and 
thank you for asking the question, Senator, it is not something 
that we find hard to look at. It is something that we look at 
very carefully. And in fiscal year 2012, we will have some 
significant issues.
    I might add that not only will the stimulus money go away, 
but under anybody's budget--let me back up just very briefly.
    One of the things Connecticut has done right over the last 
4 or 5 years, it has been very diligent in building up its 
budget reserve fund. And, clearly, that budget reserve fund 
under anybody's proposal will be utilized over the course of 
the next 2 years. So that when we get to 2012, we not only will 
have, presumably, a loss of stimulus money, as is intended, but 
we will no longer be able to rely on our budget reserve fund. 
So 2012 will be a very challenging year. I estimate that our 
structural deficit for 2012, if all goes well, will be in the 
area of $1 billion plus.
    So we have 3 or 4 years of difficult budget cycles ahead of 
us, and one of the reasons we make decisions that we make in 
terms of not expanding programs in 2010 and 2011 is because we 
know there is a problem in 2012 and we need to be conscious of 
that as well.
    Chairman Lieberman. Let me ask a specific question about 
Head Start funding. The stimulus bill included $2.1 billion for 
Head Start funding. Last week, as I understand it, a small 
portion of those funds were released basically for cost-of-
living increases and quality improvement for existing grantees. 
And, of course, I hope the Department of Health and Human 
Resources moves quickly to provide information on how you can 
apply for the bulk of the remaining funds.
    But I want to ask you, Secretary, how do you envision, the 
State best utilizing the Head Start funds to improve early 
support and education services? And I will ask Ms. Langer and 
Dr. Yrchik whether they want to comment.
    Mr. Genuario. Well, early childhood education has been a 
significant goal of Governor Rell since she has been in office, 
and we have had a fairly significant expansion of those 
services over the course of the last several years, including 
Head Start but also including some State-funded programs.
    We think that we have built up an infrastructure for early 
childhood education that will serve us well and be able to 
better access some of the Federal dollars for Head Start than 
we might otherwise have been able to do. But it is money that 
will flow through Connecticut's Department of Social Services 
(DSS), will move to appropriate grantees as expeditiously as 
possible. A number of the Head Start programs are run through 
the Community Action Program (CAP) agencies in the State of 
Connecticut. They will continue to be, by and large, the 
providers of the services for those programs, and that money 
will flow through DSS to those providers consistent with that 
legislation.
    Chairman Lieberman. Ms. Langer, Dr. Yrchik, do you have a 
response to that and how you would hope this money would be 
spent?
    Ms. Langer. Well, we have made progress, but it is like a 
lot of areas where we need to do more. And I actually would 
like to defer the answer. There is someone in my office, 
another senior policy fellow, who really knows far better than 
I do about the details of this area.
    Chairman Lieberman. That is fine. We will leave the record 
open for filing of that kind of statement.
    Dr. Yrchik, do you want to add anything?
    Mr. Yrchik. I would like to make a comment about early 
childhood in our State. I think that several years ago we 
really began to make considerable progress in this area. We 
agreed that relatively soon teachers of early childhood would 
have to be certified or have a B.A. in early childhood 
development. It was landmark legislation. The governor created 
a policy council to advise her on expanding early childhood 
opportunities. But a combination of things has occurred this 
year which I think has probably set us back.
    The governor disbanded her Early Childhood Policy and 
Research Council. The economic circumstances of our State have 
caused the number of slots for early childhood to be level 
funded. And our progress has been, I think one would have to 
say, halted. So I think everyone in the State recognizes that 
this is a critical area and will be an enormously important 
area for improving student achievement over the long term.
    At the same time, the funds that have come into the State 
through the stabilization fund, IDEA, Title I, those that could 
have been used to buttress support for early childhood programs 
have largely been used for other purposes or certainly have not 
lived up to the potential that they would have had in ordinary 
times.
    So I would say that I think while our State recognizes the 
importance of this area, we really have been dealt a blow by 
the economy, and there is no getting around that fact.
    Chairman Lieberman. Yes, I agree. That is the corner we 
have to turn.
    Let me ask a last question to you, Mr. Frayne. This bill 
has a lot of traditional infrastructure investment in it, which 
has been proven to create jobs, protect jobs, and the money 
flows to highways, bridges--significant investments I am really 
pleased to say, in mass transit. But one of the more 
interesting new infrastructure investments the bill makes is $2 
billion in health-related information technology. This is a 
sort of transition to the next great challenge we are going to 
face in Washington this spring, early summer, which is to 
really get into health care reform, both to provide affordable 
health care for every American and also, obviously, to try to 
reduce the costs of high-quality health care.
    Just give us a little bit of a sense of the hurdles we need 
to get over so that Connecticut receives all the health 
information technology funding to which it may be entitled. And 
give us an idea of how this money will be spent by some of the 
hospitals here in the State.
    Mr. Frayne. Sure. Thank you. As you noted, one of the 
things hospitals have been working on for quite some period of 
time is to evolve their plans to go from a paper-based world 
into what we would call an electronic world, a computer-based 
world, where all of the information would be able to be 
transferred by computers. And there are enormous benefits to 
doing that. One, it would hopefully make us much more efficient 
than we are today in the care that we deliver, and probably an 
even more promising advantage of doing that is not only that we 
will become more efficient and actually help the economy as our 
cost structures will hopefully come down slightly over time, 
but also it will actually help improve the quality of care that 
we deliver to folks by having access to what were their most 
recent tests, what were the results of those tests, did they 
have an x-ray over at another facility, and what did that look 
like so we can get that without having to duplicate that test. 
So these are kinds of efficiencies and economies and quality 
improvements which are really desperately needed.
    The good news is that nearly all of the institutions in 
this State are on that journey already. They are making 
significant investments in personnel, in time, in energy, and 
in dollars to evolve, in fact, from where we were to where we 
need to go.
    The current challenge that we are facing is not dissimilar 
to, really, many other industries in that the markets to borrow 
money from are essentially closed. We cannot go and issue 
bonds, for example, through our State bonding authority. If we 
had the ability to do that, the interest rate currently would 
be too high. And the typical vehicle that we would use--and 
this is a little inside ballpark, but if you would bear with me 
one second--bond insurers--these are entities that actually 
improve the creditworthiness of our bonds--they have not fared 
very well recently in the economy. Actually, the underlying 
creditworthiness of hospitals now happens to be higher in some 
instances than the entities we rely on to help boost our 
creditworthiness. So it is an unfortunate turn of events.
    But the combination of all those things essentially means 
you cannot get the money to borrow to be able to implement 
these projects, which everybody knows to an absolute certainty 
are critical for our future. And, one of the things that we are 
very hopeful of that we will be able to do over the course of 
the next few months, even in a very difficult State budget, is 
to be able to work with the State and your offices and other 
members of our congressional delegation to put in the 
application to create this loan program, because thankfully in 
this instance now the Federal Government is saying, ``We think 
this is an important goal, we want you to get there, providers, 
and we are going to help you get there by allowing you to 
borrow the money from us.''
    So I think if, in fact, we can work with the Administration 
and those in the legislature to make that happen, it would be 
really terrific.
    Chairman Lieberman. I would look forward to helping in any 
way I can.
    I want to thank the four of you. Your testimony has been 
very helpful to me. Congress and the President's initiative did 
something that we have never done before, certainly not at this 
dimension, in passing this stimulus program. That is because we 
are facing an economic challenge the likes of which we have 
never faced before. We worked hard to get our fair share of it, 
Senator Dodd and I and all the members of the congressional 
delegation from Connecticut, for Connecticut. So it is very 
important to us, of course, that it be used well and 
effectively to protect and create jobs, to move more money 
through the State economy, and hopefully to make some 
investments in a better future.
    I acknowledge the natural tendency to use the money to 
survive. We are going to constantly push to do more than that 
to try to use it in a way that is an investment in a better 
economic future and a better quality of life for people in the 
State. My own impression from the testimony that you have 
given, all four of you, is that we are off to a good start here 
in Connecticut. But I want to stay involved with you and others 
here. I know there are others who were good enough to come to 
the hearing. I saw some firefighters and police officers; they 
benefit from other programs that are part of the stimulus. Very 
important. There are other recipients who are here. Not only do 
we have a Web site in my office, but I invite you to call me or 
call our office, either here in Hartford or in Washington, with 
any ideas you have or anything you want to report to us about 
how this money is being spent, because it is your money. That 
is the bottom line, and we want to make sure that you benefit 
from it. So I thank you for that.
    In the normal course, the record of this hearing--and we 
are keeping a transcript of all of this--will be open for 15 
days if any of you want to submit additional statements. In the 
normal course, other Members of the Committee may submit 
questions. I doubt that they will ask you questions. We may 
have one or two follow-up questions. And then I would say to 
anybody else, and this is a little bit unusual, but if anybody 
else in the audience wants to file a statement with the 
Committee, please do so and it will be printed in the official 
record of this hearing.
    I cannot thank you enough, those of you who testified, 
those of you who were here. This is probably the most 
attentive, well-behaved group of students that I have ever had 
sit at a hearing.
    [Laughter and applause.]
    There must be some future Senators up there, maybe even 
Presidents. Anyway, I thank you all, and with that the hearing 
is adjourned. [Applause.]
    [Whereupon, at 11:48 a.m., the Committee was adjourned.]


    FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS FUNDING

                              ----------                              


                        THURSDAY, APRIL 23, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9 a.m., in room 
SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Carper, McCaskill, Tester, 
Burris, Bennett, Collins, and McCain.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. Good morning, and welcome to this 
fourth in a continuing series of hearings that our Committee is 
holding on the American Recovery and Reinvestment Act to 
monitor how effectively and efficiently the $787 billion in tax 
cuts and spending are being used, but also to make sure, to the 
extent that we can, that it is doing the job that we, in 
Congress, intended it to do, which is to breathe life back into 
our economy.
    While the Office of Management and Budget (OMB) tells us 
that $60 billion of the Recovery Act money has been committed 
so far, the vast bulk of the Recovery Act money is still in the 
pipeline. One of the questions that I want to ask the witnesses 
today is whether they feel the Federal Government is moving 
this money out into the economy as rapidly as it could, 
because, obviously, that was the goal that Congress had, with 
an understanding, as one of the witnesses--I think, Mr. 
Scheppach said--``you have got attention here. You want to move 
it out as quickly as you can, but you want to make sure it is 
spent efficiently and not wastefully.''
    Personally, I am impressed by the extensive planning, at 
all levels of government, to meet the Act's accountability and 
transparency provisions, which obviously are critical to 
creating pressure for effective, efficient, and non-wasteful 
spending of the money. I am also impressed by what appears to 
be a strong spirit of cooperation between Federal, State, and 
local governments in implementing this Act.
    But the next few months are going to be the real test as to 
whether we can ramp up spending quickly enough to stimulate the 
economy the way it needs to be stimulated and the way Congress 
intended with this American Recovery Act to have it stimulated. 
And to do that, we are asking all levels of government to do 
more, to do it well, and to do it in record time.
    On April 7, I convened a field hearing for our Committee in 
Connecticut. And the State Secretary of Policy and Management, 
the chief budget officer, if you will, in Connecticut, 
testified that the Federal Government has reacted swiftly to 
his questions on behalf of the State and, he thought thus far, 
has imposed an acceptable level of red tape, or at least kept 
it to a minimum.
    However, during that hearing, he also testified that there 
were very important implementation challenges from a State 
level; in particular, the need to give State and local 
governments clear direction and whether some of the Recovery 
Act money can be used to help pay for administrative and 
oversight costs. And I hope that the witnesses will talk about 
that today.
    We know that the Act includes $250 million for additional 
Federal investigators and inspectors to be hired to monitor 
from the Federal level, but about $300 billion, by the last 
calculation we saw of this, in stimulus spending will be under 
the supervision of State and local governments. And, of course, 
those State and local governments are themselves under real 
fiscal financial pressure now. And the question is whether they 
have adequate personnel to monitor the spending at the State 
and local level. Therefore, I know they have asked for 
permission to use Federal stimulus money to retain personnel 
for that purpose.
    I am very pleased that this morning, Vice President Joe 
Biden has released a letter to Senator Collins and me,\1\ 
indicating that his office is working on this, and that OMB 
will be issuing guidance soon that will give new flexibilities 
to the States and local governments to cover administrative 
costs with the Recovery Act funds. In this balance that we are 
trying to strike, it seems to me that makes a lot of sense.
---------------------------------------------------------------------------
    \1\ The letter referenced by Senator Lieberman appears in the 
Appendix on page 283.
---------------------------------------------------------------------------
    In the interest of moving ahead with the hearing, I am 
going to put the rest of my statement in the record.\2\
---------------------------------------------------------------------------
    \2\ The prepared statement of Senator Lieberman appears in the 
Appendix on page 277.
---------------------------------------------------------------------------
    I do want to say how pleased I am that the Acting 
Comptroller General, Mr. Dodaro, is today going to release 
before this Committee his first bi-monthly report on State and 
local spending under the Stimulus Act as required by the 
Act.\3\ The Government Accountability Office (GAO) helps us 
enormously in performing our function of oversight on this 
critical piece of legislation.
---------------------------------------------------------------------------
    \3\ The GAO report referenced by Senator Lieberman appears in the 
Appendix on page 350.
---------------------------------------------------------------------------
    It is too early to say. There are obviously some 
glimmerings of hope about some movement in the right direction 
in the economy. We are not going to know until more of the 
stimulus spending is actually out there. And, of course, more 
significantly, beyond the jurisdiction of this particular Act 
or the purview of this Act, until all the steps that the 
Treasury Department, the Federal Reserve, and other 
institutions are taking to try to reestablish the health of the 
financial sector of our economy, and to get money flowing 
again, from banks, to businesses and individuals. Until all 
that happens, we are not going to have the kind of recovery, or 
the kind of confidence, that will lead to the recovery, that we 
need.
    But anyway, we are pleased to have the three of you here: 
Gene Dodaro, and then a front-line report from Ray Scheppach of 
the National Governors Association, and Carolyn Coleman of the 
National League of Cities. We look forward to your testimony 
today.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    The American Recovery and Reinvestment Act is vital 
legislation intended to boost our troubled economy and to 
create and save jobs. If properly implemented and overseen, the 
law will also improve our Nation's roads and bridges, prevent 
cuts in health care, and provide important investments in 
education and science, while helping to turn our economy 
around.
    State and local governments are playing a critical role in 
distributing, spending, and measuring the impact of Recovery 
Act funds. The GAO estimates that State and local programs will 
receive about $280 billion under the law. As a result, they 
must prepare to handle the challenge of managing and overseeing 
this influx of new funds, a resource-intensive undertaking.
    This challenge is further compounded by the fact that many 
State and local governments are facing major budget shortfalls 
that often leave them short-staffed. Like the Chairman, I, too, 
welcome the Vice President's letter this morning, which tells 
us that new flexibility is going to be allowed for States to 
recover the costs of certain administrative activities.
    It would indeed be unfortunate and ironic if money is lost 
to waste, fraud, and abuse because States had insufficient 
funds to hire the necessary contracting officials, auditors, 
and oversight employees to ensure that the funds are well 
spent.
    The Recovery Act also creates several important oversight 
mechanisms that the Chairman and I worked hard to ensure were 
included. These oversight mechanisms include the bi-monthly 
reports from the GAO on the use of funds by selected States and 
localities. The GAO is issuing its first of these reports 
today, and we are eager to hear the progress that State and 
local governments have made in developing plans and internal 
controls to ensure that the Recovery Act funds are not lost to 
waste, fraud, and mismanagement.
    Today's hearing will also explore the mandates for 
accountability and transparency placed on State and local 
governments under the Recovery Act, as well as how quickly the 
money is being spent. This was a major issue in the Senate 
debate. The Senate was determined to make sure that the final 
version of the bill had a quicker impact on the economy by 
having a faster spend-out rate than the House bill had.
    I am pleased to welcome, not only the GAO, but the National 
Governors Association and the National League of Cities to this 
hearing. These associations can provide useful insight into the 
innovative approaches State and local governments are taking, 
including how they are planning to communicate funding 
opportunities to hospitals, fire departments, businesses, 
schools, and nonprofit organizations. A complaint that I hear 
from my State, is that a lot of the intended beneficiaries of 
this funding are still uncertain how to access it.
    In addition, I want to hear about the steps that States are 
taking to ensure that the infrastructure contracts are awarded 
competitively, fairly, and effectively, and, of course, to 
ensure that taxpayer dollars are not wasted.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Senator Collins.
    I welcome Senator McCain and Senator Bennet.
    And now we will go right to Acting Comptroller General 
Dodaro.
    Thanks for being here and thanks for issuing this first 
report before our Committee this morning.

  STATEMENT OF GENE L. DODARO,\1\ ACTING COMPTROLLER GENERAL, 
             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dodaro. Thank you, Mr. Chairman. Good morning to you, 
Senator Collins, Senator McCain, and Senator Bennet. We 
appreciate the opportunity to be here today to discuss the 
results of our first bi-monthly review of the use of the funds 
by selected States and localities.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Dodaro appears in the Appendix on 
page 286.
---------------------------------------------------------------------------
    As I mentioned to this Committee on March 5, when we were 
here to outline our plans, our review focused on 16 States and 
the District of Columbia across the Nation that will account 
for about two-thirds of the total amount of money that is 
allocated by the Federal Government to States and localities. 
And I also mentioned that we were going to follow these 16 
States and the District over the next 2 or 3 years to do a 
longitudinal study of how they use the money but also what the 
impact of the Act had been and whether or not it was going to 
achieve its objectives.
    This first chart explains why a longitudinal study is 
important.\2\
---------------------------------------------------------------------------
    \2\ The chart referenced by Mr. Dodaro appears in the Appendix on 
page 326.
---------------------------------------------------------------------------
    This is the estimated Federal outlays by the Congressional 
Budget Office (CBO) and other information we have put together 
as to when the Federal moneys will be outlayed to the States 
and localities. And as you can see, there is a ramp-up here in 
Fiscal Year 2009, but a lot of the outlays will be in 2010 and 
2011 and in ensuing years.
    Now, as the next chart will show,\3\ for this fiscal year, 
Fiscal Year 2009, there will be about $49 billion outlayed to 
the States and localities. Most of that, 90 percent of that, 
will be in the health area, education, and transportation.
---------------------------------------------------------------------------
    \3\ The chart referenced by Mr. Dodaro appears in the Appendix on 
page 327.
---------------------------------------------------------------------------
    Now, over time, as you can see, this chart compares Fiscal 
Year 2009 to 2012. The composition of the Federal spending will 
change. While a large part, 64 percent, this fiscal year will 
be spent in health care, as represented by the red piece of the 
pie, by 2012, that will be only about 1 percent. That is 
because the increased Federal share of the Medicaid program is 
for a 27-month period that will stop at the end of 2010.
    You can also see that the amount of money that is going 
into community development, energy, and environment, will 
increase along with the transportation spending as new programs 
come on line, the broadband program, high speed rail program, 
and some of the housing and community development initiatives.
    Our first bi-monthly review, therefore, focused on the 
three programs where there is the largest amount of money to be 
spent during Fiscal Year 2009: The Medicaid program, the 
highway program, and the State Fiscal Stabilization Fund. Now, 
in the Medicaid program, the 16 States and the District that we 
looked at received an allocation from the Centers for Medicare 
and Medicaid Services (CMS) at the Federal level of about $16.9 
billion. As of April 1, they had drawn down $7.96 billion of 
that or about 47 percent of the total amount of money that was 
available. They reported using the money to sustain eligibility 
requirements for the Medicaid population within the States and 
also to help them meet increased caseload demands. As we all 
know, during economic downturns, other people come on to the 
Medicaid rolls, and so they were able to do that.
    Now, the Federal share increased quite a bit. In the States 
that we looked at, it went from a 7.9 percent increase in Iowa 
to an 11.5 or almost 11.6 percent increase in California. So 
the Federal shares increased significantly as a result of this 
legislation. That also may mean in some States they are able to 
reduce their share, thereby making funds available for other 
purposes. And some States have reported being able to do that 
and using that to avoid layoffs in other areas or to offset 
general fund deficits. And this helps to prevent other actions 
that might be detrimental to economic recovery.
    Now, in the transportation area, money was made available 
to the 17 jurisdictions that we looked at, about $15.5 billion. 
As of the middle of this month, about $3.3 billion had been 
obligated. Now, obligated in this sense means that the Federal 
Government and the States have agreed on the projects to be 
funded. Many of these are still out for bid during the April 
and May time frame, while a few States, Mississippi and Iowa, 
among our sample, had actually let contracts to begin work. 
Most of the other States are in the process of completing the 
competitive bidding process and will then be awarding the 
money.
    So far, there have not been a significant amount of 
Recovery Act funds spent yet for the highway programs, but as 
you mentioned, Mr. Chairman, the pipeline is there. The 
projects that have been agreed to by the Federal, State, and 
local governments for the jurisdictions we are looking at--
there were over 950 projects that had already been approved. So 
this is moving through the system, and I think it will have the 
desired effect.
    Now, in the State Fiscal Stabilization Fund, this is a new 
program, about 81.8 percent of the money in the State Fiscal 
Stabilization Fund is to be used for education purposes; 18.2 
percent can be used for basic government services, including 
education. Now, about a little over $20 billion had been 
allocated to the 17 jurisdictions that we looked at, but in 
order to be able to use this money, States have to submit an 
application to the Education Department. The Education 
Department reviews it, and then once the Education Department 
determine it is complete, the States can move forward.
    Among the jurisdictions that we looked at, two have 
submitted their applications and have the review completed by 
the Education Department. Last Friday, the Education Department 
gave the OK to California, and this past Monday to Illinois. 
Other States are in various processes of preparing their 
applications and submitting them to the Education Department 
for review.
    Now, in addition to looking at the uses of the funds, we 
also looked at the efforts being made by the States to ensure 
that there are proper safeguards and proper accountability 
mechanisms put in place. Here, we were pleased to see the 
States paying very close attention to their new 
responsibilities. They were appointing people to focus on this 
program full time, either as a Recovery Act czar or special 
person associated with it. They were trying to assess what some 
of the internal control risks were up front, as you mentioned, 
Senator Collins. And there are some risks; some of the prior 
audit work and other things done note some areas where sub-
recipients have not been monitored in the past as they need to 
be, but people were trying to put in place proper improvements 
to ensure that those risks were mitigated.
    Now, here we found exactly what was mentioned by both of 
you, Senator Lieberman and Senator Collins, in your opening 
statements. Most of the States have been under fiscal stress 
and they have cut back, some significantly, in the amount of 
oversight activities that they are funding at their level, both 
in the management side as well as on the auditing side. So that 
is a concern that they had, and we recommended to OMB that it 
clarify where administrative funds can be funded through the 
Recovery Act. There are a number of possibilities. There are 
also indirect cost rates in some of the existing Federal 
programs. So we were pleased that OMB and the Vice President 
adopted our recommendation, and they are going to clarify that.
    The other recommendation we made to OMB was to modify the 
Single Audit process. This is the State audit of the 
departments by the State auditors. It is a very important tool, 
but unless it is changed, as Senator McCaskill mentioned in our 
last hearing, and modified to allow for earlier testing of the 
program and to give some relief to the State auditors, it will 
not be a timely, effective tool, as much as it could be, to 
help with Recovery Act funding.
    Now, our recommendations would mean the auditors would do 
some testing of internal controls in 2009, before a lot of the 
money is spent in 2010 and 2011. So it is very important. OMB 
has acted positively. We were hoping that they implement those 
changes.
    We also made recommendations that OMB provide better 
clarity on the methodologies used to estimate the number of 
jobs created and preserved, which is a very important aspect of 
evaluating the impact of this program. And we also made 
recommendations that OMB move to improve the communications 
with the States, to give them more timely notice of the 
availability of the money, the application process. And 
importantly, a lot of States were concerned that they were not 
getting information about the amount of Federal money that 
would flow directly to localities within their State that would 
not come through the State agencies. So they would not have a 
total picture. That would impede their ability to assess the 
overall impact. So we made the recommendation to OMB that they 
provide that information to the States, and they have agreed to 
do that.
    So, in closing, I just would say we have made a series of 
recommendations to OMB. They are acting on those 
recommendations. We are very pleased with their response and 
also would want to publicly thank all the State and local 
officials, including the associations that are here today. But 
we have received very good cooperation in every State and 
locality that we have been in, as well as with our Federal 
officials. So we look forward to continuing our 
responsibilities under the Recovery Act, and we will produce 
regular reports as required. And I will be happy to take 
questions at the appropriate time, Mr. Chairman.
    Chairman Lieberman. Thanks very much. You got us off to a 
good beginning. And I appreciate what you did, because I am 
sure there is a connection between the work that you have done 
and your communication with the Vice President's office and his 
announcement today about the guidelines that will make it 
easier for the State and local government.
    Also, during the question and answer session, I want to 
come back to this because this is really quite interesting, and 
probably surprising to most people. One, much more of the money 
will be spent in Fiscal Year 2010 than this year. And then, 
two, a lot will be spent from 2011 right out to 2016.
    Mr. Dodaro. And, actually, some of it may even go further.
    Chairman Lieberman. I want to get into that a little bit--
--
    Mr. Dodaro. Sure.
    Chairman Lieberman [continuing]. During the questions and 
answers session.
    Next is Ray Scheppach, who is with the National Governors 
Association. He has been here before, although not recently, 
and always welcomed. Thank you for your testimony this morning.

    STATEMENT OF RAYMOND C. SCHEPPACH, PH.D.,\1\ EXECUTIVE 
            DIRECTOR, NATIONAL GOVERNORS ASSOCIATION

    Mr. Scheppach. Thank you, Mr. Chairman. Good morning, 
Senator Collins, Senator McCain, and Senator Bennet. I am 
pleased to be here on behalf of the National Governors 
Association (NGA) to talk about implementation of the Recovery 
Act.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Scheppach appears in the Appendix 
on page 328.
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    My best estimate right now of the fiscal shortfalls in 
States is somewhere between $200 and $250 billion over the next 
3 fiscal years, and that is the States fiscal years of 2009, 
2010, and 2011. Because 49 out of the 50 States have a balanced 
budget requirement, they can only take two actions. One, they 
can cut budgets or raise taxes, both of which will have a 
negative impact on the economy. Because of that, it actually 
has a multiplier effect on the economy, making it longer and 
deeper. This is why many economists argue that one of the most 
productive strategies is to provide flexible money to State and 
local government to offset that negative action.
    In terms of how much is coming to States, we estimate it is 
probably around $246 billion that comes to States or through 
States to individuals out of the total $87 billion. I tend to 
think of this money in four broad categories, or buckets, 
depending upon the intent and the timing of it.
    The first category I would argue is the counter-cyclical 
funds, or the funds that are relatively flexible. I put the $87 
billion of Medicaid money in there not because you can utilize 
the Federal money, but, again, because you can withdraw the 
State money that you had planned to put in there and move it 
to, in fact, plug holes other places.
    The second component would be the State Stabilization Fund, 
that $39.5 billion, really, plus the $8.8 billion flexible 
money. And the reason that is relatively flexible is that 
education represents about 32 percent of State budgets, if you 
add higher with elementary and secondary. So because of that, 
you have a fair amount of flexibility to move that around 
across those various categories.
    If you add those two categories together, you get about 
$135 billion in relatively flexible money. And that is going to 
go a long way, and you are already seeing a number of States, 
basically, not go forward with planned cuts because they know 
that the money is, in fact, coming. And so I would argue, some 
of that is already having a positive impact by offsetting 
negative cuts.
    The problem is, in all honesty, that even after that money, 
States are going to continue to have a shortfall in the 
neighborhood of $200 billion over the next 3 years, which means 
most States are going to have to continue to downsize, 
consolidate, and/or raise taxes.
    The second category I would like to talk about would be the 
straight appropriations, which is mostly the formula grants. 
This is the highway money and the sewer money. This is the 
energy grants, the weatherization, and so on, which is a little 
short of about $100 billion in those funds. Most of it is in 
existing programs, so it can be at least obligated relatively 
quickly because the rules of the game are generally known. With 
the exception of those new programs or some programs where you 
have had dramatically increased budgets, I think those will go 
along fairly smoothly, and you will begin to see, shortly, 
outlays in a number of those programs.
    The third category is what I call the safety net. That is 
essentially the food stamps, unemployment, and so on. That is 
about $40 billion. And there is a fourth category, which I will 
argue is a longer term investment, trying to develop the 
foundations for economic growth in the longer run. I put the 
money in terms of alternative energy and smart grid, health 
information technology (IT), broadband build out, high speed 
rail, and research and development money into that category, 
where I think you actually have to spend somewhat more time in 
planning to ensure that money is actually spent efficiently.
    In terms of the good news, I think there is a lot of good 
news so far. I would argue that the Vice President's office 
actually has provided a lot of leadership on this issue, and 
has been in touch with governors. And I think I would give the 
Administration, OMB, and agencies, pretty high marks in terms 
of getting out guidance as fast as they can, trying to get out 
the allocations so States know what they are going to get. So a 
lot of information has flowed already.
    Second, I think governors have all designated their leads, 
and many of them have, in fact, appointed task forces or 
working groups. A lot of those have included private sector, 
local government, and other organizations, so trying to get at 
some of that outreach that you were talking about.
    Third, I think OMB and GAO have been very accessible. We 
actually have calls every Friday morning to talk about emerging 
problems and try to feed those back into OMB. And they have 
been very responsive about trying to deal with those issues as 
we find that they come forward.
    Finally, I would say that most times, I would probably 
argue as an economist, that attempts to stimulate the economy 
through fiscal policies have generally failed. They have been 
too late. Generally, the money starts being spent after the 
economy is already recovering.
    I suspect this time, you are probably going to be much 
closer to the mark. Again, I would say that already I see a 
number of States postponing cuts because they know the money is 
coming. That is having a positive effect on the economy. And I 
think over the next 2 to 3 months, we will begin to see some 
additional outlays from this package. And I can tell you that, 
as far as the revenues in States is concerned, it is still 
coming in month after month, the worst estimates. So we see no 
recovery yet or even leveling off in State revenues.
    There are a number of challenges, I think, however, that 
governors have. The biggest one is that we do believe that this 
budget hole will be for 3 years. Two years because we probably 
will not get GDP back to the 2008 level for 2 years, and we 
know from the last three downturns, the biggest impact is on 
States in the year after the recession is declared over. And 
that is primarily because the Medicaid spending is very late. 
It takes time for people to lose their jobs and then apply for 
Medicaid, and so that spending is very late. And, of course, 
similarly, income tax revenues continue to fall very late in 
the cycle.
    So governors are going to have this tension between 
spending the money now quickly to gain the job creations on one 
hand, and on the other hand, trying to maintain program 
stability and fill the budget hole that is going to last for 3 
years.
    The second one is there is a lot of accountability here, 
much more than is normal. Not only are governors going to be 
accountable to OMB and the agencies, but also now the Recovery 
Act Transparency Board, the inspectors general (IGs), and, of 
course, GAO, is out in the field. So there is a phenomenal 
amount of accountability.
    The only issue there, I think, is that we hope that the 
data requests can be streamlined and that congressional 
committees also do not ask for separate information, which is 
happening in some instances, because it is not the oversight as 
much as it is the data collection that I think is potentially 
burdensome to the States.
    You have already mentioned this issue of funding for this. 
I would argue that this has been one of the biggest issues, 
that there is no place to charge the additional work that is 
necessary. And so, to the extent that OMB and the Vice 
President's office is dealing with that issue, I think that is 
going to be very valuable.
    I do think that this whole issue of collecting the number 
of jobs is going to continue to be difficult. I am not sure at 
the end of the day, even when we get more guidance, that the 
data is going to be particularly usable to look across States 
or across programs just because of the difficulties in 
collecting accurate information.
    The only areas that I think that there are going to be 
problems are when you are establishing a new program, that is 
something like in weatherization, where you may have gone from 
an appropriation level previously of $200 million to $6 
billion. That is a phenomenal ramp-up, and I think it is going 
to be difficult to maintain program stability and efficiently 
at the same time as ramping up that program.
    You have already mentioned the capacity problem. It is 
true, as Mr. Dodaro has indicated, States have cut back over 
the last couple of years, and, therefore, have less capacity in 
the accountability area, and, therefore, are going to have to 
build that up over time. It is also true that the existing 
information systems may not be the ones that can handle the new 
data requests, and, therefore, it may be that those are going 
to have to be reprogrammed, which will take time.
    The only final comment I will make is that there is a lot 
of funding going to local government and to port authorities 
and other places, where governors do not have control over. 
They are concerned about making sure that they are at least 
informed when that money goes directly to other entities so 
that it is coordinated.
    With that, Mr. Chairman, I would be happy to answer 
questions.
    Chairman Lieberman. Thanks very much. A very good and 
helpful report from the State level.
    Next, we have Carolyn Coleman, who is here to represent and 
speak on behalf of the National League of Cities.
    Good morning, and thanks for being here.

     STATEMENT OF CAROLYN M. COLEMAN,\1\ DIRECTOR, FEDERAL 
              RELATIONS, NATIONAL LEAGUE OF CITIES

    Ms. Coleman. Good morning, Chairman Lieberman. It is good 
to be here.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Coleman appears in the Appendix 
on page 337.
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    Also, good morning, Senator Collins. Good to see you again. 
I know the local leaders who were here in Washington a few 
months ago really appreciated your remarks at our conference.
    Senator McCain, Senator Burris, and Senator Bennet, it is 
good to be here with you as well.
    I welcome the opportunity to discuss this important issue 
with you. Local governments across the country are working very 
hard to plan and to be ready for the funds as they begin to 
flow a little bit later this year into our communities. 
Different from the remarks you just heard from Mr. Scheppach 
and the National Governors Association, we are estimating about 
$40 to $60 billion of funds will come to local governments. And 
it is not just cities and towns, but other local government 
entities in our States across the country. So we do not have 
quite the firm handle on exactly which funds, but we believe 
that is a good estimate.
    It has also been clear to us, and becoming clearer 
everyday, that while these funds are welcomed and cities and 
towns will be able to put them to good use, that they will not 
begin to fill the budget holes and the stresses that are 
happening at the local level, given what we have seen with 
sales taxes, property taxes, and income taxes. So while these 
funds will be helpful, much more will be needed to meet the 
budget gaps that are on the horizon for cities and towns.
    We do believe that the transparency and accountability 
provisions in the Act will help ensure that we can get the 
maximum possible benefit out of these funds. And also, and I 
think importantly, that we will be able to best engender the 
American taxpayer's confidence in the ability of all levels of 
government to actually get things done in our communities. I 
want to assure you that in conversations that we have been 
having with local leaders everyday over the last several 
months, that they are truly embracing the accountability 
provisions and ramping up to move forward.
    I want to talk just a little bit about what the National 
League of Cities (NLC) and other organizations have been doing 
to help local leaders get ready.
    Senator Collins, you made the comment about it is not just 
local governments, but it is also nonprofits, the fire stations 
and others that are striving to understand, still, what is in 
the bill, what can be accomplished, and how do we access those 
resources.
    We have been working very hard here in Washington to help 
them understand exactly how to do that. For example, NLC has 
hosted three recovery-focused Webcasts. Each Webcast is 
reaching 4,000 to 5,000 listeners. The demand is high and they 
are hungry for this information, and we will continue to do 
this. We do appreciate the ability that we have had to invite 
our partners here in Washington, the Federal agencies, and we 
look forward to OMB and GAO and others on those calls, so, 
again, that we can help get the information out to them 
quickly.
    I mentioned that we had a conference here in Washington 
recently. We, at sometime in February, decided to really 
customize the programming for that conference so it was focused 
around the Recovery Act. So it gave us another opportunity. And 
I know that the other associations here in Washington did 
something very similar to make sure to get the information into 
the hands of the people who had to make this work.
    I think probably the most important discovery that we have 
embarked on lately, another initiative, is the recovery 
coordinators network. We have invited about 50 to 60 local 
government czars to convene in a forum where they can exchange 
ideas, find out what is working, what is not working, where 
they are having obstacles, where can they, perhaps, implement 
some self-help and get some solutions to some of the challenges 
in terms of moving forward with the Recovery Act. And I could 
tell, based on just an hour phone call with them yesterday, 
that while they are moving forward, they do share some of the 
same concerns we have heard this morning from you, as Senators, 
as well as from Mr. Scheppach, and from GAO, that the capacity 
issues and the stress on the current infrastructure and local 
governments is going to be tough. And what we certainly do not 
want to see is governments making decisions not to pursue 
recovery funds because they are afraid that there will not be 
the administrative dollars to help manage those grants 
effectively. I think that is just the course of actions that we 
do not want, to leave these dollars on the table when they are 
so needed in our communities.
    We are convinced at this point that OMB, the Federal 
agencies, and the Vice President's office--and you have heard 
this before--are doing a great job in terms of the spirit of 
cooperation. We know that this is an emerging process, but I 
think it has been working very effectively in terms of not only 
our ability to reach out to them with questions and to consult 
with them as they develop new guidance, but also for them to 
reach out to us and to the local governments and try to give 
information that will be helpful.
    I am going to talk just a little bit about some of the 
mechanisms that cities and towns are putting into place in 
order to comply with accountability and transparency provisions 
of the Act.
    Many of them, just like the Federal Government, have been 
launching their own recovery Web sites on their own home pages. 
And, for example, I am going to give you just a few of the 
jurisdictions that have been doing this, but I can assure you 
that many of them have launched their own Recovery.gov Web 
sites. But Hartford, Connecticut, has launched one; Lewiston, 
Maine; Reno, Nevada; Kansas City, Missouri; Detroit, Michigan; 
Denver, Colorado; as well as Chicago, Illinois, have launched 
Web sites that are making it a little easier and a little more 
transparent for not only citizens but also vendors in their 
communities to understand how to access these resources and to 
understand the process that the city will use to allocate those 
dollars. And I think we will begin to see more of those as we 
go forward.
    In terms of how cities are organizing themselves to oversee 
the implementation of the Recovery Act, as you might suspect, 
it has not been a one size fits all. We are basically seeing a 
couple of different models, with some cities establishing the 
recovery czars and the mayors appointing a recovery working 
group. That could be just city staff. It might also involve 
members of the private sector. That is one model.
    Then the other model we are seeing is a little less 
centralized approach, where the mayor's office might be 
overseeing the recovery implementation, but the individual city 
agencies are making the decisions about which funds they will 
apply for. I think it is important, then, we just have to 
recognize, with the many different types of governments and 
sizes of local governments that are involved and pursuing funds 
to the Recovery Act, that they will have to customize their 
internal bureaucracy to best fit the needs of the Act as well 
as their city.
    I do want to echo--and this has been mentioned before--that 
there are lots of questions, and there continue to be 
questions, in terms of what is a job created, what is a job 
retained, and how do we track those. So like the other comments 
you have heard on the panel this morning, cities and towns, 
too, would welcome additional guidance that we believe will be 
forthcoming from OMB on that important topic.
    I just want to briefly echo--and I have mentioned this 
already, and I share this with the others who have talked 
before--we would welcome and look forward to the additional 
guidance from OMB in terms of the administrative costs and 
getting some additional funds to do that good work.
    I believe that covers many of the areas that I wanted to 
mention this morning, and I look forward to the questions from 
the panel. And I just want to say that we look forward to 
continuing to work with the Federal agencies, with OMB, the 
Vice President, as well as with the States and the other 
organizations here in Washington to make this a success. Thank 
you.
    Chairman Lieberman. Thanks very much, Ms. Coleman, for that 
testimony.
    We will do 7-minute rounds of questioning. And there are 
two elements of our interest. First, is the money being spent 
rapidly enough? And then, second, are we setting up mechanisms 
to monitor how it is being spent to avoid waste and fraud?
    Let me begin on the second question with the Vice 
President's letter this morning, and just try to develop that a 
little bit, Mr. Dodaro.
    In the letter itself, it says that the OMB guidance will 
provide for ``new flexibilities for States for cost of 
administrative activities associated with the Recovery Act.''
    So help us understand, because your work, I think, has been 
a big part of generating this letter, as well as concerns and 
realities expressed from the State level.
    Is it the flexibility for overall Administration funding 
for the State and local governments or is it primarily money to 
audit or oversee this funding?
    Mr. Dodaro. It is basically, from a management perspective, 
to oversee the programs. It is not on the audit side. Now, the 
audit side is a concern.
    Chairman Lieberman. Right.
    Mr. Dodaro. And our recommendation, though, basically, on 
the audit side, Mr. Chairman, would be to give the auditors 
flexibility to reallocate their resources from low-risk areas 
to the Recovery Act areas and focus more on high-risk areas.
    Chairman Lieberman. Federal auditors or State----
    Mr. Dodaro. State and local auditors.
    In 1984, there was a mechanism put in place called the 
Single Audit Act for State and local auditors to audit their 
entire entities, including Federal funds, and there is certain 
testing. And that is a foundation accountability tool that has 
been put in place. And it is a very effective tool, but it 
could be modified. But if it is not modified, it is going to be 
too late, because they will not look at a lot of this until 
2010 is over. This gives flexibility up front and reduces the 
amount of money that would need to be spent.
    Now, if they do not want to give the State and local 
auditors flexibility, then they should give them additional 
money to cover this earlier. But most of what the Vice 
President is talking about deals with giving States the 
management capacity, people administering the program----
    Chairman Lieberman. So, for instance, the people 
administering the Medicaid program or State transportation 
programs.
    Mr. Dodaro. Yes. Or in the administrative areas, the 
procurement people, the people to monitor sub-recipients in the 
program areas. It is those type of people that have been cut 
back as well.
    Chairman Lieberman. Incidentally, I noticed that 
Congressman Ed Towns, who chairs our partner committee in the 
House, the Committee on Oversight and Government Reform, is 
proposing legislation to separately fund State and local 
auditors to oversee stimulus spending.
    What do you think about that?
    Mr. Dodaro. Well, that is an important proposal that I 
think could work. Our proposal is intended to minimize the 
amount of additional funding, but the additional funding is 
very appropriate, commensurate with the amount of additional 
Federal resources that are going to go there. So I would be 
supportive of that. I think that is very important.
    Chairman Lieberman. Do you have any idea about the amount 
of money it would require?
    Mr. Dodaro. Not offhand, but I could provide an 
estimate.\1\
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    \1\ The response from Mr. Dodaro appears in the Appendix on page 
652.
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    Chairman Lieberman. Please do that, and we will be in touch 
with Congressman Towns. I have no idea whether it is even 
plausible to think about that, but I am interested in the idea.
    Let me go to the spending side now, because I think one 
reaction to that chart would be--well, let me define the chart 
first.\2\ This is under the Stimulus Act. This is just the 
money going to States and localities, right?
---------------------------------------------------------------------------
    \2\ The chart referenced by Senator Lieberman appears in the 
Appendix on page 326.
---------------------------------------------------------------------------
    Mr. Dodaro. Yes, that is correct.
    Chairman Lieberman. What does not it include?
    Mr. Dodaro. It does not include the $280 billion in 
estimated tax relief provisions, and it does not include 
direct----
    Chairman Lieberman. And payroll taxes are not included.
    Mr. Dodaro. Right. It includes about $280 billion of the 
$787 billion estimated amount for the Recovery Act.
    Chairman Lieberman. So on that chart, what jumps out at me, 
certainly, and I presume would at others, is that a relatively 
small proportion of that money is going to be spent in this 
fiscal year.
    Mr. Dodaro. Well, I think, Senator, if you reflect on the 
fact that the Act was passed in February, we were almost 
halfway through Fiscal Year 2009 before the Act was passed. So 
there is only about 7 months of spending in Fiscal Year 2009. 
So if that was extrapolated, you would have a greater figure, 
but I think that is part of the reason for that.
    Chairman Lieberman. So you are not critical, at this point, 
that the Federal Government is putting this money out too 
slowly. In other words, your attitude--I do not want to put 
words in your mouth.
    Mr. Dodaro. Right.
    Chairman Lieberman. One would look at that and say, how 
come so little is going out this year and so much more in the 
next 2 years, when we need it now, people would say.
    Mr. Dodaro. Well, I would say two things. One, I agree with 
Mr. Scheppach's comment, that because the States know the money 
is coming, they are able to take action to avoid making some 
cuts right now.
    Chairman Lieberman. Right.
    Mr. Dodaro. They know they will have a steady stream of 
payments, for example, in the Medicaid area, which is a large 
portion of this funding, so they can plan accordingly going 
forward.
    I think particularly for areas that are new areas, like the 
State Fiscal Stabilization Fund, the balance between spending 
the money wisely with the proper amount of controls in place is 
being balanced appropriately with due speed to get things out. 
In the transportation area, there was a lot of planning in 
advance of passage of the Act by the State departments. They 
are focused on construction and maintenance before they can get 
the contracts out right away.
    So I think it is proceeding in a balanced fashion, where we 
will both get the money out as quickly as possible, but wisely 
and with the proper degree of accountability, so we will get 
the right result at the end.
    Chairman Lieberman. Obviously, you will keep monitoring and 
let us know if you think that it is moving more slowly to State 
and local governments than it should or could.
    Am I correct that if you did a chart--and I would not ask 
you to do that today--of all money being spent under the 
Stimulus Act, including tax relief, unemployment checks, and 
reduced COBRA premiums, that a greater percentage would be 
spent this year, or am I wrong?
    Mr. Dodaro. My staff tells me, yes. CBO has already 
produced that in scoring the bill, so we can provide that.
    Chairman Lieberman. Yes. I would appreciate that. I did 
note, in the hearing we held in Connecticut a couple of weeks 
ago, that the State budget director seemed very pleased with 
the Federal Government's interaction with the State, but 
ultimately said that money had been obligated, but they 
actually had not seen any money yet. But they were reassured 
that it was coming, and as a result, they were not laying some 
people off that they thought they would have to.
    Mr. Dodaro. That is exactly right, Senator. And that is 
what we have seen across the States that we visited.
    Chairman Lieberman. Right. I am over my time. Senator 
Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Dodaro, in the last hearing, we talked about the 
importance of the accurate and agreed upon measures on the 
number of jobs either created or retained. The Administration 
has estimated that more than 3 million jobs will either be 
saved or created by this Act. That, arguably, is the most 
important measure of the effectiveness.
    Two other witnesses today have commented on how difficult 
that measurement is. I brought up in the last hearing the 
concerns of my State officials about whether, if you are 
creating a construction job for 3 months, and then that person 
goes on to another construction job that is funded by this Act, 
is that two jobs? Is it one job? Is it a job created in the 
first place and then preserved?
    I know in response to the concerns that we raised at the 
last hearing, that OMB has put out additional guidance. Do you 
think that guidance is accurate as far as allowing us to assess 
how many jobs really were created or saved by this important 
bill?
    Mr. Dodaro. I think the guidance was a good first step, but 
it does not go far enough. And that is what we heard from the 
States and localities that we visited.
    To deal with the question that you mentioned, they try to 
deal with it in a full-time, equivalent type discussion, so you 
do not do double counting. But you also need to have a way to 
measure the indirect effect on employment or the multiplier 
effect, as Mr. Scheppach, and other economists would say. So we 
recommend in this report that they develop additional 
methodologies to try to get a consistent reporting approach so 
that the proper amount of information can be gathered to draw 
the conclusions that you and others seek to find.
    So we think additional guidance is necessary. We think a 
cooperative effort at the Federal, State, and local level is 
warranted. And I believe OMB agrees, and we will be trying to 
move to develop additional guidance.
    Senator Collins. I think that is so important in terms of 
credibility and also uniformity, because it cannot have one 
State doing it one way and another doing it a completely 
different way.
    Mr. Scheppach, I want to follow up on a comment that is in 
your March 10 report on State implementation of the Recovery 
Act. You made a very interesting point in that report about the 
new law having several ``use it or lose it'' provisions, which 
require State funding to be allocated to other States if they 
are not obligated by a certain deadline.
    Now, I am not talking about those few States that have 
decided to refuse recovery funds altogether. I am talking about 
States that have accepted the funds but now face deadlines to 
expend the money.
    Several years ago, I headed an investigation into fourth-
quarter spending in the Federal Government, and we found that 
the ``use it or lose'' mentality causes money literally to be 
shoveled out in wheelbarrows because of the fear that it would 
not be available. It led to a lot of wasteful spending.
    There is a balance here, a tension between our desire to 
make sure that the money is being spent quickly so it 
stimulates the economy in a timely fashion, a point you made in 
your opening remarks. But there is also the concern that if 
there are deadlines for spending it, that the money may be just 
put in that wheelbarrow and shoveled out, and not spent wisely.
    Could you comment on what you think we could do to ensure 
that the use it or lose it requirements do not lead to wasteful 
spending?
    Mr. Scheppach. I would say right now, when you talk with 
the leads who are basically administering this money, they are 
very scared because of all the oversight; that I am not sure 
you are going to see that this time at the end of the queue 
because nobody wants a story in the local newspaper, or down 
here, that money went out inappropriately.
    So my own view is that until we get to that point, that 
money is probably going to come back to Washington, and it is 
going to be redistributed. I do not think anybody out there in 
States right now is going to take any risks with accelerating 
that money.
    Senator Collins. Thank you.
    Ms. Coleman, you mentioned that your organization is doing 
Webcasts to help educate local officials, and I really commend 
you for that because this is in some ways a bewildering maze 
for smaller communities to try to follow. I want to give you a 
specific example and see if you have some suggestions.
    There is a small fire department in Maine, the Readfield 
Maine Fire Department, that was looking for a potential source 
of funding under the Recovery Act and could not determine a 
source, based on the information available. This fire 
department went to the State's Commissioner of the Department 
of Administrative and Financial Services, who found that there 
were 30 different Web sites that potential Recovery Act funding 
recipients would have to access to find funding that they might 
be eligible for.
    Now, it turns out for this fire department, there is a pot 
of money in the Federal Emergency Management Agency (FEMA) that 
we increased by $200 million that would meet its needs. But how 
is a small fire department going to figure that out if there 
are 30 separate Web sites that need to be accessed?
    We focus so much on oversight and transparency, but do you 
think that more needs to be done to help the potential 
recipients of money determine how to apply and where the money 
is located?
    Ms. Coleman. That situation or scenario you describe is 
happening across the country, and it is, in part, why the 
national local government associations and the State affiliates 
of those organizations, are working very hard to educate and 
make information available to local city leadership so that 
they know more quickly and do not miss deadlines, and do not 
leave money on the table, so they can find out what is it that 
we could use to fund this need in our community.
    On top of that, there is no one place, yet, where you can 
find all of the funding opportunities for cities in the 
Recovery Act, so that is being cobbled together. But it is a 
particular challenge, and that is why we want to continue using 
the technology via Webcasts, conferences, meetings out in the 
various cities and towns.
    I know some State associations have been hosting townhall 
meetings and inviting representatives from the different 
Federal agencies, using the regional offices of the Departments 
of Housing and Urban Development (HUD) and Homeland Security, 
and inviting those representatives into a townhall meeting in 
communities where the public and nonprofit groups can then be 
on site asking these questions.
    But I think it will continue to be a challenge. And I go 
back to, if recovery is to be successful in cities and towns, 
the first most important thing we need to do is help educate 
our local leaders so that they know what is possible and how to 
get to those resources. But it is a challenge.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks, Senator Collins.
    I will call on Senators in order of arrival, which today is 
Senator McCain, Bennet, Burris, Carper, and McCaskill.
    Senator McCain.

              OPENING STATEMENT OF SENATOR MCCAIN

    Senator McCain. Thank you, Mr. Chairman, and thank you for 
holding this hearing today. It is obviously very important that 
we do the best we can to monitor the expenditures of these 
large amounts of funds.
    Mr. Dodaro, much of this funding has been expended, and it 
is being expended, for State expenditures for Medicaid 
services.
    Is that pretty much across the board to make up for 
deficits that the States are experiencing? Is that what you are 
finding out?
    Mr. Dodaro. Senator, the Medicaid money, the way that the 
Act worked is that it gave each State a 6.2 percent increase in 
the Federal matching rate, and then depending upon the 
unemployment rate in the State, there is an additional match, 
additional funding. The States that we visited, for example, 
Iowa received a 7.09 percentage point increase in the Federal 
match. California is 11.60 percent.
    Now, the underlying theory here was to give fiscal relief 
to States, but also to help them meet increased caseloads and 
to maintain eligibility requirements. So the States have to use 
the Federal money for Medicaid services. They have to maintain 
eligibility requirements that were in place as of June 2008. So 
they cannot reduce the eligibility requirements. They have to 
continue to pay providers promptly in order to continue to 
receive the money, and they cannot use any of the money to put 
into a rainy day fund within the State.
    Senator McCain. Isn't it true that some States' eligibility 
rules on Medicaid has prevented them or hindered them from 
getting this money?
    Mr. Dodaro. I believe there is one that had to go back and 
restore some of the eligibility requirements to get the money, 
but they have to maintain the eligibility requirements that 
were in place in June 2008.
    Almost all the States that we have looked at have drawn 
down the money, Senator, except for Colorado. Colorado had not, 
among the States, drawn that down. So that is one of the areas 
that we and the inspector general are going to continue to look 
at, is to make sure that the States meet the maintenance 
requirement and eligibility standards. I am not aware of any 
particular situation.
    Senator McCain. I see.
    I was looking at your table number 4 here,\1\ which shows 
the percentage of apportionment that has been obligated by the 
various States. It is a part of your report, I believe, on page 
19.
---------------------------------------------------------------------------
    \1\ The table referenced by Senator McCain appears in the Appendix 
on page 307.
---------------------------------------------------------------------------
    Mr. Dodaro. Yes.
    Senator McCain. The thing that kind of interested me here 
is that at least one State, Iowa, has obligated 62 percent, and 
yet there are several States that have obligated zero. What is 
the story here?
    Mr. Dodaro. Well, in some States, the legislatures have to 
approve the projects before moneys can be spent. And that is 
the case, for example, in Florida that you see here, that has--
--
    Senator McCain. Zero.
    Mr. Dodaro [continuing]. Zero. So every State is set up 
different.
    In some cases, the transportation department is not even 
under the governor's authority, like in Mississippi, for 
example. So depending upon the State's structure and what the 
rules are in terms of the legislatures having to approve the 
funds, that dictates in large part the pace that you see here 
and the differences among these States.
    Senator McCain. So it is really a matter of procedure 
rather than lack of action that has gone on here, in other 
words?
    Mr. Dodaro. That is correct. It is the process within the 
State to commit to be able to move that forward, and it varies. 
All the ones that we looked at were planning and are trying to 
move forward. It is just a matter of going through their 
proper, normal process.
    Senator McCain. And according to your chart there that we 
are looking at, we would anticipate by the end of 2010 to have 
dispensed roughly about 60 percent of the funds?
    Mr. Dodaro. Yes, to the State and localities. Right.
    Senator McCain. And what are the major problems that you 
have found the States are encountering?
    Mr. Dodaro. Major problems are, first, having clarity, 
guidelines, on whether they can use some of the moneys to 
increase their oversight and accountability mechanisms. And we 
make a recommendation to OMB that they clarify that so the 
States can deal with that issue.
    Senator McCain. Have you found that in some areas, that 
apparently there are insufficient mechanisms in place for 
oversight?
    Mr. Dodaro. Yes. We think that in some States, they have 
cut back considerably on their oversight. That heightens the 
risk. I mean, we have not seen actual problems yet because of 
the status of the money, but I am concerned, based upon their 
analysis of where some of the risks are. And unless they move 
to address those risks, we could have problems down the road.
    Senator McCain. I interrupted you, by the way. Do you want 
to complete your answers?
    Mr. Dodaro. Yes, right. On the second area, Senator, there 
is greater need for communication at the State level about what 
money is going directly to the local government, bypassing the 
States. So we have recommended to OMB they clarify that, and 
they have agreed to do that.
    Third, States need some guidance on methodologies and 
definitions for the number of jobs preserved or created, and 
the total amount of data collection requirements that are being 
imposed on them. And we have made recommendations in both of 
those areas in our report today to address that. And OMB 
understands those issues and hopefully will move to clarify 
them.
    Senator McCain. Ms. Coleman or Mr. Scheppach, do you have 
any comment on those questions that I asked Mr. Dodaro?
    Mr. Scheppach. Well, the only thing I would say on the 
Medicaid issue is that the Medicaid was the one area where the 
payments are actually retroactive to October 1, 2008. So it 
seems to me that Congress intended by that to provide some 
money early to offset potential cuts that States were going to 
make. And I think that was very helpful. I mean, most of the 
money that is, in fact, going to pay out in 2009 I am assuming 
is the Medicaid money. So it is the fastest money that will be 
going out.
    Senator McCain. Not exactly the largest job creator. Ms. 
Coleman.
    Ms. Coleman. Senator McCain, I would just echo what GAO has 
said. We also look for additional guidance and clarity around 
the performance measures, the data management requirements, and 
greater communication about where dollars are going, not just 
States and locals, but just overall.
    Senator McCain. Thank you. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator McCain.
    Next is Senator Burris. Senator Bennet has left.

              OPENING STATEMENT OF SENATOR BURRIS

    Senator Burris. Thank you, Mr. Chairman, Ranking Member 
Collins, and other colleagues on the Committee.
    I would like to welcome our distinguished panelists and 
certainly have some major concerns. I just hope that my 
concerns can be addressed by this panel.
    Having been home over the recess, and when I go home on 
Saturday, I am getting confronted with questions about where 
the stimulus money is going. Primarily in the minority 
communities, and specifically in the black community, I want to 
know whether or not any of the Federal guidelines, for example, 
on that transportation money, when it is going to the States, 
whether or not those States have to follow any type of 
guidelines with reference to those minority requirements, that 
those moneys be shared with minority companies and small 
businesses.
    Any one of you want to respond to that? Mr. Dodaro, if you 
would like to, or the governors. I have some more questions 
down that line as well.
    Mr. Dodaro. Right. In the transportation area, they 
basically use the existing Federal highway program, but there 
are some new requirements. One is that the States have to 
maintain their level of spending and have to certify that they 
will do that in order to continue to receive funds, and that 
they give priority to economically distressed areas.
    Now, those two areas we are going to look at more carefully 
in our subsequent reviews to make sure that they comply with 
those requirements because we want them to get through their 
process to designate the full range of projects that they are 
going to fund in those areas.
    But as I mentioned, and we discuss in our report today, 
there has not been a significant amount of money allocated yet, 
or spent yet I should say, in the transportation area, with the 
exception of a couple of States, Mississippi and Iowa. Most of 
the projects now are out for competitive bid.
    Senator Burris. I understand Illinois has been allocated 
$187 million in transportation dollars. I do not know whether 
or not the dollars have come. And then they had all these 5-
year projects, and that is where the dollars are going, to 
those projects. The reason why Illinois got the money so 
early----
    Mr. Dodaro. Right.
    Senator Burris [continuing]. Is because we already had 
projects. And the question is whether there are any 
stipulations on those projects, because that is all I am 
hearing. The stimulus money is coming to Illinois, and the 
small businesses are saying where is it going, who is getting 
it. I know it has to go through the States, it has to go 
through the legislature to be appropriated.
    But were there any other special guidelines that would deal 
with that for smaller, minority companies, other than those 
standards, which mean that it would be very little dollars 
getting into those companies that are going to need it.
    Mr. Scheppach. Yes. I would just echo. I think what the law 
requires is the normal standards that have been in place for 
all transportation spending and all spending. And then, second, 
in the transportation area, you are supposed to give preference 
to distressed areas. But it is true that there is very little 
money that has been obligated in States yet, so it is hard to 
say what is happening.
    Senator Burris. So we will be able to track those and 
determine what is happening there?
    Mr. Dodaro. Yes.
    Mr. Scheppach. There are very detailed requirements in the 
Act for States to report on a quarterly basis of exactly where 
that money goes for every specific contract.
    Senator Burris. Well, I was looking at a figure in 
Illinois, having received $15 million for the Illinois Health 
Center funding. And there were 36 projects, and the data is 
there. And I am looking at some of these clinics and health 
centers that are on the money for allocation. And I am just 
wondering, is there oversight responsibility as to whether or 
not those clinics are in underserved communities? And if they 
are not, then what type of penalty or requirement would be 
faced on these States, or the local government, whoever is 
responsible for allocating those moneys to these health 
centers, if they are not giving money to health centers in 
underserved areas?
    What is the punishment if they do not? The money will then 
be out and spent and will not be shared.
    Mr. Scheppach. Well, first off, I think that in most 
categories, you are required to come back to the Federal 
Government with specific projects that are going to be done, to 
be approved at that particular level. So there is some 
additional oversight there as well. I do not know of any 
penalties, but I can tell you, most people who are dealing with 
this money do not want to make errors because they know they 
are going to be called out publicly.
    Senator Burris. Pardon me, Doctor. It is not a matter who 
is dealing with the money. What my constituents are going to--
how this stimulus money is going to impact the black community, 
in Chicago, in Peoria, in Rockford, and what Federal authority 
would we have to make sure that there is sharing of these 
stimulus tax dollars that are supposed to be stimulating these 
underserved communities?
    Yes, Mr. Dodaro?
    Mr. Dodaro. Yes. Senator Burris, in the transportation 
area--this is with projects--in Illinois, our work has shown 
that they were apportioned $936 million, and that they have 
obligated, which is the Federal Government and the States have 
agreed on 214 projects--this is as of April--that account for 
about $600 million of that amount of money.
    Senator Burris. Those are the 5-year plans and 10-year 
plans that the Department of Transportation (DOT) has in place.
    Mr. Dodaro. Right. That is exactly right. So for those 214 
projects, the States has to follow the normal rules to make 
sure that they give attention to contracts for disadvantaged 
areas, disadvantaged businesses, rather.
    Senator Burris. Right.
    Mr. Dodaro. And then there is also the additional 
requirement for economically distressed areas.
    So part of our job will be to follow up to see--once these 
projects are in place and once the other ones are there, there 
should be a proper reporting back by the States. And we will be 
able to look to see whether or not they have met those 
requirements.
    Senator Burris. Yes, but there is nothing--if they do not 
do it, and there are no requirements, and the money has been 
spent and has gone to all these major construction companies, 
and they did not meet the guidelines, is there a penalty to be 
paid?
    Mr. Dodaro. Well, there are additional projects in the 
pipeline that the Federal Government would have the ability to 
not approve, and there may be some other issues. These are not 
all the projects. There have to be additional projects. So I 
think there is supposed to be oversight by the Department of 
Transportation.
    Senator Burris. But wouldn't we do better if we could get 
some type of upfront requirement before that money--whether or 
not the Federal Government would have any authority to oversee 
prior to the signing to rebuild I-75.
    Mr. Dodaro. Well, in this case, Senator, the Federal 
Government has approved these projects reviewing exactly what 
they have looked at is something that we need to do. But there 
is a check in the normal process that the State cannot go 
forward with the bids until the Federal Government approves the 
project. So all the ones I mentioned here, DOT has signed off 
on.
    Senator Burris. I see my time is up.
    Mr. Chairman, I do not know whether or not there will be a 
second round, but I have a lot more questions in this regard.
    Chairman Lieberman. OK.
    Senator Burris. So if there is a second round, I would like 
to stick around and raise these questions.
    Chairman Lieberman. Well, we will see how the clock goes.
    Senator Burris. We have to vote today I understand, too, 
this morning.
    Chairman Lieberman. The rumors are mixed. I guess it has 
been vitiated. They originally thought we were going to have a 
vote, but I think it has been vitiated.
    Senator Burris. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Burris.
    For the sake of clarity, Mr. Dodaro--because I know some of 
us have been affected by that chart. But it is clearly labeled. 
This is the pace of spending for State and local funds. But 
just to clarify, that is basically what GAO is charged to do 
here in oversight of this stimulus bill. Am I right?
    Mr. Dodaro. That is one of our responsibilities. We have 
other responsibilities. For example, to review the recipient 
reports once they come in; special attention to jobs created 
and preserved.
    Chairman Lieberman. Right.
    Mr. Dodaro. We have been required to look at special 
education grants.
    We issued a report last week on the Small Business 
Administration's efforts to increase liquidity in the secondary 
market for small business loans.
    Chairman Lieberman. I did not mean to interrupt you, 
because I do not want to take----
    Mr. Dodaro. But I have the numbers on the total amount of 
the Recovery Act.
    Chairman Lieberman. Oh, you do? That is great.
    Mr. Dodaro. Yes, I do.
    Chairman Lieberman. Because that is somewhat beyond what 
you are doing; am I right?
    Mr. Dodaro. Right, that is correct.
    Chairman Lieberman. It is probably better for us to ask 
OMB, but since you have them, let us hear from you.
    Mr. Dodaro. Right. For Fiscal Year 2009, it is $185 
billion; $400 billion in Fiscal Year 2010; and $134 billion in 
Fiscal Year 2011.
    Chairman Lieberman. That is the total spending.
    Mr. Dodaro. Right, estimated total Rocovery Act impact 
outlays.
    Chairman Lieberman. And that includes, for instance, the 
payroll tax cuts.
    Mr. Dodaro. Yes.
    Chairman Lieberman. That is surprising that it is still----
    Mr. Dodaro. But I think you always have to keep in mind 
that Fiscal Year 2009 is only half of a year.
    Chairman Lieberman. Yes, exactly. On October 1, we are 
starting the new fiscal year.
    Mr. Dodaro. Right.
    Chairman Lieberman. OK.
    Mr. Dodaro. So you only really have, from February 17 to 
September 30 in the 2009 numbers.
    Chairman Lieberman. So I suppose in fairness, as we judge 
the impact--I am thinking of Mr. Scheppach's statement that the 
history of fiscal stimulus is not always a happy one because a 
lot of times the moneys arrived after the economy has begun to 
recover. So $185 billion is not small change, but the real 
impact is going to come after October 1 of this year. And I 
suppose, in that sense, in fairness, we are not going to be 
able to judge the impact of the stimulus until then.
    I guess from our point of view--and I am going to stop here 
because I want to yield to Senator Carper--the question that we 
will always ask is if we are getting this money out as quickly 
as we can. Because, clearly, there is a desperate personal need 
for it around the country to get the economy going.
    Yes, go ahead, Mr. Scheppach.
    Mr. Scheppach. Just to make a comment, you have to 
remember, though, that unemployment peaks very late in this 
cycle.
    Chairman Lieberman. Right.
    Mr. Scheppach. So we are probably not going to get to the 
10 percent unemployment for another 12 months to 15 months. So 
I think that the amount of money that you have going out in 
2009 and 2010, I can assure you, history is going to write you 
well, Senator.
    Chairman Lieberman. Well, that is very kind of you. 
[Laughter.]
    Senator Collins. I wish Senator McCain had been here to 
hear that. [Laughter.]
    Chairman Lieberman. This reminds me of a great Churchill 
quote--which I am paraphrasing. But somebody asked him, after 
the end of World War II, how he thought history would treat 
him. And he said he thought history would treat him well 
because he intended to write it. [Laughter.]
    So I thank you for writing it here this morning.
    Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Speaking of Churchill, Dr. Scheppach, were 
you the head of the National Governors Association when----
    Mr. Scheppach. When it began.
    Senator Carper. I was going to go back in time when George 
Voinovich was the chairman.
    You were, were not you?
    Mr. Scheppach. Yes.
    Senator Carper. How about when Bill Clinton was chairman?
    Mr. Scheppach. Yes.
    Senator Carper. How long have you been there now?
    Mr. Scheppach. About 25 years.
    Senator Carper. That is terrific. You have done a great 
job. We are grateful to you. All of us are grateful to you.
    Mr. Scheppach. I have trained a lot of senators.
    Senator Carper. And one or two governors. And at least one 
president----
    Mr. Scheppach. Yes.
    Senator Carper [continuing]. When you think about it.
    I got here too late to hear Mr. Dodaro give his testimony, 
but I am curious. I would just ask you and Ms. Coleman, did he 
use notes today?
    Mr. Scheppach. Did he?
    Senator Carper. Yes.
    Mr. Scheppach. No. He memorized it all.
    Senator Carper. He never uses notes. And I am told 
Churchill used to memorize his speeches. And once, I think, in 
an address he was giving before Parliament, he lost his train 
of thought in the middle of a speech, and he never memorized 
his speech again after that.
    So I just want to be on hand when Mr. Dodaro is right in 
the middle of one of his testimonies and just loses it, 
entirely.
    Mr. Dodaro. Not yet. [Laughter.]
    Senator Carper. Well, you keep coming back and we will keep 
coming back. It is always a pleasure to hear your testimony.
    I have three hearings going on at the same time, so I am 
going to slip out here in a minute.
    Will you just give me the most important take-aways from 
your testimony, please, for our purposes today, each of you.
    Mr. Dodaro. Basically, the States are taking their 
responsibility seriously. They are trying to move through their 
processes as quickly as they can. They are concerned about 
their ability to provide proper accountability and oversight 
over the areas.
    We made a series of recommendations to OMB to make the 
Single Audit process more effective, and we think that will 
help with accountability; to clarify how much Recovery Act 
money or what Recovery Act money can be used to strengthen the 
States' oversight and accountability mechanism is very 
important. The OMB needs to provide additional guidance to help 
people determine the amount of jobs created and preserved so we 
have credible estimates down the road. And they need to improve 
their communication with the States and localities to help them 
plan better. They are doing a good job. They are off to a good 
start, but they can build on that and do better.
    Senator Carper. Good. Thank you. Dr. Scheppach.
    Mr. Scheppach. It is very early now, so it is hard to say. 
The reports by States are not even due until October for the 
first one. But I think there is a lot of good cooperation. We 
are getting the guidance that governors need and moving 
forward.
    You have to understand, though, that as much help as there 
is for States to offset the draconian cuts, that States are 
still going to be in a big hole for the next 3 years. And they 
are going to have to continue to cut and/or raise taxes in the 
order of magnitude of $200 billion over the next 3 years.
    Senator Carper. Yes. Ms. Coleman.
    Ms. Coleman. Senator, I would echo that we are off to a 
good start. The spirit of cooperation between the States, the 
Federal Government, the local governments, OMB, the Vice 
President's office, and others, I think, is going well. The 
local governments continue to get ready and are internally 
organizing their systems to be prepared to handle these 
resources. But we do share the concern about the resources to 
oversee these programs and to manage the grants effectively and 
in the manner that was intended.
    I would also share what the governors have mentioned, that 
while these resources will be helpful, that the gaps will 
continue to be big at the local level in terms of our budget.
    Senator Carper. Well, they certainly are in Delaware, I can 
assure you.
    I realize that the legislation is fresh, the money's just 
beginning to be dispersed, and the systems are set up to make 
sure States go out and get as much as they are eligible for and 
put the money to good use.
    What do we need to be doing here in the legislative side, 
in this hearing? We are actually doing a series of oversight 
hearings, which would seem to certainly be appropriate given 
how much money is involved.
    What should we be doing to exercise our appropriate roles?
    Yes, Mr. Dodaro?
    Mr. Dodaro. Senator Carper, we made these recommendations 
to OMB about modifying the Single Audit legislation and also 
Senator McCaskill had mentioned this issue before. We followed 
up, as she requested, and made these changes. And also 
clarifications on the administrative expenses.
    There has been a bill introduced on the House side to give 
funding to the State auditors to carry out responsibilities. I 
would say, if OMB has not made the proper clarifications soon, 
that Congress may want to consider legislation to strengthen 
the ability of State oversight mechanisms, both to manage it, 
provide proper controls, and also audit it at that level, and, 
also, on the creation of a different approach or a uniform 
approach for job measurement on jobs created and preserved.
    So I would wait to see what OMB does, if they take the 
proper action. I do not have any suggestions additionally for 
Congress at this time.
    Senator Carper. Do you recall who is the author in the 
House of Representatives of the Single Audit Act?
    Mr. Dodaro. It was 1984 when the Act was originally passed, 
and we made the last set of amendments in 1996.
    Senator Carper. An at-large congressman from a small State 
on the East Coast.
    Mr. Dodaro. Great foresight. [Laughter.]
    Senator Carper. I do not know. Let me follow up on that. 
State auditors already bear a significant responsibility for 
oversight of Federal spending by State agencies, pursuant to 
the Act and to the amendments that have been made to it. Those 
audits are generally conducted annually. They provide some 
assurance to the Federal Government as to the management and 
the use of funds that the States receive, as well as their 
subdivisions.
    The importance of the Single Audit process is, I think, 
magnified, rather than minimized, by the Recovery Act's 
emphasis on accountability. And given the additional 
responsibilities now given to State auditing agencies, what 
plans are in place--and you spoke of this, but what plans are 
actually in place to ensure that these efforts are coordinated 
with Federal agencies?
    Finally, what is being done by the Federal Government to 
increase outreach and coordination and communication with the 
State and local audit community, and to determine ways of 
improving data sharing?
    If you would just comment further on that, I would 
appreciate it.
    Mr. Dodaro. States are in the process now of going through 
their planning activities for the Single Audit program. And the 
concerns that we have raised and, as I mentioned, Senator 
McCaskill had, and others before, was that the States right 
now, unless they adjust the process and it follows this amount 
of money--we think the Single Audit Act can be used more 
effectively to test controls before these expenditures are made 
in 2010. That will not happen unless OMB modifies the guidance. 
We will get the reports after all the money has been spent in 
2010. And they could give them more flexibility to focus on the 
Recovery Act and less on low-risk programs as they know. So 
that is what we would suggest in that particular area.
    Now, in terms of sharing responsibilities, soon after the 
Act was passed, sharing information, I had a conference call 
with 40 some State auditors. I followed that up at Senator 
McCaskill's request.
    Senator Carper. Was she a former State auditor?
    Mr. Dodaro. Yes, we have regular contact with the State 
auditors. They were one of the first places we stopped in the 
16 States and localities that we visited. We are also working 
with the IGs and the Recovery Accountability and Transparency 
Board to coordinate all the audit activities.
    We are also working with the National Association of State 
Auditors, Comptrollers, and Treasurers, and other groups, on 
the reporting requirements with OMB. And as Dr. Scheppach had 
mentioned previously, we have regular meetings every Friday to 
coordinate. So there is a lot of coordination going on. I am a 
big believer in that. I think it is very important early on 
this process.
    Senator Carper. Well, I applaud those efforts and urge you 
to continue them.
    Let me just say to each of you, thank you for being here. 
It is a special privilege to see Dr. Scheppach.
    Chairman Lieberman. Thanks, Senator Carper. Senator 
McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you. This will segue nicely into 
what you were just talking about, Mr. Dodaro.
    As a former auditor, I have looked at three programs in 
Missouri, and I know that the State auditor's office in 
Missouri is aware of this. But I will tell you where I think we 
are going to have a big, huge problem.
    We have a weatherization program that in fiscal year 2008 
received $6.1 million. It is going to get $125 million. We have 
a Missouri State energy program that has $9.6 million in the 
current year, they are going to get $60 million. A clean water 
State revolving fund that has $18.8 million on an annual basis 
is going to get $100 billion. And a drinking water State 
revolving fund that gets $15.8 million is going to get $30 
million.
    Now, the weatherization program particularly, I mean, this 
is--and the thing that makes me nervous about this is that I 
know how this is going to get covered. I am just sitting here 
and--everybody just circle the day on the calendar because 
there will be scandalous stories across the country about 
problems with the weatherization program. And the reason is 
that we are giving them so much money, and these are all going 
to be contracted out.
    I mean, we have the St. Louis Urban League in St. Louis 
that typically gets a million a year. They are getting $16 
million. Now, who are they hiring? Where are these people 
coming from? And who is checking to make sure that there is any 
internal controls in this program?
    So I am a little nervous that OMB has not yet come out with 
any guidance on the Single Audit. And I am even more nervous 
because I know there is a tendency--I mean, changing the Single 
Audit guidelines is like moving a huge tanker.
    Is there anybody here from OMB?
    [No response.]
    OK. Well, I will make sure that we call them today.
    But if they do not act quickly and say to these States, you 
have to make sure there are internal controls in these small, 
new programs, we are going to have a horrible set of stories 
that are going to indict the entire stimulus, when, in fact, 
these are relatively small programs but with huge potential for 
abuse and problems as it relates to internal controls.
    Tell me where you think they are in this process. I am 
worried. They have said they want to meet with our staff, but 
not until May 8. Why is this taking so long?
    Mr. Dodaro. I have been concerned as well. At your request, 
we met with the State auditors or had a conference call with 
them, got their ideas. We talked to the inspector general 
community. I thought we were moving along and making the 
modifications. But there is a resistance to making significant 
changes in the process and staying with the status quo. That is 
why we elevated our proposal, we had been working jointly with 
them on a recommendation to try to get more urgency to act.
    I think it is just inertia that has prevented them from 
acting, and some people do not want to change the process. I 
think it has to be changed. I think the State auditors would 
use good judgment in assessing risk. Unless the internal 
controls are looked at for these new programs in advance of the 
spending for 2010, the prevention that you are talking about 
will just not be there.
    Senator McCaskill. It will not be there.
    Mr. Dodaro. And so, I would encourage you to try to 
encourage OMB to act on our recommendation. We think it is a 
reasonable approach to doing this, and I think the Single 
Audits can really play a big role, but only if those changes 
are made.
    Senator McCaskill. Part of the problem is that hardly 
anybody knows what a Single Audit is. Senator Carper would 
know, people on this Committee would know. But I think even a 
lot of the Members would not know. And it is just a natural. 
And it is just frustrating me that people do not see that now 
is the time to be flexible about what the Single Audit should 
do.
    The big programs that they are going to focus on, they 
already have internal controls. I mean, Medicaid has internal 
controls. All these programs have internal controls. State 
highway departments have internal controls. They are used to 
contracting out major, multimillion dollar road projects. But 
this guy with a pick-up truck who is going to go out there and 
hammer up some weather stripping, or maybe not, and just say he 
is hammering up the weather stripping, and maybe he is getting 
his check. I mean, who is checking to see the work is actually 
done, especially in a program like home weatherization?
    So I think it is really a problem.
    Mr. Dodaro. On that point, my staff just gave me a note 
saying OMB is now not thinking about putting the guidance out 
until June 30, and that is way too late.
    Senator McCaskill. That is way too late.
    Mr. Dodaro. Yes. So I would urge you to do that. I will 
continue my efforts on this as well.
    Senator McCaskill. And, Mr. Chairman, I hate to interrupt 
you. But I would really hope that you and the Ranking Member 
might consider, as the Chairman of this Committee, weighing in 
on this with OMB. I think it is a golden opportunity for 
oversight, a golden opportunity to make sure we have internal 
controls.
    Individually, these programs seem small, compared to the 
overall, but if you add them all together in every State--and I 
think if we do not put a lot of pressure on OMB right now to 
tell them that they need to tweak the Single Audit requirements 
immediately to harness that power without spending another 
dime, that is a special moment in the Federal Government, when 
we can get real meaningful oversight without spending another 
dime. And we can. But if we wait another 60 days, it is going 
to be too late. The cow is going to be----is it the cow out of 
the barn or the horse out of the barn? Is it is the horse out 
of the barn, or cow, I guess, either one?
    Which is it, Senator Tester?
    Senator Tester. The hogs are out of the shed. [Laughter.]
    Senator McCaskill. The hogs are out of the shed.
    It will be the hogs out of the shed that we will not be 
able to recapture. So I hope that I could get the added weight 
of the Committee leadership on this so that maybe we can 
convince the folks at OMB that now is not the time to rest on 
the way they have always done it. They really need to step up 
and do it differently. Thank you very much.
    Chairman Lieberman. Thank you, Senator McCaskill.
    I mentioned before you came in that Senator Collins and I 
have been in communication with the Vice President's office. 
And he did send a letter today to us, but it bears following up 
on your point. But I do want to reassure you, though, to this 
extent.
    He said that OMB is aware of some of the problems we are 
talking about and will begin issuing updated guidance, beyond 
the two they have done already, in early May. The letter says 
the guidance will ``address several points that GAO has touched 
on, as well as concerns from State and local officials.'' And 
then he summarizes some of the areas of the guidance that will 
be forthcoming, including changes to the Single Audit precisely 
to ensure the Recovery Act activities receive special emphasis 
and audit scrutiny. But it is not clear that will be in early 
May.
    So we will follow up to stress the Committee's concern 
that, specifically, with regard to those guidelines, that they 
will be put at the top of the list.
    Senator McCaskill. I think it is important.
    Chairman Lieberman. Yes. I agree. Thank you very much. 
Senator Tester, we do not say hogs out of the shed in 
Connecticut.
    Senator Tester. Well, we do not say it in Montana either, 
but I thought it would go over well. [Laughter.]

              OPENING STATEMENT OF SENATOR TESTER

    Senator Tester. I have a very quick opening statement, and 
then I have some questions.
    Thank you, Mr. Chairman. I appreciate you calling this 
hearing, and I appreciate the panel members for their good 
work.
    The Recovery Act's transparency provisions build on efforts 
that I have been doing, going back to 2007, to bring more 
accountability and transparency to government. It is critically 
important. In these tough economic conditions, the Recovery Act 
in Montana is already working to rebuild the economy from the 
ground up with infrastructure projects--like roads, bridges, 
water systems, and many others. But we do need aggressive 
oversight to make sure that these projects, with only rock 
solid merit, are getting the taxpayer money. So I am pleased, 
Mr. Chairman, with you calling this important hearing about 
oversight.
    I have several questions, many which I had before I came in 
the door, and a lot more since I have been here.
    I am going to start with you, Mr. Dodaro, because I have 
heard a lot of comments about State auditors and their role in 
oversight. I do not know what it is in other States, but in 
Montana, the State auditor's main job is insurance 
commissioner, oversight of the insurance industry. I do not 
know that they have ever been asked to do things like auditing 
a weatherization program, for example, as Senator McCaskill 
talked about.
    So the question I have for you is what if--I mean, the 
mechanisms are there in places like the Departments of 
Transportation and Health and Human Services (HHS) and those 
kind of things, but what if the State auditor does not 
typically do those kind of oversights? What do you do then?
    Mr. Dodaro. I am not familiar with Montana, but I am with 
many of the States. And there is a legislative State auditor--
each State is set up a little bit different. But each State has 
to, according to Federal law and regulations and OMB, arrange 
for these Single Audits. Now, some may contract them out.
    Senator Tester. OK.
    Mr. Dodaro. So that process is standard and in place.
    Senator Tester. Right. Quite honestly, the legislative 
auditor has got a full plate already in our State.
    What percentage of the money can they utilize and where 
does that money come from to enable them to have the resources 
to be able to do an additional set of work?
    Mr. Dodaro. They are all funded a little bit differently, 
but I think there is some ability to recover the administrative 
costs of carrying out those responsibilities. But the audits 
are supposed to cover all spending, including the Federal 
spending, and then have testing on Federal compliance 
requirements.
    Senator Tester. Yes, but how does a legislative auditor get 
the money to do their audits?
    Mr. Dodaro. They receive an appropriation from the State 
legislature just like the legislature appropriates moneys.
    Senator Tester. I know that.
    Mr. Dodaro. Right.
    Senator Tester. The issue here is that they get their 
appropriation from the State legislature. The question is that 
they have additional work here to do. And where do they get the 
resources to do that? Does it come from the State legislature 
or does it come out of the Recovery Act?
    Mr. Dodaro. That is what we are asking OMB to clarify now. 
First, I would say, Senator, our recommendation about changing 
the Single Audit process would be to change the focus of it, 
which would not require additional money.
    Senator Tester. OK.
    Mr. Dodaro. But if they do not know, then OMB can determine 
and----
    Senator Tester. That is good. Are you recommending caps on 
the amount of money that they can use for audit oversight?
    Mr. Dodaro. We have not addressed that issue in particular, 
but I would expect them to use prudent judgment.
    Senator Tester. All right. Well, thank you.
    There are States that have full-time legislatures and there 
are States that have biannual legislatures, and everything in 
between.
    The Department of Energy (DOE) changed the rules after we 
went in, so the State of Montana, who happens to be in the 
biannual session right now, had to pull back, do some things 
different. That is all cool.
    How do you anticipate this happening in areas where there 
is a citizen part-time legislature and we have OMB or anybody 
changing guidance, and they release it after the sessions are 
over with?
    And this is to you, Mr. Scheppach. How do you anticipate 
them handling that?
    Mr. Scheppach. Well, again, it is going to differ quite a 
bit by the State. Some States, you will have to pull back the 
legislature for special session. Some States, essentially, have 
a committee that just needs to come back, and they can deal 
with it. Some States you could probably deal with it with 
executive order until the next session. So it really differs by 
State.
    Senator Tester. OK. A fair amount of this money is going 
into regions typically because unemployment rates are higher 
there than in other areas, where the most need is for jobs. In 
Montana, the Forest Service in Region 1 just gave significant 
moneys to the region, in the northwest part of the State. Our 
unemployment rate there is approaching 16 percent, very serious 
because of the wood products industries is in the tank.
    Although there is no stipulation in the bill, to my 
knowledge--and I want you to enlighten me if there is--that 
once the money is allocated to a region, they can contract it 
out, and somebody from a different part of Montana or a 
different State could come in and do some of the restorative 
work, or the bridge building, or the road building, or putting 
in culverts and all that.
    To your knowledge, is there anything in the bill that would 
require moneys that go to an area where unemployment is high, 
to actually be spent on people who live in that area that do 
not have jobs? Do you understand the question?
    Mr. Dodaro. Yes. I understand the question. I am thinking 
of the answer.
    Basically, Senator, it will vary by program activity. 
Obviously, the Medicaid program is spent for the eligible 
population in the State, and there is a factor for unemployment 
rates. The highway programs have to be given priority to 
economically distressed areas within the counties, and they 
have to consider disadvantaged businesses as a certain 
percentage of it.
    But to your particular question, I am not aware of anything 
that is in the legislation that would require that. I will go 
back and ask our attorneys to take a look at it.\1\ But each 
program has its own unique regulations.
---------------------------------------------------------------------------
    \1\ The response from Mr. Dodaro appears in the Appendix on page 
652.
---------------------------------------------------------------------------
    Senator Tester. I would like that, if you could do that; 
and then, if you have any recommendations on what I could do. 
Because, see, the truth is--and this is just a comment--in 
different regions of the country, unemployment is much higher 
in some areas than it is in other areas. In Montana, it easily 
swings 10 points.
    If we are plugging money into doing important work, 
important infrastructure work--it is not to make work, it is 
work that needs to be done and should be done--but, yet, people 
can come in from outside to do that work, and not employ any of 
those people to reduce that unemployment rate, we are really 
not accomplishing everything that we wanted to accomplish.
    So if you have any recommendations, I would love to hear 
them. Thanks for your work. Appreciate it.
    I would like to grill all of you, or at least ask you 
questions, but I cannot do it. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Senator Tester.
    Maybe we will do one more question on this round.
    Senator Burris, at the end, if you have more questions, I 
might just ask you to carry on the hearing until you are done 
with your questions because I want to go over to the Days of 
Remembrance commemoration. But let's start with one question 
each and see how we go. I will go first quickly, and then I 
will go over to you.
    I am pleased to hear about how many States and localities 
have created Web sites to provide accountability and 
transparency. It really is quite remarkable. In some sense, 
just as the size of the stimulus is unprecedented in Federal 
Government history, the efforts that the Federal Government, 
with the Recovery.gov Web site and at the State and local 
level, I think are unprecedented, too, in terms of bringing 
modern technology to bear on all this. It strikes me that if 
nothing else, the Recovery Act is creating jobs for Web 
designers and Web managers. [Laughter.]
    That is good.
    But I want to ask you how the State and local sites will 
complement Recovery.gov, and is Recovery.gov sort of 
piggybacking on what the States and localities are doing, or 
are these basically separate sources of information?
    Let's start with you, Ms. Coleman.
    Ms. Coleman. Yes. I will give you my sense just from 
perusing through the various Web sites. Most of the local 
government Web sites I have looked at provide a link to 
Recovery.gov, the Federal Web site. But there is a range of 
content. New York City has a very sophisticated Web site and 
will actually be modeling its efforts to attract recovery 
dollars, very similar to the Baltimore City statistics local 
government accountability measure. So it is probably on the 
unique high end, but certainly New York City has different 
challenges and resources available.
    To vary on the other end of the spectrum, there are very 
static Web sites are just posting the information and providing 
the links to not only the Recovery.gov, but also the different 
Federal agencies who also have all launched their own recovery 
Web sites. So some very dynamic ones were seen as well as some 
that are static, but at least making the information available 
and letting their constituents know who they can contact if 
they have questions about recovery.
    Chairman Lieberman. We were really impressed, surprised, by 
the usage, the number of hits on the Recovery.gov Web site. The 
last time Rob Nabors from OMB was here, it was over $300 
million since it was instituted.
    Are you finding similarly heavy traffic on the State and 
local, or do you know?
    Mr. Scheppach. I do not really have a good sense.
    Ms. Coleman. I do not have a sense of that.
    Chairman Lieberman. OK. How about the States' sites, Mr. 
Scheppach?
    Mr. Scheppach. Well, a lot of it is going to be 
duplicative. Everything that is going to go on Recovery.gov is 
also going to go on the States. But I think there will be more 
information on States about the task forces that have been 
created, when there are public meetings that you can attend. 
Also, I suspect some of them are gearing up to put out more of 
the regional information in terms of contracts and so on, so 
you can accumulate it various different ways.
    Chairman Lieberman. Mr. Dodaro, do you have anything to add 
to that?
    Mr. Dodaro. Yes. The only thing I would add, I know on the 
Recovery.gov Web site, there are links to each State Web site. 
So I think the links are there, which is helpful. Also, some of 
the States we have looked at--I know Ohio, for example, is 
using a Web site to take ideas from the public on specific 
projects. So I think some of the States are using it to get 
some input, too, to help them make decisions. So I would add 
that.
    Chairman Lieberman. Good. Thank you. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. Just one final 
question for me.
    Mr. Scheppach, I want to talk to you about the issue of the 
restrictions on funding being used to supplant State funding. I 
think this is a very confusing area because Congress put some 
of these restrictions into the law to ensure they were getting 
the stimulative effect of additional funding. If the Federal 
funding is simply displacing State funding that otherwise would 
occur, then it is not going to stimulate the economy.
    On the other hand, if the funding is going to allow the 
States to avoid cuts that would displace people--cause them to 
lose their jobs or services to be reduced--then, presumably, 
that is a use that we want to see.
    Could you help us sort through this, and do the governors 
have an understanding of what is supplanting versus 
displacement? Because as I understand it, OMB has indicated 
that if States ``misuse'' the discretionary money by displacing 
instead of supplementing State budgets, the Federal Government 
could seek to recover the money.
    I think this is extraordinarily confusing.
    Mr. Scheppach. It is a difficult problem. And I think the 
biggest place that this is an issue is in the State 
Stabilization Fund, $45 billion worth of education money. And 
the maintenance of effort there says that no State can go below 
their 2006 level.
    The problem is that States were in such different places 
because we had four or five States--like Florida, Arizona and 
everything--that went down very early economically, and a bunch 
of others did not have major problems until later. So anytime 
you pick a year for a maintenance of effort, it works pretty 
effectively for a group of States but not for others.
    A perfect example there is Florida, which had, I think, cut 
their budgets quite significantly. So maintaining that 2006 
maintenance of effort, they were so far under it, that it was 
causing a big problem. But at least you did build a waiver 
approach into it so they can apply for a waiver from the 
department so that it sort of helps.
    It is just a difficult problem to get a concept that is 
effective across the board for all States. And something like 
the Medicaid one, where you are not measuring money, you are 
actually measuring eligibility and other issues, is cleaner in 
that sense, but in a lot of other areas, you just cannot do 
that.
    So I think something is in there, which is pick a 
reasonable year for most States and provide a waiver authority 
is probably as good as we can do, in all honesty.
    Senator Collins. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Collins. Senator 
Burris.
    Senator Burris. Ms. Coleman and Dr. Scheppach, if you could 
let me know what the States' position is going to be for these 
underserved communities, minority businesses, or the local 
community municipalities, whether you have any knowledge that 
they have in place programs to make sure that the stimulus 
dollars would go to minority companies, small businesses, to 
create jobs in those areas.
    Do you have any specific knowledge as to what your 
municipality or the State governments are going to be doing?
    Ms. Coleman. Senator, I would say that I do not know what 
all the specific cities and towns are doing. They are quite 
diverse and there is quite a range. But I can share that in my 
conversations, in our conversations with minority, local 
elected leaders, that they are certainly being champions for 
that cause as their cities and towns move forward with the 
requests for proposals or other decisionmaking processes as it 
relates to the recovery dollars.
    So there are champions, hundreds and thousands of 
champions, for that cause who are in the local governments and 
a part of that decision-making process that I think will call 
attention to any disparities or efforts that do not seem to be 
in compliance with the Federal requirements, as well as any 
local requirements that there might be.
    Senator Burris. Well, in Illinois, they are coming to me 
saying how can they get their local businesses to get a piece 
of this action, a piece of the project that is coming in, 
whether it is a weatherization project or a highway 
construction project. And they have no knowledge of how the 
process is working.
    Do they talk to the mayor of the city? Do they talk to the 
governor of the State? And they are coming to me saying who do 
we talk to.
    Ms. Coleman. Well, I would echo what you are saying in that 
the first step is education and awareness about what are the 
opportunities and how to access those opportunities. And this 
is where we will go back to the communication that local 
governments are doing with their constituents, and the vendors 
who are interested in these opportunities, as well as the 
communications from the State and the Federal Government. These 
are important so that people and vendors wanting to do business 
can understand what are the opportunities and who do I talk to 
about those opportunities.
    I know that cities and towns across the country, as well as 
the States and the Federal Government, are working hard to make 
those communication vehicles available so that the information 
is accessible.
    Senator Burris. Do you have an example of any entity that 
you know about that might be an example of what is taking 
place? Is there a city councilman who has his business person 
put a grant in, let's say, for one of these community health 
centers, and that grant was approved?
    Ms. Coleman. I do not have any particular examples, but I 
am happy to do some work on that issue when I return to the 
office, and we will be happy to follow up with your office.
    Senator Burris. Will you be following that piece of it with 
your authority under the National Governors Association, how 
they are following up with the minority piece?
    Mr. Scheppach. It is probably not something we would 
normally do. The State of Illinois has appointed people who are 
their leads for this. And I would recommend that the community 
sit down with those leads and talk about this issue. I mean, no 
money has been spent yet----
    Senator Burris. He is named the stimulus czar. We have a 
stimulus czar.
    Mr. Scheppach. Well, I would encourage you to sit down with 
that person and talk about the issue, because, as I say, you 
are in front of it. There are very few decisions that have been 
made so far.
    Senator Burris. But right now I am getting all the heat 
from it. I was getting calls in yesterday about how do we get a 
piece of the stimulus? I mean, that is all I am hearing from my 
constituents. And I am now trying to get some answers from 
them. I have certainly met with some local officials, and they 
did not know as much as I knew in Illinois.
    So there is major concern. And I tell you, if these dollars 
come into the community, and none of them get into those 
underserved and minority communities, then there is going to 
be--here again, this is what we are looking at; it is all at 
the top. They are going to keep us at the bottom and not give 
an opportunity for a chance to grow businesses and to share in 
our dispersion of tax dollars.
    Mr. Scheppach. Well, again, I would sit down with the 
mayors in your particular area, as well as the governor's 
people.
    Senator Burris. Thank you, Members of the Committee. I 
appreciate your response.
    Chairman Lieberman. Thanks, Senator Burris.
    Thanks to the three witnesses. I think this has been a very 
informative hearing. That is why we are going to keep doing 
them. And bottom line, I am encouraged by what you have all 
said. I think the Federal, State, and local governments are 
trying to work very hard together. In our oversight, there are 
questions, but there are responses coming, including the Vice 
President's announcement of the guidelines today.
    Overall, the money has gone out. So not only am I 
encouraged about what we have heard in the short term, but I am 
encouraged by Dr. Ray Scheppach's vision of what history holds. 
[Laughter.]
    We do not normally look that far ahead.
    Anyway, the record of the hearing will stay open for 15 
days for any additional questions or statements. I thank you 
all very much for what you have been doing. We had a very good 
turnout today, and, frankly, beyond what I expected for Members 
of the Committee, which shows how much interest there is among 
the Members. And a lot of it is because there is so much 
interest, as Members have indicated, back home.
    Senator Collins, do you want to add anything?
    Senator Collins. I do not.
    Chairman Lieberman. Thank you very much. The hearing is 
adjourned.
    [Whereupon, at 10:55 a.m., the Committee was adjourned.]


                     FOLLOW THE MONEY: AN UPDATE ON
                    STIMULUS SPENDING, TRANSPARENCY,
                          AND FRAUD PREVENTION

                              ----------                              


                      THURSDAY, SEPTEMBER 10, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Carper, Pryor, McCaskill, 
Tester, Burris, Collins, Coburn, and McCain.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. Good 
morning and welcome to the witnesses and everyone else who is 
here.
    This is the fifth in a series of oversight hearings that 
our Committee, pursuant to its oversight responsibility as the 
Governmental Affairs Committee, has conducted on the American 
Recovery and Reinvestment Act (ARRA or Recovery Act), the $787 
billion stimulus package that was enacted earlier this year to 
help pull our economy out of the worst recession in the living 
memory of most Americans.
    We hold this hearing on the heels of what I would call 
mixed news about our economy. That is that we are still not 
where we want and need to be, but we seem to be making some 
progress. After a slight decrease in the unemployment rate in 
July, down a tenth of a point to 9.4 percent, the jobless rate, 
as we all know, went back up to 9.7 percent in August, which is 
the worst rate of unemployment in America in 26 years. We know 
that unemployment is a lagging indicator of an economic 
recovery, so this was not entirely unexpected.
    We also know that just a few months ago, our financial 
sector was on the verge of collapse and the overall economy was 
teetering somewhere between a great recession and, at worst, a 
depression. Thankfully, both of those calamities have been 
averted. The stock market is up. Housing sales are up. And 
manufacturing grew last month for the first time in more than a 
year.
    But the unemployment level now is above what many 
economists predicted when we passed the stimulus in February, 
particularly the numbers for the building construction trades, 
where unemployment still exceeds 17 percent in many States, 
including my own State of Connecticut. Perhaps that explains 
why, when I met with workers in the construction trades in 
Connecticut during August, they were having a hard time 
expressing any gratitude for the positive effects of the 
stimulus. So the danger of a jobless recovery remains all too 
real.
    With that in mind, a lot of people, understandably, are 
asking if we can do more. Some have called for a second 
stimulus, although those calls seem to have receded. Others are 
asking, and I number myself among those, whether we can 
implement what we have already passed faster, whether we can 
speed up the process so that more of our citizens can feel the 
positive effects of the stimulus that we intended more quickly 
than will happen in the normal course. I, for one, hope that we 
can and I look forward to exploring that with the witnesses 
today.
    This morning, overall, we are going to take a status check 
on what has been done so far and ask about the capabilities of 
all levels of government, and the performance of all levels of 
government in administering Recovery Act programs. The pace of 
spending naturally will pick up--we have known all along that 
we would spend more in fiscal year 2010 than in fiscal year 
2009--and, of course, we will ask whether we can increase the 
pace of that spending even more.
    Personally, I believe that much has been accomplished since 
the Recovery Act was passed as a result of the Recovery Act. 
While I am going to not fall to the temptation about telling 
old jokes about economists never reaching a similar conclusion, 
I think, from what I have read, most of them agree that the 
Recovery Act has helped halt America's economic slide and is 
helping the private sector toward a recovery.
    I can tell you that certainly mayors and governors, and 
other local officials, make clear to me and others that things 
that would have been worse without the help that the Recovery 
Act provided. Let me briefly sum up where we are now and the 
progress we have made.
    On the tax side, 95 percent of working Americans have seen 
their paychecks increase because of the Make Work Pay tax 
credit. It has put about $23.2 billion into the pockets of 
these families so far. And in total since the Act was adopted, 
$62.5 billion has been pumped into the economy through tax 
relief, with $225.5 billion more of tax cuts still to come. 
Nearly 334,000 new homeowners have claimed the Recovery Act's 
$8,000 first-time homebuyer tax credit. Many analysts, and 
maybe in some senses more importantly, many people in the real 
estate business--brokers, agents, etc.--that I have talked to 
in Connecticut say that this provision really has played a part 
in steadying the housing market and even now is helping to 
increase home sales for 4 months in a row.
    In transportation infrastructure, over 6,700 highway 
projects have been approved and more than 2,200 are underway. 
Hundreds of airports across the country have been awarded funds 
for improvements, and about $1.1 billion in Amtrak improvements 
are on the way.
    The Recovery Act is also helping families through these 
tough times with extended unemployment insurance, increased 
Social Security payments, more food stamp assistance, and aid 
to States through increased Medicaid grants.
    Recovery Act payments to the States through the Federal 
Medical Assistance Percentages (FMAP) program and the State 
Fiscal Stabilization Fund have helped, by the numbers that I 
have seen, keep 135,000 teachers and 5,000 law enforcement 
officers on the job.
    We will come back to all that with some questions and 
answers.
    Besides the spending of stimulus money, another topic of 
this hearing will be our continuing interest in the 
transparency of Recovery Act spending and a final, but 
critical, question that we want to deal with today with 
particularly the presence of--I would like to see ``Hon.'' 
before Jon Leibowitz's name. He worked here in the Senate many 
years. We always thought he was honorable, but now he has been 
officially declared honorable.
    The challenge we want to deal with today is the Federal 
Government's efforts, which he is helping to spearhead, to 
prevent Americans from being bilked by scam artists who 
fraudulently promise government money in return for credit card 
information. Scams directly related to the stimulus appear to 
be few so far, but unfortunately, tough economic times are 
always accompanied by people who are eager to take advantage of 
other people's misery and try to exploit those who are 
financially strapped and desperate for cash. So we look forward 
to that additional and unique part of the government's response 
to this recession.
    So I welcome all the witnesses today. I look forward to 
your testimony, and I am glad to call now on our distinguished 
Ranking Member, Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    Seven months ago, the American Recovery and Reinvestment 
Act was signed into law. Since that time, this Committee has 
conducted oversight to help ensure that these funds are used as 
intended, to help revitalize our economy by creating needed 
jobs, improving roads and bridges, sustaining vital health care 
programs, and investing in infrastructure and science.
    These funds must be disbursed quickly to meet the goal of 
stimulating the economy. At the same time, we must ensure that 
haste does not make waste or permit fraud or mismanagement. 
Striking the right balance between speed and caution has been a 
challenging task.
    For example, we recently learned that the Social Security 
Administration erroneously sent about 10,000 stimulus checks 
for $250 each to people who were either dead or incarcerated. 
This mistake may cost taxpayers about $2.5 million and it could 
easily have been prevented. Now, instead of these funds 
stimulating the economy, the Social Security Administration 
must work to recover them and put controls in place to prevent 
similar errors in the future.
    Today, as the Chairman has indicated, we will explore three 
issues that could blunt the economic recovery impact of the 
stimulus: The first, unnecessary delay; second, inadequate 
transparency; and third, outright fraud.
    First, some reports indicate that stimulus funds are 
entering the economy too slowly, delaying the potential 
economic benefit. The Office of Management and Budget (OMB), 
however, has reported that it is on track to meet the spending 
targets. I am interested in exploring with our witnesses 
whether the spending to date has had the desired effect on the 
economy, whether the money is being pushed out of Washington 
and to the intended recipients as quickly as possible.
    Second, I want to ensure that we are providing the American 
public with accurate and thorough data about stimulus projects 
around the country. Congress directed the creation of the 
Recovery.gov Web site to increase transparency, allowing the 
American people to monitor stimulus spending in their own 
States and to help be a watchdog and report abuses. Progress on 
Recovery.gov initially has been slow, however, particularly 
when compared to some private sector alternatives.
    Third, I am concerned about the growing incidence of fraud 
and predatory scams that appear to be on the rise as con 
artists prey on citizens facing financial hardships. These 
crooks are smart and they are opportunistic. They exploit these 
tough economic times to lure Americans into scams that look and 
sound legitimate. They uses phrases that we hear on news 
reports and see in the headlines, such as ``stimulus grants'' 
and ``government funding'' to confuse victims. They manufacture 
forms that have an official look to them when, in fact, the 
services offered are not connected in any way to any government 
agency or to the Recovery Act.
    To appreciate the potential that these scams have to spread 
and grow, possibly ensnaring thousands of trusting consumers, 
we must recognize that the Federal stimulus program is 
instantly recognizable. It is part of our economic and 
political vocabulary. It carries so much weight and credibility 
that the police in Florida recently used the lure of economic 
stimulus checks to conduct a sting operation in which 75 people 
were arrested.
    The Florida example demonstrates the attention-drawing 
power that the words ``economic stimulus'' can have on the 
American people. It is critical that we aggressively pursue 
scam artists who brazenly use the stimulus program as a 
springboard for fraudulent or other unfair activities.
    I have brought to the hearing today two examples of 
mailings that were sent to my constituents in Maine in order to 
illustrate my point. The first example, sent shortly after 
Congress passed the Recovery Act, is misleading because it 
resembles an official government form. It could easily be 
mistaken as a legitimate government offer of help and 
assistance. For those of you who can see the blown-up form or 
have it before you, it looks very much like an Internal Revenue 
Service (IRS) form. It provides an identification number for 
the individual. It has Form Number 009-S. It has ``Stimulus Act 
2008.'' It is easily mistaken for an IRS form and looks very 
official.\1\
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    \1\ The chart referenced by Senator Collins appears in the Appendix 
on page 661.
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    The second example is a letter that was sent to my 
constituent telling him that he is preapproved for a Consumer 
Debt Initiative because he may be experiencing a financial 
hardship. Well, most of my constituents are experiencing 
financial hardships, regrettably, nowadays. The letter implies 
that the initiative was established under the Economic Stimulus 
Act of 2009. In the letter, the alleged manager of the so-
called Credit Relief Division, a fictitious but realistic-
sounding title, encourages the consumer to call and refer to 
the case number provided. It has a Washington, DC, address. It 
looks very legitimate.\1\
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator Collins appears in the Appendix 
on page 662.
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    So I am particularly looking forward to hearing from Mr. 
Leibowitz today about the Federal Trade Commission's (FTC) 
efforts to identify, publicize, and stop stimulus scams.
    I also appreciate the work that the Department of Justice 
has done to train more than 10,000 Federal, State, and local 
officials to monitor the contracting process for abuses such as 
collusion and bid rigging. These officials can help play an 
important watchdog role.
    With a combination of education and enforcement, we can 
help prevent exploitation and stop scams. At the same time, I 
hope that this hearing will serve as a warning to con artists 
out there that our government is on the lookout. We will alert 
citizens. We will expose scams. And criminals will be 
prosecuted. Preventing fraud in the execution of stimulus 
funding is a key element to the ultimate success of the 
Recovery Act.
    I appreciate the Chairman's continued scheduling of very 
important hearings to provide sufficient oversight in this area 
and I look forward to hearing the testimony of our witnesses. 
Thank you.
    Chairman Lieberman. Thank you very much, Senator Collins.
    I thank the other witnesses of the hearing who are here 
this morning. We will go now to Robert Nabors, who is the 
Deputy Director of the Office of Management and Budget with 
special responsibility for the ARRA, the Stimulus Act. Thanks 
very much for being with us again.

  TESTIMONY OF HON. ROBERT L. NABORS II,\2\ DEPUTY DIRECTOR, 
                OFFICE OF MANAGEMENT AND BUDGET

    Mr. Nabors. Good morning, Mr. Chairman. Good morning, 
Members of the Committee, and thank you for inviting me to 
testify about our progress in implementing the Recovery Act.
---------------------------------------------------------------------------
    \2\ The prepared statement of Mr. Nabors appears in the Appendix on 
page 663.
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    Today, I would like to focus on four key areas that are of 
particular concern to the Committee. That is the rate of 
Recovery Act spending, recipient reporting, job counting, and 
the Single Audit system.
    The Recovery Act is making a difference, and the 
Congressional Budget Office (CBO) has noted it is one of the 
reasons why economic activity is expected to begin its rebound 
in the coming months. At the heart of this approach is an 
effort to accelerate the pace of spending. In previous 
hearings, you have asked me whether our pace of spending is on 
schedule. The answer is yes. The Recovery Act was designed to 
ramp up in 2009, have its peak impact in 2010, and lay the 
groundwork for further growth moving forward.
    In April, when I last testified here, Federal agencies had 
obligated about $54 billion. Today, nearly $234 billion has 
been obligated. When combined with more than $66 billion in tax 
relief, about $300 billion has been committed to date. 
Importantly, agencies have outlaid nearly $94 billion in 
spending so far, up from $12 billion in April. Combined with 
the tax relief, this totals to about $159 billion. This pace of 
spending is consistent with our original goal of outlaying 70 
percent of the $787 billion contained in the Recovery Act by 
the end of fiscal year 2010, and it is also consistent with 
CBO's initial projections.
    The Administration has worked to meet or exceed a series of 
ambitious funding targets. As the Government Accountability 
Office (GAO) has noted, Recovery Act funds are actually moving 
to States faster than anticipated and certain programs are 
being implemented faster than anticipated. For example, the 
Making Work Pay tax credit for middle-class families was 
implemented about 3 months ahead of schedule, and all States 
obligated at least half of their highway funds at least 10 days 
before the deadline set in the Recovery Act.
    At the beginning of the summer, the Vice President 
presented the Road Map to Recovery, a plan for 10 major 
benchmarks that would help define the Recovery Act during its 
second 100 days and speed implementation. Last week, the Vice 
President announced that the government had met or surpassed 
each target.
    In addition to implementing the Recovery Act quickly, it is 
critical that we do so in a way that is transparent and 
accountable to the American people. That is why Congress 
required funding recipients to provide detailed reports on the 
use of funds and on the jobs that these funds have created or 
saved.
    The first report from recipients are due on October 10. We 
have taken several actions in recent months to anticipate the 
needs of recipients and develop the appropriate leadership 
structure and technical capacity to manage the expected 
workload. Three rounds of OMB recipient reporting guidance have 
clarified the expectations on grant recipients and contractors. 
Our guidance responds to the President's charge for greater 
transparency by going beyond the data elements required by law 
to capture significant payments to vendors, those dealers, 
distributors, merchants, and other providers of goods and 
services necessary to conduct Federal programs.
    Working with the Recovery Accountability and Transparency 
Board, we have provided detailed instructions for registering 
and submitting information at Federalreporting.gov. We have 
worked with the board to test and fine-tune the site, which is 
now open for registration. As of last evening, there were about 
19,000 registrants so far and we are pushing hard to increase 
registration.
    In addition, we have worked with the board to conduct seven 
Webinars, attracting more than 17,000 registrants in a total of 
more than 20 different training sessions with recipients to 
explain their reporting responsibilities, to discuss how to 
calculate job estimates, and to review the technical solutions 
and data elements for reporting on recovery funds.
    As some challenges will require specialized attention, we 
are coordinating with the board to provide on-site technical 
assistance in State capitals and several localities during the 
reporting period. We will deploy about 100 on-site liaisons to 
every State capital and to many of the largest counties and 
cities. The liaisons will provide State and local Recovery Act 
coordinators with daily data on registration and reporting 
trends and to serve as a backstop for questions that are 
pending resolution from the board, service desks, and the 
agencies. A 10-person Project Support Team will oversee their 
operations, provide training, and coordinate information flow.
    Finally, there will be a team of 20 to 30 coordinators 
drawn from different agencies, positioned to get answers from 
agencies and OMB to recipients and to compile reports 
documenting what liaisons have learned on the ground.
    To further improve the flow of information, we responded to 
a recommendation from GAO and implemented a new State 
notification process, which requires agencies to notify States 
within 2 days of any grants awarded within their boundaries and 
will provide for up-to-date listings of new contracts, as well.
    We are committed to strengthening the reporting processes 
and collecting the data that we need to track spending, count 
jobs, and deliver on the President's promise of unprecedented 
transparency and accountability.
    Later today, the White House Council of Economic Advisors 
(CEA) will release its first quarterly macro-economic impact 
analysis of the Recovery Act. I am not in a position to discuss 
the report's specifics in this hearing, but I did want to take 
this opportunity to explain to the Committee the differences 
between the CEA report data and the data to be submitted in 
October by funding recipients.
    The data will differ in several important ways. First, the 
Recovery Act recipient reports encompass only those projects 
and activities funded by State Fiscal Relief Grants and other 
investment spending. That comprises about one-third of the 
total spending in the Act. The CEA report, however, will assess 
the total Recovery Act program, from grant spending to tax 
relief to safety net programs.
    Second, recipients are only required to report on direct 
jobs and not additional job impacts that may be occurring 
beyond that. CEA will look at direct as well as indirect 
economic benefits.
    Finally, the October data will be driven by the quality and 
quantity of information provided by funding recipients. The 
completeness of their submissions will determine the quality of 
the October job count. We are working with the agencies to urge 
funding recipients to register and report on time and we expect 
the data to improve with each successive quarter of reporting. 
While recipient data will be useful in informing CEA on their 
estimating model, the two different job estimates are not 
intended to reconcile with one another.
    As my final point today, I would like to focus on some 
changes that we have made in response to concerns about the 
Single Audit process. When I first appeared before the 
Committee, Senator McCaskill expressed concern that the Single 
Audits were not set up to meet the demands of the Recovery Act 
oversight. GAO echoed her concerns. Both have pointed to a few 
key issues, including the time lag that typically exists in the 
auditing cycle and the fact that the Single Audit process might 
not cover all Recovery Act programs that should be examined.
    In response, OMB staff worked with this Committee and GAO 
to develop a solution that could be implemented quickly and in 
a targeted manner. The collaboration is ongoing. We have 
modified OMB Circular A-133 such that the majority of programs 
with Recovery Act funding will be audited. And our August 6 
addendum to this supplemental stresses that auditors should be 
prompt in relaying any information that they discover about 
deficiencies or weaknesses.
    Also, we are planning to use pilot authority to improve 
internal control communication for selected major Recovery Act 
programs. As part of this program, OMB will work with agencies 
to identify at least 10 at-risk Recovery Act programs that 
should be audited on an expedited basis of 6 months versus the 
normal 9-month time frame. To participate in the program, 
States must consent to being audited with respect to at least 
two of these programs. As an incentive, participant States will 
be exempt from being audited on smaller, lower-risk programs.
    In addition, we have responded to concerns about State 
oversight capacity by issuing a memorandum that allows States 
to use up to 0.5 percent of funds for administrative costs and 
to obtain those funds more quickly than traditional schedules 
would have allowed.
    With that being said, we continue to listen to your 
concerns and look forward to continuing our constructive 
dialogue about the critical issues over the coming weeks and 
months, and particularly as we approach the October 10 
reporting deadline.
    Thank you again for this opportunity to testify.
    Chairman Lieberman. Thank you, Mr. Nabors, for the opening 
statement. You touched on some of the items that I certainly 
wanted to ask you about and I look forward to the question 
period.
    Jon Leibowitz comes to us today as Chairman of the Federal 
Trade Commission. We are pleased to have you with us. As you 
can hear from Senator Collins's opening statement and my own, 
we have a real concern about scam artists trying to take 
advantage of this stimulus program and the hard times that a 
lot of people are experiencing, so it is reassuring, even 
before I hear what you have to say, based on what I know of 
you, that you are on duty in this regard.

TESTIMONY OF HON. JON D. LEIBOWITZ,\1\ CHAIRMAN, FEDERAL TRADE 
                           COMMISSION

    Mr. Leibowitz. Well, thank you, Senator, for those kind but 
perhaps undeserved words. Chairman Lieberman, Ranking Member 
Collins, Senator McCain, Senator Burris, Senator Tester, and 
Senator Coburn, I am Jon Leibowitz, Chairman of the Federal 
Trade Commission, and I do appreciate the opportunity to be 
here today.
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    \1\ The prepared statement of Mr. Leibowitz with attachments 
appears in the Appendix on page 669.
---------------------------------------------------------------------------
    Unlike my colleagues on this panel, who are talking about 
frauds directed at the Federal Government, I am going to be 
talking about frauds falsely invoking the Federal Government 
but directed at American consumers and what we do at the 
Federal Trade Commission to try to stop these scams.
    My oral statement highlights a series of fraud cases that 
the Commission has recently brought involving false promises of 
government grants. They are part of Operation Short Change, a 
sweep of 120 legal actions announced on July 1 that we 
undertook with the Department of Justice and 14 State partners. 
In addition to grant scams, as you mentioned, Senator Lieberman 
and Senator Collins, we challenged a variety of frauds 
exploiting people harmed by the economic downturn. All told, 
with our Federal and State partners, we have brought 389 cases 
or legal actions in four fraud sweeps in just the past 5 
months.
    Mr. Chairman, to today's con artists, the challenging 
economy presents a golden opportunity. Sadly, it is an 
opportunity to prey on the economic distress of American 
consumers and bilk them out of their hard-earned savings. As 
they do with any crisis, these malefactors have sought to 
exploit the government's stimulus plan. Their Web sites promise 
government grant money, usually requiring consumers to pay in 
advance or to provide personal financial information. But 
though they promise to rescue people in troubled financial 
waters, after they take the money, these scammers throw 
consumers an anchor instead of a life line.
    Some sites have even used the images of high-ranking 
government officials, as you can see over there,\1\ to add 
legitimacy to their misrepresentations. This poster shows one 
site, part of the Grant Connect scam, which featured images of 
President Obama and Vice President Biden. Just 2 weeks ago, at 
the Commission's request, a U.S. District Court judge 
temporarily shut down these sites and we have a preliminary 
injunction hearing coming up tomorrow with the same judge.
---------------------------------------------------------------------------
    \1\ The chart referenced by Mr. Leibowitz appears in the Appendix 
on page 684.
---------------------------------------------------------------------------
    But as you know better than anyone, whatever a Web site may 
say, the Federal Government does not award grants to 
individuals to pay personal expenses or bills, nor does 
President Obama hand out stimulus money for leisure travel.
    Let me tell you about another scam, Grant Writers 
Institute. Grant Writers claimed that consumers could get money 
from the economic stimulus. Together with State attorneys 
general from Kansas, Minnesota, and North Carolina, earlier 
this summer, we filed a complaint against the defendants 
allegedly responsible for this scam. The defendants sent 
mailings, including post cards, such as the one that we blew up 
on this poster, ``You are guaranteed a $25,000 grant from the 
U.S. Government. Use your money to pay bills, start or expand a 
business, pay for your children's education, help you purchase 
or fix up your own home, travel the world.'' \2\ Mr. Chairman, 
I am not making this up, and I know that those grants do not go 
for leisure travel, do they?
---------------------------------------------------------------------------
    \2\ The chart referenced by Mr. Leibowitz appears in the Appendix 
on page 683.
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    Chairman Lieberman. No.
    Mr. Leibowitz. Or to individuals.
    Another mailing, shown in this poster, from the same 
company, used--and this is very much like what you showed, 
Senator Collins--used official-looking seals, and as you can 
see, this postcard says, ``Official Government Information. A 
$25,000 grant from the U.S. Government.'' \1\ Now, consumers 
who responded by calling a toll-free number heard this, and I 
am quoting again, ``If you have been reading the papers, you 
know that recently, our government released over $700 billion 
into the private sector. What you probably do not know is that 
there is another $300 billion that must be given away this year 
to people just like you.''
---------------------------------------------------------------------------
    \1\ The chart referenced by Mr. Leibowitz appears in the Appendix 
on page 685.
---------------------------------------------------------------------------
    Ultimately, these consumers did not get grants, but many 
people did fork over $69 to the defendants and the defendants 
talked others into paying several thousand dollars for 
additional upstream so-called grant services. Just last week, 
several of the defendants responsible for the Grant Writers 
Institute scam agreed to a preliminary injunction halting their 
scheme.
    I will briefly highlight two other FTC cases involving 
grants. First, Grants For You Now allegedly promised, for a 
fee, access to or expertise in getting free government grants 
to pay personal expenses. And Cash Grants Institute placed 
illegal robocalls to consumers advertising, ``free grant money 
available from Federal, State, and local governments.'' Its Web 
site included images of both President Obama and the U.S. 
Capitol building. Neither company, of course, facilitated 
grants to consumers, but both pocketed money from them. And 
these four cases, by the way, involve 270,000 potential 
victims.
    We will also follow up on the poster and on the entity that 
you showed earlier in your opening statement.\2\ It is 
conceivable that the Web site has been taken down, because a 
lot of the Web sites have been taken down since we announced 
our sweep, but we will follow up on that and get back to you.
---------------------------------------------------------------------------
    \2\ The charts referenced by Senator Collins appear in the Appendix 
on page 661-662.
---------------------------------------------------------------------------
    Our actions here did not stand alone. They were part of 
Operation Short Change, which also challenged scams that preyed 
on unemployed Americans looking for work, exploited the 
entrepreneurial spirit of individuals looking to start their 
own business, promised much-needed credit to consumers, but 
instead delivered unnecessary debt.
    As we did on this sweep, we regularly work together with 
State attorneys general, including those from Connecticut and 
Maine, and with other Federal agencies on sweeps like this, 
including the Departments of Justice, and Housing and Urban 
Development (HUD), and Treasury, and working together really 
can have a much bigger impact.
    Mr. Chairman, we bring a lot of fraud cases, but, of 
course, we would vastly prefer that no one falls for these 
scams in the first place. One part of that solution is to 
educate consumers, and we do that, we think, very well, as we 
hope the materials in front of you demonstrate.
    The Commission has also reached out to legitimate companies 
for help in pulling down ads for these scams. At our request, 
several major online ad companies, including Facebook and 
Google, moved to screen out ads touting the economic stimulus 
as providing grants for individual consumers. Let me commend 
these companies for their help.
    Let me also commend this Committee for all of your support. 
There is a lot more to be done in this area, and we do have 
some ideas about ways you can make us more effective, for 
example, by growing our agency, which is actually about 35 
percent smaller than it was 30 years ago though the American 
population has grown by more than 30 percent during that time. 
But I am happy to report that the President has committed to 
increasing our resources, and I am also happy to expand on this 
issue at my next Appropriations Committee testimony before 
Senator Collins. And finally, I am happy to answer any 
questions you have.
    Thank you so much, and I will yield the balance of my time.
    Chairman Lieberman. Thanks very much, Mr. Leibowitz. Your 
statement actually justifies my confidence, as expressed 
earlier, and I thank you for it.
    Next, we are going to hear from Earl Devaney. Are you still 
Inspector General at the Interior Department or are you on 
leave to do this job?
    Mr. Devaney. I am on a leave of absence.
    Chairman Lieberman. This is a full-time job.
    Mr. Devaney. It is.
    Chairman Lieberman. Today, Mr. Devaney, who has really done 
great public service, comes before us as Chairman of the 
Recovery Accountability and Transparency Board, which was 
created by the Stimulus Act. We look forward to your testimony 
now.

   TESTIMONY OF HON. EARL E. DEVANEY,\1\ CHAIRMAN, RECOVERY 
             ACCOUNTABILITY AND TRANSPARENCY BOARD

    Mr. Devaney. Mr. Chairman, Ranking Member Collins, and 
Members of the Committee, I want to thank you for the 
opportunity to appear before you today to provide an update on 
the recent and planned activities of the Recovery Board. My 
testimony today will address the current status and future 
direction of the board's missions, and after my opening 
remarks, I will be glad to answer any questions you have.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Devaney appears in the Appendix 
on page 686.
---------------------------------------------------------------------------
    I would like to begin by addressing some of the suggestions 
put forward by Members of this Committee when I last testified 
before you in April. One recommendation was that the board seek 
the assistance of AARP and Triad in publicizing and creating 
awareness of recovery-related scams, like the Chairman just 
spoke about, given that perpetrators of scams frequently target 
senior populations. The board has since reached out to both of 
these organizations, as well as the FTC and the National 
Association of Attorneys Generals. And although we have seen a 
decline in recovery scams since the initial period of the law's 
enactment, the board's relationships with these groups are now 
in place in the event that these scams begin to rise again.
    Another suggestion made at the April hearing was that the 
board consider employing former journalists to assist with our 
reporting requirements and to make the board's Web site more 
reader-friendly. Since that hearing, the board has hired former 
journalists in various staff positions, where their superior 
writing skills will be put to good use.
    I am pleased to report that the redesign of Recovery.gov 
has been completed and its companion data collection Web site, 
Federalreporting.gov, has been created, performance tested, and 
open for registration. As mentioned earlier, more than 19,000 
recipients as of last night have registered since the site was 
launched on August 17. However, we are actively encouraging 
recipients to register prior to October 1, which is when the 
system will first be open for reporting purposes.
    The fully enhanced version of Recovery.gov is scheduled for 
release prior to October 10. It will provide visitors with a 
visually pleasing, user friendly, and highly interactive Web 
site. For instance, it will have a mapping capacity that will 
allow visitors to search for spending all the way down to their 
own zip codes or their own Congressional districts, for that 
matter. The redesigned Recovery.gov is currently undergoing 
user testing by citizen groups and various stakeholders around 
the country.
    As you may sense, I am very hopeful about the new features 
of Recovery.gov 2.0 and the data the Web site will display once 
the reporting begins next month. However, I do not believe that 
just throwing data up on a Web site classifies it as 
transparency, nor am I under the illusion that the first 
quarter or even the first several quarters of reporting will be 
free of data quality problems. This kind of data reporting 
represents new territory and brings the potential for new 
complications. The government has never before required 
recipients of Federal funds to report to this degree.
    While I am on the subject of data quality, Mr. Chairman, I 
think a distinction needs to be made between data quality and 
data integrity. Although the board and the inspectors general 
(IGs) will play a role in data quality, chiefly by reviewing 
the agency's processes for ensuring the quality of the data, 
the board's main goal will be one of data integrity. That is, 
the board will strive to ensure that the data on Recovery.gov 
is a true reflection of what recipients report, including any 
subsequent modifications made to that data. The board intends 
to carefully track all changes to the data and make that 
information on Recovery.gov for all to see.
    The prime responsibility for data quality, however, rests 
with the recipients of the funds and the agencies distributing 
those funds, as they are in the best position to know the 
details associated with these funds. Indeed, any direct 
involvement by IGs in the assessing of the data quality process 
could run afoul in participating in the data quality process 
and could run afoul of the Inspector General Act's longstanding 
prohibition on IGs performing programmatic functions of a 
department or agency, as well as government auditing standards.
    Although the status of Recovery.gov receives most of the 
public's attention, transparency is only part of the board's 
mission, as you well know. The board continues to focus equally 
on the second mission of accountability and the attendant goal 
of minimizing fraud and waste.
    At this point, I would like to expand briefly on my view of 
waste in the context of the board's mandate. Whenever I say 
that the board is trying to minimize waste, I am referring to 
an objective assessment of contracting practices rather than a 
subjective viewpoint of the nature of a particular expenditure 
or project. My view is that aside from being mindful of the 
Recovery Act's flat-out prohibition on funding for aquariums, 
zoos, and the like, the purpose of the board is not to weigh in 
on spending choices that come down to an agency's judgment or 
opinion. Such decisions are the result of political and policy 
determinations made by multiple layers of watchful individuals. 
Instead, when the board focuses on waste in the spending of 
recovery funds, we will be looking principally at the incurring 
of unnecessary costs due to ineffective practices or internal 
controls.
    The board continues to strategize ways to not only receive 
reports of fraud, waste, and mismanagement and then refer them 
to the appropriate IG, but also on how to analyze trends in 
light of publicly available open-source data. To that end, the 
board has recently put out a solicitation for analytical tools 
and personnel that can best extract and harness existing 
information in order to make the board's referrals more value-
added for the IGs and also contribute greatly to risk-based 
predictions about potential fraud. We have high hopes that this 
risk-based fraud prevention and detection program will serve as 
a future model for government oversight.
    The board's compliance and investigative staff also 
continues to review Recovery Fund procurements as they occur, 
coordinating with IG offices on a myriad of issues. Thus far, 
we have referred more than 100 matters to various IGs to ensure 
a heightened scrutiny of specific procurements that the board 
staff have identified as potentially problematic. These issues 
range from instance of administrative oversight to awards that 
may raise more serious questions requiring resolution.
    The board also will be implementing a hotline where the 
public can report potential cases of fraud, waste, and 
mismanagement. After researching several public and private 
hotline options, the board has selected a hotline that will 
allow citizens to call, e-mail, fax, or mail letters to trained 
operators, and the board staff will then use this information 
to refer complaints to the relevant IGs for investigation or 
for other suitable response. This enhanced hotline solution 
will be launched in conjunction with the upgraded Recovery.gov 
in early October.
    In conclusion, Mr. Chairman, I look forward to returning to 
this Committee once we have begun to unveil to the American 
public the full scope of recovery spending. These will be 
interesting times. I do not claim to be a prognosticator, but I 
suspect that there will be a strong reaction when the American 
public sees how the government actually spends its money for 
the first time. Some of the instantaneous reaction may be 
negative, but I think there will be substantial positive 
reaction, as well.
    Whatever the short-term effects, however, I truly believe 
that the long-term effects of such transparency will be 
decidedly positive. That is why I remain optimistic that the 
board and I will be able to achieve success in this grand 
experiment created by the Recovery Act and I firmly believe 
that what we accomplish here will lay the groundwork for how 
future government spending takes place.
    Mr. Chairman and Members of the Committee, that concludes 
my oral remarks and I stand ready to answer any questions.
    Chairman Lieberman. Thanks very much, Mr. Devaney.
    I have a quick informational question. I remember at 
earlier hearings, I was impressed by the number of hits on the 
Recovery.gov site. Are there any current numbers on that?
    Mr. Devaney. Well, it has gone down a little since the last 
time I talked to you. I think people are waiting, and I 
certainly am, for the new site----
    Chairman Lieberman. Right.
    Mr. Devaney [continuing]. And so I am going to suggest to 
you that when that new site goes up, there will be a phenomenal 
amount of hits.
    Senator McCain. What potentially----
    Chairman Lieberman. Senator McCain wants to know, what are 
the numbers now, do you know? Mr. Nabors, do you have a quick 
answer to that?
    Mr. Nabors. I do not.
    Chairman Lieberman. OK.
    Mr. Devaney. I think they were about 32,000 hits per minute 
not too long ago.
    Chairman Lieberman. Yes, which is down from what it was 
originally. But it is still substantial.
    Mr. Devaney. It is still substantial, and a hit does not 
necessarily mean that somebody comes in and spends time there.
    Chairman Lieberman. Right.
    Mr. Devaney. So, quite frankly, the more appropriate 
measurement is how long they stay and how often they come back. 
So those are the kind of metrics we are going to use when the 
new site goes up.
    Chairman Lieberman. And again, the new site going up is 
October----
    Mr. Devaney. Well, probably the first part of October, 
maybe October 5.
    Chairman Lieberman. So as soon as you have data on the 
hits, it would really help us to know those, comparatively. 
After it has some time to get started, I think the Committee 
would be interested in that.
    Mr. Devaney. Absolutely.
    Chairman Lieberman. Thank you.
    Our final witness is Chris Mihm, who is the Managing 
Director for Strategic Issues at the Government Accountability 
Office. Thanks for being here.

    TESTIMONY OF J. CHRISTOPHER MIHM,\1\ MANAGING DIRECTOR, 
    STRATEGIC ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Mihm. Well, thank you, Mr. Chairman and Senator 
Collins, Members of the Committee. It is indeed a great honor 
to be here today to discuss our July report on the Recovery 
Act. As the Act specifies several roles for GAO, including 
conducting bi-monthly reviews of selected States' and 
localities' uses of funds.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Mihm appears in the Appendix on 
page 691.
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    I should mention that the GAO has made a significant 
commitment to its Recovery Act work and I would be remiss if I 
did not acknowledge and express my great appreciation for the 
extraordinary effort that my colleagues across GAO--we fanned 
out all across the country to make sure that we are providing 
the work that can support congressional oversight, and they 
have done just a remarkable job.
    Our July report, the second in response to the Act's 
mandate, addressed, first, the uses of funds; second, the 
approaches taken by States and localities to ensure 
accountability; and third, States' plans to evaluate the impact 
of Recovery Act funds they receive. The report has our 
findings, makes recommendations, and discusses the status of 
actions in response to the recommendations we made in our April 
report. Our third report will be out later this month, towards 
the end of September.
    As in States across the country, the budget situation is 
bad, and in many cases, the future looks even bleaker, and that 
is, in a sense, the good news. The States are being forced to 
take dramatic actions to balance their budgets, including staff 
layoffs, furloughs, and program cuts. However, and consistent 
with the purposes of the Act, the Recovery Act is helping 
States stabilize their budgets and minimize the reductions and 
the painful cuts that they have to take in services and 
minimize the need for tax increases. Many States reported to us 
that they would have had to make further deep cuts in services 
and programs without the receipt of Recovery Act funds. 
However, while the funds have helped cushion the impact of 
States' budgets, the current revenue estimates indicate that 
additional State actions will be needed--cuts will be needed in 
the coming years.
    Nonetheless, significant Recovery Act funds are moving out 
to States and localities. Overall, across the United States as 
of August 28, the most recent data that we have, Treasury has 
outlaid about $45 billion of the estimated $49 billion in 
Recovery Act funds projected for use in States and localities 
in fiscal year 2009. I should mention, or just to underscore, 
these funds to States and localities are just a subset of the 
overall expenditures going out this year that you, Mr. 
Chairman, talked about and Mr. Nabors talked about, which 
include obviously the tax provisions and direct payments to 
individuals, as well as others. Nonetheless, this $45 billion 
is a sizeable amount of money.
    More than three-quarters of the Federal outlays have been 
provided by increasing Medicaid's FMAP and the Department of 
Education's State Fiscal Stabilization Fund. In addition, as of 
September 1, the Department of Transportation (DOT) had 
obligated about $18 billion for almost 7,000 highway, 
infrastructure, and other eligible projects. DOT has reimbursed 
States about $1.4 billion to pay for these 7,000 projects. 
Across the Nation, almost half of the obligations have been for 
pavement improvement projects, half of the highway obligations.
    In regards to accountability, we reported in July that the 
Single Audit reporting deadline does not provide audit results 
in time to address identified problems and did not effectively 
respond to Recovery Act risks. We also noted that State 
auditors needed additional flexibility in funding to undertake 
their added Single Audit Act responsibilities. Fortunately, 
since our July report, as Mr. Nabors noted, OMB has moved out 
on a pilot program that is to have auditors provide early 
notice of internal control deficiencies. If properly scoped to 
achieve sufficient coverage of Recovery Act programs, we 
believe the pilot program would largely address concerns about 
the timeliness of Single Audit Act reporting.
    The success of the pilot program, in our view, is also very 
important to striking the right balance, as Senator Collins was 
talking about, between accountability and getting the money out 
quickly. If we can have these internal control reviews come out 
earlier rather than waiting until the full Single Audit Acts 
are done, then we can provide ourselves with assurance that the 
right controls are in place as we are seeking to get money out 
more quickly into the economy.
    We continue to believe that Congress should provide a 
mechanism to help fund the additional Single Audit costs and 
efforts of Recovery Act auditing, and I want to express my 
appreciation to the leadership that this Committee has shown 
over the legislation that Congress is now considering in that 
regard.
    As Mr. Devaney and Mr. Nabors noted, the next big challenge 
for the Recovery Act will be recipient reporting. Direct 
recipients of Recovery Act funds, including States and 
localities, are expected to report quarterly on the number of 
measures, including the use of funds and estimates of the 
numbers of jobs created and retained. The first of these 
reports is due, of course, in October.
    OMB issued implementing guidance for recipient reporting in 
June that established requirements and a central reporting 
framework. And in recent weeks, Federal agencies have issued 
their own guidance and training that builds on OMB's guidance, 
and OMB has provided, as Mr. Nabors noted, additional 
clarifications on Recovery Act reporting.
    OMB is also preparing to deploy the Regional Federal 
Liaisons that were noted to provide the on-site assistance and 
to establish a call center for entities that do not have an on-
site liaison. These efforts, in our view, are both welcome and 
sorely needed.
    Nonetheless, I agree with Mr. Devaney when he mentioned 
that indications are that recipient reporting, especially for 
this first round, will pose a significant challenge for many 
entities. As we have a mandate under the Recovery Act to 
comment on the jobs estimates, along with CBO that has an 
equivalent mandate, and will be reporting on that in November 
on this first round of recipient reports.
    Let me conclude my comments at that point and obviously I 
would be happy to take any questions that you all have.
    Chairman Lieberman. Thanks very much, Mr. Mihm. Thank you 
all. It was a good beginning.
    We will have 7-minute rounds of questions by the Members 
who are here.
    Mr. Nabors, let me begin by going back to the question that 
I raised in my opening statement, which is acknowledging some 
of the positive indicators in the economy and a general view 
among economists that the stimulus has had a positive effect. 
Nonetheless, there is this stubborn persistence of high 
unemployment, and with that and other factors, a continuing 
anxiety among the American people about their and our country's 
economic future, which itself has a depressing effect, of 
course, on the economy, including on spending.
    And so the question is, can we, and should we, attempt to 
speed up spending and, if possible, the implementation of the 
tax cuts to accelerate the recovery of the economy? I 
understand, as you said in your opening statement, that in the 
normal course of what was projected, we will be spending, or 
investing, and putting much more money in the economy under the 
Recovery Act in fiscal year 2010 than we have in 2009. Should 
we be trying to accelerate it even further to accelerate the 
overall recovery of the economy?
    Mr. Nabors. This is an issue that the Vice President has 
taken a personal interest in, and he meets with the cabinet 
agencies once a month to go through Recovery Act issues, and 
first and foremost in each one of those meetings is what 
opportunities are available to speed up Recovery Act spending.
    A couple of areas where we have made some progress. The 
first is an acknowledgement that there has been a lot of focus 
on outlays, but in certain programs, obligations have a 
tremendous economic benefit, as well, and that is one thing 
that the Federal Government has direct control over, and I will 
just give you an example of that.
    Chairman Lieberman. All right, and also give us a quick 
layman's definition of outlay and obligation.
    Mr. Nabors. Yes, sir. What it boils down to is essentially 
an obligation is when the Federal Government allows a recipient 
to start spending money. An outlay is when the recipient 
actually spends the money itself.
    Chairman Lieberman. So it is like the authorization and 
then the actual check being in the account.
    Mr. Nabors. Absolutely.
    Chairman Lieberman. Yes.
    Mr. Nabors. With regard to a set of programs like 
transportation, for example, we have obligated a fairly large 
amount of money, and that money--which means that we have given 
the States the ability to start spending that money, but the 
States have been relatively slow to spend it. That does not 
mean that it does not have an economic impact, however.
    What is actually going on behind the scenes, because of the 
way the transportation programs are set up, is that the money 
can be used to reimburse projects that have already started or 
that are already beginning. So what many States do is just 
knowing the fact that the money is available to them to be 
reimbursed later on allows them to go off and start the 
projects right away. And what you will oftentimes see is 
obligations that sit there for large periods of time and then a 
tremendous amount of outlays that come in at the end. In those 
instances, in programs like transportation, the availability of 
the money, the obligation has a tremendous economic benefit.
    In other programs, there are more sensitive problems that 
we are trying to work with the agencies to try to address. For 
example, we are very focused on removing as many bureaucratic 
hurdles that exist within agencies as possible to allow the 
money to go out as quickly as possible. We are trying to do 
that in such a way as to be sensitive to the appropriate 
oversight that needs to be done over spending----
    Chairman Lieberman. Right.
    Mr. Nabors [continuing]. But we are trying to remove 
unnecessary bureaucratic hurdles, including within OMB. Things 
as simple as doing concurrent review of projects has allowed us 
to speed projects up from taking months to perhaps taking 
weeks, and we are looking at every opportunity that we can to 
do that.
    Chairman Lieberman. OK.
    Mr. Nabors. The second point that I just wanted to make is 
that we are trying to take lessons learned from particular 
agencies and trying to apply them across programs. For example, 
when the Federal Government spends money on programs that 
relate to tribes, there is a unique set of issues that pop up, 
and they pop up across different agencies. What we are trying 
to do is transplant the information that we are learning from 
particular agencies and trying to educate all of the agencies 
about the hurdles that they are going to run into and making 
sure that is taken into account when they are developing their 
spend plans.
    Chairman Lieberman. So, bottom line, based on what you have 
said, and the question that you have told us the Vice President 
is regularly asking, am I correct to conclude that the 
Administration feels that the more it can accelerate the 
spending of stimulus money in the coming fiscal year, in the 
coming months, the better it will be in encouraging a faster 
recovery?
    Mr. Nabors. Yes.
    Chairman Lieberman. I assume, just based on common sense, 
that the more we accelerate the infusion of Stimulus Act 
funding, both spending and tax cuts, the better effect we will 
have on the unemployment rate. That is, it is more likely to 
create more jobs. Is that a fair conclusion?
    Mr. Nabors. It is a fair conclusion, but it is a tricky 
conclusion, as well. Unemployment tends to be a lagging 
economic indicator. Just outlaying and obligating the funds 
does not mean we will have employment benefits right away. The 
faster we can expend money in a responsible way, the sooner the 
jobs will come online, and that is really what we are trying to 
do, spend money in a responsible way to create good, solid jobs 
that can benefit the economy over the long term.
    Chairman Lieberman. Obviously, we have put a fair amount of 
money out into the economy in tax cuts in this first period of 
months, $65 or $66 billion. But we still have, by the estimates 
that I have seen, over $225 billion more in tax cuts under the 
Stimulus Act. Just give us a brief description of what those 
are, why that number is so high, because I think many of us 
were focused on the Make Work Pay reductions in the withholding 
tax that people have seen. What else is coming?
    Mr. Nabors. I would point to two things, very briefly. The 
first point is that the tax relief was a 2-year tax relief and 
it was always thought that roughly half of the money would come 
out in 2009 and roughly half of the money would come out in 
2010. So that is part of what you are seeing.
    The other thing that you are seeing is a large chunk of the 
money is related to the Alternative Minimum Tax, and that comes 
due next year. So next year, we will see almost all of that 
money outlay.
    Chairman Lieberman. In other words, when people are paying 
their taxes next April----
    Mr. Nabors. Yes.
    Chairman Lieberman. Is that what you are saying?
    Mr. Nabors. Exactly.
    Chairman Lieberman. There will be a reduction in the taxes 
they would otherwise have paid----
    Mr. Nabors. That is exactly right, sir.
    Chairman Lieberman. I do not know if you have a number 
offhand, about how much----
    Mr. Nabors. I do not, but I can provide that to the 
Committee for the record.
    Chairman Lieberman. Is the number that I have been given, 
that there is yet $225 billion more in tax cuts to come under 
the recovery, sound right, or is it----
    Mr. Nabors. I think that might be a little bit high. It is 
well over $150 billion, though, but I would have to get you the 
specific number.
    Chairman Lieberman. Thank you very much. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Nabors, previously, Mr. Devaney has estimated that as 
much as 7 percent of the Recovery Act funds may be lost to 
fraud and abuse. That amounts to an astonishing $55 billion. We 
have seen some disturbing examples already. The Social Security 
Administration, as I mentioned in my opening statement, first 
sent out 8,000 to 10,000 checks to individuals who had died. 
Then 2 months later, we learned that the government also sent 
checks to people who were incarcerated and obviously did not 
qualify for them.
    The GAO mentioned today the importance of internal controls 
to prevent these kinds of improper payments from happening in 
the first place. What precisely is OMB doing to ensure that 
internal controls are in place across the Federal Government to 
prevent fraud and improper payments?
    Mr. Nabors. We are doing two things. With regard to the 
State and local governments that GAO mentioned earlier, we have 
increased the amount of money that is available to State and 
local governments to do their internal controls and checks, and 
two, we are setting up this pilot program that would allow more 
extensive and earlier review of programs and highlighting of 
potential issues to stop problems before they actually arise.
    The second thing that we are doing, and I want to give Mr. 
Devaney significant credit for this, when he came on board, the 
thing that he had mentioned to me was that for this to work, we 
need to make sure that the IGs and the oversight is brought 
in--is part of the program discussions, that it is not all on 
the back end, because all you are doing then is catching people 
after the fact. So we are having ongoing discussions with our 
colleagues at the Department of Justice, FTC, Recovery Board, 
and with the IGs to incorporate as much as possible, both real-
time lessons learned and best practice program management into 
the ongoing activities of the particular Federal agencies, and 
we are doing that on an ongoing basis.
    Senator Collins. Mr. Mihm, are you satisfied with OMB's 
efforts in this area?
    Mr. Mihm. They have certainly been doing a great deal, 
Senator Collins. There is still obviously more that all of us 
can be doing and should be doing in this regard.
    One of the things, shortly after the Act was passed, the 
Acting Comptroller General did was to get together with the IG 
community, separately with State and local auditors, to 
collectively coordinate our audit responsibilities. Let us make 
sure we are getting the best bang collectively from the buck 
from the accountability community, that there is no overlap, 
that our efforts are coordinated. We are continuing to do that.
    We also were focused on making sure that we were getting 
out the best practices in fraud prevention and in internal 
controls, down to program officials, not only at the Federal 
level but the State and local level, as well. And so there is 
this continuing concerted effort to get it out there.
    Our continuing concern, is that we think that States, both 
in the audit and program communities in the States, need to 
continue to work doing the risk assessments and making sure 
that they have the controls in place down at the State level to 
effectively oversee and make sure that the funds are being 
properly spent.
    Senator Collins. I think that is a very worthwhile effort, 
but clearly, there is something amiss when the Social Security 
Administration can send out nearly 10,000 checks that should 
not have been sent out. So I think we need to more aggressively 
look at the internal controls in the Federal Government as well 
as at the State and local levels.
    Mr. Leibowitz, let me switch to my concern about consumer 
fraud. First, I am very pleased with the work that the FTC is 
doing in this area. I think it is absolutely essential. You 
discussed four cases that the FTC has been pursuing. Do you 
have any estimate at this point of the number of people who are 
being harmed by the scams, or could you give us an idea of the 
financial impact?
    Mr. Leibowitz. Sure. We know in these four cases alone, and 
obviously we have more investigations in the pipeline, it 
affected about 270,000 people. The amount of money that we 
think was at risk here or might have been lost to these 
scammers--of course, we will try to get it back and we are in 
the process of doing so--isn't that great. It is about $30 
million. But we think of this as a small part of the approach 
we are taking to going after scammers who are taking advantage 
of consumers who are feeling legitimate financial anxiety or 
having problems paying their mortgages.
    So, for example, we did another sweep involving foreclosure 
rescue scams and mortgage modification scams, and we did it 
with attorneys general. And that one, for example, probably 
involves billions of dollars in potential losses overall.
    In the financial stimulus area, it is a little bit of a 
whack-a-mole problem. When we did this announcement, we know 
that a bunch of Web sites--because we put them on the alert, we 
said we are going to make this a priority--just went down. And 
so that is good. But sometimes they pop up again, and so we 
keep on monitoring the Internet. We watch commercials. We look 
at our consumer database and we try to go after these 
malefactors as quickly as we can.
    Senator Collins. I think a lot of the work that you are 
doing, while extremely worthwhile, is probably the tip of the 
iceberg, because what I have seen in my State is a lot of times 
the senior citizens who are victims----
    Mr. Leibowitz. Sure.
    Senator Collins [continuing]. Are too embarrassed to go 
forth and try to file a complaint, or they are too concerned 
about where to go. They do not even know where to begin.
    My last question on this round for you is, what advice 
would you give consumers who believe that they may have been 
taken advantage of? Who should they go to? Where should they 
turn?
    Mr. Leibowitz. Well, I would say the first thing is, if you 
think you have been taken advantage of in a scam, you ought to 
check your bank account records and you ought to check your 
credit card records. And, of course, there is a mechanism, 
especially in the credit card context, for consumers to 
challenge unfair or inappropriate charges.
    Then we have a Web site, www.ftc.gov, and people can send 
complaints to us, and we look at that--and they go to something 
called Consumer Sentinel and we look at Consumer Sentinel all 
the time to monitor the number of complaints and we go after 
the worst malefactors. I think State attorneys general have 
also been very involved, particularly when the scams have a 
local dimension. And then if it involves an economic stimulus 
scam, one way you can tell if it's a fraud. First of all, there 
are no individual grants from the economic stimulus.
    Second of all, there is a government Web site--it is run by 
the Department of Health and Human Services (HHS)--and is 
called grants.gov, and if you want to check, it is worth 
checking on that Web site because you can find--it is an 
official Web site, not just an official-looking Web site, and 
you can confirm whether something you have read about or 
someone who has importuned you is legitimate or whether they 
are just out for your money.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks, Senator Collins.
    We will go now to the Senators in order of arrival. For the 
information of my colleagues, the list I have is in this order: 
Senators Tester, Burris, Coburn, McCain, McCaskill, and Pryor. 
Senator Tester.

              OPENING STATEMENT OF SENATOR TESTER

    Senator Tester. Thank you, Mr. Chairman, and I want to 
thank the witnesses for being here today.
    Before I get to my questions, I want to begin by saying a 
few words about a story that has bothered me over the last few 
weeks. It is the notion that when it comes to spending dollars, 
Recovery Act dollars, on ports of entry on our Northern Border, 
it is somehow not as important as ports of entry along our 
Southern Border.
    Recently, there have been a few folks that have pointed to 
one port in northeastern Montana, in particular. That port is 
Whitetail. It is in Daniels County. It is a part of the country 
that is vast and open, and I mean that--very vast, very open. 
And some folks have asked me why the port is getting rebuilt 
with Recovery Act dollars even though it is not as busy as some 
other ports. A lot of reasons, not the least to say that there 
are some asbestos issues. The port is 45 years old. A lot has 
changed over the last 45 years when it comes to our national 
security.
    It was not my decision, but I will tell you it was the 
decision of Customs and Border Protection (CBP). But I will 
tell you that I have pushed CBP on the Northern Border to make 
it more secure. They did decide to upgrade all 23 ports along 
that border and those ports are owned by the CBP. The Northern 
Border is complicated. It is wide open and uncrowded in certain 
areas. It is very crowded in other areas and there are issues 
of water when it comes to the Great Lakes region. So we have to 
keep our eyes open as far as it comes to drug smugglers, for 
terrorists who would do harm to our country.
    For me, it is an issue about making this country as safe as 
we possibly can, keeping illegal immigrants out and keeping 
drugs away from our kids and neighbors. It all starts by making 
our ports of entry as strong as they can be, by closing all the 
gaps and not pretend that the threats only exist on the 
Southern Border. Our borders are only as strong as its weakest 
link. I can give you plenty of examples of what has transpired 
over the last few years of drugs, potential terrorists wanting 
to cross.
    But the fact is, is that I think this Committee needs to 
work and we need to work with CBP to make sure that no taxpayer 
dollars are wasted along the borders and that we maximize our 
security options along all our borders and all our ports, and I 
know our community would join me in that. Thank you, Mr. 
Chairman, for that.
    For the questions, there have been many documents--the 
Ranking Member brought some up, you gentlemen brought some up--
about people who are getting scammed, and the thought occurred 
to me, what is the penalty? If you catch these guys red-handed, 
what is the penalty?
    Mr. Leibowitz. Well, that is a great question, Senator 
Tester, and we are a civil law enforcement agency. So what we 
do first is try to shut down the scammers, so they cannot do 
further harm. Sometimes we can get redress for the injured 
consumers and the victims, and we try to do as much of that as 
we can, although sometimes money is dissipated. For the most 
part, we do not have fining authority, unlike, I believe, 47 
State attorneys general.
    Senator Tester. Does anybody have the authority to put 
these folks in the clink?
    Mr. Leibowitz. Well, what we do is two things. One is 
sometimes we pair with State agencies, in part because they 
have fining authority. And then sometimes, with the most 
egregious cases, we pass them along to the Department of 
Justice for prosecution, and some of the worst offenders do get 
prosecuted and they do go to jail.
    Senator Tester. It just occurs to me, I mean, I was out in 
Montana and was harvesting when I went back for the August 
recess and there were ads continually about how you could 
personally benefit from Recovery Act dollars----
    Mr. Leibowitz. Right.
    Senator Tester [continuing]. In this bailout era, is what 
they called it. It was baloney. I knew it was baloney. But the 
fact is, these guys are reaching out to people through various 
media. You guys talked about the Internet. They are doing it on 
the radio. And I think if there is no penalty, what the heck--
--
    Mr. Leibowitz. Well, we agree with you----
    Senator Tester [continuing]. If you are of that ilk.
    Mr. Leibowitz. Well, we support in our reauthorization, and 
I think as part of the Consumer Financial Protection Agency 
proposal by the President and Treasury, we support civil fining 
authority because we think that makes--or the majority of the 
Commission does, because we think that is important, to have a 
sanction.
    Senator Tester. I actually support jail time.
    Mr. Leibowitz. And we will not have the ability to give 
jail time to these people, but we certainly support----
    Senator Tester. Maybe, Mr. Chairman, we need to visit about 
opportunities--and I mean that in a very negative sense--to 
make these folks think about what they are doing.
    Chairman Lieberman. Yes, I think you are onto something, 
Senator Tester. There is obviously no better deterrent than to 
convict somebody who has been a scam artist and put them in 
jail for a while. That sends a message. And the fact that we 
are all seeing these ads in various media means that people are 
making money on the scams.
    Senator Tester. Yes, they are making some bucks.
    Chairman Lieberman. Yes.
    Senator Tester. Thank you. Mr. Nabors, just this week, I 
pushed your agency to get some money out to some water projects 
along the Northern Tier, and I appreciate your efforts in that. 
Of these particular water projects, some go to Indian country, 
but they are mainly Indian water projects. I guess the question 
is, for you or Mr. Mihm, since they are sovereign nations and 
the money goes out, you talked about local liaisons, do you 
have the ability to do oversight in sovereign nations, to make 
sure the money does get to the ground once it leaves our hands?
    Mr. Nabors. Mr. Mihm, do you want to----
    Mr. Mihm. I will defer to you, Mr. Nabors. [Laughter.]
    Mr. Nabors. Yes, we do. I mean, our local liaisons are 
limited, but we do have the ability, working through the 
overall structure of the oversight community, both the IGs and 
the agencies who work very closely with the tribal governments 
to make sure that the money is spent the way we intended it to 
be spent, and to provide assistance to the tribal governments 
in terms of applying for the funding. There is a double-edge to 
that that we want to ensure is done.
    Senator Tester. Mr. Mihm.
    Mr. Mihm. Yes. We have oversight, as well, although most of 
our efforts, Senator Tester, are focused on 16 States and the 
District of Columbia, which collectively give about two-thirds 
of the money and two-thirds of the population.
    Senator Tester. And we appreciate that.
    I just want to talk about contracting just for a second. 
From what I found out, there are a lot of different levels of 
contracting. There is a national general contractor. There is 
potentially a regional general contractor. And there may be a 
bunch of contractors in between that before you get to the guys 
that are actually running the shovels and doing the work.
    Do you ever look at that system and make recommendations 
saying, you know what? Everybody is taking their 10 percent or 
20 percent or whatever they take, and by the time we get down 
to the folks that are running the backhoes and pouring the 
concrete, there is not near as much left as there should be. Do 
you ever make recommendations saying, why is this done this 
way?
    Mr. Mihm. Yes, we have, and to add on another complicating 
feature of that is you are seeing this play out in the Recovery 
Act--you can have Federal requirements in contracting and then, 
of course, once the money goes to the States and if they 
contract out, there are different requirements very often, 
including different definitions of what it means to 
competitively bid a contract, and so it can force an 
understanding of 50 different contracting regimes in States. So 
it is both a very tiered and a very complexly tiered approach 
to contracting that you see across government.
    Senator Tester. I would like your opinion on what we can do 
from a policy standpoint to take some of the complexity out of 
it. I will give you an example. There is a general contract, 
the contract in Afghanistan, the contract along the Northern 
Border, for example. They do not know anything about the 
Northern Border. They get a hold of the local folks to do it. 
Why are we not dealing with the folks that know what they are 
doing? And that is the question, how do we cut through that? I 
would appreciate any ideas you have on that.
    Thank you, Mr. Chairman.
    Mr. Mihm. We will get you that in short order, sir.
    Chairman Lieberman. Thanks, Senator Tester. Senator Burris.

              OPENING STATEMENT OF SENATOR BURRIS

    Senator Burris. Thank you, Mr. Chairman and Members. 
Really, I am impressed with everyone's testimony, so you are 
doing a great job and we really appreciate that.
    Mr. Nabors, we have a bill that has been in this Committee 
and we have been trying to get it out. It has been held up 
somewhere, called S. 1064, which would give 0.5 percent of 
financing to those local State auditors and finance officers. 
You said that you are giving money to state and local 
governments for that increased responsibility. Is there a 
dollar amount that you have on that?
    Mr. Nabors. We allow up to 0.5 percent to be used for 
administrative costs and for oversight. I think what S. 1064 
does is allow an additional 0.5 percent to be used----
    Senator Burris. Yes.
    Mr. Nabors [continuing]. And we have indicated our strong 
support for that bill.
    Senator Burris. Mr. Chairman, that bill has been held up 
somewhere and we have to get that bill to the floor. The House, 
I think, has already passed it. And those local governments--
being a former State comptroller and former State finance 
officer--we need those funds. They need them and we do not want 
to come up short in that regard.
    Mr. Leibowitz, on the consumer fraud problem, probably a 
response to my colleague, Senator Tester--being a former 
attorney general of my State--what we have on the fraud officer 
is whether we are dealing with the consumer who is being 
defrauded out of their funds. These are not really Federal 
funds that they are using. They are using the vehicle of the 
Federal Government to defraud the consumer, so they are more of 
a local prosecutory responsibility there. Am I correct in that?
    Mr. Leibowitz. Yes. I mean, that is exactly what we do, we 
do a lot of education on the front end to try to prevent 
consumers from being victims. But yes, I think almost all of 
what we do involves, at least in the stimulus scam context, 
people who are falsely representing themselves as facilitating 
individual stimulus grants to consumers. But it is not entirely 
local in the sense that a lot of this is Internet-related, and 
so it has a national scope.
    Senator Burris. But sometimes they would try to skim some 
stimulus money themselves. I mean, certainly the stimulus money 
is subject to be a victim of fraud, as well. But what you see 
in terms of mostly the senior citizens--is they have 
advertised, send us some money so that you can get your 
stimulus money. That is more of a local issue with the State 
attorneys general----
    Mr. Leibowitz. That is right, and that is why we work with 
State agencies.
    Senator Burris. Congratulations. Please work with my former 
colleagues. The attorneys general are really taking----
    Mr. Leibowitz. The attorneys general are terrific. They are 
on the case in this area----
    Senator Burris. And also our State auditors, as well. They 
will do a tremendous----
    Mr. Leibowitz. And just going back to your point and 
Senator Tester's point, a lot of the cases we are bringing are 
really criminal fraud cases, and so we are prosecuting them 
because this is in our bailiwick, but they could also be 
prosecuted criminally.
    Senator Burris. The Federal Government is letting out 
contracts with contracting agencies to help track these funds 
or to bring in computer skill teams to help them with all of 
this, and I want to know how much of these stimulus dollars 
that are coming directly into costs that are going to minority 
contractors. And for some reason, we find it difficult to get 
this kind of data. With the stimulus money, there are outside 
contracts that are being let in order to process this, and if 
you have any information on that, Mr. Nabors, in terms of how 
we are handling that for minority contractors, and specifically 
if you have any black contractors.
    Mr. Nabors. I do not have the numbers specifically for 
black contractors, but some of the more recent numbers that we 
have with regard to some of our small business targets, small 
businesses have received about 22 percent of the contracting 
dollars----
    Senator Burris. Now, are you talking about small minority 
businesses?
    Mr. Nabors. No. I am going to go through a list of numbers 
for you. Twenty-two percent for small businesses. About 3 
percent for disabled veterans businesses. And about 5.9 percent 
for Historically Underutilized Business Zone contractors, which 
in some ways captures some of the minority businesses. I do not 
have a specific number for you for black businesses, but I will 
see if I can get that number for you.
    Senator Burris. Would you please, and Hispanics, as well. 
Hispanic and black businesses. There is deep concern about 
making sure that there are skills in these areas and that our 
government is being aggressive in supporting those type of 
businesses for their economic viability.\1\
---------------------------------------------------------------------------
    \1\ The response from Mr. Nabors appears in the Appendix on page 
754.
---------------------------------------------------------------------------
    And I did have another question, but I got so wrapped up in 
that one. Mr. Leibowitz, in terms of the numbers, you gave 
Senator Collins the numbers of the frauds. What was it, 270,000 
people and $30 million----
    Mr. Leibowitz. For these four cases that we brought along. 
We know that there is more fraud out there involving the 
stimulus, but in the cases we brought thus far, that is our 
estimate of the number of consumers harmed and the amount of 
the potential harm.
    Some of these schemes involve initial payments on a credit 
card of, say, $1.99 or $2.99, but then there is what we call a 
negative option scam that is part of this, where they have your 
credit card number. They just keep on billing you every month, 
and until you figure out that you can cancel it, and if you 
cancel it in a timely manner, then you keep on paying. As 
someone in a different context who has been a victim of a 
negative option scam, they are sometimes hard for the 
individual consumers to detect.
    But again, we also know that there are more people out 
there who are probably victims. We watch the Internet. We look 
at advertisements all the time. We look at our consumer 
database and we try to do as best we can to stop these types of 
frauds.
    Senator Burris. Mr. Devaney, we are going to have a new Web 
site, Federalreporting.gov 2.0, or is Recovery.gov still 
available?
    Mr. Devaney. Recovery.gov is up and running right now, 
Senator, and will be replaced by a newer version around the 
first part of October.
    Senator Burris. October 10, because I just told a couple of 
people to go to Recovery.gov----
    Mr. Devaney. No, you still go to Recovery.gov and you will 
get the newer version when we put that up.
    Senator Burris. OK. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Senator Burris. 
Senator Coburn.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Mr. Chairman, and let me 
personally thank each of you for your service. You have a tough 
job, a really tough job. What we want to be is not somebody 
that is critical, but really someone that is helpful.
    Mr. Nabors, in your testimony, you said that each of the 
stimulus projects is carefully reviewed by OMB to ensure that 
their uses of Recovery Act funds are thoughtful and 
appropriate. You work with agencies to identify and revise 
projects that do not meet that threshold. Could you make that 
list of those projects that you have identified and revised 
available to the Committee? 
    Mr. Nabors. I do not know that there is a consolidated list 
of those types of activity, but let me go back to the office 
and see what we have and what we can provide to the 
Committee.\1\
---------------------------------------------------------------------------
    \1\ The response from Mr. Nabors appears in the Appendix on page 
755.
---------------------------------------------------------------------------
    Senator Coburn. One other concern that I have, and again, I 
am sure these are old numbers, but the Government Executive 
article on August 31, 2009, said that more than half the 
Recovery Act contracts that the Federal agencies have awarded 
are on a cost-plus basis. I agree with the President. That is 
exactly what we do not want to do. We want fixed-price 
contracts. We do not want cost-plus contracts. Cost-plus 
contracts always cost more. What is the Administration doing, 
Mr. Nabors, to make sure that this trend, as reported in this 
article, does not continue? It is 53 percent of all the 
contracts let so far are cost-plus, which is pretty worrisome.
    Mr. Nabors. I think we are doing two things. First, the 
Director of OMB and the President put out instructions to the 
agencies that our preference, when at all possible, is to use 
competitive processes and to ensure that, as much as possible, 
that we are using fixed-price contracts. I think what we are 
seeing with the cost-plus is somewhat of an anomaly because a 
lot of that is being driven by the Department of Energy. And 
where we have seen a lot of variable-price contracts used is 
when you have things like research and development, where the 
true costs are not known up front.
    If you look at most of the money for that category of 
contracts right now, about 90 percent of the money is the 
Department of Energy, which was not unexpected.
    Senator Coburn. And that went out earlier than much of the 
other money----
    Mr. Nabors. Exactly.
    Senator Coburn [continuing]. So that tended to skew it. 
Well, I am willing to stand corrected on the numbers, because I 
know that is just a snapshot. All I am saying is I am concerned 
about it and I know the President is concerned about it.
    The other point I would make and I have made it several 
times, if you do not get a buy-in of companies' capital on 
research, in other words, having capital at risk when they get 
these contracts, they are not ever going to be as efficient.
    So my message to you would be, even though it is the 
Department of Energy and even though it is research, companies 
should put capital at risk. That is one of the ways we are 
going to control the costs. When contracts are cost-plus, 
managing those contracts are difficult. You are looking at 
after-the-fact rather than preventing it in the future. The way 
to get that is to make sure those contracts--those companies 
have to have some of their capital at risk.
    Mr. Nabors. The point well taken, sir.
    Senator Coburn. That will help us a lot.
    Mr. Devaney, again, for you and Mr. Nabors, because I am 
very appreciative of your work, are we going to be on time with 
Recovery.gov and the Web site?
    Mr. Devaney. Absolutely.
    Senator Coburn. So it is coming up on the 10th or the 11th 
of October?
    Mr. Devaney. It will be up before that.
    Senator Coburn. One of the things that is bothering me a 
little bit, and I know it is a big job, but you differentiated 
between integrity and quality. I do not have any doubt that you 
are going to make sure that the integrity of the data that you 
are putting up is accurate, but I am wondering, can you reach 
further to make sure that the quality of data is accurate?
    Mr. Devaney. Well, it is a major concern, Senator, and 
growing, quite frankly, that we have at the board. We are 
asking, as I mentioned in my oral remarks, for recipients to 
report far more things to the Federal Government than they ever 
have before, and it is a tough job. They have to meet the 
deadline of reporting, which is October 10, and they are doing 
some unique things out there. For instance, 30-plus States are 
going to be reporting centrally in bulk form, and I think they 
are doing that to ensure that they report on time and to maybe 
give themselves a tad more time to look at the data at the 
State level to ensure that it comes in in an accurate way.
    But having said that, I am concerned that the public's view 
of inaccurate data would actually harm rather than enhance 
transparency. So, the board and I want to do everything 
possible to allow folks to go in and check that data once it 
has gone in, to make revisions if they have to, and we are 
going to track those changes very closely.
    Senator Coburn. Is it going to be starred on the Web site 
so everybody else can see that this has been changed?
    Mr. Devaney. We are going to be tracking and chronicling 
those changes on a daily basis and make all of that available 
for anybody who wants to see, for instance, to download it and 
just take it off and look at it for themselves. But also, we 
are going to put up on the Web site a dashboard, if you will, 
with pie charts and graphs that shows where the changes were 
made, what categories changes were made in, whether or not X-
percent was over at the Department of Commerce. We are going to 
make all that available for everybody to see after those 
changes take place.
    Senator Coburn. Part of your statement was the fact that 
you think this is going to change the way the government 
operates. Actually, the President, Senator Carper, myself, and 
Senator McCain put through USAspending.gov. Recovery.gov is 
modeled after USASpending.gov. If it accomplishes everything, 
it is going to be great, and I agree with you. But the quality 
of the data--the integrity can be fine, but if the data is not 
any good, and it is not a true reflection of what is happening, 
we really have not bought anything.
    What is going to be in force to make sure that the agencies 
which are going to be responsible for the quality of data 
will--at least, that is what I understood you to say----
    Mr. Devaney. Yes.
    Senator Coburn [continuing]. Bring good quality data to 
you?
    Mr. Devaney. Well, the agencies are going to be actively 
involved in looking at that data along with their State 
recipient counterparts to get it in the best shape possible. My 
suspicion is it will get better as--the second quarter will be 
better than the first quarter, etc.
    As you may know, when USAspending.gov was stood up 
initially, 51 percent of the data was inaccurate----
    Senator Coburn. Yes.
    Mr. Devaney [continuing]. And we are 2\1/2\ years later and 
it is 13 percent, 14 percent inaccurate. So it is a hard thing 
for recipients to report data, seemingly, and we are asking 
them in this instance to report more data than they ever have 
before. So it is going to take a leveraging of resources. OMB 
is going to play a role. The agencies are going to play a role. 
And I can assure you the Recovery Board will do its best to aid 
in that process.
    Senator Coburn. All right. You are having a problem with 
quality right now, is that correct?
    Mr. Devaney. Right.
    Senator Coburn. So the site will be up, but full 
implementation of the site probably is going to be some time, 
is that correct?
    Mr. Devaney. Well, the site will be up and very 
interactive. As I mentioned earlier, you are going to be able 
to do a lot of things and slice and dice the data any number of 
ways you want. And our hope is that the data will be as 
accurate as it possibly can be, knowing it will not be fully 
accurate initially, and that it will get better. I really do 
believe that once people get used to doing this, this being the 
first time and coming at an awkward time of year--October is 
usually an awkward time for most financial entities, 
particularly in the States--we will have a lot of good data in 
there after a period of time.
    Senator Coburn. Thank you very much.
    Chairman Lieberman. Thanks very much, Senator Coburn. 
Senator McCain.

              OPENING STATEMENT OF SENATOR MCCAIN

    Senator McCain. Thank you, Mr. Chairman, and I thank the 
witnesses for being here today and all of their hard work.
    Mr. Mihm, in March, the GAO launched a hotline Web site for 
citizens to report waste, fraud, or abuse. How many complaints 
has that hotline received?
    Mr. Mihm. Senator, we have 80 credible or initially 
credible responses that came in. Of those 80, we are doing 
eight detailed investigations. From those, another 12 or so are 
pending, and then 22 of them we have referred over to the 
inspectors general. I do not have the top-line number of how 
many have come in, but at least 80 of them were credible enough 
to warrant an additional review.
    Senator McCain. So it has been worthwhile?
    Mr. Mihm. Yes, sir.
    Senator McCain. Thank you. I noticed in your prepared 
statement, Mr. Mihm, that one of the charts,\1\ Figure 2, 
Estimated Federal Recovery Act Outlays to States and 
Localities, in 2009 as a share of the total, and then it goes 
on to show 87 percent of estimated Federal Recovery Act outlays 
to States will be in the nine programs that you have reviewed.
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator McCain appears in the Appendix 
on page 699.
---------------------------------------------------------------------------
    Mr. Mihm. Yes, sir.
    Senator McCain. Sixty-three percent has been in Medicaid?
    Mr. Mihm. Yes, sir. That is the adjustment. The increase in 
the FMAP was a 6.2 percent across the board that went to all 
States in increasing the Federal match and then an additional 
bump-up for States that had significant increases in 
unemployment rates. So for the first couple of rounds, this is 
the big money issue that is out there. Most of the States are 
using it in order to maintain eligibility and deal with 
increasing caseloads that they are having as a result of the 
recession.
    Senator McCain. And tell me how that is a job creator.
    Mr. Mihm. First, since this is a mandatory program, it does 
not have to be reported as part of the recipient reports in 
terms of job creations or job retained, and so they are off the 
table in that regard. What it usually does, or what many of the 
States told us, is in addition to helping with eligibility in 
caseloads, it also freed up State money, and then the State 
money has allowed them to do less draconian cuts than they 
otherwise would have done. But again, the short answer to your 
question, sir, is that they are not subject to the reporting 
requirements that we have been talking about in terms of----
    Senator McCain. And how much money are we talking about in 
this 63 percent that went for Medicaid?
    Mr. Mihm. It will be $87 billion over a 2-year period. The 
exact money is that it is $19.6 billion from October 1, 2008, 
to September 4, 2009, in the 17 locations we have been looking 
at.
    Senator McCain. Do you have any comment on that, Mr. 
Nabors?
    Mr. Nabors. I concur with the assessment. I think our view 
of the importance of the FMAP program is exactly how Mr. Mihm 
laid it out. What States have told us is because they have 
access to this FMAP money, in other areas, such as education or 
law enforcement, there is reduced pressure on their budget and 
they are able to both create and retain other types of jobs 
through the availability of the FMAP money.
    Senator McCain. Sort of a trickle-down economics, I guess.
    Mr. Nabors, I have seen many Administration witnesses and I 
understand that you have to tout the success of whatever 
program that the Administration is running. I do think that it 
might be well to complete the record, that when the stimulus 
package was being considered in the U.S. Senate, the economic 
advisors to the President and the Director of OMB said that a 
maximum unemployment would be 8 percent. It is now 9.7 percent.
    I just came back from spending a lot of time in my State, 
as many Members did, and my State is one of the hardest hit, 
and our small business owners that are closing their doors and 
storefronts and shutting down are asking me why they are too 
small to save and financial institutions are too big to fail. I 
have yet to come up with a very good response to that.
    So the fact that unemployment is at 9 percent, lag or not 
lag, comes as small comfort to the citizens of my State who are 
unemployed and the people who are unable to remain in their 
homes with one of the highest foreclosure rates in the country. 
I would be glad to hear your response to that diatribe. 
[Laughter.]
    Mr. Nabors. Sir, I do not disagree with anything that you 
have just said. Our initial assessments of the state of the 
economy was based on inaccurate and incomplete information and 
the downturn in the economy turned out to be much more 
significant, much more severe than we had originally projected 
in January and February. As we look at the unemployment 
growth--and it is not just the numbers that we are seeing 
today, but the numbers that we put out in our mid-session 
review project that unemployment could reach as high as 10 
percent. That is unacceptable to us. As I said to the Chairman 
and to the Ranking Member, we are trying very hard, as much as 
possible, to increase the spending coming out of the Recovery 
Act and to try to do everything possible to minimize the impact 
of this recession on the American people.
    Senator McCain. I thank you for that answer, Mr. Nabors.
    Mr. Mihm, in your prepared statement, there was a number of 
recommendations that GAO had proposed. There is not a page 
number on it, but it says, GAO recommendations, accountability, 
and transparency, then you have various bullets. Have those 
recommendations been largely complied with, and if not, maybe 
for the record, you could provide us the areas where you think 
there needs to be further accountability and transparency.
    Mr. Mihm. In the second half of your question--yes, sir, in 
our September report, the one that is coming out in a couple of 
weeks, we will give an assessment of all the recommendations we 
have been making and where OMB or other Federal agencies are in 
that regard.
    Now to the first half, as to whether or not they have been 
complied with, as I mentioned earlier, I think the pilot 
program that Mr. Nabors was talking about for Single Audit is 
very important to addressing many of the concerns that we have 
in regards to the accountability and transparency aspects here, 
and that is that we need this internal control testing earlier. 
Not to get into too much of the weeds of this stuff, but most 
State fiscal years end on June 30. The Single Audits then come 
out 9 months after that. That is the required date. Often, they 
lag a little bit more than that.
    And so we will not know how things are going from an audit 
perspective in States in some cases, for the fiscal year that 
has just begun, until March 2011. There has been too much money 
by that point, of Recovery Act money that will be out the door, 
and so then it will be just a historical document rather than a 
document that can really help people manage and help us to 
address risk. That is why we need the risk assessments to come 
out earlier from the State auditors, so that as a deficiency or 
weakness is identified, they can be dealt with before they 
become big crises, before they show up over at FTC, for 
example. So focusing on that pilot is very important to us, and 
I know it is a major focus of the Administration.
    Senator McCain. I thank you. Mr. Chairman, my time has 
expired. I want to thank the witnesses. Mr. Leibowitz, I am not 
sure we need this packet, but it is very good information. 
Thank you.
    Chairman Lieberman. Thanks again, Senator McCain, for your 
thoughtful questions, and, I might add, your high-quality 
diatribes. [Laughter.]
    Senator McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. I am going to try to live up to the 
example that Senator McCain had----
    Chairman Lieberman. I have every confidence that Senator 
McCaskill----
    Senator McCaskill [continuing]. On diatribes. [Laughter.]
    First, let me say, I could not agree more with Senator 
Tester. These people that are out there preying upon folks at 
this point in time, they are pond scum and they should go to 
jail, and whatever we need to do to help them go to jail, you 
need to let us know, because I know you are doing sweeps, I 
know you are doing all this, but nothing counts more than 
cuffing somebody.
    Mr. Leibowitz. I absolutely agree with you, and in the 
context of the Commerce Committee reauthorization that we hope 
to see later this year or early next year, we will have some 
ideas we can talk over with you.
    Senator McCaskill. Great.
    Now, I do not want you to think, Mr. Nabors, that I am 
picking on you, but it is going to feel like I am picking on 
you. We sent out requests to all the State auditors asking for 
input on how they think this is going in light of their Single 
Audit responsibilities and the stimulus funds that are out 
there. One of the things that came back loud and clear was the 
ridiculous--I think ridiculous notion that we are mechanically 
making the decision that any program that gets ARRA funds 
becomes a Type A high-risk program.
    Let me give you a good example--foster care. Foster care is 
a low-risk Type A program under A-133 and the ARRA funding is 
approximately 2 percent. And what you do now is you push that 
into high-risk as an A-level program, which takes a tremendous 
amount of resources in terms of auditing. I really think you 
have missed the boat in terms of using the expertise on the 
ground of the State auditors that are doing these Single Audits 
to make decisions about high risk and low risk as it relates to 
these monies.
    And I am just curious, and I do not mean to be a smart 
aleck, but is there anyone that is making these decisions over 
there that has ever done a Single Audit?
    Mr. Nabors. The answer is yes, and I do not feel that you 
are picking on me and I will try to answer appropriately. There 
are people in our shop that have done Single Audits and we are 
in constant communication with the auditing community. In 
essence, the pilot program that we are proposing today was born 
out of conversations that we had with GAO, with some of your 
staff, and with the audit community. That conversation is going 
to be ongoing and we will continue to have that conversation 
with them.
    Senator McCaskill. Now, I have to really pour lighter fluid 
on the charcoal briquettes here, because I have to figure out, 
if we are just rolling out a pilot program, do we have 
specifics on when this is going to--I think Mr. Mihm and Mr. 
Devaney will back me up--the barn door is already open and the 
cow is out of the barn and we are announcing the rollout of a 
pilot program. It will have no value whatsoever, as Mr. Mihm 
just said, if this pilot program isn't on the ground ASAP.
    I am worried that we have gone this many months and we are 
announcing a pilot program. How many States are in the pilot? 
How are you informing the States of the pilot? The State 
auditors of Missouri do not know anything about it. How long 
will the pilot last? How much relief from other programs is 
being given in connection with the pilot programs?
    Mr. Nabors. The pilot program was just announced today by 
the Deputy Director of the Office of Management and Budget, so 
we will be providing additional guidance about the pilot going 
forward. But this is something that we plan on implementing 
almost immediately. We do want to make sure that we are in very 
tight coordination with the GAO. It is one of the things where 
we believe that we have made a change in the oversight regime. 
Too often, OMB and GAO go off on their separate ways.
    Senator McCaskill. Right.
    Mr. Nabors. In this instance, we actually sat down and 
tried to figure out what actually makes the most sense.
    In terms of some of the specifics that we have already 
fleshed out, the number of States, it actually would be 
available to any State that wants to involve themselves in the 
pilot. We are calling it a pilot mainly because we are using 
pilot authority. That is the authority that we have available 
to us to make these types of determinations. But it would be as 
expansive as the number of States that want to participate in 
the program.
    Our initial vision of the program is that we would look at 
the 10 highest-risk programs based on conversation with GAO and 
the agencies and say, of that list, a State that wants to 
participate in the pilot has to select two of those programs 
for expedited audits. If they want to participate in the 
project and they make those two selections, then what we will 
do is we will give them relief from doing audits on smaller, 
lower-risk programs.
    Senator McCaskill. Well, that is terrific, and I am glad to 
hear it is going to be available to anybody who wants to 
participate. I am really pleased you guys are working closely 
with GAO. I do know you are in contact with the State auditors, 
but I do think if you guys will let loose of the reins a little 
bit as it relates to the Single Audit, knowing that next year's 
Single Audit is big because of the way this money is rolling 
out, I think you will find you will get a much better product 
that will provide much more transparency and accountability 
than just arbitrarily saying everything that gets ARRA is high 
risk. I think that is a huge mistake.
    Mr. Nabors. Well, we do allow the auditors to ask for an 
exception, but I take your point for what it is----
    Senator McCaskill. The exception is really hard. I mean, it 
is a big bunch of paperwork. I have asked for exceptions 
before. I know that it is like arm wrestling a gorilla to try 
to get an exception. So I think it would be better if you could 
figure out a way to loosen up a little bit.
    Mr. Devaney probably will not like this--but I had never 
met Mr. Devaney until I came to Washington, but I know that he 
spent 20 years in the Secret Service. He was Director of 
Criminal Enforcement at the Environmental Protection Agency for 
8 years. He has been an inspector general for 10 years in the 
Department of the Interior. I would say that he and the staff 
he directed caught Jack Abramoff and the corruption involved 
there.
    I think to use his name on a list of cheap political hits 
by calling him some kind of unaccountable czar is unfair to him 
as a public servant. I think that the members of this body 
should rise up and defend people like Mr. Devaney, who have 
clearly not come to government to make big money, who clearly 
do not have political allegiance, who clearly have done 
everything in their career to look after the public's money. 
And I think including him and others on some cheap political 
hit list by some cable commentator does a disservice to him and 
many of the other people that are serving in positions of 
accountability and I wanted to put that on the record before I 
finished.
    Mr. Devaney. Thank you very much, Senator.
    Senator McCaskill. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator McCaskill. I appreciate 
what you said and identify myself with your remarks. I want to 
say, from visual observation, you are right. Mr. Devaney was 
very uncomfortable as you were praising him. [Laughter.]
    Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. I thought he was uncomfortable at first, 
but I thought the more you got into it, he kind of relaxed 
and---- [Laughter.]
    So toward the end, he seemed like maybe he was enjoying it.
    I was going to take a cheap shot at you, but I guess I will 
not. Sometimes we run into people in our business, on this side 
of the table, and people know we are elected officials and they 
will say, ``Are you some politician? You are one of those 
politicians, aren't you?'' And over time, I have taken to 
either saying, well, actually, I am not. I know some who are. 
But sometimes I will describe myself as I am just a servant. Or 
sometimes I will say, well, I am a statesman. [Laughter.]
    I used to be a politician, but now I am a statesman. 
Whenever I hear folks called government bureaucrats, I do not 
take too kindly to that, so we thank you for your service and 
I, too, would like to be identified with the remarks of Senator 
McCaskill. That is one of the nicest things I have ever heard 
you say about anybody. So treasure this day. [Laughter.]
    Senator Coburn is gone, but he and I share an interest in a 
number of things, along with others on our Committee. One of 
the things we have an interest in is trying to recover money 
that has been misappropriated or money that has been misspent. 
One of the laws we have to comply with deals with improper 
payments, and we know that every year, agencies are supposed to 
report their improper payments. And last year, I think OMB told 
us that we are up to about $72 billion worth of improper 
payments, mostly overpayments, and we are offering legislation 
this year to not just tighten that money up, but to go after 
and recover more of the money that is inappropriately spent.
    When folks ask me, well, how are we going to pay for health 
care? Where is the money going to come from, and without 
cutting people's benefits in ways that are untoward? I talk to 
them about what we are doing in going after money in the 
Medicare program that has been inappropriately or fraudulently 
spent. The last couple of years, we have been going after and 
trying to recover money from Medicare, a lot of it fraud.
    The first year we tried to do it, we did not get anything. 
The second year, we just got a little money back. The third 
year, last year, we got $700 million in just three States. This 
year, we are going after recoveries in the other 47 States. If 
that goes well, we hope to be able to do the same kind of thing 
in Medicaid.
    I wanted just to ask you all to share some thoughts with us 
about when we find where there has been fraud, where monies 
have been misspent, inappropriately spent, what are we doing, 
or what are we prepared to do to go after and reclaim the money 
for the Treasury and for the taxpayers?
    Mr. Devaney. I will take a stab at that.
    Senator Carper. Please.
    Mr. Devaney. I think that early on, the board and all the 
IGs have been interacting with the Department of Justice. There 
is an already existing task force, Procurement and Grant Fraud 
Task Force, that provides entre into the 95 U.S. Attorneys' 
Offices around the country, and when a case comes up, we are 
going to be very aggressive about seeing that gets prosecuted, 
as aggressive as we can possibly be if the facts support those 
kinds of things.
    So I think the answer is we have about nine cases right now 
that are in the various U.S. Attorneys' Offices, which is a 
very small amount, and quite frankly, I am a little surprised 
it is that small. But as soon as we see it, we make sure the 
appropriate IG is doing an investigation and that gets brought 
into a U.S. Attorney for review. And we work closely with the 
Department of Justice. And I know from talking to them, they 
are very interested in sending some very loud signals early as 
often as they can with this money.
    Senator Carper. Does anyone else want to respond?
    Mr. Leibowitz. Just from our perspective, when we see 
consumers as victims--and that is where our jurisdiction is--we 
go after it. We work with Treasury and Justice. Some cases we 
refer for criminal prosecution because the fraud is so 
egregious. And with State attorneys general who are often 
better equipped to get fines and then to go after malefactors 
who are in their jurisdiction. So we try to do this 
collectively.
    And we also try to look at where the money is going. I 
mean, it is really the title of this hearing. Fraudsters or 
malefactors are opportunistic. They go, like Willie Sutton 
said, where the money is. And so you want to try to at least 
figure out where it is going a little bit in advance so you can 
get there maybe a little bit before, sometimes.
    Senator Carper. If I did not misunderstand, I think Senator 
McCaskill used the word ``pond scum''--not a word we hear every 
day.
    Mr. Leibowitz. It is a legal term of art, actually. 
[Laughter.]
    Senator Carper. Probably a well-chosen word in this case, 
describing some of the folks who are trying to take advantage 
of people with some of this money that is supposed to be used 
for economic recovery. And I think she said there is nothing 
that is more effective, maybe, than cuffing somebody that has 
been behaving, not just badly, but criminally.
    And the other thing that is really important is, as we 
follow the money and money that has ended up where it should 
not be, let us get it back. To the extent that we can get the 
money back, we need to do that. Find and cuff people, that is 
good if they ought to be cuffed. We ought to get the money back 
as much as we can.
    The other thing I wanted to mention, our Governor in 
Delaware; Mike Castle, our Congressman; Ted Kaufman, our 
colleague; and I were down in an area between Wilmington and 
Dover, the other day where Senator Lieberman has driven by a 
time or two when he was running for President in 2004 on the 
campaign trail. His campaign trail came right by this place.
    But we had a major expansion of, of all things, a park-and-
ride, which sits right alongside two major north-south highways 
in Delaware and in a bedroom community place called Middletown. 
We were expanding the park-and-ride. We are putting in bicycle 
paths and pedestrian walkways from some of the neighborhoods 
that people can get to the park-and-ride. We are initiating new 
bus service for the park-and-ride. So it is actually a nice 
multimodal deal.
    The anticipated cost of the project had been about 
$900,000. The price of the project came in at $600,000, and 
what I am starting to notice, and I do not know if my 
colleagues here are noticing it in projects in their States, we 
have a lot of people, a lot of contractors hungry for work and 
anxious to bid. I know Senator Coburn expressed concern about 
cost-plus contracts, but we are finding that, probably better 
than any time I can remember, bids coming in under--way under, 
in some cases--the anticipation. I do not know if others are 
seeing that. Mr. Mihm, any comments on that?
    Mr. Mihm. Yes, Senator Carper. Your experience is 
consistent with what we have seen in other States. The 
transportation officials are telling us the bids are coming in 
anywhere between 5 and 30 percent below what they had 
originally estimated. It does show that the economy is in bad 
shape in the sense that they are able to get that, but it is 
also a good deal in that then they are able to do additional 
infrastructure projects or additional transportation projects 
because of that. And so your experience is, again, consistent 
with what we have seen elsewhere.
    Senator Carper. In this case, it was a Delaware Department 
of Transportation (DelDOT) project, but the extra $300,000 
stays in the State, can be used for other DelDOT projects, that 
is my understanding. Is that correct? All right. Good. Well, 
that is a silver lining in what can otherwise be a rather dark 
cloud.
    Thank you very much. Thanks for your stewardship. Thank you 
for giving the term ``government bureaucrats'' a good name. 
Thank you.
    Chairman Lieberman. Thanks, Senator Carper, very much.
    Senator Collins and I each have a few more questions and so 
we will try to do them as quickly as we can.
    Mr. Nabors, in your opening statement, I would say that you 
veered slightly over into Mr. Leibowitz's territory in what I 
would call some consumer protection, which is with regard to 
the report of the Council of Economic Advisors today, and I was 
interested in it and I appreciate it. I think what you were 
saying is that this first quarterly report of the Council of 
Economic Advisors today on the Stimulus Act will produce 
results that will be greater than the recipient reports that 
come in in October, and I presume in job creation particularly, 
and this will arouse some controversy, so I appreciate your 
raising the point.
    The temptation is to ask which one of the two will be 
right, or to some extent are you saying that they will both be 
right because they are both answering different questions?
    Mr. Nabors. I am saying the latter. Really, what we are 
asking the recipients to tell us is how many direct jobs did 
you create using the Recovery Act funding. What we are asking 
CEA to do is to calculate the economic impact of the Recovery 
Act overall on the economy, and there is more than just direct 
jobs from direct Federal spending involved in that.
    As I had mentioned in the conversation with Senator McCain, 
even something like FMAP is viewed as having an economic 
benefit, because even though it does not directly create a job, 
it does free up money for States to use in other areas and 
those areas are seen as producing jobs, either for law 
enforcement, education, or in other fields.
    So what the CEA report will do is two major things that are 
different from the recipient reporting. One, it will calculate 
a broader base of job creation. It is not just capturing direct 
jobs, but it is capturing direct, indirect, and what we call 
induced jobs, the jobs that are created as a result of 
manufacturers producing things for highway companies that are 
building the roads. All of that will essentially have a trickle 
throughout the entire economy.
    Chairman Lieberman. Yes.
    Mr. Nabors. The second thing that the CEA will be doing is 
when you look at the direct jobs that the recipients will be 
calculating, it is not necessarily clear that they have all of 
the information with regard to jobs that are necessarily 
retained as a result of that money, and that is something that 
is very important in the overall context of the economy, and 
that is something that CEA's report will also be capturing.
    Chairman Lieberman. Right. So I want to move on to one more 
question, but it sounds to me as if you are saying they are 
both right. They are both answering different questions. But is 
it correct to infer that you are also saying that the CEA 
answer is a more comprehensive answer----
    Mr. Nabors. Absolutely.
    Chairman Lieberman [continuing]. And therefore, perhaps 
ultimately more accurate. It is not that the recipients are 
being inaccurate, but they are not calculating all the effects 
of the stimulus--
    Mr. Nabors. It depends on what precise question you are 
asking. If you want to know how many jobs the transportation 
project in your neighborhood created, then the recipient 
reporting----
    Chairman Lieberman. Right.
    Mr. Nabors [continuing]. Is probably more accurate. If you 
want to know what the economic impact of the Recovery Act and 
all of its manifestations are, then the CEA estimate is going 
to be more accurate.
    Chairman Lieberman. That is actually a great transition to 
my next question. I mentioned in my opening statement that in 
meetings I had last week with some building trades people in 
Connecticut, there were great complaints about the fact that 
they just did not see much work, and it was particularly 
perplexing because I had convened a meeting either right before 
the Stimulus Act was adopted or right afterward with the State 
Transportation Department, construction firms, and labor 
unions, and the State said the jobs were permitted and ready to 
go when the money came forward.
    My staff did some background on this, and unfortunately, it 
ended up with a result that was unsettling and dismaying to me 
about my own State, but I want to ask you if it is a broader 
problem. I am going to ask the State of Connecticut to respond 
as well, but here is what I found.
    I am using the language of obligations, money authorized, 
and actual outlays, money actually spent. According to the 
numbers we found, the State of Connecticut received a total of 
$454 million for highway and mass transit through the middle of 
last month. Approximately 59 percent, or $269 million of the 
Stimulus Act funds have been obligated, in this case meaning 
that the project is officially chosen and the Department of 
Transportation has been notified. But here is the stunning 
number to me. Only $506,000 of that has been outlaid in the 
State. Now, in checking, that turns out to be one of the lowest 
payout rates in the country, according to the White House.
    So I wanted to ask you, from your perspective overseeing 
this program, what is happening there? Is this occurring in a 
lot of other States? And if so, what is the Administration 
doing about it, or what can the Administration do about it?
    Mr. Nabors. It is something that we are seeing in a variety 
of different States. I think Connecticut is on the extreme side 
of things. I think there are two issues here. One is that, as I 
had mentioned previously, this is a relatively unique aspect of 
the Highway Transportation Fund and other transportation 
monies, and I think that in part, what has occurred is the 
State transportation offices have gotten used to doing business 
the same way every year with regard to their normal money. If 
you were looking at their annual appropriations, this would be 
a similar type of pattern that you would see.
    What we are doing and what the Vice President is personally 
doing is reaching out directly to the governors and the State 
legislatures and saying, this isn't a normal time. We need to 
make sure that the money is getting out the door and 
stimulating the economy in a much more direct way. And people 
are being responsive to those requests and we will continue to 
make those requests of the States.
    Chairman Lieberman. Thank you. Thanks, Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Mihm, let me follow up on the issue of how we track the 
number of jobs that have been either created or saved by the 
Recovery Act. For most of us, looking at the job creation or 
the job saved numbers is a very important measure of whether 
the stimulus bill is achieving the goals that those of us who 
supported it hoped for. OMB is allowing two different methods 
for counting the jobs created or saved under the bill. The 
first is direct counting. It is obvious what that means. But 
OMB also allows a second option, which is an extrapolation, an 
estimate based on project information.
    My concern about having two different methods of measuring 
job creation or the number of jobs saved is that it could serve 
to undermine the public's confidence in the credibility of the 
numbers. Could you comment on the issue of whether we need two 
different ways, or whether we just need one set or one approach 
to measuring jobs created or saved?
    Mr. Mihm. That is exactly one of the questions we are going 
to be looking at as we look at these recipient reports, is the 
methodologies they used. First, is there transparency in the 
reporting as to which methodology did they use? That is, does a 
user of this understand how they got the number? And then, 
second, as we do our assessments, does it make sense at a high 
level why people would choose one methodology over another? 
That is, is it done for all the right reasons?
    Our approach is, over the next couple of weeks, our State 
teams that are out there in those 16 States and the District 
are sitting down with officials in the States, or the direct 
recipients who will be doing the reporting to 
Federalreporting.gov, and understanding what are the controls 
that you are going to have in place. How are you going to be 
reporting on the jobs? To the extent that you are relying on 
information from sub-recipients, what are you going to be doing 
to assure yourselves that you get good data? That is all before 
the reporting takes place.
    And then after the reports come in, we are going to go back 
out there and say, did you actually do what you said you were 
going to do? And then beyond that, then test for some sub-
recipients. Go down and find out that it flows all the way 
down.
    As I mentioned earlier, our primary focus is going to be 
this time around on transportation programs, highway programs, 
because that is where a lot of the money is already and that is 
also, and my economist friends tell me that is where we can 
expect job impacts to the extent that we are going to see them.
    So that is going to be the focus, but you are asking 
exactly the right question. The transparency on that is going 
to be very important.
    Senator Collins. It is critical. I am very pleased that 
Maine has the opposite situation of Connecticut. We rank first 
in the Nation in the expenditure of stimulus funds for 
transportation projects. And it was very heartening to me to 
meet recently with the owner of a construction company who told 
me that there were 100 people working who otherwise would not 
have been, just on this one particular project.
    But it also became clear to me that this becomes very 
complicated on how you count. If you have a project with 100 
people working on it, that project ends and then there is 
another project that hires 50 of those people, how is that 
measured? Are those 50 new jobs, so the total is 150? Or is 
that a subset of the 100 that was originally counted? It 
becomes difficult, and the problems are obvious as you try to 
measure this, which is why I think it is important that we have 
an agreed-upon measurement system and just stick with it so the 
same standards are used everywhere and we have apples to 
apples.
    Mr. Mihm. On the particular example that you are talking 
about----
    Senator Collins. Yes.
    Mr. Mihm [continuing]. And I will obviously defer to Mr. 
Nabors on this, but OMB has tried to address that by asking 
recipients to report on a full-time equivalent basis rather 
than on a specific job so that we do not get into these----
    Senator Collins. Double-counting----
    Mr. Mihm [continuing]. Types of situations, because the one 
you were describing, an argument could be made, well, did that 
second job then kill 50 jobs, and that is not what we are 
trying to get at.
    Senator Collins. Right.
    Mr. Mihm. And so the full-time equivalent calculation is 
designed to make sure we are comparing apples and apples across 
the board.
    Senator Collins. Thank you.
    Mr. Leibowitz, I want to go back to the issue that Senator 
McCaskill raised about what happens to these con artists. The 
FTC does a terrific job of shutting down the Web sites, doing 
the sweeps, but obviously you cannot cuff them, as she puts it, 
or you cannot prosecute it. You have to refer the case to the 
Justice Department.
    Mr. Leibowitz. Sure.
    Senator Collins. So that raises the question, is the 
Justice Department receptive to pursuing these cases? What you 
always wonder and you always worry about, and I have done a lot 
of work over the decades on consumer fraud issues, the fear is 
that it is viewed as small potatoes and thus a case is never 
brought unless it reaches a certain threshold. And what 
happens, particularly in the Internet age, is that a con artist 
then goes on to set up another Web site and scams the next set 
of victims. That is closed down. The prosecution is declined 
because it is small again, although it is probably not because 
the range of victims is probably far greater than is realized. 
But how receptive is the Justice Department to following 
through on these cases?
    Mr. Leibowitz. Well, you have identified all of the 
problems and you did it without a diatribe, by the way. 
[Laughter.]
    We work with the Justice Department. There is always a 
tension, and I have been on the Commission for 5 years, so 
there is always a tension at the Justice Department between the 
things that are their highest priorities--terrorism, hard-core 
crime--and things like fraud, which sometimes fall through the 
cracks.
    But Attorney General Eric Holder and Lanny Breuer, who is 
the head of the Criminal Division, have both been very 
receptive to the idea of bringing more cases. We also have 
relationships with Assistant U.S. Attorneys and U.S. Attorneys, 
so we go directly to where the malefactors are. And, in fact, 
my recollection is, and I will check this and get back to you, 
that in one of the cases that we brought, Grant Connect, one of 
the malefactors is actually in jail now, or the husband who 
started the scam that was taken over by his wife who is 
actually the former Mrs. Nevada, is in jail.
    So we are pretty good at getting cases to the Justice 
Department and the folks who can put these bad guys in jail. We 
have a Criminal Liaison Unit that has been great at referring 
cases. But it is an ongoing effort. On the other hand, we also 
respect the Justice Department's priorities and so we want to 
be in there as quickly as we can.
    But I will get back to you on that particular case and we 
will keep the effort up. And again, they have been very 
receptive at the Justice Department.
    Senator Collins. Thank you.
    Mr. Devaney, I am not familiar with the story that Senator 
McCaskill brought up this morning. While there are obvious 
issues with Congressional oversight, accountability, and 
transparency with the creation of new czar positions within the 
Executive Office of the President, that is a totally different 
issue from Senate-confirmed individuals who are performing 
important roles who do testify before us regularly. Although I 
am not familiar with the report that Senator McCaskill brought 
up, it is extremely unfair if your position is being lumped 
into the category with these other issues.
    Let me just ask you one quick final question. You brought 
up a difficult issue in passing, and that is you said that the 
board that you are overseeing is not involved in making 
judgments about the quality of projects for which stimulus 
money is spent and that you are focused, if there is a direct 
bar against funding an aquarium, for example, then you would 
come into play, or if there is fraud, obviously, or improper 
payments.
    But that raises a question of whether there is a gap here, 
because there are some projects that have been reported in the 
press, for example, building a guard rail around an evaporated 
lake, that clearly should not be funded. And traditionally, I 
have looked to the GAO or the IG to identify those projects. So 
if it is not your job to raise a red flag on those projects, 
and I understand why you think it may not be, whose job is it?
    Mr. Devaney. Well, we are seeing things like that, and when 
we do, we bring that to the attention of either the agency 
directly, and we have made a lot of referrals directly to the 
agencies, you need to look at this, and also OMB. And 
reflecting back on something Mr. Nabors said earlier, there is 
a very aggressive approach on the part of the Vice President 
and his staff to get right on this. I mean, if they see 
something like that, my observation is, from a distance, they 
have been very aggressive about that.
    I suspect when the data starts to roll in, we will see more 
of that. We will see more questionable projects. And we 
certainly are going to make sure that all that information that 
we get in the data gets out to the right people, gets over to 
the Department so they can look at that project to see if it 
was approved, if it was not approved, and do some watchful 
thinking about whether or not that was a smart thing to do.
    But there are going to be projects that two or three people 
look at in very different ways. Was that a smart bridge or was 
that a bridge to nowhere? There are going to be a lot of 
opinions out there when people see this data, and that is what 
I meant earlier about sort of it is going to be an interesting 
time when people get to see that. We do not want to get 
involved in those sort of subjective judgments and want to be 
very clear about that, but nonetheless, if we see something 
that we think is clearly wrong, we are going to make sure that 
gets sent to the right place.
    Senator Collins. Thank you.
    Mr. Chairman, I just want to thank you for your leadership 
on this set of hearings that we have been holding. As you 
mentioned, this is the fifth oversight hearing, and I also want 
to thank their staff for their work. I particularly want to 
thank the staff for their work on the consumer fraud issues. I 
have long been very interested in those issues, since my days 
in State government and also as Chairman of the Permanent 
Subcommittee on Investigations, and I appreciate your including 
that aspect in this hearing. Thank you.
    Chairman Lieberman. Thank you, Senator Collins. Thank you 
for your leadership in all the efforts that were leading up to 
this hearing, and I appreciate also the work that your staff 
did on the consumer protection part of the hearing and the work 
that both of our staffs did together on the overall hearing.
    I must say, I am proud of the Members of the Committee. I 
thought the questions were thoughtful. There were one or two 
diatribes, but---- [Laughter.]
    This is exactly what we want to do here. My net impression 
is that the Stimulus Act is having a positive effect on the 
economy. It is not perfect. I appreciate the fact, Mr. Nabors, 
that you said the Administration, with the Vice President 
leading the effort, is particularly committed to trying to 
accelerate the spending, and the Vice President in his 
characteristic way is hands on. I thought it was very important 
that you told me that he is on the phone himself calling 
governors in States where the rate of spending, or outlay, 
actual spending, is not what we hoped it would be. And I thank 
you, Mr. Devaney and Mr. Mihm, for the work that you are doing 
to assist us in our oversight.
    This was an extraordinary legislative act with an enormous 
amount of money in it. We did it because of the sense of 
urgency we had about where our economy was heading. We worried 
it was heading over the cliff. We are comforted to feel now 
that it is not anywhere near the cliff, but still there is a 
lot of suffering.
    But the bottom line here is that with this much money being 
spent this quickly, we feel ourselves a sense of accountability 
and responsibility, and you are out there working for us in the 
various ways you are, sharing that responsibility, and it is 
comforting to us. The reward for all your good work is that we 
are probably going to call you back here sometime at the end of 
October or early November, particularly after the Recovery.gov 
gets up and we begin to receive some of those recipient reports 
to see what that tells us about how we are doing.
    Mr. Leibowitz, you added a very important dimension here 
and I appreciate that you were here. You can tell from both the 
public questioning by the Members, and I can tell you from the 
sort of private conversations as people were coming by the 
chair here, that Members are very interested and concerned 
about the scam artists. It has been a long time since I have 
heard the term ``pond scum.'' It strikes me that we are in an 
age where we may soon be referring to ``iPod scums,'' not pond 
scum. [Laughter.]
    In any case, there is real interest in the Committee in 
exploring whether there are any changes in law that can improve 
or strengthen the work that you are doing by way of deterrence, 
by putting more power in the hands of not only the Commission, 
but the Justice Department. So I ask that you work with our 
staff and your staff work with ours to see if there is 
something constructive that we can do in that regard.
    Mr. Leibowitz. We would be delighted to do that. I have had 
discussions with Senator Collins, because she is the Ranking 
Member of our Appropriations Subcommittee. I will get back to 
you with a list, but part of it is growing the agency. We are 
30 percent smaller than we were 30 years ago, even though the 
population has grown from 225 million to 305 million in the 
United States. Part of it is just having a stronger deterrent.
    So one thing that we are interested in and that there is 
growing support for is giving us fining authority. Another is 
giving us easier rulemaking authority. In the Omnibus 
Appropriations Act, Congress gave us the ability to do a 
rulemaking involving mortgages under the Administrative 
Procedure Act rulemaking, which is easier rulemaking. We are 
under something more or less medieval called the Magnuson-Moss 
Act. And because of that, we will do something very useful that 
sets a clear baseline.
    So thank you for that support, and we are going to stay on 
top of this issue and we will get back to you----
    Chairman Lieberman. Good. We will work together on it.
    Thank you all. The record of the hearing will be held open 
for 15 days for any additional questions or statements Members 
would like to submit.
    With that, I thank you very much for your very important 
public service.
    The hearing is adjourned.
    [Whereupon, at 12:22 p.m., the Committee was adjourned.]


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